Commissioner of Customs, Bangalore Versus Cisco Systems (India) P. Ltd.>2006(11)LCX0271

2006(11)LCX0271

In the Customs, Excise & Service Tax Appellate Tribunal, Bangalore

Dr. S.L. Peeran, Member (Judicial) and Shri T.K. Jayaraman, Member (Technical)

Commissioner of Customs, Bangalore

Versus

Cisco Systems (India) P. Ltd.

Final Order No. 2025/2006 dt. 30.11.2006 in Appeal No. C/407/2004

Cases Quoted -

G.S. Auto International Ltd. Vs. CCE, Chandigarh, 2003 (054) RLT 0479 (SC) - Relied on [Para 4]

Advocated By -

Shri Anil Kumar, JDR for Appellant
Shri S. Muthu Venkataraman, Adv. for Respondent

Per Dr. S.L. Peeran :

The Revenue is aggrieved with Order-in-Appeal No. 93/2004 dated 28.6.2004. The Respondents imported 'post rail kit' for IDS Sensor, a Cisco Intrusion Protection System which works with other devices to protect networks from security threats. They contended that the imported kit is designed to make IDS 4235/4250 sensor operation and therefore, forms part of the kit and claim classification under CTH 85.17 by virtue of the imported goods being a part of the network system. They relied on Rule 2 (a) of the Interpretative Rules to the Customs Tariff, which states that where an incomplete or unfinished article is imported in unassembled/disassembled condition and such incomplete or unfinished article has the essential characteristics of the complete or finished article, the article in unassembled/ disassembled is to be treated as complete article and consequently the duty rates applicable to complete article would apply to such disassembled/ unassembled form of the article. They also cited HSN Explanatory Notes to the Rule cited above and contended that articles presented unassembled or disassembled means articles the components of which ought to be assembled either by means of fixing devices (screws, nuts, bolts, etc.) or by riveting or welding. Therefore, they contended that the imported goods which includes screws, tie wraps, stop block, slide assemblies, cable management assembly and status indicator cable assembly which constitute a kit for the purpose of IDS 4235/4250 are classifiable under Chapter Heading 8517.50. They give technical details and also relied on several Board's Circular and case laws. They agitated to the Original Authority classifying the imported kit under 7326.90.99. The Commissioner after detailed consideration and examining the entire submissions in the light of the literature, accepted their plea by recording his findings in Paras 4 to 10, which is reproduced herein below:

4. I have carefully gone through the facts of the case including the oral and written submissions made. The brief facts of the case are that, the appellants sought to clear the item 'post rail kif along with other items vide B/E No. 470586 dated 28.6.2003, under CTH 8517.50. The same was disputed by the department, who intended to classify the same under CTH 732690.99, on going through the individual constituents of the said kit. After protracted correspondence, as per the request of the appellant, an opportunity was given for PH without issuing a show cause notice. Thereafter, a speaking order, as requested by the appellant, was passed by the Original Adjudicating Authority. The Original Adjudicating Authority, in his findings stated that, ЕЕ."the item of the kit reveals that, it contained 6 different items having different application and hence attract different rate of duties. None of them have any electrical or electronics for them to be get classified in CTH 85. These items will only used in installing or fixing the networking apparatus on to a rack". By giving reasons for invoking Section 19 ibid, the Original Adjudicating Authority classified the goods under Chapter 73. Aggrieved by this order, the appellants filed this appeal.

5. The issue is be decided here in whether the items which the appellants claim as a kit, constitute a kit classifiable under Chapter 8517. The explanation given by the appellant for the item in dispute 'post rail kit', is that,

"the imported kit is used for Intrusion Detective Systems (IDS) sensor. The IDS is the Cisco Intrusion Protection System which is the intrusion detection system that works with other device to protect against network security threats. It is a device that monitors the traffic of the network infrastructure to prevent intrusion of unauthorized user into the network. The imported kit is affixed to the IDS 4235/4250 sensor and then attached to a rack on which other network equipments reside. These networking equipments are classifiable under CTH 85.17 of the CTA, 1975.

It can be deduced from the explanation given, that, the items of the kit are affixed to the sensor and then the sensor is mounted on the rack where other equipments reside. Thus, I find that, the items of kit acts as parts which connect the sensor and other networking equipments which reside on the rack.

