TaxTMI 
TaxTMI 
2024 (9) TMI 1906
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....cing major telecom network service providers in India and is providing scalable optical platforms for their back-end core networks. The Applicant providing different technology solutions to the customers. Amongst the various telecom products imported by the Applicant, Small Form Factor Pluggable (SFP, XFP, QSFP, CFP) (hereinafter together referred as "SFP/subject goods") is one of the products. The Applicant is importing SFPs and selling the same domestically to its customers. The Applicant is presently importing the subject goods at Chennai port and Delhi port. 1.1 The SFP is a compact, pluggable transceiver module. SFP interface on a networking hardware is a modular, plug-and-play, slot, for a variable, media-specific transceiver to connect a fibre optic cable (refer the picture below): 1.2 The SFP modules are used in multiple telecom equipment's using different technologies to facilitate high-speed connections between switches and networking equipment. Before we proceed to understand in detail on the functioning of the SFP's, it is important to first provide an overview of the equipment's, within which such SFPs are used. 1.3 The various telecom equipment....
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.... cable - SFP's cannot function on its own and will need to be inserted into the respect card slots so as to provide the necessary functionality of the transmission, reception and conversion. 191-70/ - Applicant is of a considered opinion that the SFPs are an important element & part of its networking solutions. The different models of SFPs presently being imported (the same is explained in later part) by the Applicant. 1.9 Accordingly, the Applicant have been importing the subject goods under CTH 85176290 and had been discharging BCD @ 20%. Further, the classification is adopted globally by the Applicant. Copy of import documentation including BoE, commercial invoice, packing list etc. in relation to SFPs mentioned above is enclosed herewith and marked as Annexure "B". Judgment in the case of Reliance Jio Infocomm and IBM India Private Limited. 1.10 In July 2022, the classification of SFPs and entitlement of exemption under Notification No. 24/2005-Cus dated 1st March 2005 became the subject matter of litigation before the Hon'ble Mumbai CESTAT in the case of Commissioner of Customs - Mumbai (Air Cargo Import) Vs. Reliance Jio Infocomm Limit....
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....for exemption under Notification No. 57/2017-Cus dated 30th June 2017. 1.14 The Department was of the view that SFP falls under the category of 'Optical transport equipment'. The Department concluded the same by referring to the description of the imported item 'Transceiver' incorporates transmitter and receiver and thus it is an equipment for optical transportation therefore, the benefit of S. No. 20 of exemption notification denied to the appellant. 1.15 The Hon'ble CESTAT vide order no. A/85426/2024 dated 22nd April 2024 held that before reaching to the conclusion whether the concessional duty rate benefit is available or not it is pertinent to check whether the imported goods is classifiable under 85176290 in terms of the First Schedule to the Customs Tariff and then it should be checked whether the imported goods are covered under the inclusion or exclusion category of the exemption entry. 1.16 In this regard, the Hon'ble CESTAT analysed the tariff entry 8517 and held that since the impugned goods are neither telephone sets under (i), nor an apparatus/independent machine for transmission or reception of voice, images or other data, und....
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.... in multiple telecom equipment using different technologies (explained above) to facilitate high-speed connections between switches and networking equipment. The cards which are inserted within the equipment, have SFP slots, within which such SFPs are to be inserted, which then enables the transmission/reception & conversion of data/voice or images. 1.20 SFP's thus provides interface to connect equipment's over multiple networks via optical fiber cable and enables the transmission, conversion and reception of the data/voice/images. The structure of SFP module is just like a pen drive having ports on both the ends, where one end of the SFP is inserted to the card and other end connected with the optic fibre cable/ copper cable. 1.21 On the end where cable is attached, there are two ports in the SFP transceivers one is transmitter (Tx) and other is Receiver (Rx). SFP transceivers receives electric data and converts it to optic data which is transferred through the optical fibre/ copper cable attached to the Tx port of the SFP on one end and to the Rx port of the SFP connected to another switch or equipment where receives optical or electrical signals from the network me....
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....ype. Multimode SFP is different from single-mode SFP, which works with single- mode fibers and can transmit longer distances 3 Upstream/ uplink SFP The SFP module which is receiving the data from the equipment is known as upstream or uplink SFP module. 4 Downstream/ downlink SFP The SFP downlink port is used for connecting to end devices which receives the data through fiber optic cable. 5 Bi-Di (Bi- directional) SFP Bi-Directional technology means a communication mode that processes data in both directions (send and receive) over optical fiber, which allows transceiver modules to transmit and receive data to/from the interconnected network devices via a single optical fiber. 6 Grey and Color SFP Grey transceivers are standard transceivers that transmit and receive data at one or two wavelengths, while color transceivers are those that send and receive data at multiple wavelengths. 1.26 Different versions of SFP module based on the Form factor (i.e., size) of the SFP are as follows: a. Category 1: SFP/SFP+/SFP 28/ SFP 56/etc SFP modules are compact optical transceivers used primarily for data communication applications. They ....
