TaxTMI 
TaxTMI 
2025 (1) TMI 1756
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....ble CAAR for classification of "Pearl Assembly Module Subassembly" ('product'), which shall be exported by the Applicant to the various importers based in India. I. Overview of the Pearl Assembly Module Subassembly exported by the Applicant. 1.1. The term 'Pearl Assembly Module Subassembly' is the component of the mobile phone which houses the front-facing camera subassembly along with a Face Recognition (Face ID) module. This subassembly is designed primarily for capturing images / videos from the front end of the mobile phone and is typically located on the front of the device, above the display. 1.2. In the present case, the Pearl Assembly Module comprises of the following sub-components: a. Front Camera Subassembly - It comprises of lens, infrared cut filter ('IRCF') and image sensor. The lens captures light from the scene and directs it to IRCF which filters out infrared light. The light is then focused on the Image Sensor which captures a picture. The front camera on a mobile phone is mainly used for taking selfies, making video calls, and enabling augmented reality features. b. Face Recognition Module - It comprises of user ....
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....ons such as image capturing, video recording and enables Face ID and Face Time Applications. Thus, it can be summarized that the Pearl Assembly Module performs multiple functions by integrating two separate components within itself. II. The Applicant qualifies as an 'applicant' under Section 28E(c) of the Customs Act, 1962 ('Customs Acť'). 1.10. Section 28E(c) of the Customs Act reads as under: "(c). "applicant" means any person - (i) holding a valid Importer-exporter Code Number granted under section 7 of the Foreign Trade (Development and Regulation) Act, 1992; or (ii) exporting any goods to India; or (iii) with a justifiable cause to the satisfaction of the Authority, who makes an application for advance ruling under section 28H;" 1.11. As discussed earlier, the Applicant will be exporting the inputs and parts of mobile phone (Pearl Assembly Module Subassembly) to various importers in India. Thus, the Applicant is rightly covered under the definition of 'applicant' as provided under Section 28E(c)(ii) of the Customs Act for making this application. III. Question raised in the applicati....
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....estion raised in the application is already pending before any forum. Relevant extracts of the provision are reproduced below: "28I. Procedure on receipt of application. - (1) ... (2) The Authority may, after examining the application and the records called for, by order, either allow or reject the application: Provided that the Authority shall not allow the application where the question raised in the application is - (a) already pending in the applicant's case before any officer of customs, the Appellate Tribunal or any Court, (b) the same as in a matter already decided by the Appellate Tribunal or any Court." 1.16. The Applicant submits that questions raised in the application (as in Annexure II) are not already pending before any officer of Customs, the Appellate Tribunal or any Court, to the best of our knowledge. Further, the questions raised in the present case, have not already been decided by the Appellate Tribunal or any court in the Applicant's case. 1.17. Accordingly, the present application should not be considered as pending before any Court as neither the show cause notice has been issued nor the bil....
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....r consideration should be classified in accordance with the terms of the Headings and any relevant Section or Chapter Notes. These Section or Chapter Notes and Sub-Notes give detailed explanation as to the scope and ambit of the respective Sections and Chapters. These Notes have been given statutory backing and have been incorporated at the beginning of each Section/ Chapter. For ready reference, Rule 1 is extracted herein below: "Classification of goods in this Schedule shall be governed by the following principles: 1. The titles of Sections, Chapters and Sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions ..." 1.26. The Larger Bench of the Hon'ble Tribunal in the matter of Saurashtra Chemical, Porbandar Vs. Collector of Customs, [1986 (23) E.L.T. 283 (Tri. - LB)] had held that the tariffs must be interpreted in the light of relevant Section and Chapter Notes which are statutorily binding like the Headings themselves. Thu....
