Juniper Router Components are ‘Parts’, Not Network Interface Cards: CESTAT Sets Aside Customs Demand Against Bharti Airtel [Read Order]

The Principal New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) ruled that components imported by Bharti Airtel for use in Juniper routers are classifiable as “parts of routers” and not as Network Interface Cards and set aside the customs demand raised by the department.

BhartiAirtel Limited, the appellant, had imported various telecom components such as Modular Port Concentrators, Modular Interface Cards, Fixed Configuration MPCs, Switch Control Boards and Switch Fabric Boards during the period from April 2017 to March 2018.

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These items were used in Juniper routers deployed in the company’s telecom network. Bharti Airtel classified the imported goods as parts of routers under Customs Tariff Item 8517 70 90 and cleared them at nil basic customs duty.

The Customs Department disagreed with this classification and passed an order reclassifying the goods under Customs Tariff Item 8517 62 90 as Network Interface Cards or other communication apparatus. Based on this, the department confirmed differential customs duty along with interest and penalty and also invoked the extended period of limitation under Section 28(4) of the CustomsAct.

Aggrieved by the order passed by the Principal Commissioner of Customs, the company approached the CESTAT. The company’s counsel argued that the imported items were only components of a router and had no independent functional utility. They argued that a router is a complex system consisting of several interdependent parts and that none of the imported components could function on their own unless installed in the router chassis along with other essential parts.

The appellant’s counsel relied on a certificate issued by Juniper Networks, the manufacturer, which stated that the imported items were parts of routers, could not be used independently, and were not capable of performing the complete function of a router on their own.

The department’s counsel argued that the imported items performed networking functions at Layer 1 and Layer 2 of the OSI model and were, for that reason, Network Interface Cards classifiable under Heading 8517 62 90. They also argued that the extended period of limitation was correctly invoked as the goods had been misclassified under self-assessment.

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The Bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) examined the technical features of the imported goods, the tariff entries, the Section Notes and the HSN Explanatory Notes. The tribunal observed that the correct test for classification is whether the item has an independent function and whether it can operate on its own without the main machine.

Applying this test, the Tribunal observed that the imported router components could not function independently and were entirely dependent on the router chassis and other components. The Tribunal pointed out that Network Interface Cards are standalone devices used to connect computers to networks and can operate independently, which was not the case with the goods imported by Bharti Airtel.

The tribunal observed that mere self-assessment or a difference of opinion on classification cannot justify the invocation of the extended period. The Tribunal set aside the order passed by the Principal Commissioner, held that the imported items were correctly classifiable as parts of routers under Customs Tariff Item 8517 70 90. The appeal was allowed.

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