CESTAT Allows Customs Duty Exemption on Samsung India on Imported IC-Codecs [Read Order]

In a ruling on the case of Samsung India Ltd, the Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) allowed customs duty exemption on imported IC-Codecs.

The appellant assessee is in the business of manufacturing and selling mobile phones and tablet computers. In connection with its manufacturing activities, the appellant imports 'Integrated Circuits-Codecs' for use in the manufacture of mobile phones and tablets. The goods are integrated circuits, which function as codecs, i.e., compressors and decompressors, and comprise a digital signal processor, general purpose input and output pins, and an inter-integrated circuit (10).

During the period from March 5, 2018 to March 7, 2019, the appellant imported the goods and classified them under CTI 8542 39.00. The appellant availed himself of the concessional rate of duty under Serial No. 24 of Notification dated March 1, 2005, and paid 12% Integrated Goods and Service Tax ( IGST ) on the import of the goods.

The department conducted an audit of the imports of the goods. It was understood by the audit team that the goods are a kind of Codec that have the capability of transmission and reception of digital information and would, therefore, be classifiable under CTI 8517 62 90 as 'other communication apparatus' and, accordingly, would be subject to a levy of basic 10% customs duty and 18% IGST.

A show cause notice was issued to the appellant, proposing to reclassify the goods under CTI 8517 62 90. The Principal Commissioner passed the order rejecting the classification of the goods claimed by the appellant and confirmed the demand for customs duty and IGST along with interest under Section 28AA of the Customs Act.

It was contended that the order passed by the principal commissioner is a non-speaking order, and the burden of proof lies on the department if the department wishes to classify the goods under a different heading. The goods are correctly classifiable under CTI 8542 29 00, but they cannot be classified under CTI 8517 62 90 of the Customs Tariff.

The department argued that Section Notes 3 and 4 to Section XVI provide that the classification of sub-parts will eventually depend upon the machine that performs the principal function. The goods are being put to further use in those apparatuses that have a specific principal function of transmission and reception capability as well as communication capability. The goods are one of the components that, when assembled and programmed with other components, enable the communication capability of mobile phones.

The tribunal viewed that the goods are IC-codecs, which are electronic integrated circuits and are also known as microelectronic circuits, microchips, or chips. An 'IC-Codec' is a semiconductor wafer on which multiple components are fabricated. The IC Codec imported by it is an array of miniaturized and microscopic components consisting of active components and devices such as transistors and diodes and passive components and devices such as capacitors and resistors.

The tribunal observed that the goods are IC chips, which are incapable of stand-alone function or connection with any other device. The ICs are only capable of functioning as compressors and decompressors upon connection with external peripherals like power supplies and interfaces. The goods imported only interact with components that are mounted on the PCB.

The two-member bench of Justice Dilip Gupta (President) and P. V. Subba Rao (Technical Member) has observed that HSN Explanatory Notes to CTH 8542 provide that monolithic ICs may be in the form of un-diced wafers. The IC-Codecs, as imported by the appellant, are in the form of rolls, i.e., un-diced wafers. It, therefore, clearly follows that the goods imported by the appellant are IC-Codecs and are classifiable under Customs Heading 8542 and more specifically under CTI 8542 39 90.

While allowing the appeal, the CESTAT held that the department has not provided any technical literature or material in the impugned order to show that the imported ICs, at the time of import, have any capability of transmission or reception of digital information.

To Read the full text of the Order CLICK HERE

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