Concessional Duty on Microphones Used in Mobile Phone PCBAs: CESTAT denies Exemption, Citing Distinct Commodity Classification [Read Order]

The Chennai Bench of Customs,Excise and Service Tax Appellate Tribunal(CESTAT) denied the concessional duty exemption on microphones used in mobile phone Printed Circuit Board Assembly (PCBA)s, citing that they are distinct commodities and not essential components of PCBAs.

Bharath FIH Ltd.,appellant-assessee, imported specialized microphones used in the PCBA of mobile phones, classifying them under tariff heading 85183000 and claiming 'Nil' BCD benefit under Notification No. 57/2017.

The department suspected the microphones were not eligible for this benefit and issued a Show Cause Notice (SCN) on July 31, 2019, proposing reclassification under tariff heading 8518 with 15% BCD, along with interest and penalty. Despite the assessee's detailed reply, the original authority confirmed the SCN proposals through Order-in-Original No. 76/2020 dated January 25, 2020.

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The assessee aggrieved by the decision appealed before the tribunal.

The two member bench comprising P.Dinesha (Judicial Member) and Ajit Kumar (Technical Member)denied the assessee's claim for concessional duty exemption on microphones under Notification No. 57/2017-Cus. It referred to its earlier ruling in Flextronics Technologies Pvt. Ltd., where it held that microphones were not eligible for exemption under Sl. No. 6A of the notification.

The department argued that microphones were distinct commodities, not parts of PCBAs, and were specifically excluded from concessional duty under Sl. No. 18. It contended that microphones were only soldered onto PCBAs and did not form their basic construction components.

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The assessee claimed that microphones were part of PCBAs as they were mounted using Surface Mounting Technology (SMT), making them eligible for exemption. However, the tribunal rejected this claim, holding that microphones were separate products, not essential components of PCBAs. It noted that the definition of PCBAs in Notification No. 57/2017, as amended by Notification No. 22/2018, did not include microphones, making them ineligible for concessional duty.

The appellate tribunal applied the commercial parlance test, stating that goods not specifically defined in the statute should be interpreted based on common trade understanding. Citing Indo International Industries v. Commissioner of Sales Tax, Uttar Pradesh (1981), it held that undefined terms should be understood in their trade sense rather than scientific meaning.

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It also referred to Plasmac Machine Manufacturing Co. Pvt. Ltd. v. Collector of Central Excise, Bombay (1991), which ruled that goods should be classified by their trade recognition, not technical definition.

The bench applied the legal principle of generalia specialibus non derogant, which gives precedence to specific provisions over general ones. It referred to J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. State of U.P. (1961) and CCE v. Jayant Oil Mills (P) Ltd. (1989), where the courts held that specific classifications prevail over general ones. Since microphones were specifically excluded from concessional duty under Sl. No. 18, they could not be classified under Sl. No. 6A by interpreting them as PCBAs.

The CESTAT also ruled that Notification No. 24/2019-Cus, dated July 6, 2019, which inserted a proviso excluding certain goods from Sl. No. 6A, was clarificatory and retrospective. It cited Podar Cement Pvt. Ltd. (1997) and Gold Coin Health Foods Pvt. Ltd. (2008), where the Supreme Court held that clarificatory amendments were retrospective.

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The tribunal held that the assessee failed to prove eligibility for exemption, noting that microphones were treated as distinct commodities in trade and were not part of PCBAs. It also referred to a Board circular (TRU DOF No. 334/3/2019-TRU), which confirmed that microphones attracted 15% BCD and were explicitly excluded from Sl. No. 6A.

The appellate tribunal rejected the assessee's claim under Notification No. 50/2017-Cus, which provided a general exemption for standalone microphones, ruling that Notification No. 57/2017-Cus, which specifically applied to mobile phone parts, took precedence.

Although the tribunal denied the exemption, it limited the demand period to the normal period with applicable interest, citing the genuine interpretative nature of the case. It also rejected the department's appeal for redemption fine, noting that no bond had been executed for the clearance of goods. It distinguished earlier rulings favoring exemption, stating that they lacked detailed analysis and were not binding precedents.

To Read the full text of the Order CLICK HERE

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