2025(01)LCX0411(AAR)

Apple Operations International Limited

decided on 23-01-2025

CUSTOMS AUTHORITY FOR ADVANCE RULINGS
O/o THE CHIEF COMMISSIONER OF CUSTOMS
NEW CUSTOM HOUSE, NEAR IGI AIRPORT, NEW DELHI-110037

[Email:cus-advrulings.del@gov.in]
DIN-20250174OR0000222CF9

Present

Samar Nanda (Customs Authority for Advance Rulings. New Delhi)

F. No. VIII/CAAR/Delhi/Apple Operations (Bengaluru)/161/2024

The day of 23^rd January, 2025

Ruling No. CAAR/Del/Apple/16/2025/2487 to 2493/23/01/2025

In application No. 142/2024 dated 09.10.2024

Ruling

M/s Apple Operations International Limited (Applicant) a company having its registered head office located at Hollyhill Industrial Estate Hollyhill, T23 YK84, Ireland. The Applicant is engaged in the business of consumer electronics goods under the brand name of Apple'. The Applicant in furtherance of its business activities amongst others, will be exporting mobile phone parts, namely, cover glass module, housing modules, Pearl Assembly Module Subassembly etc. In this regard, the Applicant's request is to obtain clarity from the Hon'ble CAAR for classification of "Pearl Assembly Module Subassembly" ('product'), which shall be exported by the Applicant to the various importers based in India.

I. Overview of the Pearl Assembly Module Subassembly exported by the Applicant.

1.1. The term Pearl Assembly Module Subassembly' is the component of the mobile phone which houses the front-facing camera subassembly along with a Face Recognition (Face ID) module. This subassembly is designed primarily for capturing images / videos from the front end of the mobile phone and is typically located on the front of the device, above the display.
 

1.2. In the present case, the Pearl Assembly Module comprises of the following sub-components

a. Front Camera Subassembly - It comprises of lens, infrared cut filter ('IRCF') and image sensor. The lens captures light from the scene and directs it to IRCF which filters out infrared light. The light is then focused on the Image Sensor which captures a picture. The front camera on a mobile phone is mainly used for taking selfies. making video calls, and enabling augmented reality features.

b. Face Recognition Module - It comprises of user facing front camera module, proximity sensor, flood illuminator and a dot projector to enable facial mapping to support Face ID feature. This feature is used for applications such as unlocking the mobile phone or for authentication of Apple Pay payments. Further, the front camera which is an integral part of Face Recognition Module is also used to take pictures, record videos for the FaceTime Application.

1.3. In view of the above, it is clear that the even though the two sub-components work in conjunction with each other, the two carry out separate identifiable functions, one is to allow capturing images / videos from the front end of the mobile phone and the other to allow facial recognition functioning to enable the user to carry out handsfree functionality such as unlocking of phone without the use of hands, or authentication for payment in Apple Pay application, etc.

1.4. The sub-components of Pearl Assembly Module are bonded onto a metal enclosure and bracket using specialized heat activated glue dispensing and curing process for structural support.

1.5. Post importation of the Peral Assembly Module Subassembly, the same is integrated into the mobile phone and camera flex is connected to the motherboard to operationalize the Pearl Assembly Module.

1.6. Here it is also pertinent to mention that only after the subassembly is attached onto the motherboard, it becomes operational, and it has to interact with several internal components to function effectively. For illustration, the front camera captures images or video, and this data is processed by the video processors to enhance image quality and gets stored in mobile phone's storage. The front camera does not have any separate memory of its own for storage of pictures clicked. Further, in order for the users to view the image or video the subassembly needs to interact with the display module of the mobile phone

1.7. Further, the Pearl Assembly Module Subassembly may comprise of additional parts which may be added to provide structural integrity to the subassembly and will assist in the integration of the subassembly in the mobile phone or maybe used as a placeholder for other parts of mobile phone Thus, these additional component or parts will not alter the principal function of the subassembly.

1.8. Therefore, it can be said that the Pearl Assembly Module carries out varied functions such as image capturing, video recording and enables Face ID and Face Time Applications. Thus, it can be summarized that the Pearl Assembly Module performs multiple functions by integrating two separate components within itself.

II. The Applicant qualifies as an 'applicant' under Section 28E(c) of the Customs Act. 1962 ('Customs Act').

1.10. Section 28E(c) of the Customs Act reads as under

"(c). "applicant" means any person -

(i) holding a valid Importer-exporter Code Number granted under section 7 of the Foreign Trade (Development and Regulation) Act, 1992; or

(ii) exporting any goods to India;

or

(iii) with a justifiable cause to the satisfaction of the Authority, who makes an application for advance ruling under section 28H;"

1.11. As discussed earlier, the Applicant will be exporting the inputs and parts of mobile phone (Pearl Assembly Module Subassembly) to various importers in India. Thus, the Applicant is rightly covered under the definition of 'applicant as provided under Section 28E(c)(ii) of the Customs Act for making this application.

III. Question raised in the application for advance ruling by the Applicant squarely falls within the ambit of Section 28H(2)(a) of the Customs Act.

1.12. Section 28H of the Customs Act provides for the questions in respect of which an advance
ruling may be sought by an applicant. Section 28H of the Customs Act reads as under-

"28H. Application for advance ruling -

(1) An applicant desirous of obtaining an advance ruling under this Chapter may make an application in such form and in such manner and accompanied by such fee as may be prescribed, stating the question on which the advance ruling is sought.

(2) The question on which the advance ruling is sought shall be in respect of, -

(a) classification of goods under the Customs Tariff Act, 1975 (51 of 1975);

(b) applicability of a notification issued under sub-section (1) of section 25, having a bearing on the rate of duty;

(c) the principles to be adopted for the purposes of determination of value of the goods under the provisions of this Act.

(d) applicability of notifications issued in respect of tax or duties under this Act or the Customs Tariff Act, 1975 (51 of 1975) or any tax or duty chargeable under any other law for the time being in force in the same manner as duty of customs leviable under this Act or the Customs Tariff Act;

(e) determination of origin of the goods in terms of the rules notified under the Customs Tariff Act, 1975 (51 of 1975) and matters relating thereto.