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....#39;ble Supreme Court in Wood Craft Products Limited [1995 (77) ELT 23 (SC)] [Collector of Central Excise vs. Bakelite Hylam /1997 (91) E.L.T. 13 (S.C.)] Collector of Customs vs. Business Forms Ltd. [(2005) 7 SCC 143] Holostick India Ltd. vs. Commissioner of Central Excise [(2015) 7 SCC 401]] 1.28 In view of the above, it becomes important to analyse the GRI to determine the proper classification under the CTA. Rule 1 of GRI provides that the classification shall be determined in line with the following which needs to be followed in sequential order: a. terms of the headings and any relative Section or Chapter Notes; and b. according to the remaining rules of interpretation, provided the headings or notes do not provide otherwise. The relevant text of Rule 1 of the GRI is extracted below for reference: "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 .... " 1.29 Further, the Section or Chapter Notes and sub-no....
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.... classification of any item under second single dash of heading 8517 or double dash 851762 is inter alia that - a. The product in question should be an apparatus or machine; and b. The Product in question should be capable of transmission, conversion and/or reception of voice, images or other data 1.32 Analysis of the expression "apparatus" and "machine": The Applicant submits that the meaning of the expression "apparatus" and "machine" as used in the heading has not been defined in the Customs Law. Accordingly, reference needs be made to the judicial precedents and dictionary meanings in this regard. The Hon'ble Supreme Court in the case of Commissioner of Customs, New Delhi vs. C-Net Communication (I) Pvt. Ltd., 2007 (216) ELT337 (S.C.) while deciding the question of whether the 'Signal Decoder' would fall under heading 8528 having description as 'reception apparatus for television' or not, has analysed the term apparatus. 1.33 The Applicant submits that the ratio decidendi in the above ruling is that an apparatus should have the capability to perform its designated function when the current is passing through and not necessarily in its....
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....t a perusal of the aforesaid judgements and the dictionary meaning of the term apparatus and machine accentuate the following key parameters of apparatus/machines: - Whether or not the equipment can perform the specific function, is to be considered when current is passing through and not when it is in its inanimate state. - The functionality of the equipment/apparatus is to be considered once the same is connected with the power cord and the associated other equipment. It is in such a state it needs to be considered that whether the apparatus/equipment can perform the desired function of receiving the transmission signal or not and not at the time of individual import & standalone basis - Apparatus means an instrument or device meant for specific function. - Machine shall mean a mechanical/electrical device capable of performing the specific work/function. 1.36 The Applicant submits that in view of the above, it now becomes important to determine whether the SFP imported by it can be said to be covered within the term "apparatus"/ "machine": - the primary functionality of SFP is transmission/reception/conversion of data. Thus, SFP ha....
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....riff Schedule of the United States (HTSUS), which provides for "Telephone sets ...; other apparatus for the transmission or reception of voice, images or other data ...: Other apparatus for transmission or reception of voice, images or other data ...: Machines for the reception, conversion and transmission or regeneration of voice, images or other data ...: Other." The rate of duty will be Free." b. Similarly, on the application of Cisco Systems the US custom authority ruled vide ruling no. N301717 dated 4th December 2018 that the tariff classification of small form-factor pluggable transceivers is 8517.62.0090. The relevant extract of the ruling is extracted below for your reference: "The applicable subheading for the small form-factor pluggable (SFP) transceiver (part # GLC-SX-MMD) and the direct attach passive SFP+ cable assembly (part # SFP-H10GB-CU3M) will be 8517.62.0090, HTSUS, which provides for "Telephone sets ...; other apparatus for the transmission or reception of voice, images or other data ...: Other apparatus for transmission or reception of voice, images or other data ...: Machines for the reception, conversion and transmission or regeneration of v....
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....SFPs became a debatable issue. The Applicant has summarised its submission above on classification of SPFs under CTH 85176290 and have also summarised the ruling of the Mumbai Tribunal on classification of SFP, which has held the classification of SFP's under CTH 8517 79 90. The aforesaid facts and rulings have led to 2 different HSN of the same products and thus there exist an ambiguity on the HSN classification of the said goods. 1.43 In this regard, the Applicant requests your good office to provide an advance ruling basis the above facts and interpretation to resolve the above issue. 1.44 Lastly, the Applicant has summarized its response to the question raised by the instant application for ready reference: a. What would be the correct classification of Small Form Factor Pluggable (SFP)? The aforementioned SFP merit classification under CTH 85176290 inasmuch as the same are apparatus/machine capable of transmission, conversion and reception of signals. 1.45 The Applicant humbly prays this Hon'ble Authority that an advance ruling in the above facts and interpretation is granted to it pursuant to providing a reasonable opportunity of being heard....
