TaxTMI 
TaxTMI 
2023 (11) TMI 1436
X X X X Extracts X X X X
X X X X Extracts X X X X
....in models of the product are designed with USB-A interface are therefore, meant to be used primarily with computers i.e., laptop and desktop. II. Via lightning connectors: Certain models are designed with lightning connectors and are meant to be used primarily with mobile phones and tablets. III. Through near-field communication ('NFC") or via USB-C: Certain models of the product are equipped with NFC wireless technology. These models can be connected with multiple types of devices including laptops, desktops and mobile phones by touching / tapping with said devices. Further, certain models are designed with USB-C interface and are meant to be used with laptops, tablets and mobile phones supporting such interface. 2.1 Once the product is connected to a device, a three-step verification process is carried out i.e., the product manual 'What's New YubiKey 5 Series Technical Manual' ('the product manual'), for reference to the technical specifications and related information of the product. As per the Applicant's understanding of the technical specifications and usage of the product, relevant explanatory notes, section notes, chapter not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assified as units of heading 8471. (D)) Heading 8471 does not cover the following when presented separately, even if they meet all of the conditions set forth in paragraph (C): (i) printers, copying machines. facsimile machines, whether or not combined: (ii) 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); (iii) loudspeakers and microphones: (iv) television cameras, digital cameras and video camera recorders; (v) monitors and projectors, not incorporating television reception apparatus. (E) Machines incorporating or working in conjunction with an automatic data processing machine and performing a specific function other than data processing are to be classified in the headings appropriate to their respective functions or, failing that, in residual headings" I.2. As evident from the above note, evaluation of sub clause (C) along with sub clauses (D) and (E) is required to determine if the product merits classification under Customs tariff heading 8471. The above clauses have bee....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... with an ADP in different ways. Further, the Applicant also submits that when any equipment is predominantly used with an ADP machine, then also such equipment can be said to be used 'solely or principally' with ADPs. In this regard, reliance is placed on the decision of the Hon'ble Tribunal in the case of CCE Vs. Aveco Viscomm Private Limited. The relevant extract of the decision is reproduced below: "8. 4 It is undisputed that the goods imported by the assessee are Projectors. It is also undisputed that the said projectors have to be used in conjunction with ADPS. The only question is whether these projectors can be used solely or principally with the ADPS. We find that the Adjudication Authority has clearly recorded a categorical finding in his Order-in-Original, that the words solely or principally should mean that the projectors should be predominantly used with ADPS though the possibility of other usage is not ruled out. It is seen from the records that no evidence was produced before the lower authorities to indicate that usage of such goods for any other purpose would disqualify them from being classified under the specific Chapter Heading No. i.e. 8528....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave been evaluated by the Applicant below. I.3 Clause (D) of the Note 6 reads as below: "(D) Heading 8471 does not cover the following when presented separately, even if they meet all of the conditions set forth in paragraph (C): (i) printers, copying machines, facsimile machines, whether or not combined; (ii) 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); (iii) loudspeakers and microphones; (iv) television cameras, digital cameras and video camera recorders; (v) monitors and projectors, not incorporating television reception apparatus. " On review of the items enlisted in the above clause, it is revealed that the product in consideration is not covered therein. Lastly, the applicant has analyzed whether the product falls within the exclusion laid down in Clause (E). Clause (E) - Machines incorporating or working in conjunction with an automatic data processing machine and performing a specific function other than data processing are to be classified in the headings ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... onto the host computer; this eliminates the need for storage of certain security data bases in the computer(s) and thereby reduces the risk of fraud. The functions of the apparatus are controlled by a firmware (a chip containing programme) installed in the product at the manufacturing process. The apparatus has an RS 232C physical interface to a computer. It can also be used in other value-bearing applications such as issuing stored cards and trading stocks and bonds, but in that case the firmware would have to be modified by the manufacturer." In view of the above opinion, it can be reasonably inferred that the product under consideration in this application, merits classification under Tariff Item 8471 8000. Further, the opinion of the HS Committee holds significant persuasive value while