(f) any other matter as the Central Government may, by notification, specify

1.13. The Applicant wishes to obtain the advance ruling on questions relating to classification and applicability of exemption notification under Section 25(1) of Customs Act as detailed out in Annexure II. Therefore, the questions raised by the Applicant falls within the purview of the provisions of Section 28H(2)(a), 28H(2)(b) and 28 H(2)(d) of the Customs Act.

1.14. Hence, the application for advance ruling is being filed in conformity with the provisions of Section 28H of the Customs Act.

IV. Question raised under the present advance ruling application is not before any officer of customs, the Appellate Tribunal or any Court.

1.15. As per Section 28I (2)(a) of the Customs Act with regard to procedure on advance ruling application, no application for advance ruling will be accepted if the question raised in the application is already pending before any forum. Relevant extracts of the provision are reproduced below:

'281. Procedure on receipt of application. -

(1)

(2) The Authority may, after examining the application and the records called for, by order, either allow or reject the application:

Provided that the Authority shall not allow the application where the question raised in the application is -

(a) already pending in the applicant's case before any officer of customs, the Appellate Tribunal or any Court,

(b) the same as in a matter already decided by the Appellate Tribunal or any Court."

1.16. The Applicant submits that questions raised in the application (as in Annexure II) are not already pending before any officer of Customs, the Appellate Tribunal or any Court, to the best of our knowledge Further, the questions raised in the present case, have not already been decided by the Appellate Tribunal or any court in the Applicant's case.

1.17. Accordingly, the present application should not be considered as pending before any Court as neither the show cause notice has been issued nor the bill of entries has been provisionally assessed

1.18. Thus, relying on the above the facts of the current case. Applicant submits that in its case, the application shall be accepted for hearing on merits by the Hon ble CAAR.

1.19. The questions in respect of which an advance ruling from the Hon'ble CAAR has been sought by the Applicant are:

a. Whether the Pearl Assembly Module Subassembly exported by the Applicant to India merits classification under CTH 8517 7990 of the First Schedule of the Customs Tariff ?

b. Whether benefit of concessional rate of BCD under Sr. No. 6J of the Notification No. 57/2017 is available for import of such Pearl Assembly Module Subassembly to third-party manufacturers engaged in manufacture of mobile phones in India?

QUESTION 1: CLASSIFICATION OF PEARL ASSEMBLY MODULE SUBASSEMBLY

1.20. For the Pearl Assembly Module Subassembly to be exported by the Applicant, the proposed classification and Applicant's interpretation to reach to the proposed classification is discussed as under.

1.21. The import and export of goods into and out of India is regulated by the Customs Act, 1962 ('Customs Act'). Section 12 of the Customs Act is the charging section which stipulates that duties of customs shall be levied on all goods imported into India or exported out of India at such rates as may be specified under the Customs Tariff.

1.22. Section 2 of the Customs Tariff provides that the rates at which BCD shall be levied under the Customs Act are specified in two schedules, namely, the First Schedule and the Second Schedule. First Schedule of the Customs Tariff deals with the applicable duty structure on import of goods and the Second Schedule deals with the applicable duty structure on export of goods.

1.23. To determine the said rates of BCD applicable on the imported good it is important to identify
the tariff heading in which the good would fall under the First Schedule of the Customs Tariff.

1.24. Classification of goods covered under the Customs Tariff is done as per the General Rules of Interpretation ('GIR'). GIR 1 to 5 lay down the principles for determining classification of goods under a specific Heading whereas GIR 6 is applicable if the objective is to determine the classification of goods in the Sub-headings of a Heading.

1.25. GIR 1 stipulates that the goods under consideration should be classified in accordance with the terms of the Headings and any relevant Section or Chapter Notes. These Section or Chapter Notes and Sub-Notes give detailed explanation as to the scope and ambit of the respective Sections and Chapters. These Notes have been given statutory backing and have been incorporated at the beginning of each Section/ Chapter. For ready reference. Rule 1 is extracted herein below:

"Classification of goods in this Schedule shall be governed by the following principles:

1. The titles of Sections, Chapters and Sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions ..."

1.26. The Larger Bench of the Hon'ble Tribunal in the matter of Saurashtra Chemical, Porbandar Vs. Collector of Customs, [1986 (23) E.L.T. 283 (Tri. -LB)] had held that the tariffs must be interpreted in the light of relevant Section and Chapter Notes which are statutorily binding like the Headings themselves. Thus, the Section and Chapter Notes have an overriding force on the respective Headings. This judgment was approved by the Hon'ble Supreme Court of India in the case of Saurashtra Chemicals Vs. Collector of Customs, [1997(95) E.L.T. 455 (S.C.)].

Harmonized System of Nomenclature

1.27. The Customs Tariff in India is based on Harmonized Commodity Description and Coding System, generally referred to as Harmonized System of Nomenclature ('HSN') developed by the World Customs Organization ('WCO') which is applied uniformly by more than 137 countries of the world. Under the HSN, various goods are classified under different headings, sub-headings and tariff items. For the purposes of the uniform interpretation of the HSN, the WCO has published detailed explanatory notes to HSN which have long been recognized as a safe guide to interpret the Tariff Schedule.

1.28. In the case of O. K. Play (India) Ltd. vs. C.C.E. Delhi III, 2005 (180) E.L.T. 300 (S.C.), a 3-member bench of the Hon'ble Supreme Court of India made the following observations:

(a) There cannot be a static parameter for correct classification.

(b) HSN along with the explanatory notes provide a safe guide for interpretation of an Entry.

(c) Functional utility, design, shape and predominant usage have also got to be taken into account while determining the classification of an item.

(d) Aforementioned aids and assistance are more important than the names used in the trade or common parlance in the matter of correct classification.

1.29. It was held by the Hon'ble Supreme Court in L.M.L Limited Vs. Commissioner of Customs, [2010 (258) E.L.T. 321 (S.C.)] that in order to resolve a dispute on tariff classification, internationally accepted nomenclature emerging from HSN Explanatory Notes is a safe guide. Further, HSN Explanatory Notes are also dependable guide for interpretation of Customs Tariff. Some other judicial pronouncements wherein this proposition was also affirmed, upheld and followed have been enumerated below:

i.  CC Vs. Gujarat Perstorp Electronics Ltd., [(2005)7 SCC 118, (2005) 186 EL. T. 532 (3-member S.C. bench)];

ii. CCE Vs. Phil. Corporation Ltd, [(2008) 223 E.L. T. 9 (S.C.)].

