2025 (5) TMI 1928 - AT - Customs

Re-classification of CISCO UC/IP phones of different models - absence of video camera in the phones as disqualification for use in video conferencing - fitment within one or another description of goods in the First Schedule to Customs Tariff Act 1975 - HELD THAT - Doubtlessly and by stretching of the expressions upon ignoring images and other data which are placed together with voice and with and as conjunction this could encompass telephones but it is not the case of the lower authorities that such discard of conjunctive expression is possible. Consequently with telephone sets clearly segregated as a sub-classification of the heading all and any type of phone finds fitment only against tariff item within the sub-headings below the sub-classification. On both these counts the tariff item proposed by the proper officer fails the test of the General Rules for Interpretation of the Tariff appended to Customs Tariff Act 1975 and has to be discarded. Admittedly goods that were not phones with discussion about phones merely in the light of benefit of exemption notification claimed and in which suggestion that intent of exclusions thereto enumerating inter alia VoIP phones did not extend to other equipment using VoIP was repelled by the Tribunal. The Tribunal was adjudging eligibility of claim that video conference equipment was exempted and not exclusions of phones from tariff item 8517 1810 of First Schedule to Customs Tariff Act 1975. It was patently erroneous for the lower authorities to be guided by the said decision as binding legal precedent. In the light of the above errors in the findings the impugned orders are set aside to allow the appeals.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

- Whether the impugned goods described as 'CISCO UC/IP' phones are correctly classifiable under tariff item 8517 18 10 (push button type telephone sets) or whether they fall under tariff items relating to 'video conferencing equipment' or other apparatus for transmission/reception of voice, images or other data under tariff item 8517 62 or 8517 69 90 of the First Schedule to the Customs Tariff Act, 1975.

- Whether the absence of a video camera in the impugned goods disqualifies them from classification as 'video conferencing equipment' and supports classification as telephone sets.

- Whether reliance on previous Tribunal decisions, particularly in Ingram Micro India Pvt Ltd, for classification of VoIP devices as 'video conferencing equipment' is applicable to the impugned goods.

- The proper application of the General Rules for Interpretation (GRI) of the Customs Tariff Act, 1975, including the burden of proof on the Revenue to establish classification and the primacy of headings and Section/Chapter Notes over exemption notifications.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Correct classification of the impugned goods under Customs Tariff Act, 1975

Relevant legal framework and precedents: The classification is governed by the First Schedule to the Customs Tariff Act, 1975, particularly heading 8517 relating to telephone sets and other apparatus for transmission or reception of voice, images or other data. The General Rules for Interpretation of the Tariff (GRI) appended to the Act provide the methodology for classification, with Rule 1 emphasizing the primacy of the terms of the headings and any relevant Section or Chapter Notes.

Precedents include the Supreme Court decisions in Hindustan Ferodo Ltd and HPL Chemicals Ltd, which establish that the burden of proof to establish classification lies on the Revenue, and that classification must be supported by evidence. The Tribunal decisions in Ingram Micro India Pvt Ltd and Jyoti Overseas also provide guidance on classification of IP phones and related devices.

Court's interpretation and reasoning: The Tribunal found that the impugned goods are 'push button' telephones without any evidence of an inbuilt video camera. The classification dispute concerns whether these goods fall under subheading 8517 18 10 (push button telephone sets) or under subheadings 8517 62 or 8517 69 90, which relate to machines for reception, conversion, and transmission of voice, images and other data, including switching and routing apparatus, but exclude telephone sets.

The Tribunal emphasized that the tariff structure clearly segregates 'telephone sets' as a distinct sub-classification and that the impugned goods, being telephones, must be classified under the relevant telephone sets subheading. The lower authorities' classification under the residual heading 8517 62 was rejected because it ignored the conjunctive expression 'voice, images and other data' and disregarded the clear segregation of telephone sets in the tariff schedule.

Key evidence and findings: There was no record of the impugned goods having an inbuilt video camera, which is a critical feature distinguishing video conferencing equipment from telephone sets. The goods were identified as 'push button' telephones adapted for VoIP but without video capability.

Application of law to facts: Applying Rule 1 of the GRI, the Tribunal held that classification must be determined according to the terms of the headings and relevant notes. Since the goods fit within the description of 'telephone sets' under heading 8517 and subheading 8517 18 10, they cannot be classified under headings meant for 'other apparatus' or 'video conferencing equipment' which exclude telephone sets.

Treatment of competing arguments: The Revenue argued that the goods should be classified as video conferencing equipment under tariff item 8517 6990 or 8517 6290, relying on the Tribunal's decision in Ingram Micro India Pvt Ltd. The appellants contended that the absence of a video camera disqualified the goods from being video conferencing equipment and that the Tribunal's decision in Ingram Micro India (Delhi Bench) supported classification as telephone sets.

