TaxTMI 
TaxTMI 
2023 (12) TMI 757
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.... appellant claims to be essentially communication devices with an inbuilt speaker. From the synopsis which was placed by the appellant before the AAR, the common features and functionality attributes of the Echo Family Devices was described as follows: * "Common features of Echo Family Devices: The Echo family devices are communication devices with inbuilt speaker with Alexa Technology built in it. They can perform multiple functions, including answering questions, playing music, reading news/ audiobooks, providing traffic, weather and other real-time information and controlling smart devices. The Subject Echo Devices do not support cellular services. They require an internet connection to perform their functions i.e. they do not have modem incorporated in them. These devices are Bluetooth enabled, which makes it possible to connect such devices with user's phone and/or external speaker. When the devices are connected to the user's phone, they can play audio stored in the user's phone. When they are connected to an external speaker, the audio output is played through the external speaker instead of the internal speaker. (Page No. 13 -14 of AAR No. 5) *....
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....nerally understood. In view of the above and bearing in mind the General Rules for Interpretation [GI Rules] for import tariff as well as Note 3 to Section XVI of the Customs Tariff Act, 1975 [Act], the AAR has come to conclude that they are classifiable as 'smart speakers' under CTH 8518 and more particularly Tariff Entry 8518 22 00. 5. Insofar as Echo Show Devices are concerned, the AAR has taken the view that the primary function of these devices is to act as a display or a monitor and thus enabling the playback of videos from web channels, to display video content during video calling as well as for viewing motion pictures. It thus proceeded to hold that those devices are monitor/display not incorporating television reception apparatus and thus liable to be placed under CTH 8528 and more specifically Tariff Entry 8528 59 00. 6. While evaluating the appropriate classification of Echo Flex, the AAR has accepted the stand of the appellant that it is a communication device and thus classifiable under Tariff Entry 8517 62 90. Proceeding then to consider the Echo Studio Device, the AAR has found it to be in a sense a 'smart speaker' akin to the Echo 4th generation devices and t....
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....ly Echo Show 5, Echo Dot 4th Generation and Echo Dot 4th Generation with clock- are eligible for exemption under Sl. No. 20 of Notification No. 57/2017-Cus dated 30.6.2017?" 11. Appearing in support of the appeal, Mr. Lakshmikumaran addressed the following submissions. Taking us through the impugned order, Mr. Lakshmikumaran pointed out that the AAR had itself captured the various features of the 11 subject devices and understood them in the following terms: "S.No. Device Particulars/Features 1. Echo 4th generation with Model No. L4S3RE Built-in smart home hub (ZigBee and Halo), temperature sensor and an ultrasonic-based presence and motion detection feature, which can be used to detect when a person enters or exists a room. The device is MIMO enabled. 2. Echo Dot 4th generation with Model No. B7W64E Similar features as that of the Echo 4th generation device. However, Echo Dot 4th generation does not support MIMO and the sound quality is comparatively better. 3. Echo Dot 4th Generation with Clock with Model No. B7W644 Similar features as that of the Echo Dot 4th generation. The additional features are that it has an LED display for viewing tim....
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....e is MIMO enabled. 9. Echo Auto - Media Transmission Device with Model No. BP39CN Echo Auto has all the common features, except it does not have a speaker for audio playback. The inbuilt speaker of Echo Auto is meant for use only during initial device set up. The device is meant to be used in a vehicle and allows its users to connect their smartphones to the device. The device uses the data services of the smartphone to access the cloud and perform its functions. It does not have a screen or speakers for playing media. The device is also not MIMO enabled. 10. Echo Link - Audio Receiver with Model No. SXP16E Echo Link can be used for streaming music to any stereo system. A user can connect Echo Link to the stereo and other supported Echo devices to play music throughout the home or in a particular room. The said device is MIMO enabled. 11. Echo Link Amp - Audio Receiver and Amplifier with Model No. K9Y29E Echo Link Amp is similar to Echo Link, except that Echo Link Amp has an additional input amplifier. Therefore, external amplifiers would not be required in case a user is using passive speakers as output speakers. The said device is MIMO enabled." 12. ....
