2023(04)LCX0200(AAR)

Senate Solutions Private Limited

decided on 11-04-2023

CUSTOMS AUTHORITY FOR ADVANCE RULINGS
NEW CUSTOM HOUSE, BALLARD ESTATE, MUMBAI - 400 001
Email: cus-advrulings.mum@gov.in

11^th April, 2023
Ruling No. CAAR/Mum/ARC/24,25,26,27/2023
in
Application No. CAAR/CUS/APPL/1,7,8,9,/2023/ O/o Commr-CAAR-MUMBAI

Ruling

M/s. Senate Solutions Private Limited (hereinafter referred to as 'the applicant') filed four applications for advance ruling before the Customs Authority for Advance Ruling, Mumbai (CAAR). The said applications, along with enclosures, were received in the secretariat of CAAR, Mumbai on 03.01.2023, in terms of Section 28H (1) of the Customs Act, 1962 (hereinafter referred to as the `Act'). The applicant is seeking advance rulings on the classification of Portable Computers viz. Barcode Mobile Computers, RFID Mobile Computer and Tablet Mobile Computer. The models proposed to be imported under each category are as follows:

2. The applicant a private limited company, is engaged in the business of IT solutions with a prime focus in the field of IT support services. They intend to import Portable Computers from the Supplier, viz., Newland Taiwan Inc. to be sold further to their distributors/ consumers. It is submitted that the Portable Computers are handheld/wearable/ vehicle mountable computers. They are essentially used for scanning barcode and for processing data in real time to increase efficiency of functions such as inventory management, last mile delivery, invoicing, etc. They are a combination of Personal Computer and scanner, largely utilised by field service personnel. The product carries a processing ability of a laptop and functionality of a scanner in a single wireless device. These Portable Computers essentially perform 1D and 2D barcode scanning and additionally have features Wi-Fi/Bluetooth connectivity, data transfer etc. The key features/functions performed by the subject goods, as listed in the application, are as follow:

It is stated that each type of portable computer is available with SIM, as well as without SIM connectivity. Communication functions, if any, are generally performed by the Portable Computers using Wi-Fi or wired connectivity. Only when such wireless internet is not available, the devices use cellular network to function (if devices have Sim Card capability and have been fitted with the Sim Card). Thus, cellular network is used only rarely in cases such as during last mile delivery, when WiFi is not readily available etc. In fact, calling function provided in Products with SIM is purely a supplementary function since the same has been provided as an additional mode of connectivity apart from Bluetooth, Wi-Fi and GPS. 2.1 The applicant has submitted that the portable computers proposed to be imported by them are classifiable under heading 8471 as automatic data processing (ADP) machines, for the following reasons: a. These devices satisfy the criteria set out in heading 8471 to be classified as ADP machines; b. The principal function performed by these devices is that of processing data, and thus, they merit classification as suggested. c. The proposed imports are commercially known as "Barcode Mobile Computers, RFID Mobile Computer and Tablet Mobile Computer", and not as phone/communication devices/mobile phones. 2.2 As per the applicant, to qualify as an ADP machine, goods have to satisfy all the conditions mentioned in Note 6(A) to Chapter 84 and should not be covered by Note 6(D) and 6(E) ibid. The applicant has submitted that the portable computers in question comply with the above requirements, and therefore, are classifiable as ADP machines under CTH 8471 as tabulated below:

As per the applicant's contention, Chapter notes 6(D) and 6(E) read with Note 6(C) are not applicable to the impugned devices as the products are in itself ADP machines. Thus, the proposed imports satisfy all the conditions to be fulfilled by ADP machines. 2.3 The applicant further stated that without prejudice, even if it is assumed that these devices viz. Barcode Mobile Computers, RFID Mobile Computer and Tablet Mobile Computer models proposed to be imported are capable of performing more than one function, i.e., capable of functioning other than as an ADP machine, the function of the ADP machine is the principle function and therefore, shall be treated as an ADP machine in terms of Note 3 to Section XVI. The proposed imports are marketed to businesses for ease of logistics and not as a substitute for a communication device. That the portable computer is used to transmit other data, apart from the inventory-related data, the function is only an incidental function and the classification is to be based as if the principal function were the sole purpose. Commercially too, the products are known as "computers" and not as "phone/communication devices". As per the trade parlance, the proposed imports are known in the market as "Barcode Mobile Computers, RFID Mobile Computer, Tablet Mobile Computer " and not as smartphones or telephones 2.4 The applicant has contended that the product is an automatic data processing machine that cannot be classified under the heading 8517. The proposed imports are not primarily meant for communication purposes. Communication abilities like that of a traditional telephone/mobile telephone are only auxiliary functions that these portable computers perform. The applicant highlighted the following differences between conventional cellular phones/communication devices and impugned portable computers: -