1.30. Therefore, the HSN Explanatory Notes are an important aid for ascertaining the classification of a good, in addition to the GRI and corresponding Chapter Notes and Section Notes.

1.31. In the light of above facts, to analyze the classification of above product following needs to be kept in mind:

a. General Rules of Interpretation (GIR).

b. Heading/sub-heading of the First Schedule in conjunction with Section/Chapter/ Explanatory notes.

c. Principal function of the subject good.

1.32. Hence, upon application of GIR 1, since the Pearl Assembly Module Subassembly is used in mobile phone, the Applicant submits that the most specific entry at the four-digit level under which the Pearl Assembly Module Subassembly may be classified is CTH 8517 which covers "Telephone sets, including 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 8443, 8525, 8527 or 8528".

1.33. However, before proceeding to analyze classification of the Pearl Assembly Module Subassembly under CTH 8517, it is pertinent to discuss classification of the product under CTH 8525 which covers similar items viz. digital cameras. Accordingly, to justify its stand that the product merits classification under CTH 8517, the Applicant makes the following submissions for classification of the Pearl Assembly Module Subassembly exported by it.

A. The Pearl Assembly Module Subassembly is for specific use with mobile phone.

1.34. At the outset, the Applicant submits that the Pearl Assembly Module Subassembly exported are specific for use with mobile phone. The product is specifically designed for integration with other parts of mobile phone in order to constitute a functional mobile phone. This product is not capable of functioning with any other device other than the specific model of mobile phone for which it is built. Hence, it is submitted that the Pearl Assembly Module Subassembly is a product which is tailor made for use in the mobile phone, more so for a specific model of the mobile phone.

B. The Pearl Assembly Module Subassembly is not classifiable under any specific heading at four-digit level.

The Pearl Assembly Module Subassembly is not a "digital camera" covered under CTH 8525.

1.35. Since the Pearl Assembly Module Subassembly comprises of Front Camera subassembly, one may consider it to be covered under CTH 8525 which inter alia covers "digital cameras". The HSN Explanatory Notes to CTH 8525 discusses the scope and meaning of "digital camera". The relevant portion of the HSN Explanatory Notes has been reproduced as follows:

"In digital cameras and video camera recorders, images are recorded onto an internal storage device or onto media (e.g., magnetic tape, optical media, semiconductor media or other media of heading 85.23). They may include an analogue/digital converter (ADC) and an output terminal which provides the means to send images to units of automatic data processing machines, printers, televisions or other viewing machines Some digital cameras and video camera recorders include input terminals so that they can internally record analogue or digital image files from such external machines.

Generally, the cameras of this group are equipped with an optical viewfinder or a liquid crystal display (LCD), or both. Many cameras equipped with an LCD can employ the display both as a viewfinder when capturing images and as a screen for displaying images received from other sources or for reproducing images already recorded."

1.36. Thus, upon perusal of the above extract, a digital camera is one which in addition to the camera lenses, inter alia comprises of the following

a. Internal storage device for recording and storing of the images and videos:

b. May include Analogue/ digital converter (ADC);

c. May include Output terminal to send images and / or video to units of automatic data processing machines, printers, televisions or other viewing machines;

d. Optical viewfinder or a liquid crystal display (LCD), or both

1.37. In the present case, as discussed in the facts in Annexure I above, the Front Camera Subassembly of the Pearl Assembly Module Subassembly is responsible for capturing images / videos from the front end of the mobile phone. This subassembly in its as imported condition does not comprise of features such as internal storage, analogue/ digital converter (ADC), output terminal, optical viewfinder and or a liquid crystal display (LCD). Thus, the subassembly is not capable of independent functioning.
 

1.38. Since, the Front Camera Subassembly in its as imported condition does not have a storage, therefore, the images captured by the subassembly have to be stored within the mobile phone's internal storage. Similarly, to display the images or video captured by the sub-assembly, the sub-assembly has to interact with the display module of the mobile phone. Thus, for the sub-assembly to function effectively i.e., from capturing images and videos to processing them, it needs to work in conjunction with other components of the mobile phone. Hence, in view of the above, it is submitted that the subassembly is not a product which capable of carrying out camera functions independently as it does not comprise of additional drivers such as memory, output terminal etc. which are required to qualify a product as a "digital camera". Hence, the Pearl Assembly Module Subassembly is not covered within the scope of CTH 8525.

1.39. To buttress the stand of the Applicant, reliance is placed on the case of M/s. Hi-Tech Computers Vs. Commissioner of Customs, Bangalore, [2004 (9) TMI 262 - CESTAT, BANGALORE]. This decision of the Tribunal was upheld by the Hon'ble Supreme Court in [2015 (321) E.L.T. A274 (SC)]. In this case the issue under consideration was the classification of web cam under CTH 8525 (as digital camera) or CTH 8473 (as parts of automatic data processing machine). The Hon'ble CESTAT (and upheld by the Hon'ble Supreme Court) rejected the classification of web cam under CTH 8525 because the product under consideration did not have features such as optical viewfinder and storage which is a key feature in a digital camera. Further, the web cam imported by the assessee could function only with the computer and this web cam was specific to use as a part of the computer. Thus, the Hon'ble CESTAT (and upheld by the Hon'ble Supreme Court) classified the web cam under CTH 8473 as parts of automatic data processing machine.

1.40. A similar view was taken by the Hon'ble CESTAT Bangalore in the case of M/s. Xiaomi Technology India Ltd. Vs. Commissioner of Customs Inland Container depot, Whitefield, Bangalore, [2023 (12) TMI 447 -CESTAT BANGALORE] wherein the web cam was classified under CTH 8473 as parts of automatic data processing machine as against CTH 8525 as digital camera.

1.41. Applying the ratio of the aforementioned judgments in the present case since the subassembly does not comprise of features such as storage, optical viewfinder, output terminal, LCD etc., the subassembly cannot be considered to be covered within the scope of "digital camera'' under CTH 8525. Further, as discussed above, since the subassembly is incapable of independent function and is used solely and principally with mobile phone, it can be considered as parts of mobile phone (as was done in the aforementioned judgments, i.e., the web cams were considered to be parts of automatic data processing machines), and hence are more appropriately classifiable under CTH 8517. Detailed discussion in this regard has been done in the ensuing paragraphs.