The Tribunal distinguished the Ingram Micro decision relied upon by the Revenue, noting that it concerned equipment that was not 'phones' and was adjudicating exemption claims rather than classification. The Tribunal held that reliance on that decision for classification was erroneous.

Conclusions: The impugned goods are correctly classifiable under tariff item 8517 18 10 as push button telephone sets. The classification under residual headings related to video conferencing equipment is incorrect and must be discarded.

Issue 2: Burden of proof and application of General Rules for Interpretation

Relevant legal framework and precedents: The Supreme Court decisions in Hindustan Ferodo Ltd and HPL Chemicals Ltd establish that the burden of proof for classification lies on the Revenue. The General Rules for Interpretation of the Tariff (GRI), particularly Rule 1, provide that classification shall be determined according to the terms of the headings and any relevant Section or Chapter Notes.

Court's interpretation and reasoning: The Tribunal reiterated that the Revenue must discharge the burden of proof to justify classification under a particular heading different from that claimed by the importer. The Revenue failed to produce evidence to establish that the impugned goods fall outside the description of telephone sets.

The Tribunal emphasized that classification cannot be influenced by exemption notifications or claims but must be strictly in accordance with the terms of the tariff headings and notes.

Key evidence and findings: The Revenue did not provide evidence to support classification under the residual headings and relied on an erroneous application of prior decisions and exemption claims.

Application of law to facts: The Tribunal applied Rule 1 of the GRI to determine classification based on the express terms of the tariff headings and notes, rejecting attempts to classify the goods under headings inconsistent with their description.

Treatment of competing arguments: The appellants challenged the Revenue's reliance on exemption notifications for classification. The Tribunal agreed with the appellants, holding that classification is independent of exemption notifications.

Conclusions: The burden of proof to establish classification rests with the Revenue, which was not discharged. Classification must be based on the terms of the headings and notes, not exemption notifications.

Issue 3: Applicability and interpretation of precedent decisions

Relevant legal framework and precedents: The Tribunal considered its own decisions in Ingram Micro India Pvt Ltd (both Mumbai and Delhi Benches), Jyoti Overseas, and Supreme Court rulings on classification principles.

Court's interpretation and reasoning: The Tribunal distinguished the Ingram Micro Mumbai decision relied upon by the Revenue, noting it dealt with equipment other than phones and was focused on exemption eligibility rather than classification. The Tribunal found that the Delhi Bench decision in Ingram Micro India Pvt Ltd, which held that phones without video cameras are not video conferencing equipment, was more relevant and consistent with the facts.

The Tribunal also relied on the principle that classification must follow the tariff headings and notes, and that later numerical subheadings are to be adopted only after the first applicable subheading is excluded, as per Rule 2(b) and Rule 3 of the GRI.

Key evidence and findings: The impugned goods lacked video camera capability, a key distinguishing feature in the precedent decisions differentiating phones from video conferencing equipment.

Application of law to facts: The Tribunal applied the reasoning from the Delhi Bench decision and Supreme Court precedents to reject the Revenue's classification and uphold the appellants' classification claim.

Treatment of competing arguments: The Revenue's reliance on the Mumbai Bench Ingram Micro decision was rejected as misplaced and not binding for classification of the impugned goods.

Conclusions: The Tribunal held that the impugned goods are not video conferencing equipment and should be classified as telephone sets, following the relevant precedents.

3. SIGNIFICANT HOLDINGS

- "The impugned goods are 'push button' telephones and there is nothing on record about inbuilt video camera."

- "The tariff item proposed by the 'proper officer' fails the test of the General Rules for Interpretation of the Tariff appended to Customs Tariff Act, 1975 and has to be discarded."

- "Classification of goods has to be done in accordance with the terms of Headings and any relative Section or Chapter Note. The classification is not required to be done in terms of any Exemption Notification."

- "The burden of proof is squarely upon the Revenue. If the Department intends to classify the goods under a particular heading or sub-heading different from that claimed by the assessee, the Department has to adduce proper evidence and discharge the burden of proof."

- "Only those goods which are not covered by the first single dash entry are covered under the second dash entry... The description of goods under the first single dash of Tariff Item 8517 is telephone sets, including telephones for cellular networks or for other wireless networks."

- "Applying the Rules of Interpretation particularly Rule 1, we are of the opinion that the reasoning of the Tribunal in Jyoti Overseas is unexceptionable."

- "The decision in Ingram Micro India Pvt Ltd was about goods that were not 'phones' and was adjudging eligibility of claim that 'video conference equipment' was exempted and not exclusions of 'phones' from tariff item 8517 1810."

- "The impugned orders are set aside to allow the appeals."

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