The applicant contends that the products in question are not classifiable as smartphones under subheading 85171300 as the proposed imports are essentially ADP machines which have an additional feature of cellular connectivity. It is also to be noted that 18 out of the 36 models of portable computers (para. 1) do not have the cellular connectivity, identical models are available both with and without cellular connectivity options. Thus showing that SIM is not an integral part of theses device. The way the proposed imports are built, it is evident that it is meant for rugged use and is not sleek or delicate like smartphones available in a similar price range. The proposed imports also don't have most of the features which are there in smartphones of a similar price range. Furthermore, smartphones of the same price range like the price range of the impugned product are marketed as luxury items for personal use whereas these products are used purely for industrial/trade activities and not as luxury items. Their designs are not sleek or sophisticated like that of smartphones and are rather designed to be used in arduous environments and are made to withstand harsh environments.

2.5 In support of their contention, the applicant submitted Circular No. 20/2013 dated 14.05.13 wherein the Board analysed the functions of a Tablet Computer and held that it principal function is that of a Computer, and communication (even using SIM) is merely incidental. It was further held that "the difference between a "smartphone" and a "tablet computer", is not based on whether the product has a voice calling function or not, but on the principal features that a producer has intended for the device when designing and developing it. Accordingly, the tablet computers are more appropriately classifiable in heading 8471, subheading 847130, by application of General Rules for Interpretation (GRI) of Import Tariff, 1 [Note 3 to Section XVI and Note 5(A) to Chapter 84] and 6. The Circular also reaffirms the ruling of the World Customs Organisation, regarding tablet computers. The applicant also relied upon the case of Commissioner of Customs (ACC & Import) v. Samsung India Electronics P. Ltd. reported in 2019 (4) TMI 915 - CESTAT MUMBAI, where it was held that the tablets imported were more suited for the purpose of working/reading rather than for the purpose of telephony, specifically as a mobile device, and thus were classifiable under heading 8471 and not heading 8517. The applicant emphasises that the said findings regarding Tablet Computer will apply to all the Portable Computer concerned in present case, as all the three forms of computers are essentially the same the same, and just their form is different. The similarities are evident from the following:

a. These devices are marketed with focus on their data processing function.

b. These devices are available for sale with SIM Slot or without SIM Slot- this shows that emphasis is not on the SIM function (as if it was, it would have been a standard feature and not an optional feature).

c. These devices are portable alternatives to laptops and computers and are marketed as more easily portable forms of laptops/computers.

d. These products are not marketed as a replacement to a conventional device like cellular phones or smart phone or any other such communications devices.

2.6 The applicant has contested the decision of the 68th Session of the World Customs Organization in respect of the classification of RFID readers/ bar scanners having inter-alia SIM capability as classifiable under heading 8517. They have stated that the opinions of WCO are not applicable to the products proposed to be imported for the following reasons:

a. Unlike the ruling on tablet computers, which has been expressly accepted by CBIC, no similar circular has been issued accepting and adopting the above ruling.

b. The proposed imports are portable computers and not merely RFID readers.

c. The ruling on tablet computers is more appropriately applied to the proposed imports.

d. Heading 84.71 has not at all been considered by the WCO in their ruling.

2.8 In relation to the above-mentioned device, the questions on which advance rulings have been sought are as follows: -

a. Whether portable computers, viz., Barcode Mobile Computers, RFID Mobile Computer and Tablet Mobile Computer to be imported by the applicant are classifiable under the Tariff item 84713090 of the Tariff of India?

b. If the answer to the above question is negative, then what would be the correct classification of the portable computers, viz., Barcode Mobile Computers, RFID Mobile Computer and Tablet Mobile Computer under the Tariff of India?

