Wikipedia defines the term ‘drone’ as an Unmanned Aerial Vehicle (‘UAV’ for short) or unscrewed aerial vehicles. This is an aircraft within any human pilot, crew or passengers on board. They are a component of an Unmanned Aircraft System. UAVs were originally developed in 20th centure for military missions too ‘dull, dirty or dangerous’ for humans. It has a ground based controller and a system of communication with the UAV. They may be operated under remote control by a human operator or with various degree of autonomy such as autopilot assistance up to fully autonomous aircraft that they have no provision for human intervention.
This technology is having many more applications such aerial photography, product deliveries, agriculture, policing and surveillance, infrastructure inspections, science, smuggling and drone racing.
The Indian Customs Tariff or the HSN has no specific mention for drones. The World Customs Organization’s International Convention on the Harmonized Commodity Description and Coding System adopted in Brussels on 14.06.983 has undergone amendments to the nomenclature and appended as an annex to the convention pursuant to the recommendations of 28.06.2019 of the Customs Co-operation Council.
IN RE: M/S. INGRAM MICRO INDIA PRIVATE LIMITED [2021 (8) TMI 317 - AUTHORITY OF ADVANCE RULING CUSTOMS, (MUMBAI)] proposed to import the subject goods (drones) through Air Cargo complexes at Mumbai, Delhi, Chennai and Kolkata. The said company filed an application before the Authority for Advance Ruling seeking advance rulings on the following questions-
- Whether the drones proposed to be imported are classifiable under the Heading 88.02 of the First Schedule to the Customs Tariff Act, 1975?
- If the answer to the above question is in the negative, then what would be the correct classification of the drones?
- What would be the rate of duty applicable on the import of drones?
The applicant proposed to import three types of drones as detailed below-
- Tello drones with or without camera for entertainment and learning purposes to children and adults. This model incorporate camera and has the ability to transmit visuals to the user on the remote controlled device, when in flight. This drone has 4 rotors and weights 87 grams. It can achieve a height of 15 meters and travel distances up to 100 meters. This drone is categorized as ‘Nano’.
- AGRAST 16 drone is used for agricultural spraying over wide areas. It is equipped with Radar and 3D mapping systems, which help calibrate the device during flight and demarcate the area to be covered. These are equipped with six rotors, have an unladen weight of 39.5 kgs. I can achieve a height of 30 meters remaing airborne for 10 minutes and cover distances up to 3 kms. These drones are categorized as ‘Medium’ under CAR norms.
- Mavic 2 drones are used for capturing images while flying and enables users to shoot visuals from various altitudes and angles. These drones have longer flight time and speed to capture a wide range of events from the air. These drones have four rotor, weight 905 – 907 grams, have a flight range of 18 kms can fly up to 31 minutes, and achieve a flight height of 6000 meters. These drones are classified as ‘Micro’ under CAR norms.
The above drones are equipped with re-chargeable batteries and have built in sensors which alert the user about any obstacles which may be present in the flight path. These miniature flying machines can take flight and land vertically and be controlled by smart phones or the remote control devices.
The applicant contended that the above mentioned drones merit classification under Tariff Entry 88.02 attracting basic customs duty @ 3%, social welfare surcharge @ 10%, IGST @ 5% and compensation cess @ 3%. The applicant explained the features and specifications of each of the drone. The applicant pointed out by virtue of section 104 of the Finance Act, 2021 a new Tariff Entry 88.06 would be inserted in Customs Tariff Act with effect from 01.01.2022 to specifically includes drones. The applicant also requested the Authority to give ruling keeping in view of the changes in tariff which would come into force from 01.01.2022.
The Authority for Advance Ruling forwarded the application to the corresponding multiple Principal Commissioners/Commissioners for offering their comments. Only one Commissioner of Customs responded. Others did not respond. The Commissioner of Customs, Chennai contended that the principle function of the product should determine the classification. Both Tello and Mavic drones would merit classification under Chapter 85 of the Tariff.