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....o the GRI and corresponding Chapter Notes and Section Notes. 1.31. In the light of above facts, to analyze the classification of above product following needs to be kept in mind: a General Rules of Interpretation (GIR). b. Heading/sub-heading of the First Schedule in conjunction with Section/Chapter/ Explanatory notes. c. Principal function of the subject good. 1.32. Hence, upon application of GIR 1, since the Pearl Assembly Module Subassembly is used in mobile phone, the Applicant submits that the most specific entry at the four-digit level under which the Pearl Assembly Module Subassembly may be classified is CTH 8517 which covers "Telephone sets, including telephones for cellular networks or for other wireless networks; other apparatus for the transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network), other than transmission or reception apparatus of heading 8443, 8525, 8527 or 8528". 1.33. However, before proceeding to analyze classification of the Pearl Assembly Module Subassembly under CTH 8517, it is pertinent to discuss classificati....
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.... from other sources or for reproducing images already recorded." 1.36. Thus, upon perusal of the above extract, a digital camera is one which in addition to the camera lenses, inter alia comprises of the following: a. Internal storage device for recording and storing of the images and videos; b. May include Analogue/ digital converter (ADC); c. May include Output terminal to send images and / or video to units of automatic data processing machines, printers, televisions or other viewing machines; d. Optical viewfinder or a liquid crystal display (LCD), or both. 1.37. In the present case, as discussed in the facts in Annexure I above, the Front Camera Subassembly of the Pearl Assembly Module Subassembly is responsible for capturing images / videos from the front end of the mobile phone. This subassembly in its as imported condition does not comprise of features such as internal storage, analogue/ digital converter (ADC), output terminal, optical viewfinder and or a liquid crystal display (LCD). Thus, the subassembly is not capable of independent functioning. 1.38. Since, the Front Camera Subassembly in its as imported condition does not h....
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....orage, optical viewfinder, output terminal, LCD etc., the subassembly cannot be considered to be covered within the scope of "digital camera" under CTH 8525. Further, as discussed above, since the subassembly is incapable of independent function and is used solely and principally with mobile phone, it can be considered as parts of mobile phone (as was done in the aforementioned judgments, i.e., the web cams were considered to be parts of automatic data processing machines), and hence are more appropriately classifiable under CTH 8517. Detailed discussion in this regard has been done in the ensuing paragraphs. 1.42. Further, it is also pertinent to highlight that the Pearl Assembly Module Subassembly also comprise of another subassembly i.e., the Face Recognition Module, which even though works in conjunction with the Front Camera Subassembly of the Pearl Assembly Module Subassembly, the same also carries out separate functions from that of the Front Camera Subassembly. Hence, presence of additional sub-component having a separate identifiable function also excludes the product from the purview of CTH 8525. 1.43. Thus, in view of the above discussion, it is submitted that the ....
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....Chapter 85 is governed in terms of rules provided in Section Note 2 of Section XVI. Section Note 2 is sub-divided in 3 sub-rules. Each of the sub-rule must be sequentially applied. For ease of reference, Section Note 2 has been extracted as follows: "2. Subject to Note 1 to this Section, Note 1 to Chapter 84 and to Note 1 to Chapter 85, parts of machines (not being parts of the articles of heading 8484, 8544, 8545, 8546 or 8547) are to be classified according to the following rules: (a) parts which are goods included in any of the headings of Chapter 84 or 85 (other than headings 8409, 8431, 8448, 8466, 8473, 8485, 8503, 8522, 8529, 8538 and 8548) are in all cases to be classified in their respective headings; (b) other parts, if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading (including a machine of heading 8479 or 8543) are to be classified with the machines of that kind or in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as appropriate. However, parts which are equally suitable for use principally with the goods of headings 8517 and 8525 to 8528 are to ....
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....ed from the purview of Section Note 2 (a). 1.53. Therefore, reference must be made to Section Note 2 (b) which covers other parts which are suitable for use solely or principally with a particular machine. In the present case, the Pearl Assembly Module Subassembly exported by the Applicant is a tailor made for the manufacture of mobile phones and therefore capable of use solely and principally with mobile phones. Further, the subassembly is incapable of standalone function and required connection with other components of the mobile phone to fully operative. Hence it is submitted that the Pearl Assembly Module Subassembly fulfills the condition of sole and principal test as enunciated in Section Note 2 (b). Accordingly, the Pearl Assembly Module Subassembly is covered under Section Note 2 (b) and is to be classified under CTH 8517 along with mobile phone. II. Pearl Assembly Module Subassembly satisfies the twin test of what is considered to be a "part" 1.54. In order to buttress its stand, the Applicant places reliance on the judgment of the Hon'ble CESTAT Delhi in the matter of M/s. Vodafone Idea Limited Vs. Principal Commissioner of Customs (Imports), Final Order No. ....