1.42. Further, it is also pertinent to highlight that the Pearl Assembly Module Subassembly also comprise of another subassembly i.e., the Face Recognition Module, which even though works in conjunction with the Front Camera Subassembly of the Pearl Assembly Module Subassembly, the same also carries out separate functions from that of the Front Camera Subassembly. Hence, presence of additional sub-component having a separate identifiable function also excludes the product from the purview of CTH 8525.

1.43. Thus, in view of the above discussion, it is submitted that the Pearl Assembly Module Subassembly is not covered within the scope of CTH 8525 as "digital camera".

C. The Pearl Assembly Module Subassembly is a "part" of mobile phone in terms of Section Note 2 (b) to Section XVi.

I. The Pearl Assembly Module Subassembly is a "part" of mobile phone.

1.44. In the present case, as the Pearl Assembly Module Subassembly is used to manufacture the mobile phones which are classified under CTH 8517, it becomes pertinent to analyze the classification of the Pearl Assembly Module Subassembly under CTH 8517.

1.45. CTH 8517 inter alia covers "smartphones and its parts". In view of the above, it becomes pertinent to analyze whether the Pearl Assembly Module Subassembly can be considered as a part' of mobile phones.

1.46. The term "parts" has not been defined in the HSN Explanatory Notes or the Customs Tariff. Hence, reliance must be made to the Hon'ble Supreme Court's Ruling in the case of CCE, Delhi Vs. Insulation Electrical (P) Ltd., [ 2008 (224) E.L.T. 512 (S.C.)]. In this case, the Apex Court while relying on various other earlier rulings has defined the term :'parts" as "an essential component of the whole without which the whole cannot function".

1.47. A similar ruling has been made in the case of Electrosteel Castings Vs. CCE, [1989 (43) E.L.T. 305 (Tribunal)] which has been maintained by the Hon'ble Supreme Court in [1996 (83) ELT A48 (Supreme Court)].

1.48. In the present case, as stated in the facts in Annexure-I, the product under consideration is a Pearl Assembly Module Subassembly which is the subassembly designed not only for capturing images / videos from the front end of the mobile phone but also to assist the user in handsfree applications such as unlocking the phone and authentication for payments via Apple Pay etc. Thus, it can be said that the subassembly provides for an enhanced functionality and user experience of the mobile phone.

1.49. In view of the above facts, the Applicant submits that the Pearl Assembly Module Subassembly of the mobile phone is an essential component of the modern-day mobile phone which enhances the functionality and user experience of a mobile phone. Hence, the Applicant submits that the Pearl Assembly Module Subassembly should be considered as a "part" of the mobile phone.

1.50. Further, classification of 'parts' under Chapter 84 and Chapter 85 is governed in terms of rules provided in Section Note 2 of Section XVI. Section Note 2 is sub-divided in 3 sub-rules. Each of the sub-rule must be sequentially applied. For ease of reference, Section Note 2 has been extracted as follows

"2. Subject to Note 1 to this Section, Note 1 tc Chapter 84 and to Note 1 to Chapter 85, parts of machines (not being parts of the articles of heading 8484, 8544. 8545, 8546 or 8547) are to be classified according to the following rules:

(a) parts which are goods included in any of the headings of Chapter 84 or 85 (other than headings 8409, 8431, 8448, 8466, 8473, 8485, 8503, 8522, 8529, 8538 and 8548) are in all cases to be classified in their respective headings;

(b) other parts, if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading (including a machine of heading 8479 or 8543) are to be classified with the machines of that kind or in heading 8409. 8431. 8448, 8466, 8473, 8503. 8522. 8529 or 8538 as appropriate.

However, parts which are equally suitable for use principally with the goods of headings 8517 and 8525 to 8528 are to be classified in heading 8517, and parts which are suitable for use solely or principally with the goods of heading 8524 are to be classified in heading 8529;

(c) all other parts are to be classified in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as appropriate or, failing that, in heading 8485 or 8548."

1.51. Upon perusal of the aforementioned note, the classification of 'parts' under Chapter 84 and Chapter 85 is to be done in the following manner:

i. As per Section Note 2 (a), the parts for which there is a specific entry under Chapter 84 or 85 [other than a few entries listed in Section Note 2 (a)] have to be classified in theirrespective headings;

ii. As per Section Note 2 (b), all parts other than those covered in Section Note 2 (a), which are suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading are to be classified with the machines of that kind or in heading 8409, 8431, 8448, 8466. 8473, 8503, 8522, 8529 or 8538 as appropriate;

iii. Lastly, all the other parts which are not covered in Section Note 2 (a) and Section Note 2 (b) above, are to be classified in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as appropriate or, failing that, in heading 8485 or 8548.

1.52. Since in the present case, the Pearl Assembly Module Subassembly does not have a principal function of its own, that is to say that even though the two sub-components of the assembly work in conjunction with each other, the two carry out separate identifiable functions, one is to allow capturing images / videos from the front end of the mobile phone and the other to allow facial recognition functioning to enable the user to carry out handsfree functionality such as unlocking of phone without the use of hands, or authentication for payment in Apple Pay application, etc. Hence, there is no one particular identifiable function of the Pearl Assembly Module Subassembly. Hence, upon sequential application of the rules provided in Section Note 2 in the present case, the Applicant submits that since there is no specific entry at four-dash level (as discussed above), under Chapter 84 or Chapter 85 which specifically cover Pearl Assembly Module Subassembly (having two separate identifiable function), the Pearl Assembly Module Subassembly is excluded from the purview of Section Note 2
(a).


1.53. Therefore, reference must be made to Section Note 2 (b) which covers other parts which are suitable for use solely or principally with a particular machine. In the present case, the Pearl Assembly Module Subassembly exported by the Applicant is a tailor made for the manufacture of mobile phones and therefore capable of use solely and principally with mobile phones Further, the subassembly is incapable of standalone function and required connection with other components of the mobile phone to fully operative Hence it is submitted that the Pearl Assembly Module Subassembly fulfills the condition of sole and principal test as enunciated in Section Note 2 (b). Accordingly, the Pearl Assembly Module Subassembly is covered under Section Note 2 (b) and is to be classified under CTH 8517 along with mobile phone.

