IP phones classified under telephony tariff despite internet features, Revenue's alternative classification rejected

CESTAT Mumbai ruled on classification of imported IP phones across different categories. The tribunal held that IP audio phones and IP audio conference phones should be classified under CTI 8517 1810, not CTI 8517 6990 as claimed by Revenue, since their principal function remains telephony despite additional internet connectivity features. The essential nature as communication devices for speech/audio signals was not altered by data transmission capabilities through internet, Ethernet, or WiFi. Wireless IP phones were classified under CTI 8517 1290. The Commissioner (Appeals) order was set aside and appeal allowed, favoring the appellant's classification position over Revenue's claims.

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Issues Involved:
1. Classification of different categories of "IP Phones" imported by the appellants.
2. Appropriate levy of customs duty based on the classification.

Summary:

Issue 1: Classification of Different Categories of "IP Phones"

1.1 The appellants imported various models of IP Phones, including IP Audio Phones, IP Audio Conference Phones, Wireless IP Phones, and IP Video Phones. The dispute arose over the classification of these products under the Customs Tariff Act. The appellants sought classification under CTI 8517 1810 for IP Audio Phones and IP Audio Conference Phones, and under CTI 8517 1210 for Wireless IP Phones, claiming 'NIL' Basic Customs Duty (BCD). The department classified all imported goods under CTI 8517 6990, assessing a 20% BCD. The Commissioner of Customs (Appeals) upheld the department's classification under CTI 8517 6290/8517 6990.

1.2 The learned Commissioner (Appeals) concluded that VoIP Phones and Video Conferencing Systems are similar in functionality, both transmitting data over IP using the same protocols, and thus cannot be classified under CTH 8517 1810. The decision relied on a previous Tribunal decision in the case of M/s Ingram Micro India Pvt. Ltd.

Issue 2: Appropriate Levy of Customs Duty

2.1 The appellants argued that IP Phones are 'telephones of push button type' and should be classified under sub-Heading 8517.18 (Tariff Item 8517 1810) with a "Nil or Free of duty" tariff rate. They emphasized that the use of newer technologies or protocols does not alter the basic character of the imported goods as telephones. They supported their claim with a decision from the Principal Bench of the Tribunal in a similar case.

2.2 The appellants accepted the classification of IP Video Phones under CTI 8517 6990 and did not appeal this classification. Their appeal before the Tribunal covered 48 Bills of Entry for IP Audio Phones, IP Audio Conference Phones, and Wireless IP Phones.

2.3 The appellants also noted that CISCO, the manufacturer of the IP Phones, had started importing the phones directly due to various reasons.

Tribunal's Analysis and Decision:

3. The Tribunal examined the relevant legal provisions, including Section 12 of the Customs Act, 1962, the Customs Tariff Act, 1975, and the General Rules for Interpretation (GIR) of the First Schedule to the Customs Tariff Act. The classification of goods is determined by the terms of the headings, Section or Chapter Notes, and the General Rules for Interpretation.

4. The Tribunal noted that the classification dispute lies within the sub-headings and respective tariff items under Chapter Heading 8517. The appellants and the department agreed on the Chapter and Heading level but differed on the sub-headings.

5. The Tribunal found that the IP Audio Phones and IP Audio Conference Phones are essentially 'telephone sets' with various communication features. The Wireless IP Phones work on wireless networks. The Tribunal concluded that the principal function of these devices remains 'telephony' and classified them under CTI 8517 1810 and CTI 8517 1210, respectively.

6. The Tribunal referred to the Harmonized Commodity Description and Coding System (HS) Explanatory Notes, which describe the scope of goods under Heading 8517. The Tribunal found that the IP Phones fit the description of 'telephone sets' rather than 'other apparatus.'

7. The Tribunal also considered previous decisions, including the Hon'ble Supreme Court's judgment in Moorco (India) Ltd. Vs. Collector of Customs, Madras, and a Co-ordinate Bench decision in the case of Cisco Commerce (I) Pvt. Ltd., which supported the classification of IP Phones under CTI 8517 1810.

8. The Tribunal distinguished the present case from a previous decision involving video conferencing systems, noting that the products in question were different.

Conclusion:

The Tribunal concluded that the appropriate classification for IP Audio Phones and IP Audio Conference Phones is under CTI 8517 1810, and for Wireless IP Phones under CTI 8517 1210. The impugned order by the learned Commissioner (Appeals) was set aside, and the appeal was allowed in favor of the appellants.

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