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....lassified in accordance with the terms of the Chapter Heading as well as the relevant Section and Chapter Notes. Our attention was drawn to the Heading of Section XVI whose title appears to suggest its intent to covers all mechanical and electrical appliance/equipment as well as Electrical machinery and equipment falling under Chapters 84 and 85 respectively. Reliance was specifically placed on Note 3 placed in Section XVI which reads as follows: "3. Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines designed for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function." 15. Mr. Lakshmikumaran laid emphasis on Note 3 as providing guidance for the purposes of classification by stipulating that in the case of multi-functional machines, it is the principal function of the machine which would be determinative. In terms of the synopsis which has been submitted for our consideration Mr. Lakshmikumaran while reiterating the versatility of the d....
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....rieve information available in the net like weather, traffic, news, sports updates etc., regenerate such information back to the user in the form of music/speech, and also act as a home automation device to control reconditioners, locks, lights etc., it is clear that the product in question has multiple facets, and therefore, its classification would depend upon identifying the essential character of the device. The product consists of an Apple designed A8 chip, a six-microphone array, a seven-tweeter array, and a high excursion woofer enclosed in a seamless mesh fabric. The device works wirelessly through Wi-Fi or Bluetooth and as already noted it can play music directly from the internet or from another Apple device through AirPlay 2. Through its digital assistant, Siri, a user can give voice commands not only for obtaining the preferred music, but also information like, weather, news etc. Therefore, unlike a mere speaker, which only reproduces sound, the HomePod is a convergence device which is capable of receiving voice commands and processing such commands internally to receive the desired end result, be it music or information, and regenerate such music or information back to....
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....tly held that Echo family devices were classifiable under CTH 8517. The aforesaid determinations have been placed on the record compendiously as Annexures 11, 12 and 13. 20. Mr. Lakshmikumaran also drew our attention to the Circular of the Central Board of Excise & Customs [Board] dated 05 September 2013 which was called upon to evaluate the classification of Bluetooth Wireless Headsets to be used alongside mobiles and cellular phones. It would appear from a reading of the aforesaid Circular that the Board accepted the position that normal headphones when combined with a microphone would only carry audio signals whereas Bluetooth headsets are an active part of a wireless network and which simultaneously receive or transmit voice or data in a wireless setting. On due consideration of the above features of Bluetooth Wireless headsets as distinguished from ordinary headsets, the Board held that they would be classifiable under CTH 8517. We deem it apposite to extract paras 4 & 5 of the Circular hereinbelow: "4. In the instant case, as "Bluetooth Wireless headset for mobile/cell phone", is presented together with a charger, ear hooks and user documentation and put up in a s....
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....ption, conversion and transmission of data. It was the submission of learned counsel that merely because the appellant may have advertised the subject devices as 'smart speakers' on its web portal, would also not be determinative since the name or nomenclature of a product cannot always be accepted to be a valid criterion for classification or for the said test being applied in complete disregard of the functionality of a product. Mr. Lakshmikumaran in this respect sought to draw sustenance from the following decisions: (i) Commissioner of Central Excise Hyderabad v. Sarvotham Care Limited (2015) 13 SCC 498; (ii) Sanghvi Movers Ltd v. Commissioner of Customs 2007 SCC Online CESTAT 79 (as confirmed by the Supreme Court in its order dated 22.04.2016, CA No. 4336/2008). 22. Learned counsel further submitted that the AAR erred in taking the position that if the subject devices were not connected to the internet, they would function as speakers only and this aspect justifying their placement in either CTH 8518 or 8528. According to learned counsel, the view so taken proceeds in ignorance of the indubitable fact that the subject devices are in fact designed, manufact....