determining classification of a product in India. In this regard, the Applicant places reliance on the decision of the Hon'ble Delhi High Court in the case of Manisha Pharma Plasto Pvt. Ltd. Vs. UOI, wherein it has been held that opinion of the HS Committee is ordinarily considered to have a binding force in classification matters. The relevant extract is reproduced below: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....processing machines: Control or adapter units. " The rate of duty will be free. " Further, the Applicant places reliance on another cross ruling issued in 1998, wherein security key, designed to be inserted into a computer's printer socket to control the use of the software, similar to the product under consideration, has been held to be classifiable under Sub-Heading 8471 80 1000 of the HTSUS. The relevant extract is as below: "The applicable subheading for the connector/controller security key will be 8471.80.10. HTS, which provides for control or adapter units. The rate of duty will be free. " It is pertinent to mention that the tariff of countries signatory to the HS Convention are aligned up to 6 digits. Therefore, classification of the product under 8471 80 in the Indian Customs Tariff derives strength from the rulings issued by Customs authorities in USA. In view of the Cross Rulings discussed above, the Applicant understands that the product is a control or adaptor unit, classifiable under Tariff Item 8471 8000 of the Customs Tariff. Thus, basis the rulings and technical opinion discussed above, the product is classifiable under the Tariff Item 8471 8000 of the Custo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....respect of the opinion of HS Committee and US Cross Ruling placed on record by the Applicant, it is felt that the same were delivered almost 2 decades ago and the technology, as well as the Classification criteria have undergone a sea change over these years. The Smart Phone technology was in a nascent stage in 2005 and the YubiKey finds applications in smart phones also. The USB Dongle, Internet Security. Anti-Virus Security key goods are classified under CTH 8523 and some other tariff headings in India, notwithstanding the said Cross Rulings. The US Cross Ruling of 2005 relies upon another Cross Ruling of the year 1998, without analyzing the issue on merits and hence the same deserves to be discarded. Going by the product description, it is clear that Yubikey could not be stated as a Part or Accessory or a Unit of any ADP, be it a Computer, a Tablet or a Smartphone and since a specific function is associated with the product, it has to be classified according to that function or on the media on which it is carried. In this context, a reference for classification under CTH 85176990/85177990 was considered as Network Firewalls and similar products are classified under this heading.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rd, it is submitted that our product 'Yubikey' is identical in usage and functionality as Proxkey. Identical to Prox-key, our product is also an authentication token which makes use of its cryptographic functionality in order to provide security to the device and / or networks, it is connected with. (ii) The key aspects equating the two products. YubiKey and Proxkey are summarized below: a. Both are small, portable cryptogenic hardware tokens with USB interfaces which look similar to USB pen drives: b. Both are not designed for arbitrary data storage and are not capable of running arbitrary computation: c. Both provide cryptographic functionality using the algorithms RSA, DES, SHA, ECC. HMAC, DRBG. etc. d. Both have core functions of providing cryptographic key generation and allowing the keys to be used, but not exported, for specific data processing: authentication, encryption, and digital signatures in order to enable the external system access to applications, computer systems, websites, or to perform digital transactions; e. Both use similar connectivity and communication standards such as USB and ISO 7816, and are ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ferently ... ... ...For this reason alone, it is felt that the subject goods being intended to be used "in conjunction with" ADPs. as claimed by Applicant themselves and as seen from the technical characteristics of the product, and not "in" ADPs takes it out of the ambit of classification under CTH 84718000"; (c) In this regard, the Applicant places reliance on chapter note 6(B) of chapter 84. The chapter note is reproduced below for your reference: "Automatic data processing machines may be in the form of systems consisting of a variable number of separate units." The Applicant submits that the above note clearly establishes that an ADP machine may be in the form of a system consisting of variable number of separate units. Such units along with the machine together constitute an ADP. Therefore, it is not necessary that for a unit to qualify as a unit of ADP, it has to be in-built in the ADP machine. In other words, separate units of ADP, put together, can form a system which can also be referred to as an ADP machine (d) Further, the applicant submits that Chapter Note 6(C) itself states that separately presented units of ADP are also covered un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hines which perform specific functions other than data processing are excluded from the CTH 