3. The applicant in their CAAR-1 form declared that they intend to import the impugned devices from the following places:

a) The Commissioner of Customs(Imports), Nhava Sheva-V, Jawaharlal Nehru Custom House, Nhava Sheva, Tal Uran, District Raigad, Maharashtra-400707

b) The Commissioner of Customs Chennai-II (Import) Custom House, 60, Rajaji Salai, Chennai- 600001.

c) The Commissioner of Customs, Inland Container Depot, 'ICD' Patparganj, New Delhi - 110096.

d) The Commissioner of Customs, Custom House, Air Cargo Complex (Import), New Custom House, Near IGI Airport, New Delhi-110037

Their applications, therefore, were forwarded to the jurisdictional commissioners of Customs for their response/comments. However, no reply has been received. In their CAAR-1 application form the applicant has stated that the questions raised are not pending in their case before any officer of Customs, appellate tribunal or any court of law.

4. A personal hearing in this matter was held on 17.02.2023 at 01:15 pm. S/Shri. Vishwanathan T., Sushant Acharya, Riya Sinha and Dhananjay Sethuraj appeared on behalf of the applicant. No one appeared on behalf of the jurisdictional commissionerates. The applicant displayed samples of the impugned goods and explained the products one by one. Applicant wishes to import 18 models of portable computers each one of them comes with wireless connectivity options of 'Sim card and WiFi' and `Wi-Fi only', and as a result I find that these are 36 portable computers models. They have categorically referred to earlier four advance rulings on similar products. They submitted a copy of CAAR ruling in the case of M/s RET-Tech Pvt. Ltd., M/s. Brightpoint India Pvt. Ltd. and M/s. Rashi Peripherals Pvt. Ltd. in support of their claim to the classification. Further, they proceeded to explain the features of RFID reader computer tablet in detail emphasising on the fact that it performs more functions than a product that is a mere RFID reader and stated that the product merits classification under CTH 8471 30 90. They finally requested to issue the ruling in their favour.

5. I have considered all the materials placed before me in respect of the subject devices. I have also gone through the submissions made by the applicant during the personal hearing. No reply has been received from the jurisdictional Customs commissionerate. Therefore, I proceed to pronounce the rulings on the basis of information available on record. The issue before me is to decide the correct classification of Barcode Mobile Computers, RFID Mobile Computer and Tablet Mobile Computer. These are handheld/wearable/vehicle mountable portable devices used in enterprise environments to run mobile apps, capture barcodes, take photos and videos, and provide voice and data communications for workers and managers. These devices combine personal computer and scanning functions in a single wireless device that can be outfitted with off-the shelf or custom software applications that perform everyday tasks such as monitoring deliveries, tracking assets, and managing inventory. Because they run on familiar operating systems such as Windows/Android, they offer the same functionality as a desktop computer or laptop. These processors are also equipped with a barcode scan engine and act as their own host, which means one can instantly update and edit information as it is captured. The applicant has suggested Customs Tariff heading 8471 as an appropriate classification for these devices.

5.1 General Rules of Interpretation (GRI) 1 of the Customs Tariff Act, 1975 provides that the classification of goods shall be "determined according to the terms of the headings and any relative section or chapter notes." In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, GRIs 2 through 6 may be applied in order. In view of the provisions of GRI 1 it is clear that in order to merit classification under heading 8471 these devices need to satisfy the requirements of chapter note 6(A) to chapter 84, the said chapter note is reproduced below: -

6 (A) For the purposes of heading 8471, the expression "automatic data processing machines, means machine capable of:

(i) storing the processing programme or programmes and at least the data immediately necessary for the execution of the programme;

(ii) being freely programmed in accordance with the requirements of the user;

(iii) performing arithmetical computations specified by the user; and

(iv) executing, without human intervention, a processing programme which requires them to modify their execution, by logical decision during the processing run.