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....edium; and (ii) portable bluetooth speakers comprising of an amplifier and loudspeaker(s) with maximum output power not exceeding 40 Watts, having battery as a source of power and capable of wireless connectivity through bluetooth." 25. Mr. Kumar further submitted that the AAR Mumbai's decision relating to Apple Home Pods is of little relevance since as per the scheme of the Customs Act, 1962 [the 1962 Act], advance rulings pronounced by the AAR bind only the concerned applicant and the particular Commissionerate of Customs and therefore no other individual or entity can derive benefit from such expressions of opinion. With respect to the BTI decisions rendered by the competent customs authorities in overseas jurisdictions is concerned, Mr. Kumar submitted that the said decisions do not bind the Indian customs authorities and who are jurisdictionally empowered and obliged to answer the issue of classification independently and bearing in mind our Act as well as the Rules and Regulations framed thereunder. 26. Having noticed the rival submissions addressed, we deem it apposite to briefly notice the conclusions recorded by the AAR and which forms the basis for the pass....
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....ed to be the device falling either under Tariff Entries 8517 62 90 or 8517 69 90 together with the subject products not being MIMO enabled. Since the AAR had already held that the Echo Show 5, Echo Dot 4th Generation and Echo Dot 4th Generation with Clock devices were not classifiable under CTH 8517, it held that they would not be covered by the aforenoted exemption Notification. It, however, accepted the extension of exemption benefits to Echo Auto and Echo Flex since they were not MIMO enabled and more fundamentally since it had already held that they were liable to be placed under CTH 8517. 30. It is pertinent to note that while the AAR did notice the principles of interpretation and which in turn would be guided by the GI Rules, the Chapter Headings and the Notes placed therein, it clearly appears to have failed to test or answer the issue of classification based on the guiding principles as evinced therefrom. The AAR, in our considered opinion, even while attempting to ascertain and discern the principal function of the subject devices appears to have taken an extremely narrow if not myopic view. This, we are constrained to so observe, in light of the following facts. 31....
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....g the classification issue. Therefore, it is to be determined as to whether the product in question is primarily used as a shampoo or it is used as a medicament. To find answer to this question, it is necessary to keep in mind the essential characteristics of the product. 22. When the matter is examined from the aforesaid perspective we come to the conclusion that the respondent is correct in submitting that the essential properties of the product are medicinal in nature. It is clear from the following description: "Pharmacodynamics Ketoconazole, a synthetic imidazole dioxolane derivative has a potent anti-fungal activity against dermatophytes, such as Trichophyton sp. Epidermophyton sp. Microsporum sp. and yeasts, such as candida sp. and Malassezia furfur (Pityrosporumovale). Ketoconazole shampoo rapidly relieves scaling and pruritus, which are usually associated with pityriasis versicolor seborrhoeic dermatitis and pityriasis capitis (dandruff). Pharmacokinetics Percutaneous absorption of Ketoconazole shampoo is negligible since blood levels cannot be detected, even after chronic use. Systematic effects, therefore, are not expected. In....
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....re that appears in the literature supplied by the respondent is the information for the "patient", describing the user of the product as a "patient". It is as under: "Patient information Ketoconazole shampoo 2% Nizral shampoo 2% You have been advised by your doctor to use this shampoo to treat dandruff. This leaflet gives you some information that you should keep in mind while using Nizral shampoo. It also gives some background information on dandruff, which is important for you to deal with it. Please read this leaflet carefully to get the best results from this treatment. Remember that it cannot answer all your questions, and that you should check with your doctor for any further information you may require." 27. The use is suggested only on the advice of a doctor and there is a suggestion that doctor should be consulted for any further information. The respondent has also provided the literature/material showing that dandruff is a disorder which affects the hairy scalp. It is generally triggered by a single-celled organism which is a kind of fungus, with scientific name "PityrosporumOvale". For treatment of this disease, Nizral shampo....
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....s and expressions, unless defined in the statute have to be construed in the sense in which persons dealing with them understand i.e., as per trade understanding and usage. Yet further, there is no fixed test or static parameter for correct classification of a product and it essentially depends on the meaning assigned to it by the persons concerned with it. One of the essential factors for determining whether a product falls under Chapter 30 or not is as to whether the product is understood as a pharmaceutical product in common parlance. However, the quantity of medicament used in a particular product is not a relevant factor because, ordinarily, the extent of use of medical ingredients is very low as a larger use may be harmful for the human body [vide Wockhardt Life Sciences (supra)]. Moreover, as held in Sharma Chemicals (supra), the mere fact that a product is sold across the counters and not under a doctor's prescription, does not by itself lead to a conclusion that it is not a medicament; and in Meghdoot (supra), that a product may be medicinal without having been prescribed by a medical practitioner. It is held by this Court in BPL Pharmaceuticals (supra) and reiterated ....