//. Pearl Assembly Module Subassembly satisfies the twin test of what is considered to be a "part"

1.54. In order to buttress its stand, the Applicant places reliance on the judgment of the Hon'ble CESTAT Delhi in the matter of M/s. Vodafone Idea Limited Vs. Principal Commissioner of Customs (Imports), Final Order No. 50874 1 2022 dated 20.09.2022 wherein the Hon'ble bench held that an item will not be considered as a 'part1 if, on a standalone basis, it can be considered as an article classifiable under its own appropriate heading. To this effect, it laid down the twin test for determining whether an item is classifiable under the separate heading or as part of the main machine:

Test 1: No separate identifiable function of its own.

Test 2: Incapable of operating independently of the main machine.

1.55. Therefore, where an article does not satisfy both the conditions of the twin test, it cannot be classified under a separate heading as an apparatus falling under its own appropriate heading and the same shall merit classification as parts of the main machine.

1.56. In view of the twin test laid above, it is submitted that even though the subassembly has a separate identifiable function of capturing images and videos and face recognition, as the Pearl Assembly Module Subassembly in its as imported condition does not contain essential features suchas internal storage, analogue/ digital converter (ADC), output terminal, etc. which are required for a camera module to function independently on its own, it cannot be said to be a standalone device Further, the images and video captured by the subassembly have to be stored within the mobile phone's internal storage. Similarly, to display the images ur video captured by the subassembly, the subassembly has to interact with the display module of the mobile phone Thus, for the subassembly to function effectively i e., from capturing images and videos to processing and storing them, it needs to work in conjunction with other components of the mobile phone. Hence, it is submitted that the subassembly is not capable of functioning independently of the complete mobile phone. To this extent, it does not qualify both the conditions of the twin test, and hence Pearl Assembly Module Subassembly shall not merit classification under the separate heading and shall merit classification only as part of the mobile phone. Accordingly, the product will be covered within the single dash entry of "parts" under CTH 8517.

1.57. In view of the above discussion, as the Pearl Assembly Module Subassembly is a 'part' of mobile phone and is solely and principally used with a mobile phone, it is to be classified under CTH 8517, in terms of GIR 1 read with Section Note 2 (b) to Section Note XVI.

1.58. Coming to classification at eight-digit level under CTH 8517, as the Pearl Assembly Module Subassembly is not covered under any specific entry at eight-digit level, it will be classified under the residuary entry under CTH 8517, i.e., under CTH 8517 79 90 which reads as "Telephone sets, including 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 8443. 8525, 8527 or 8528-Parts—Other—Other".

QUESTION 2: APPLICABILITY OF EXEMPTION UNDER S. NO. 6J OF THE NOTIFICATION NO. 57/2017

1.59. The Applicant will be exporting the Pearl Assembly Module Subassembly to the third-party manufacturers of mobile phones and accordingly wishes to seek clarity on eligibility of availing exemption benefit under Sr No 6J of Notification No. 57/2017.

1.60. The Central Government in terms of Section 25(1) of the Customs Act has issued Notification No. 57/2017 which intends to provide concessional exemption benefit to the import of machinery items, electrical appliances and its parts and accessories covered in the notification.

1.61. In this regard. Notification No. 57/2017 vide its Sr. No. 6J provides exemption from BCD to "all goods for use in manufacture of cellular mobile phone" which are covered under CTH 8517 79 90 This exemption is available subject to compliance with the procedure set out in the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 [as amended by Customs (Import of Goods at Concessional Rate of Duty or for Specified End Use) Rules, 2022] ('IGCR Rules 2022'). For ease of reference, the aforementioned entry under Notification No. 57/2017 has been extracted as follows:

1.62. Thus, by virtue of Sr. No. 6J, BCD at the rate of 10% is applicable for all goods for use in manufacture of cellular mobile phone" which are covered under CTH 8517 79 90.

1.63. In view of the above, considering that the Pearl Assembly Module Subassembly which is to be exported by the Applicant is classifiable under CTH 8517 79 90 and is an essential part of mobile phone, as discussed above, the Applicant submits that the benefit of concessional rate of duty under Sr. No. 6J should be available at the time the import of Pearl Assembly Module Subassembly, subject to compliance with IGCR Rules, 2022.

1.64. In view of the above submissions, the Applicant humbly submits that the Hon'ble Authority may kindly issue the advance ruling as prayed at an early date.

1.65. In the light of the above, a ruling is sought from the Hon'ble CAAR as follows:

A. The Pearl Assembly Module Subassembly to be exported by the Applicant to India are correctly classifiable under CTH 8517 79 90 of the Customs Tariff

B. The Pearl Assembly Module Subassembly exported by the Applicant are eligible to avail the concessional BCD vide Sr. No. 6J of Notification No. 57/2017.

1.66. The Applicant craves leave to alter, amend, or modify any of the aforesaid grounds or submissions made herein this application and make such additional submissions without prejudice to the submissions made herein, at the time of hearing of the said application.

1.67. The Applicant also craves leave to produce and provide any such further additional documents in support of its submissions at the time of hearing and before conclusion of the proceedings.

Comments of the Port Commissionerate

2. As per the provision of CAAR Regulation, 2021, the complete application of the applicant was provided to the concerned Custom Port, and requested to furnish the requisite comments in the instant matter. The port authority furnished its comments as follows :-

2.1. Para3(i)

Eligibility in terms of Section 28E(c) of the Customs Act, 1962: Eligible:

2.2. Para 3(H)

Proviso (1)(a) of Section 28I (2) of the Customs Act, 1962: No application from the Applicant pending before this office;

Proviso (1)(b) of Section 28I (2) of the Customs Act, 1962: Not known

2.3. Para 3(iii)

Claim of the applicant regarding the nature of their activity: Correct.

2.4. Para 3(iv)

Comments on the merits of the question raised: As in the succeeding paras;

2.5. Para 3(v)

Whether the question raised is pending before any officer of customs, the Appellate Tribunal or any Court: No application from the Applicant pending before this office;

Comments on the merits of the question raised.