6. The items of the imported kit are-
(i) One pair slide assembly.
(ii) One cable management arm
(iii) One stop block
(iv) One status indicator cable assembly
(v) 10 inch flange head Philips screws and
(vi) Releasable tie wraps

I find that, some of these items required to connect the sensor and some to mount the sensor on the rack. Each of the individual item, therefore, sub-serve the common purpose of making the sensor equipment functional. I find all of them together are necessary for a particular mode of work - connecting with the sensor [status indicator cable assembly and cable management arm] tie wrap to hold the connecting cables and slide assembly, stop block and screws to mount the sensor on the rack. I find that, without these items, the sensor cannot be positioned on the rack and connected with other networking equipments.

7. I also find that, the appellant M/s. Cisco Systems (India) Private Limited, has been approved by the Secretariat for Industrial Assistance (SIA), Govt, of India to:
(i) Deal with all types of Cisco products - software and programmes.
(ii) Undertake research and development activities in software development and testing.

Accordingly, the appellants had set up their R&D Centre at Bangalore and are importing computer accessories and networking equipments falling under Chapters 84 and 85 of CTA, 1975. Therefore, I feel that, the constituents of post rail kit has to be of a specific nature, for it is to be used in computers/network equipments or works related to them. Further, it was explained by the appellant that, the constituent items the kit were specially designed and manufactured for fitting into specific sensor platform and hence cannot be treated as generalized items. Further, if the constituents of the kit were of generalized nature, there was no necessity for the appellants to get them through import, as they could have procured them cheaply from the local Indian market itself.

8. The Original Adjudicating Authority has sought to classify the items under the Chapter 73 as general purpose articles of iron & steel. The original Adjudicating Authority considering the nature of constituent parts of the said kit, held that, they were of generalized nature and invoking Section 19 (2) of the Customs Act, 1962, classified the kit under CTH 7326.90.00. As I observed, the equipment is specially designed for use in connecting and mounting the sensor on the rack. The line of reasoning is also buttressed by the fact that, the appellant is manufacturer importer with a mandate from the SIA to set up R&D facilities.

9. In view of the above facts, I feel that, the items mentioned above constitute a kit which forms part of the networking system and rightly classifiable under Chapter 8517.50. Therefore, I am of the view that invoking Section 19 of the Customs Act, 1962 and classifying the said kit under CTH 73, considering the individual nature of the items of the kit was not proper. Therefore, I pass the following order.

10. I set aside the order of the Original Adjudicating Authority and uphold the appeal."

The above findings are challenged by the Revenue.

2. We have heard learned JDR and the learned Counsel for the Respondents.

3. The Revenue contend that the kit is not an item. There are six separate items constituting the kit. Therefore, they are to be classified individually and not in the manner in which done by the Commissioner by accepting their plea.

4. The learned Counsel relied on Apex Court judgment rendered in the case of G.S. Auto International Ltd. Vs. CCE, Chandigarh - 2003 (054) RLT 0479 (SC)=2003 (152) ELT 3, wherein Apex Court has held that parts of automobiles cannot be classified as parts for general use. They have noted that the parts have become suitable for use primarily with articles of Chapter Heading No. 87.01 to 87.05. Therefore, they cannot be treated as falling under Chapter Heading No. 73.18 as parts of general use.

5. We have carefully considered the submission and notice that the imported item is a special purpose item and it cannot be treated as parts of general use. The Commissioner in his detailed findings has analyzed the issue in the light of the use of the items in the kit. He has applied Rule 2 (a) of Interpretative Rules of Customs Tariff besides the HSN Explanatory Notes. He also examined the technical literature and held that these items are used for special purpose only but not for general use. Further, evidence have also been examined as noted in the extracted portion of the order. In view of the Apex Court holding that special purpose parts cannot be considered as parts of general use, the order given by the Commissioner is just, legal and proper. There is no merit in this appeal and the same is rejected.

Operative portion of this Order was pronounced in open Court on conclusion of hearing.

Equivalent 2007 (079) RLT 0486 (CESTAT-Ban.)

Equivalent 2007 (210) ELT 0674 (Tri.- Bang.)