8471. The relevant extract is reproduced below for reference: "(E) Machines incorporating or working in conjunction with an automatic data processing machine and performing a specific function: In accordance with the provisions of Note 6 (E) to Chapter 84. the following classification principles should be applied in the case of a machine incorporating or working in conjunction with an automatic data processing machine, and performing a specific function : (1) A machine incorporating an automatic data processing machine and performing a specific function other than data processing is classifiable in the heading corresponding to the function of that machine or, in the absence of a specific heading, in a residual heading, and not in heading 84.71. (2) Machines presented with an automatic data processing machine and intended to work in conjunction therewith to perform a specific function other than data processing, are to be classified as follows : the automatic data processing machine must be classified separately in heading 84.71 and the other machines in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... application of Harmonized System Committee decisions dated 30 June 2001".wherein it is recommended that the HS Convention Members shall notify the WCO Secretary General as soon as possible if they are not able to apply a Harmonized System Committee decision. On the basis of list of decisions, which the member countries have notified to the WCO Secretary General, India so far has reported only two of such HS Committee opinions which it is unable to apply. Said decisions are quoted below for reference: (i) Decision taken by the Committee at its 64th Session in September 2019 classifying two dissolved gas analysis (DGA) monitors in heading 90.27 (subheading 9027.20). India had classified the two products in subheading 9027.10; (ii) Decision taken by the Committee at its 62nd Session in September 2018 classifying two types of "communication antennae" in heading 85.17 (subheading 8517.70). India had classified the two products in subheading 8517.62; (j) On the basis of the above, the Applicant wishes to submit that India has not notified its inability to apply the decision of HS committee in the case of cryptographic processor. Therefore, the Applicant believ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (c) The Applicant wishes to submit that a semiconductor device is an electronic component that relies on the electronic properties of a semiconductor material (primarily silicon, germanium, and gallium arsenide, as well as organic semiconductors) for its function. Semiconductor devices are manufactured both as single discrete devices and as integrated circuit (IC) chips Semiconductor devices are typically used by electrical and electronic engineers as part of a more complex electronic device. In contrast to the this, the product, Yubikey is comprised of a collection of components attached to a printed circuit board and surrounded by plastic They are used by end users to perform hardware based cryptographic functions: (d) Therefore, the Applicant wishes to submit that the product, Yubikey, cannot be categorized as a semiconductor device; (e) Further, the Applicant wishes to submit that semiconductor devices are specifically covered under tariff headings 8541 and 8542. In this regard, the Applicant wishes to place reliance on Chapter note 12 of Chapter 85, which defines semi-conductor devices as below: "(a)(i) "Semiconductor devices" are semiconductor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s not perform any actions on or about malicious software. Similarly, anti-virus and internet security device provides no additional layer of security to its users in accessing web / other applications and / or accounts; (m) The Applicant wishes to submit that the product cannot be equated with an antivirus device. By virtue of the function of the product, it merits classification under tariff entry 8471 8000, and cannot be classified under tariff heading 8523; (n) The Applicant wishes to submit that the port authorities are trying to re-characterize the product, without relying upon any commercial and business information, (o) The applicant wishes to submit that it is a well settled principle of classification that an item should be classified in a manner it is understood in trade and / or common parlance: (q) In this regard, the Applicant places reliance on the case of Softsule Ltd. Versus Commissioner of Central Excise, Mumbai-II 2002 (146) E.L.T. 418 (Tn - Mumbai), wherein it was held that: "when such term is not defined, has to be resorted to by the common understanding of the term by the persons who deal with the entities in the tra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s known as a device meant for providing external digital storage. It is used to store data persistently, typically using flash memory. It functions as secondary storage in the hierarchy of computer storage; (iii) Further, the product is an encased device which contain a PCB. and LED indicator, and one core active component - a crypto processor with its own RAM, CPU, interfaces, and limited memory. These components distinguish the product, Yubikey, from that of a regular USB dongle meant only for storage; (iv) As referred above, the applicant wishes to submit that in commercial and common parlance the two products are variedly different and cannot be equated; (v) Further, the applicant wishes to submit that Yubikey is not designed for any arbitrary data storage. The product has a firmware which can neither be removed nor altered. The function of the product being an authentication device is very specific and cannot be regarded as data storage. No information / data can be uploaded onto or downloaded from the product to the device it is connected to; (vi) The product does not have any function which can even remotely be related to flash drive as us....