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....classified under CTH 8517, in terms of GIR 1 read with Section Note 2 (b) to Section Note XVI. 1.58. Coming to classification at eight-digit level under CTH 8517, as the Pearl Assembly Module Subassembly is not covered under any specific entry at eight-digit level, it will be classified under the residuary entry under CTH 8517, i.e., under CTH 8517 79 90 which reads as "Telephone sets, including telephones for cellular networks or for other wireless networks; other apparatus for the transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network), other than transmission or reception apparatus of heading 8443, 8525, 8527 or 8528- Parts-Other --- Other". QUESTION 2: APPLICABILITY OF EXEMPTION UNDER S. NO. 6J OF THE NOTIFICATION NO. 57/2017 1.59. The Applicant will be exporting the Pearl Assembly Module Subassembly to the third-party manufacturers of mobile phones and accordingly wishes to seek clarity on eligibility of availing exemption benefit under Sr. No. 6J of Notification No. 57/2017. 1.60. The Central Government in terms of Section 25(1) of the Customs Act has issu....
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....dditional submissions without prejudice to the submissions made herein, at the time of hearing of the said application. 1.67. The Applicant also craves leave to produce and provide any such further additional documents in support of its submissions at the time of hearing and before conclusion of the proceedings. Comments of the Port Commissionerate 2. As per the provision of CAAR Regulation, 2021, the complete application of the applicant was provided to the concerned Custom Port, and requested to furnish the requisite comments in the instant matter. The port authority furnished its comments as follows :- 2.1. Para 3(i) Eligibility in terms of Section 28E(c) of the Customs Act, 1962: Eligible; 2.2. Para 3(ii) Proviso (1)(a) of Section 28I (2) of the Customs Act, 1962: No application from the Applicant pending before this office; Proviso (1)(b) of Section 28I (2) of the Customs Act, 1962: Not known. 2.3. Para 3(iii) Claim of the applicant regarding the nature of their activity: Correct. 2.4. Para 3(iv) Comments on the merits of the question raised: As in the succeeding paras; 2.5. Para 3(v) Whether the question raised is pending before any o....
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.... 79 90 All goods for use in manufacture of cellular mobile phone 10% 1 2.11. As the item under consideration is digital camera module used in the manufacturing of the cellular mobile phone, the notification benefit under this notification is more appropriately applicable under the SI. No. 5A. For reference, the same is reproduced below: Sr.no. Chapter or Heading or Sub-heading or tariff item Description of goods Standard rate Condition No. 5A 8517 79 90, 8525 89 00, 8529 90 90 Camera module for use in manufacture of cellular mobile phone 10% 1 2.12. In light of the above, the item "Pearl Assembly Module Subassembly" ('product)" is appropriately classifiable under the tariff item 85258900 and is eligible for the benefit of notification no. 57/2017-cus dated 30.06.2017 SI.no. 5A (as amended) with effective rate of BCD being 10%. Personal Hearing 3 The personal hearing in the matter was conducted on 16.01.2025 wherein the port authorities and the authorized representative of the applicant attended the same. During the personal hearing, the authorized representative reaffirmed the points that had already been presented in the appli....
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....ne a. The term "parts" has been defined as essential components without which the whole cannot function [CCE, Delhi Vs. Insulation Electrical (P) Ltd. & Electrosteel Castings Vs. CCE]. b. In the present case, the Pearl Assembly Module Subassembly is designed not only for capturing images and videos but also for enhancing user experience through hands-free applications like phone unlocking and payment authentication (e.g., Apple Pay). This makes it an essential component of modern mobile phones, contributing significantly to their functionality and user experience. Therefore, t the Pearl Assembly Module Subassembly should be classified as a "part" of the mobile phone. c. Further, as the Pearl Assembly Module Subassembly is suitable only for mobile phones and is not classifiable under any other heading of Chapter 84 or 85, it should be classified as part of the mobile phone under CTH 8517, in terms of Section Note 2 (b). Pearl Assembly Module Subassembly satisfies the twin test of what is considered to be a "part" d. The Pearl Assembly Module Subassembly qualifies as a "part" of a mobile phone based on the twin test established by the Hon&....