Therefore, there is a need to examine whether the features and specifications of the devices under consideration meet the criterion as laid down in the relevant chapter note reproduced above. The impugned devices, as seen from the technical description submitted by the applicant and reproduced in para 2.2 earlier, appear to be able to satisfy the requirements of an ADP machine. Note 6(C) to Chapter 84 specifies the conditions for a unit to be classified as being part of an automatic data processing system.

6 (C)Subject to paragraphs (D) and (C), a unit is to be regarded as being part of an automatic data processing system if It meets all of the following conditions:

(i) it is of a kind solely or principally used in an automatic data processing system;

(ii) it is connectable to the central processing unit either directly or through one or more other units; and

(iii) it is able to accept or deliver data in a form (codes or signals) which can be used by the system. Separately presented units of an automatic data processing machine are to be classified in heading 8471. However, keyboards, X-Y co-ordinate input devices and disk storage units which satisfy the conditions of (n) and (iii) above, are in all cases to be classified as units of heading 8471.

However, from the working and features of the impugned devices, it appears that these are not the units of ADP machines, but ADP machines themselves. Note 6(D) to chapter 84 lists certain separately presented products that are to be excluded from heading 8471, even if they can be classified as part of an ADP system. Note 6(E) to chapter 84 mentions that a machine incorporating or working in conjunction with an automatic data processing machine and performing a specific function other than data processing are to be classified in the headings appropriate to their respective functions or, failing that, in residual headings. As the impugned devices, as described by the applicant, appear to be akin to ADP machines performing capturing of data and its further processing, notes 6(D) and 6(E) do not appear to have application in this case.

5.2 In respect of possible alternate heading 8517, there is a need to examine the features of these devices in the context of note 3 to section XVI of the Tariff Heading 8517 covers, "Telephone sets, including smartphones and other telephones for cellular networks or for other wireless networks; other apparatus for the transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network), other than transmission or reception apparatus of heading 84.43, 85.25, 85.27 or 85.28". As the devices also have communication capabilities, including cellular connectivity in 18 out of 36 devices, the classification under heading 8517 needs to be examined. Note 3 to section XVI of the tariff stipulates that, "Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines designed for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function". From the note, it is clear that a composite machine performing various functions is to be classified according to the principal function performed by such a device. In the instant case, these devices combine computing and scanning functions for monitoring deliveries, tracking assets, and managing inventory. 18 out of 36 devices also have communication capabilities. However, for the products under consideration, automatic data processing appears to be the main function, while other functionalities of said machines are not different from auxiliary functions that could be seen on any computer, such as desktop or laptop computers.

In circular no. 20/2013- Cus, dated 14.05.2013, clarification has been given by the Central Board of Excise and Customs (CBEC) regarding the classification of "tablet computers" under heading 8471 stating that, "... The mobile phone calling function could be provided by the products only as a supplementary function because it could not be activated without running an operating system of the devices.... These devices are not intended to be a substitute for a mobile phone to make voice calls, but, according to its main technical features is designed as a substitute for laptops. The difference between a "smartphone" and "tablet computer", is not based on whether the product has a voice calling function or not, but on the principal features that a producer has intended for the device when designing and developing it". Thus, as per the said circular, tablet computers are classifiable under heading 8471 and not under heading 8517 despite the fact that the product is having cellular connection functionality, considering its principal function as automatic data processing. Similarly, in this case, the principal function of the impugned devices is barcode scanning and data processing for monitoring deliveries, tracking assets and managing inventory. Therefore, these devices appear to merit classification under heading 8471 and not under heading 8517.