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....s. As regards the product in question, which is essentially made of Homeopathic medicines which have therapeutic and prophylactic uses, it cannot be said to be carrying only subsidiary pharmaceutical value. Putting it differently, we are satisfied that the product in question, AHAHO, is predominantly of pharmaceutical value and the item of cosmetic therein, i.e., hair oil, is nothing but a medium for appropriate use of that pharmaceutical value. 90. In regard to the above, we find the consideration of this Court in the case of BPL Pharmaceuticals (supra) to be apposite to the questions before us. Therein, this Court was considering a product sold by the assessee under the brand name "Selsun shampoo". This Court found it to be medicament with reference to a variety of tests applied from different angles and after finding that its active ingredient was selenium sulfide. In that context, this Court also indicated that an individual using such product may not be prepared to say that he or she was using a particular compound to get rid of dandruff or other similar diseases but would not hesitate to state that he or she was using a particular brand of shampoo. The observations i....
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....e that nomenclature alone would not constitute a defining basis for the purposes of answering a question of classification. When the aforesaid principles are applied to the facts at hand, it becomes clear that merely because the appellant or others had chosen to describe the products as smart speakers, the same could have neither been accepted as being conclusive of the issue that arose nor could the description of the products detracted from the right of the appellant to urge the AAR to examine the issue of classification by applying the dominant function test. 37. In our considered opinion, the tests evolved by courts in connection with the issue of classification such as nomenclature, common parlance, principal function, primary and incidental purpose are all aids and rules of guidance liable to be cumulatively borne in consideration in order to ascertain the true character of a product. While none of those tests are accorded preeminence, it is ultimately for the authorities to ascertain which of those rules would merit adoption and represent an accurate understanding of the nature of the product. 38. Regard must also be had to the fact that the general tests as evolved by....
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....thin the umbrella entry of machines for the reception, conversion and transmission or regeneration of voice, images or other data. The devices, as we have found above, clearly qualified and fell within the range of products which CTH 8517 covered. 42. CTH 8518, on the other hand stood confined to loudspeakers, headphones and earphones. It brought within its ambit single or multiple loudspeakers whether or not mounted in enclosures, as well as headphones and earphones and other like articles. As would be evident from a plain reading of CTH 8518, the said Tariff Heading does not even purport to deal with apparatus used for transmission or reception of voice, image or other data or a product used for communication in a wired or wireless network. CTH 8528 is also not concerned with the transmission or reception of voice, image or other data or for communication in a wired or wireless network. 43. CTH 8518 was thus confined to loudspeakers per se while CTH 8528 stood basically confined to displays and monitors generally. Those entries cannot be construed as extending their coverage to convergence devices or platforms which were designed and enabled to perform the function of trans....
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.... ascertain the principal function of the seven devices. This was an obligation which was placed not just in terms of Note 3 placed in Section XVI of the First Schedule to the Act but also in light of the principle well settled by numerous precedents rendered on the subject with respect to composite machines and thus clearly contemplating those which could perform multiple functions complementarily or alternatively, to be classified as if consisting only of that component or that machine which constitutes the principal function. Viewed from that angle, we are of the firm opinion that it would be wholly incorrect to describe the devices in question to be mere speakers. 47. As is evident from the explanation of the unique features of the products in question, they were principally designed to act as mediums for reception and transmission of data and could additionally and as an aside also be used as a speaker. However, since these were essentially reception and transmission devices which could analyze data and perform the varied functions noticed above, they were rightly described by the appellant as being communication devices and thus answering the requirement of machines for the....