2.6. The item "Pearl Assembly Module Subassembly" ('product)" as per the submissions given by the applicant is a component of the mobile phone which houses the front-facing camera subassembly along with a Face Recognition (Face ID) module. This subassembly is designed primarily for capturing images/ videos from the front end of the mobile phone and is typically located on the front of the device, above the display. The housing of the Pearl Assembly Module Subassembly comprises of the following components -

a. Front Camera Subassembly (consisting of lens, infrared cut filter (IRFC) and image sensor.

b. Face Recognition Module (consisting of front camera module, proximity sensor, flood illuminator and a dot projector)

2.7. The Front Camera Subassembly and Face Recognition Module are bonded onto a metal enclosure and bracket using specialized heat activated glue dispensing and curing process to form the Pearl Assembly Module Subassembly. Therefore, it can be said that the Pearl Assembly Module Subassembly primarily functions as front camera which captures images and videos and the Face Recognition Module which further uses the camera module enables the user to carry out hands free functionality for payment is Apple Pay application, unlocking the mobile phone. It suggests that the apparatus is a digital camera module with advance features.

2.8. As per the note 2(a) to Section XVI "parts which are goods included in any of the headings of Chapter 84 or 85 (other than headings 8409, 8431, 8448,8466,

2.9. 8473, 8487, 8503, 8522, 8529. 8538 and 8548) are in all cases to be classified in their respective headings;". Since digital cameras are included in the heading 8525, the item under consideration is classifiable under the heading 8525 Thus, the item "Rear Camera Integrated Module Subassembly" is appropriately classifiable under the tariff item 8525 8900.

2.10. With regard to the applicability of benefit of notification no. 57/2017-cus dated 30.06.2017 Sl.no. 6J (as amended), for reference the same is reproduced below for reference:

2.11. As the item under consideration is digital camera module used in the manufacturing of the cellular mobile phone, the notification benefit under this notification is more appropriately applicable under the SI.No. 5A. For reference, the same is reproduced below:

2.12. In light of the above, the item "Pearl Assembly Module Subassembly" ('product)" is appropriately classifiable under the tariff item 85258900 and is eligible for the benefit of notification no. 57/2017-cus dated 30.06.2017 Sl.no. 5A (as amended) with effective rate of BCD being 10%.

Personal Hearing

3. The personal hearing in the matter was conducted on 16.01.2025 wherein the port authorities and the authorized representative of the applicant attended the same. During the personal hearing, the authorized representative reaffirmed the points that had already been presented in the applicant's initial submission Likewise, the port authorities reiterated the arguments and details previously outlined in their formal response.

Additional Submissions

4. M/s Apple Operations International Limited through letter dated 15.01.2025 submitted that:-

4.1. The Pearl Assembly Module Subassembly is for specific use with mobile phone -

a. The Pearl Assembly Module Subassembly is specifically designed for use in mobile phones. It is tailor made to be integrated with other phone components to create a functional device. Further, it is not compatible with any other device, as it is intended solely for a particular mobile phone model.

4.2. The Pearl Assembly Module Subassembly is not classifiable under any specific heading at four-digit level -

    Pearl Assembly Module Subassembly is not a "digital camera" covered under CTH 8525.

a. As discussed above, CTH 8525 inter alia covers "digital camera" and the scope and definition of the same has been provided in HSN Explanatory Notes to CTH 8525 [refer submissions above].

b. In the present case, the Front Camera Subassembly of the Pearl Assembly Module is responsible for capturing images and videos but cannot function independently. This is because it lacks essential features such as internal storage, an analogue/digital converter, an output terminal, an optical viewfinder, or a display. Hence, it requires integration with other mobile phone components to process and store the captured media. Therefore, it does not fulfil all conditions to be categorized as a "digital camera". Thus, the subassembly cannot be classified under CTH 8525. Reliance in this regard is placed on the cases of M/s. Hi-Tech Computers Vs. Commissioner of Customs, Bangalore & M/s. Xiaomi Technology India Ltd. Vs. Commissioner of Customs, discussed above].

c. The Pearl Assembly Module Subassembly also includes the Face Recognition Module, which, although working alongside the Front Camera Subassembly, performs distinct functions. The presence of this additional sub-component with a separate identifiable function further excludes the product from being classified under CTH 8525.

4.3. The Pearl Assembly Module Subassembly qualifies as a 'part' of mobile phone in terms of Section Note 2 (b) to Section XVI -

The Pearl Assembly Module Subassembly is a "part" of mobile phone

a. The term "parts" has been defined as essential components without which the whole cannot function [CCE, Delhi Vs. Insulation Electrical (P) Ltd. & Electrosteel Castings Vs. CCE].

b. In the present case, the Pearl Assembly Module Subassembly is designed not only for capturing images and videos but also for enhancing user experience through hands-free applications like phone unlocking and payment authentication (e.g., Apple Pay). This makes it an essential component of modern mobile phones, contributing significantly to their functionality and user experience. Therefore, t the Pearl Assembly Module Subassembly should be classified as a "part" of the mobile phone.

c. Further, as the Pearl Assembly Module Subassembly is suitable only for mobile phones and is not classifiable under any other heading of Chapter 84 or 85, it should be classified as part of the mobile phone under CTH 8517, in terms of Section Note 2 (b).

Pearl Assembly Module Subassembly satisfies the twin test of what is considered to be a part''

d. The Pearl Assembly Module Subassembly qualifies as a "part" of a mobile phone based on the twin test established by the Hon'ble CESTAT Delhi in the M/s. Vodafone Idea Limited Vs. Principal Commissioner of Customs (Imports) case. [The test has been discussed in submissions for Receiver Upper Antenna Subassembly, which for the sake of brevity is not being re-iterated]. Here, it is pertinent to mention that although the Pearl Assembly Module Subassembly has distinct functions such as capturing images, videos, and face recognition, it cannot operate independently as it lacks essential components like internal storage, an analogue/digital converter, and an output terminal. The images and videos captured must be stored in the mobile phone's internal storage, and the subassembly must interact with the phone's display module to show the captured content Since it cannot function alone and must work in conjunction with other phone components, the subassembly does not meet the criteria of a standalone device. Therefore, it should be classified parts" of the mobile phone under CTH 8517.

4.4. Applicability of concessional BCD under S. No. 6J of Notification No. 57/2017 -

a. S. No. 6J of Notification No. 57/2017 provides for concessional BCD at 10% for goods used in the manufacture of cellular mobile phones, classified under CTH 8517 79 90. As the Pearl Assembly Module Subassembly is classified under CTH 8517 79 90 and is an essential part of a mobile phone, it should qualify for the concessional rate of duty under Sr. No. 6J of the notification, provided the necessary compliance with the IGCR Rules, 2022 is met during its import.

