CESTAT Confirms OTN Character of Optical Switch Unit, Benefit of 10% BCD under Customs Act Denied [Read Order]

The Kolkata Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has upheld the denial of concessional Basic Customs Duty (BCD) on Optical Switch Units, ruling that the equipment falls within the excluded category of Optical Transport Equipment (OTE) and Optical Transport Network (OTN) products under Notification No. 02/2019-Cus.

The appellant, M/s Tirumala Seven Hills Pvt. Ltd., imported Optical Switch Unit/Optical Line Protection (OLP) equipment and claimed concessional BCD at 10% under Notification No. 57/2017-Cus. The adjudicating authority rejected the claim and assessed the goods at 20%, relying on CBIC Circular No. 08/2023 to conclude that the equipment formed part of OTN/OTE systems. The Commissioner (Appeals) upheld this view, prompting the present appeal.

The appellant argued that the imported goods were simple switching devices used only for fiber protection and did not perform data transmission, multiplexing, routing or regeneration. They submitted that the equipment merely switched traffic between main and standby fibers in case of failure and therefore could not be classified as OTN or DWDM transport equipment. They further contended that the exemption notification specifically covers networking switches under CTH 8517 and that their product squarely fell within this category.

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The department relied on Notification No. 02/2019-Cus dated January 29, 2019, which grants concessional duty to goods under CTH 85176290 except those expressly excluded under Sl. No. 20. These exclusions include Optical Transport Equipment, Packet Optical Transport Products, and Optical Transport Network products. The Revenue pointed out that the CBIC Circular lists Optical Line Protection equipment as an element of OTN/OTE systems. They argued that the Optical Switch Unit, which enables switching within microseconds to maintain uninterrupted transmission, is integral to the functioning of the optical transport network.

The Tribunal Bench, comprising R. Muralidhar (Judicial Member) and K. Anpazhakan (Technical Member), examined the product catalogue, the technical descriptions of OSP (Outside Plant) and OLP Board (Optical Line Protection Board), and the Generic Requirements issued by the Telecommunication Engineering Centre (TEC). It found that protection switching within 50 microseconds forms an essential part of OTN architecture, and that Optical Line Protection modules are explicitly included in Annexure-1 and Annexure-2 of CBIC Circular No. 08/2023 as OTN/OTE components.

The Bench observed that OTN equipment, DWDM systems, ROADM modules, regenerators and Optical Line Protection equipment are all part of the same transport ecosystem. TEC guidelines also confirm that ASON (Automatically Switched Optical Network) functionality may be implemented either in an OTN switch or an optical switch such as ROADM. In this context, the Tribunal concluded that the Optical Switch Unit imported by the appellant squarely falls under the excluded category.

The case law relied upon by the appellant, including Cisco Commerce India Pvt. Ltd., was held to be distinguishable as it dealt with networking switches rather than OTN-related equipment.

After reviewing the findings of both the adjudicating authority and the Commissioner (Appeals), the Tribunal held that the authorities had correctly applied the notification and the Board Circular. It emphasised that the Optical Switch Unit is integral to data transmission continuity and forms a functional component of OTN/OTE systems, making it ineligible for the concessional 10% BCD.

Accordingly, the Tribunal dismissed the appeal and upheld the denial of exemption.

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