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld also be considered as a part of ADP system. Therefore. the arguments placed by the port authorities to suggest that 'condition 6C(i) is not met' could not establish the fact. Also, the condition laid down in Chapter Note 6(E) which has not been met as per the Port. the explanatory notes has not been read in its completeness. The note inter-alia excludes machines performing a specific function other than data processing. The Applicant has reiterated that one of the primary function of Yubikey is data processing. Once the product is connected to the device, a three-step verification involving establishment of a secure channel, processing of data takes place. The Applicant submitted that the product has one core active component i.e. a crypto processor with its own RAM, CPU, interfaces, and limited memory. The core function is to provide cryptographic key generation by making use of the algorithms like RSA, DES, SHA, ECC, HMAC, DRBG for specific data processing i.e. authentication, encryption, and digital signatures. This enables the external system access to applications, computer systems, websites, or to perform digital transactions. Therefore, as the product Yubikey is p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rganic semiconductors) for its function. Semiconductor devices are manufactured both as single discrete devices and as integrated circuit (IC) chips. Semiconductor devices are typically used by electrical and electronic engineers as part of a more complex electronic device. In contrast to this, the product, Yubikey is comprised of a collection of components attached to a printed circuit board and surrounded by plastic. They are used by end users to perform hardware based cryptographic functions. Therefore, Yubikey, cannot be categorized as a semiconductor device. Further, the applicant has rightly submitted that semiconductor devices are specifically covered under tariff headings 8541 and 8542. As per Chapter note 12 of Chapter 85, which defines semi- conductor devices as below: "(a)(1) "Semiconductor devices" are semiconductor devices, the operation of which depends on variations in resistivity on the application of an electric field or semiconductor- based transducers. Semiconductor devices may also include assembly of plural elements. whether or not equipped with active and passive device ancillary functions. ... ... For the classification of the articles defined in thi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... processor with its own RAM, CPU, interfaces, and limited memory. These components distinguish the product. Yubikey, from that of a regular USB dongle meant only for storage Further, Yubikey is not designed for any arbitrary data storage. The product has a firmware which can neither be removed nor altered. The function of the product being an authentication device is very specific and cannot be regarded as data storage. (viii) The Customs Authority for Advance Ruling. Mumbai, recently in the case of M/s Pagaria Infotech Ventures LLP (the ruling) has ruled on the correct classification of the product, Proxkey (which is identical in functionality and usage as Yubikey, i.e., the product under consideration in this advance ruling application). under tariff entry 8471 8000. In this regard, it is submitted that the product "Yubikey" is identical in usage and functionality as Proxkey, as both provide cryptographic functionality using the algorithms RSA, DES, SHA, ECC, HMAC, DRBG, etc. (ix) The relevant extract of Chapter Notes of 8471 under Customs Tariff Act is as follows: 6.(A) For the purposes of heading 8471, the expression "automatic data processing machine....
X X X X Extracts X X X X
X X X X Extracts X X X X
....N Explanatory Notes are required to be visited. In numerous apex court judgements, the honourable court has admitted importance of HSN Explanatory Notes in deciding the matter of classification under Custom Tariff Act, 1975- HSN Explanatory note for CTH 8471 reads as follows: Subject to the provisions of Notes 6 (1) and (1) to this Chapter, this heading also covers separately presented constituent units of automatic data processing systems. These may be in the form of units having a separate housing or in the form of units not having a separate housing and m-designed to be inserted into a machine constituent units are those defined in Part (A) above and in the following paragraphs, as being parts of a complete system An apparatus can only be classified in this heading as a unit of an automatic data processing system if it.: (a) Performs a data processing function: (b) Meets the following criteria set out in Note 6 (C) to this Chapter: (i) It is of a kind solely or principally used in an automatic data processing system: (ii) It is connectable to the central processing unit either directly or through one or more other units: and ....