4.5. Specific rebuttal to the comments provided by Concerned port-

a. As per the comment of Concerned Port, the presence of cameras in the subassembly justifies its classification under CTH 8525 as "digital cameras". Consequently, the Port suggests that the benefit under Serial No. 6J of Notification No. 57/2017 should not be granted, and instead, benefit under Serial No. 5A, which applies to camera modules used in mobile phones, should be considered.

b. However, we respectfully disagree with this understanding. At the outset, it is important to note that for all other parts in question, the Port has classified them as components of a mobile phone. In this case, however, the Port has made a distinction and classified the subassembly as a camera, without providing adequate reasoning for this departure from their previous position. Further, no sound reasoning has been provided for classifying this product as a "digital camera".

c. The Port has failed to consider the fact that this subassembly comprises of two components which although work in conjunction they carry out different functions. One is a front camera while the other is a face recognition module.

d. Additionally, the Concerned Port has not addressed our submissions concerning why the product does not meet the definition of a digital camera under CTH 8525 The Concerned Port has not considered the fact that the subassembly lacks certain essential parts such as analogue / digital converter, output device, etc. and that the subassembly can only function in conjunction with other components of mobile phone. Given the functionality of the Pearl Assembly Module Subassembly as an integral component of a mobile phone, it should be covered under the relevant provisions of CTH 8525 for digital cameras.

e. Therefore, we submit that the classification proposed by Concerned Port is incorrect, and we respectfully submit that the subassembly be classified as "parts" under CTH 8517, i.e., CTH 8517 79 90 and the benefit under Serial No. 6J of Notification No. 57/2017 is allowed.

Analysis and Conclusion

5. The term 'Pearl Assembly Module Subassembly' is the component of the mobile phone which houses the front-facing camera subassembly along with a Face Recognition (Face ID) module. This subassembly is designed primarily for capturing images / videos from the front end of the mobile phone and is typically located on the front of the device, above the display.

5 1 In view of the above, it is clear that the even though the two sub-components work in conjunction with each other, the two carry out separate identifiable functions, one is to allow capturing images / videos from the front end of the mobile phone and the other to allow facial recognition functioning to enable the user to carry out handsfree functionality such as unlocking of phone without the use of hands, or authentication for payment in Apple Pay application, etc. The sub-components of Pearl Assembly Module are bonded onto a metal enclosure and bracket using specialized heat activated glue dispensing and curing process for structural support. Post importation of the Peral. Assembly Module Subassembly, the same is integrated into the mobile phone and camera flex is connected to the motherboard to operationalize the Pearl Assembly Module.

5.2 Here it is also pertinent to mention that only after the subassembly is attached onto the motherboard, it becomes operational, and it has to interact with several internal components to function effectively. For illustration, the front camera captures images or video, and this data is processed by the video processors to enhance image quality and gets stored in mobile phone's storage. The front camera does not have any separate memory of its own for storage of pictures clicked. Further, in order for the users to view the image or video the subassembly needs to interact with the display module of the mobile phone. Further, the Pearl Assembly Module Subassembly may comprise of additional parts which may be added to provide structural integrity to the subassembly and will assist in the integration of the subassembly in the mobile phone or maybe used as a placeholder for other parts of mobile phone. Thus, these additional component or parts will not alter the principal function of the subassembly.

5.3 Therefore, it can be said that the Pearl Assembly Module carries out varied functions such as image capturing, video recording and enables Face ID and Face Time Applications. Thus, it can be summarized that the Pearl Assembly Module performs multiple functions by integrating two separate components within itself.

5.4 Classification of goods covered under the Customs Tariff is done as per the General Rules of Interpretation ('GIR'). GIR 1 to 5 lay down the principles for determining classification of goods under a specific Heading whereas GIR 6 is applicable if the objective is to determine the classification of goods in the Sub-headings of a Heading. GIR 1 stipulates that the goods under consideration should be classified in accordance with the terms of the Headings and any relevant Section or Chapter Notes. These Section or Chapter Notes and Sub-Notes give detailed explanation as to the scope and ambit of the respective Sections and Chapters. These Notes have been given statutory backing and have been incorporated at the beginning of each Section/ Chapter. For ready reference, Rule 1 is extracted herein below:

"Classification of goods in this Schedule shall be governed by the following principles:

3. The titles of Sections, Chapters and Sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions ..."

5.5 The Larger Bench of the Hon'ble Tribunal in the matter of Saurashtra Chemical, Porbandar Vs. Collector of Customs, [1986 (23) E.L.T. 283 (Tri. -LB)] had held that the tariffs must be interpreted in the light of relevant Section and Chapter Notes which are statutorily binding like the Headings themselves. Thus, the Section and Chapter Notes have an overriding force on the respective Headings. This judgment was approved by the Hon'ble Supreme Court of India in the case of Saurashtra Chemicals Vs. Collector of Customs, [1997(95) E.L.T. 455 (S.C.)].

5.6 In the case of O. K. Play (India) Ltd. vs. C.C.E. Delhi III, 2005 (180) E.L.T. 300 (S.C.), a 3-member bench of the Hon'ble Supreme Court of India made the following observations:

(a) There cannot be a static parameter for correct classification.

(b) HSN along with the explanatory notes provide a safe guide for interpretation of an Entry.

(c) Functional utility, design, shape and predominant usage have also got to be taken into account while determining the classification of an item.

(d) Aforementioned aids and assistance are more important than the names used in the trade or common parlance in the matter of correct classification.

5.7 It was held by the Hon'ble Supreme Court in L.M.L Limited Vs. Commissioner of Customs, [2010 (258) E.L.T. 321 (S.C.)] that in order to resolve a dispute on tariff classification, internationally accepted nomenclature emerging from HSN Explanatory Notes is a safe guide. Further, HSN
Explanatory Notes are also dependable guide for interpretation of Customs Tariff. Some other judicial pronouncements wherein this proposition was also affirmed, upheld and followed have been enumerated below:

I. CC Vs. Gujarat Perstorp Electronics Ltd., [(2005) 7 SCC 118, (2005) 186 E.L. T. 532 (3-member S.C. bench)];

II. CCE Vs. Phil. Corporation Ltd, [(2008) 223 E.L.T. 9 (S.C.)].

Therefore, the HSN Explanatory Notes are an important aid for ascertaining the classification of a good, in addition to the GRI and corresponding Chapter Notes and Section Notes.