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....ed 'SFP transceiver' or 'SFP Optical transceiver'. The copper SFP module is also called the fiber port convert copper port module. It is a module that supports hot plugging and is in the form of SFP. Since the transmission distance of the copper module is 10-30m or 80-100m, the copper SFP module is mainly used for short-distance data transmission. On the other hand, an optical interface module, also known as an optical transceiver or optical module, is a device that converts electrical signals into optical signals and vice versa. It is used in optical communication systems to transmit and receive data over fiber optic cables. 2.4.3 Furthermore, whether used in Gigabit Passive Optical Network (GPON), or Wavelength Division Multiplexing (WDM) or Internet Protocol (IP) or Mobile Network, the function of SFP Optical Transceiver is to receive the data in optical form and converts the signal in to electrical signal or vice versa i.e., transmission, conversion and reception. It is an independent element which has definitive function in the networking and is equipment in itself. The submissions made by the Applicant in the instant application with regard to the definitio....
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.... b. Entry-phone systems c. Videophones d. of Apparatus for telegraphic communication other than facsimile machines heading 8443 e. Telephonic or Telegraphic Switching Apparatus f. Transmitting and receiving apparatus for radio-telephony and radio- telegraphy g. Other communication apparatus Further, Explanatory Notes under para (G), include the following as Other Communication Apparatus: i. Network interface cards (e.g., Ethernet interface cards) ii. Modems (combined modulators-demodulators) iii. Routers, bridges, hubs, repeaters and channel to channel adaptors iv. Multiplexers and related line equipment (e.g., transmitters, receivers or electro-optical converters) v. Codecs (data compressors/decompressors) which have the capability of transmission and reception of digital information vi. Pulse to tone converters which convert pulse dialled signals to tone signals. 2.5.2 As discussed in the preceding paras, the function of SFP Optical Transceiver is to receive the data in electrical form and converts the signal in to optical signal or vice versa, and therefore, the SFP ....
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....on of voice, images or other data, including switching and routing apparatus 8517 6210 --- PLCC equipment 8517 6220 --- Voice frequency telegraphy 8517 6230 --- Modems (modulators-demodulators) for xDSL based Wireline Telephony 8517 6250 --- Digital loop carrier system (DLC) 8517 6260 --- Synchronous digital hierarchy system (SDH) 8517 6270 --- Multiplexers, statistical multiplexers for PDH based Wireline Telephony 8517 6290 --- Other 2.5.5 The subject item, SFP Transceiver is not specifically covered under any of the tariff items from 8517 6210 to 8517 6270: Therefore, the same has to be classified under the residual entry 'other' under the tariff item 8517 6290. Benefit of Notification no. 57/2017-Cus 2.6 The Notification no. 57/2017-cus dated 30.06.2017 provides for concessional rate of Basic Customs Duty upon import of certain items. SI.no 20 of the subject notification provides for exclusion of the benefit of the notification for the following items: SI. No. Chapter Heading or Sub-heading or tariff item or Description of goods Standard Rate 20 8517 6290 or 8517 6990 All goods o....
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....lier been dealt with by the CESTAT, Mumbai vide its final order no. A/85669-85671/2022 dated 29.07.2022. The subject CESTAT order in the case of Reliance Jio Infocomm Ltd. v/s Commissioner of Customs-Mumbai (Air Cargo Import) held that SFP Transceiver is a part classifiable under CTI 85177090. The Departmental appeal against the Tribunal's order was dismissed and the Tribunal's order was upheld by the Hon'ble Supreme Court in the judgment rendered on 27.02.2023 in Civil Appeal No.s 1475- 1477 of 2023. 2.7.1 The subject CESTAT, Mumbai order dated 29.07.2022 was adjudged in favour of the importer by stating that the Commissioner (Appeals), Hyderabad vide order dated 25.01.2017 has held that SFPs are classifiable as parts under CTH 8517 70; that the said order of the Commissioner (Appeals), Hyderabad was accepted by the Department and no appeal was preferred; that it was not open to the Department to take a different stand on the same issue in Mumbai and Hyderabad. 2.7.2 However, it is to be noted that the genesis to the CESTAT, Mumbai order dated 29.07.2022 is the appeals order dated 25.01.2017 of Commissioner (Appeals), Hyderabad. The subject CESTAT, Mumbai order, ....