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.... position. Further, no sound reasoning has been provided for classifying this product as a "digital camera". c. The Port has failed to consider the fact that this subassembly comprises of two components which although work in conjunction they carry out different functions. One is a front camera while the other is a face recognition module. d. Additionally, the Concerned Port has not addressed our submissions concerning why the product does not meet the definition of a digital camera under CTH 8525. The Concerned Port has not considered the fact that the subassembly lacks certain essential parts such as analogue / digital converter, output device, etc. and that the subassembly can only function in conjunction with other components of mobile phone. Given the functionality of the Pearl Assembly Module Subassembly as an integral component of a mobile phone, it should be covered under the relevant provisions of CTH 8525 for digital cameras. e. Therefore, we submit that the classification proposed by Concerned Port is incorrect, and we respectfully submit that the subassembly be classified as "parts" under CTH 8517, i.e., CTH 8517 79 90 and the benefit under Se....
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....out varied functions such as image capturing, video recording and enables Face ID and Face Time Applications. Thus, it can be summarized that the Pearl Assembly Module performs multiple functions by integrating two separate components within itself. 5.4 Classification of goods covered under the Customs Tariff is done as per the General Rules of Interpretation ('GIR'). GIR 1 to 5 lay down the principles for determining classification of goods under a specific Heading whereas GIR 6 is applicable if the objective is to determine the classification of goods in the Sub-headings of a Heading. GIR 1 stipulates that the goods under consideration should be classified in accordance with the terms of the Headings and any relevant Section or Chapter Notes. These Section or Chapter Notes and Sub-Notes give detailed explanation as to the scope and ambit of the respective Sections and Chapters. These Notes have been given statutory backing and have been incorporated at the beginning of each Section/ Chapter. For ready reference, Rule 1 is extracted herein below: "Classification of goods in this Schedule shall be governed by the following principles: 3. The titles of S....
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....nd corresponding Chapter Notes and Section Notes. 5.8 Hence, upon application of GIR 1, since the Pearl Assembly Module Subassembly is used in mobile phone, the most specific entry at the four-digit level under which the Pearl Assembly Module Subassembly may be classified is CTH 8517 which covers "Telephone sets, including telephones for cellular networks or for other wireless networks; other apparatus for the transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network), other than transmission or reception apparatus of heading 8443, 8525, 8527 or 8528". However, before proceeding to analyze classification of the Pearl Assembly Module Subassembly under CTH 8517, it is pertinent to discuss classification of the product under CTH 8525 which covers similar items viz. digital cameras. Accordingly, to justify its stand that the product merits classification under CTH 8517. The Pearl Assembly Module Subassembly is for specific use with mobile phone. 5.9 At the outset, the applicant has rightly submitted that the Pearl Assembly Module Subassembly exported are specific for use ....
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....her viewing machines; d. Optical viewfinder or a liquid crystal display (LCD), or both. 5.12 In the present case, as discussed in the facts in Annexure I above, the Front Camera Subassembly of the Pearl Assembly Module Subassembly is responsible for capturing images/videos from the front end of the mobile phone. This subassembly in its as imported condition does not comprise of features such as internal storage, analogue/ digital converter (ADC), output terminal, optical viewfinder and or a liquid crystal display (LCD). Thus, the subassembly is not capable of independent functioning. Since, the Front Camera Subassembly in its as imported condition does not have a storage, therefore, the images captured by the subassembly have to be stored within the mobile phone's internal storage. Similarly, to display the images or video captured by the sub- assembly, the sub-assembly has to interact with the display module of the mobile phone. Thus, for the sub-assembly to function effectively i.e., from capturing images and videos to processing them, it needs to work in conjunction with other components of the mobile phone. Hence, in view of the above, it is submitted that the s....