The applicant conceded that there are 3 entries in Indian Customs Tariff where drones can be classified as below-
- 8525 – TRANSMISSION APPARATUS FOR RADIO-BROADCASTING OR TELEVISION, WHETHER OR NOT INCORPORATION RECEIPTION APPARATUS OR SOUND RECORDING OR REPRODUCING APPARATUS; TELEVISION CAMERAS, DIGITAL CAMERAS AND VIDEO CAMERA RECORDERS;
- 8802 – OTHER AIRCRAFT (FOR EXAMPLE, HELOCOPTERS, AEROPLANES); SPACECRAFT (INCLUDING SATELLITES) AND SUBORBITAL AND SPACECRAFT LAUNCH VEHICLES;
- 9503 - TRICYLES, SCOOTERS, PEDAL CARS AND SIMILAR WHEELED TOYS; DOLLS’ CARRIAGES; DOLLS; OTHER TOYS; REDUCED SIZE (SCALE) MODELS AND SIMILAR RECRATINAL MODELS, WORKING OR NOT, PUZZLES OF ALL KINDS.
The applicant had submitted the product catalogues, the civil aviation requirements for drones, relevant extracts of HSN, the DGFT Notifications of 27.06.2016 and 08.11.2019, relevant extracts from authoritative dictionaries, documents showing drones to be helicopters as held by NASA and European Union in the application for advance ruling.
The Authority for Advance Ruling perused all the material on records and submissions made by the applicant.
The Authority for Advance Ruling observed that Tello drone is aimed at amateurs, both children and adults. Therefore the Tariff Entry 8802 11 00 meant for helicopters of an unladen weight of 2000 kgs. appears to be clearly inapplicable to such drones. On the other hand heading 9503 of the First Schedule to the Customs Tariff Act, 1975 covers toys which include those intended essentially for the amusement of persons (children or adults) eg toy vehicles, trains, aircraft, boats etc., and their accessories as also reduced size models and similar recreational models. Therefore the Authority for Advance Ruling held that the product Tellor drone is rightly classifiable under the Heading 9503.
Next the Authority for Advance Ruling considered AGRITAS 16 drones for classification. It was observed that explanatory notes, the Heading 8802 covers – Heavier than air aircraft, which are mechanically propelled. This group includes aero planes (landplanes, seaplanes and amphibians), gyroplanes (equipped with one or more rotors rotating freely on vertical axes) and helicopters (equipped with one or more mechanically driven motors). Such aircraft may be used for military purposes, the transport of persons or goods or for such activities as training and photography, agricultural work, rescue duties, fire fighting or for meteorological or other scientific purposes.
Considering the above the Authority for Advance Ruling held that agricultural drones merit classification under Heading 8802 and more specifically under 8802 11 00.
Next the Authority for Advance Ruling considered the Mavic 2 drones. The Authority observed that these drones are equipped with powerful cameras with zooming capability and are capable of still as well as video recording facilities. The main function of this machine is aerial photography/video photography. The Authority considered the classification under 8525 under the category of ‘television cameras, digital cameras and video camera recorders. The applicant fairly conceded that a camera mounted on a quadcopter/drone merits classification under Tariff Entry 8525 as a camera on the ground that the eseential feature of the product to be photography/videography and not flying.
The Authority further observed that in this case the Heading 8802 includes within its ambit helicopters and according to the explanatory notes to the HSN such helicopters are used for aerial photography amongst other uses. It is settled law that explanatory notes have considerable persuasive value. The Authority for Advance Ruling ruled that Mavic 2 drones merit classification under sub heading 8802 11 00 of the First Schedule to the Customs Tariff Act, 1975.
The Authority for Advance Ruling further ruled that-
- Tello drones attract basic customs duty @ 60%; IGST @ 18% and Social Welfare Surcharge @ 6% ;
- Both AGRAS T 16 and Mavic 2 attract basic customs duty @ 10%, IGST @ 5% and Social Welfare Surcharge @ 1%. However if any import is made for personal use the rate of IGST would be 28% and it would also attract GST Compensation Cess @ 3%
In regard to the ruling taking into account the changes in tariff which would come into force with effect from 01.01.2022 the Authority for Advance Ruling rejected the same on the plea that advance ruling can be given only in respect of law which is in force.
The drone is an unmanned Areal vehicle /Remotely piloted aircraft. Hope there is no dispute in this definition. Since unmanned aircraft including the one remote-controlled flight specifically fall under HS 8806, this specific entry has to be preferred over the general entry in terms of Rule 3(a) of GIR.
Further, if there is more than one HS code available for one article, (for example Chapter 85 and 88, in terms of rule 3(c), the last HS code is to be preferred i.e. 8806.