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.... (i) Departmental Appeal by ACC, Mumbai: Order in Original No. CCGSS/11/2023-24 Adj.(I) ACC dated 14.08.2023 was passed by the Commissioner of Customs, Import, ACC, Mumbai, in the case of M/s Reliance Jio Infocomm Ltd. Vide the said order, adjudicating authority held the SFP classifiable under sub-heading 8517.70 as parts. However, on review, the Committee of Chief Commissioners directed the AA to file an appeal against the order. An appeal has accordingly been preferred before CESTAT, Mumbai and the same is pending. (ii) Party appeal before CESTAT, Chennai: SFP transceiver Modules imported by M/s. Savex Technologies Pvt Ltd vide Bill of Entry no. 6183721 dated 09.11.2021 were self-classified by the importer under CTI 85177090 as parts. The classification declared by the importer was rejected by the Assessing Authority and the goods were reclassified under CTI 85176290. The party filed an appeal before the Commissioner (Appeals), Chennai, wherein they agreed with the classification 85176290 but contended that they were eligible for the duty exemption vide serial number 20 of the notification 57/2017 Cus dated 30.06.2017, as amended. Commissioner (Appeals), relying on the ....
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....ins two ports, one is transmitter (Tx) and other is Receiver (Rx). SFP transceivers receives electric data and converts it to optic data which is transferred through the optical fibre/ copper cable attached to the Tx port of the SFP on one end and to the Rx port of the SFP connected to another switch or equipment where receives optical or electrical signals from the network medium and converts them back into electrical data signals for the host device 4.1 The Applicant further submits as below w.r.t the functionality and features of the SFP modules: (i) SFP's provides interface to connect equipment's over multiple networks via optical fiber cable; (ii) SFP's cannot function on its own and will need to be inserted into the respect card slots so as to provide the necessary functionality of the transmission, reception and conversion; (iii) Cards which are based on SFP, will not be able to complete its function unless an SFP is attached to such cards. Thus, SFP's are an essential part of such cards; (iv) SFP's are of different configurations as per the requirement of the equipment; (v) SPF modules as imported by the Ap....
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....ation tests are conducted. Once these tests are successfully completed, the Nokia-customized optical pluggable transceivers are approved at the Customer Pilot (CP) level and are formally released to customers and their networks. The Applicant submits that to meet these custom requirements of the Applicant, vendors must undertake firmware optimization and reprogramming. The said customisation is a primary requirement to make SFP compatible for interactions with Nokia's Network Element (NE) software to ensure seamless integration with hosting devices and to fulfil the business requirements of Nokia's Optics BU. Below are some key specifications of the Applicant's SFPs, which highlight the essential features and customization details that ensure their optimal performance and integration within Nokia's network systems: 4.2 EEPROM Customization: The Applicant's SFPs feature customized EEPROMs that contain detailed information specific to Nokia. The Applicant -defined Remote Inventory (RI) is programmed/written inside the EEPROM of the pluggable modules, including Nokia Part Code, Nokia Name, CLEI code, Nokia serial number, Acronym, ICS, together with the Transceiv....
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....r both transmit (Tx) and receive (Rx) paths to maintain high-speed data integrity; 16.4 Alarm and warning thresholds for optical power (Tx/Rx) and supply voltage, aligned with end-of-life (EOL) parameters to monitor and maintain optimal performance; 16.5 Digital Diagnostic Monitoring (DDM) accuracy definitions that enable hosts to detect when specific values fall outside of normal operating limits. SFPs to initially power up in a low power mode as specified by Nokia and remain in this mode until the host system enables a higher power mode, following Nokia's sequential procedure for full operational capability. 4.9 In reference to the above the Applicant wants to submit that the most compelling proof of these customizations is the Exception Lists (EL). We sign exception lists with each supplier. These documents clearly outline any deviations from standard specifications, including waivers on beginning of life (BOL) margins and adjustments to meet Nokia's specific needs. Additionally, the designed with the vendors detail the EEPROM customizations, including the EEPROM dumps, which further illustrate how our SFPs are adapted to our requirements. The sam....