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....ure which is not done by a chiller. A reading of Tariff Entry 84.15 would show that it is intended to cover only those machines which comprise elements for changing temperature and humidity and chillers would fall outside the purview of the said entry. The function of the chiller is only to chill water or bring it to a very low temperature, and it is the air-handling unit having an independent and distinct function which produces the effect of air conditioning, controlling the temperature and the humidity. The chiller itself does not do any air conditioning as it is designed only to refrigerate or produce chilled water/liquid. 16. Revenue is classifying the impugned chillers as parts of the air-conditioning system as the same are used in central air-conditioning plants of star hotels, airports, hospitals, large office complexes and large establishments. The use of the chillers in the air-conditioning system would not take away the primary or basic function of the chiller which is to produce chilled water by using a refrigerating circuit. Heading 84.18 covers refrigerators, freezers and other refrigerating or freezing equipment. Accordingly, the chillers in question shall f....
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.... made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to (a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable." 16. In addition, Note 3 to Section XVI (which includes both Chapter 84 and Chapter 85) reads as follows: "3. Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines designed for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function." 17. It is not in dispute that the multifunctional machines in question, Xerox Regal 5799 has about 85% of its total parts and components along with manufacturing cost allocated to printing, as does 74% of the Xerox XD155df model. This clearly shows that the printing function emerges as the principal function and gives the multifunctional machines its essential character. Having such a nature, it also clearly meets the th....
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....roducts have come to be classified globally, they would also be germane and relevant to answer questions of classification when raised. 52. The Board's view, as expressed, albeit in respect of Bluetooth Wireless Headsets, also duly acknowledges the function of products which are principally concerned with transmission or reception of voice, images and data. The Circular took due notice of the fact that while ordinary Headphones carry only audio signals, Bluetooth Wireless Headsets are designed to be active participants in a networked environment and thus enabled to receive and transmit voice and data across a wireless network. The view, as expressed by the Board in the aforenoted Circular dated 05 September 2013 is a reiteration of the special characteristics of devices which are designed to perform multiple functions in a wired or wireless network including the reception and transmission of voice and data and thus transcending the limits of traditional products which only reproduce or play back content. 53. We also find ourselves unable to accept the contention of Mr. Kumar based on the exemption Notification dated 01 February 2022 issued by the Ministry of Finance classifyi....
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....akers, the same would not justify us recognising their primordial attribute to be that of a speaker alone. 56. Since for reasons aforenoted, we have found ourselves unable to uphold the view taken by the AAR denying the classification of Echo Show 5, Echo Dot 4th Generation and Echo Dot 4th generation with Clock under CTH 8517 and more particularly Tariff Entry 8517 62 90/8517 69 90, the denial of exemption benefits to those products would also not sustain. 57. We, consequently answer the questions of law as framed by holding that the eleven devices are correctly classifiable under CTH 8517 and more particularly under Tariff Entry 8517 62 90. Echo Show 5, Echo Dot 4th Generation and Echo Dot 4th Generation with Clock are held eligible to claim exemptions in accordance with SI. No. 20 of the Notification dated 30 June 2017, as amended vide Notification dated 01 February 2021. The order of the AAR insofar as it deals with the classification of Echo Flex, Echo Auto, Echo Link and Echo Link Amp is affirmed. 58. In light of the answers as rendered, we set aside the impugned order of the AAR dated 20 July 2021 to the extent indicated above. ============= Document 1 Model No....
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....es on page no. 15 of AAR No. 5) 8517 62 90 (Page no. 31-40 of Notification AAR No. 5) (Office of Principal Commissioner of Customs, New Delhi has concurred) Sl. No. 20 of No. 57/2017 (page no. 40 of AAR No. 5) 72° 68° Page No. 73 of AAR No. 5 Echo family device: Additional feature includes & display screen for accessing visual information panels or for video calling (Additional features on page no. 16 of AAR No. 5) 8517 62 90 (Page no. 31-40 of AAR No. 5) (Office of Principal Commissioner of Customs, New Delhi has concurred) Document 2 T4E4AT 02T2V3 Echo Show 10 Echo Studio Page No. 75 of AAR No. 5 Echo family device: Additional features include 10.1 inches display screen, motorized fixed base which enables it to pan and tilt the screen (hands free viewability with 140 degrees viewing angle) (Additional features on page no. 16 of AAR No. 5) 8517 62 90 (Page no. 31-40 of AAR No. 5) (Office of Principal Commissioner of Customs, New Delhi has concurred) muntonge speaker Echo family device: Additional features include temperatu....