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....his regard has been done in the ensuing paragraphs. 5.16 Further, it is also pertinent to highlight that the Pearl Assembly Module Subassembly also comprise of another subassembly i.e., the Face Recognition Module, which even though works in conjunction with the Front Camera Subassembly of the Pearl Assembly Module Subassembly, the same also carries out separate functions from that of the Front Camera Subassembly. Hence, presence of additional sub-component having a separate identifiable function also excludes the product from the purview of CTH 8525. 5.17 Thus, in view of the above discussion, it is submitted that the Pearl Assembly Module Subassembly is not covered within the scope of CTH 8525 as "digital camera". The Pearl Assembly Module Subassembly is a "part" of mobile phone in terms of Section Note 2 (b) to Section XVI .- III. The Pearl Assembly Module Subassembly is a "part" of mobile phone. 5.18 CTH 8517 inter alia covers "smartphones and its parts". In view of the above, it becomes pertinent to analyze whether the Pearl Assembly Module Subassembly can be considered as a 'part' of mobile phones. The term "parts" has not been defined in the HSN Explanato....
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.... machine of heading 8479 or 8543) are to be classified with the machines of that kind or in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as appropriate. However, parts which are equally suitable for use principally with the goods of headings 8517 and 8525 to 8528 are to be classified in heading 8517, and parts which are suitable for use solely or principally with the goods of heading 8524 are to be classified in heading 8529; (c) all other parts are to be classified in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as appropriate or, failing that, in heading 8485 or 8548." 5.22 Upon perusal of the aforementioned note, the classification of 'parts' under Chapter 84 and Chapter 85 is to be done in the following manner: i. As per Section Note 2 (a), the parts for which there is a specific entry under Chapter 84 or 85 [other than a few entries listed in Section Note 2 (a)] have to be classified in their respective headings; ii. As per Section Note 2 (b), all parts other than those covered in Section Note 2 (a), which are suitable for use solely or principally with a particular kind of machine, or with a nu....
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....est of what is considered to be a "part" 5.25 Reliance is placed on the judgment of the Hon'ble CESTAT Delhi in the matter of M/s. Vodafone Idea Limited Vs. Principal Commissioner of Customs (Imports), Final Order No. 50874 / 2022 dated 20.09.2022 wherein the Hon'ble bench held that an item will not be considered as a 'part' if, on a standalone basis, it can be considered as an article classifiable under its own appropriate heading. To this effect, it laid down the twin test for determining whether an item is classifiable under the separate heading or as part of the main machine: a) Test 1: No separate identifiable function of its own. b) Test 2: Incapable of operating independently of the main machine. 5.26 Therefore, where an article does not satisfy both the conditions of the twin test, it cannot be classified under a separate heading as an apparatus falling under its own appropriate heading and the same shall merit classification as parts of the main machine. 5.27 In view of the twin test laid above, it is submitted that even though the subassembly has a separate identifiable function of capturing images and videos and face recognition....
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....red under CTH 8517 79 90. This exemption is available subject to compliance with the procedure set out in the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 [as amended by Customs (Import of Goods at Concessional Rate of Duty or for Specified End Use) Rules, 2022] ('IGCR Rules 2022'). For ease of reference, the aforementioned entry under Notification No. 57/2017 has been extracted as follows: Sr. No. Chapter or Heading or Sub-heading or tariff item Description of goods Standard rate Condition No. (1) (2) (3) (4) (5) 6J 8517 79 90 All goods for use in manufacture of cellular mobile phone 10% 1 Thus, by virtue of Sr. No. 6J, BCD at the rate of 10% is applicable for all goods for use in manufacture of cellular mobile phone" which are covered under CTH 8517 79 90. 5.30 In view of the above, considering that the Pearl Assembly Module Subassembly which is to be exported by the Applicant is classifiable under CTH 8517 79 90 and is an essential part of mobile phone, as discussed above, the benefit of concessional rate of duty under Sr. No. 6J should be available at the time the import of Pearl Assembly Module Su....