5.3. In regards to the classification opinion of the 68th session of the Harmonized System Committee, it is observed that the committee has classified RFID/barcode readers with a mobile operating system capable of scanning and cellular connectivity under subheading 8517 13. This subheading covers smartphones. Note 5 to chapter 85 states that "For the purposes of heading 85.17, the term "smartphones" means "telephones for cellular networks, equipped with a mobile operating system designed to perform the functions of an automatic data processing machine such as downloading and running multiple applications simultaneously, including third-party applications, and whether or not integrating other features such as digital cameras and navigational aid systems". The note clearly states that these devices are telephones for cellular networks designed to perform the functions of ADP machines. However, the devices under consideration are principally not telephones for cellular networks. In fact, 18 out of 36 models do not have the functionality of cellular connectivity, which shows that the SIM is not an integral part of these devices, as these devices are able to perform their primary function with or without the SIM card. These devices do not appear to be convenient for the purpose of telephony as a principal function. As per circular no. 20/2013- Cus., dated 14.05.2013, "the difference between a "smartphone" and "tablet computer", is not based on whether the product has a voice calling function or not, but on the principal features that a producer has intended for the device when designing and developing it". These devices are essentially ADP machines with additional connectivity capabilities, including cellular connectivity for 18 models, as discussed in para. 5.2. Further, the difference between a smartphone and the devices under consideration, as explained by the applicant, is already reproduced in tabulated form para 2.4. The impugned devices have many features such as higher scanning capacity, ruggedness and enterprise-level security features, which a smartphone for cellular device connection lacks. These devices are used by enterprises to capture data. As already stated the products are used in inventory management, store receiving, order processing, package tracking, tracing delivering etc. These devices use Wi-Fi connectivity and Bluetooth for information sharing. Cellular connectivity is essentially used for GPS and information sharing, where Wi-Fi is not available. Cellular connectivity is also used for making calls. However, as mentioned earlier, 18 out of 36 models do not have cellular connectivity. In view of forgoing discussion and facts on record, it is my considered opinion that the devices under consideration are not classifiable as smartphones. They merit classification under subheading 8471 30 90.

6. In view of the aforesaid conclusions I rule that the 36 devices listed in the first paragraph of the ruling are classifiable under Customs tariff heading 8471 and more specifically, under subheading 8471 30 90 of the first schedule to the Customs Tariff Act, 1975.

This copy is certified to be a true copy of the ruling and is sent to: -

1. M/s. Senate Solutions Private Limited, Shop No.24, General- GAN Thimmaya Road, Money Market, East Street Gallaria Premises CHS, 2421, East Street Chowk, Pune, Maharashtra, 411001.
Email: sushantacharya@hotmail.com

2. Commissioner of Customs Inland Container Depot, 'ICD' Patparganj, New Delhi-110096.
Email: commricdppg-cusdel@nic.in

3. The Commissioner of Customs, Chennai-II (Import Commissionerate), Custom House,60, Rajaji Salai, Chennai-600001.
Email: commr2-cuschn@gov.in

4. The Commissioner of Customs. Air Cargo Complex (Import), New Customs House, Near I.G.I. Airport, New Delhi-110037.
Email: commraccimp-cusdel@nic.in

5. The Commissioner of Customs (Nhava Sheva -V), Jawaharlal Nehru Customs House, Nhava Sheva, Tal Uran, District Raigad, Maharashtra — 400707 .
Email: commr-ns5@gov.in

6. The Customs Authority for Advance Rulings, 0/o the Chief Commissioner of Customs, Delhi Zone, New Customs House, Near IGI Airport & Cargo Complex, New Delhi-110037
Email: cus-advrulings.del@gov.in

7. The Principal Chief Commissioner of Customs, Mumbai Customs Zone-I, Ballard Estate, Mumbai - 400001.
Email: ccu-cusmum1@nic.in

8. The Chief Commissioner (AR), Customs Excise & Service Tax Appellate Tribunal (CESTAT), West Block-2, Wing-2, R.K. Puram, New Delhi - 110066.
Email: cdrcestat123@gmail.com, ccar.cestat-delhi@gov.in

9. The Member (Customs), Central Boards of Indirect Taxes & Customs, North Block, New Delhi110001.
Email: mem.cus-cbec@nic.in

10. The Commissioner (Legal), CBIC Offices, Legal/CX.8A, Cell, 5thfloor, Huck() Vishala Building, C-Wing, Bhikaji Cama Place, R. K. Puram, New Delhi — 110066.
Email: anishgupta.irs@gov.in,commr.legal-cbec@nic.in

11. The Webmaster, Central Boards of Indirect Taxes & Customs.
Email: webmaster.cbec@icegate.gov.in

12. Guard file.