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.... (ii) The inability to operate independently of the main machine; (iii) The SPFs are unique to the applicant's telecom equipment [para 24 above of the Vodafone judgement] 4.13 Applicant submits that the SFPs in question do fulfill all of the above criteria's, based on which the Hon'ble Courts/CESTAT'S have held that SFPs are rightly classifiable as a part under CTH 8517 79 90 rather than as equipment [CTH 8517 62 90]. 4.14 In light of the aforementioned decisions and the coverage of our SFP's within the same, the Applicant now wishes to classify the SFPs under CTH 8517 79 90 for future clearances & has also made this application before this authority to seek clarification on the appropriate classification. 4.15 As the Applicant believes that consistent application of these precedents is crucial for ensuring fair and equitable treatment. Furthermore, the Applicant remains committed to follow the correct classification and complying with all relevant regulations. In addition to the above, as discussed during the personal hearing, Nokia is classifying the SFPs under CTH HSN 8517 79 [i.e., as parts and not machine/apparatus] in several AS....
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....ther data, including apparatus for communication in a wired or wireless network (such as a local or wide area network): - Parts: 5.3 Under the heading 8517, the first single dash covers Telephones, hence the subject item is not covered. The second single dash covers apparatus for transmission in a wired or wireless network. SFP Transceiver is a data conversion equipment that works in a wired or wireless network. To obtain further clarity on this, reference is taken from the HSN Explanatory Notes 2022. According to the Explanatory Notes, the '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)' include following groups of goods: Base stations; Entry-phone systems; Videophones; Apparatus for telegraphic communication other than facsimile machines of heading 8443; Telephonic or Telegraphic Switching Apparatus; Transmitting and receiving apparatus for radio-telephony and radio-telegraphy; Other communication apparatus. Further, Explanatory Notes under para (G), include the following as Other Communication Apparatus: Network interface....
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....on and transmission or regeneration of voice, images or other data, including switching and routing apparatus". It has been concluded in the preceding paragraphs that SFP Transceiver is an apparatus for converting data (conversion data from optical to electrical and vice versa). Since, 'conversion' is specifically covered under the 2nd double dash, this item would be undisputedly classifiable under the subheading 8517 62. Further, the items covered under the subheading 8517 62 are given below: Subheading/ Tariff Item Dash Description 8512 62 -- Machines for the reception, conversion and transmission or regeneration of voice, images or other data, including switching and routing apparatus 8517 6210 --- PLCC equipment 8517 6220 --- Voice frequency telegraphy 8517 6230 --- Modems (modulators-demodulators) for xDSL based Wireline Telephony 8517 6250 --- Digital loop carrier system (DLC) 8517 6260 --- Synchronous digital hierarchy system (SDH) 8517 6270 --- Multiplexers, statistical multiplexers for PDH based Wireline Telephony 8517 6290 --- Other 5.7 The subject item, SFP Transceiver is thus ....
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.... evident that the Optical Transceivers, being capable of converting electrical signal to optical signal and vice versa are equipped to handle and be a part of Optical Transport Network, and therefore would be termed as Optical Transport Equipment / Optical Transport Network products. Hence, the subject item, SFP Transceiver is not eligible for the benefit of the Notification no. 57/2017-cus Sl.no. 20. In light of the above, the item SFP Transceiver is appropriately classifiable under the Customs Tariff Item 8517 6290 with rate of BCD @20%. 5.9 Looking at the legal interpretations by higher forums, the issue of classification of SFP transceivers has earlier been dealt with by the CESTAT, Mumbai vide its final order no. A/85669-85671/2022 dated 29.07.2022 in the case of Reliance Jio Infocomm Ltd. v/s Commissioner of Customs-Mumbai (Air Cargo Import), wherein, it was held that SFP Transceiver is a part classifiable under CTI 85177090. The Departmental appeal against the Tribunal's order was dismissed and the Tribunal's order was upheld by the Hon'ble Supreme Court in the judgment rendered on 27.02.2023 in Civil Appeal No.s 1475- 1477 of 2023. 5.9.1 The subject CESTAT....
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.... about GPON: Gigabit Passive 1. Optical Network GPON is a fiber-optic networking technology that provides high-speed data transmission over optical fibres. It enables the delivery of multiple services such as data, voice, and video. Use of SFP Module in GPON (GPON) system (eg: OLT/ONT) OPON ONU/ONT SE? Module Internet Split Switch OLT PC PC One of the components/network hardware of GPON network is OLT equipment. OLT often contains multiple SFP ports, which allows OLTs to transmit data to network switch connecting the other end of the fiber optic cables by converting the electric signal into optic signal. The SFP module of the network switch receives the data and converts the signal into electric signal which enable scalability and allows network operators to incrementally increase OLT capacity or modify network configurations without replacing entire OLT units Wavelength Division 2. Brief about WDM: WDM is a technology which multiplexes a number of optical carrier signals onto a single optical fiber by using different wavelengths of laser light. Multiplexing (eg: DWDM and CWDM) Use of SFP module in WDM: CH28 SFF I....