5.8 Hence, upon application of GIR 1. since the Pearl Assembly Module Subassembly is used in mobile phone, the most specific entry at the four-digit level under which the Pearl Assembly Module Subassembly may be classified is CTH 8517 which covers "Telephone sets, including 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 8443. 8525 8527 or 8528" However, before proceeding to analyze classification of the Pearl. Assembly Module Subassembly under CTH 8517. it is pertinent to discuss classification of the product under CTH 8525 which covers similar items viz. digital cameras. Accordingly, to justify its stand that the product merits classification under CTH 8517.

The Pearl Assembly Module Subassembly is for specific use with mobile phone.

5.9 At the outset, the applicant has rightly submitted that the Pearl Assembly Module Subassembly exported are specific for use with mobile phone. The product is specifically designed for integration with other parts of mobile phone in order to constitute a functional mobile phone This product is not capable of functioning with any other device other than the specific model of mobile phone for which it is built. Hence, it is submitted that the Pearl Assembly Module Subassembly is a product which is tailor made for use in the mobile phone, more so for a specific model of the mobile phone.

The Pearl Assembly Module Subassembly is not classifiable under any specific heading at four-digit level.- The Pearl Assembly Module Subassembly is not a "digital camera" covered under CTH 8525

5.10 Since the Pearl Assembly Module Subassembly comprises of Front Camera subassembly, one may consider it to be covered under CTH 8525 which inter alia covers "digital cameras". The HSN Explanatory Notes to CTH 8525 discusses the scope and meaning of "digital camera". The relevant portion of the HSN Explanatory Notes has been reproduced as follows:

In digital cameras and video camera recorders, images are recorded onto an internal storage device or onto media (e.g.. magnetic tape, optical media, semiconductor media or other media of heading 85.23). They may include an analogue/digital converter (ADC) and an output terminal which provides the means to send images to units of automatic data processing machines, printers, televisions or other viewing machines Some digital cameras and video camera recorders include input terminals so that they can internally record analogue or digital image files from such external machines.

Generally, the cameras of this group are equipped with an optical viewfinder or a liquid crystal display (LCD), or both. Many cameras equipped with an LCD can employ the display both as a viewfinder when capturing images and as a screen for displaying images received from other sources or for reproducing images already recorded."

5.11 Thus, upon perusal of the above extract, a digital camera is one which in addition to the
camera lenses, inter alia comprises of the following:

a Internal storage device for recording and storing of the images and videos;

b. May include Analogue/ digital converter (ADC),

c. May include Output terminal to send images and / or video to units of automatic data processing machines, printers, televisions or other viewing machines;

d. Optical viewfinder or a liquid crystal display (LCD), or both.

5.12 In the present case, as discussed in the facts in Annexure I above, the Front Camera Subassembly of the Pearl Assembly Module Subassembly is responsible for capturing images / videos from the front end of the mobile phone. This subassembly in its as imported condition does not comprise of features such as internal storage, analogue/ digital converter (ADC), output terminal, optical viewfinder and or a liquid crystal display (LCD). Thus, the subassembly is not capable of independent functioning. Since, the Front Camera Subassembly in its as imported condition does not have a storage, therefore, the images captured by the subassembly have to be stored within the mobile phone's internal storage. Similarly, to display the images or video captured by the sub-assembly, the sub-assembly has to interact with the display module of the mobile phone. Thus, for the sub-assembly to function effectively i.e., from capturing images and videos to processing them, it needs to work in conjunction with other components of the mobile phone. Hence, in view of the above, it is submitted that the subassembly is not a product which capable of carrying out camera functions independently as it does not comprise of additional drivers such as memory, output terminal etc. which are required to qualify a product as a "digital camera Hence, the Pearl Assembly Module Subassembly is not covered within the scope of CTH 8525.

5.13 Reliance is placed on the case of M/s. Hi-Tech Computers Vs. Commissioner of Customs, Bangalore, [2004 (9) TMI 262 - CESTAT, BANGALORE]. This decision of the Tribunal was upheld by the Hon'ble Supreme Court in [2015 (321) E.L.T. A274 (SC)]. In this case the issue under consideration was the classification of web cam under CTH 8525 (as digital camera) or CTH 8473 (as parts of automatic data processing machine). The Hon'ble CESTAT (and upheld by the Hon'ble Supreme Court) rejected the classification of web cam under CTH 8525 because the product under consideration did not have features such as optical viewfinder and storage which is a key feature in a digital camera. Further, the web cam imported by the assessee could function only with the computer and this web cam was specific to use as a part of the computer. Thus, the Hon'ble CESTAT (and upheld by the Hon'ble Supreme Court) classified the web cam under CTH 8473 as parts of automatic data processing machine.

5.14 A similar view was taken by the Hon'ble CESTAT Bangalore in the case of M/s. Xiaomi Technology India Ltd. Vs. Commissioner of Customs Inland Container depot, Whitefield, Bangalore, [2023 (12) TMI 447 - CESTAT BANGALORE] wherein the web cam was classified under CTH 8473 as parts of automatic data processing machine as against CTH 8525 as digital camera.

5.15 Applying the ratio of the aforementioned judgments in the present case since the subassembly does not comprise of features such as storage, optical viewfinder, output terminal, LCD etc., the subassembly cannot be considered to be covered within the scope of "digital camera" under CTH 8525. Further, as discussed above, since the subassembly is incapable of independent function and is used solely and principally with mobile phone, it can be considered as parts of mobile phone (as was done in the aforementioned judgments, i.e., the web cams were considered to be parts of automatic data processing machines), and hence are more appropriately classifiable under CTH 8517. Detailed discussion in this regard has been done in the ensuing paragraphs.

5.16 Further, it is also pertinent to highlight that the Pearl Assembly Module Subassembly also comprise of another subassembly i.e., the Face Recognition Module, which even though works in conjunction with the Front Camera Subassembly of the Pearl Assembly Module Subassembly, the same also carries out separate functions from that of the Front Camera Subassembly. Hence, presence of additional sub-component having a separate identifiable function also excludes the product from the purview of CTH 8525.

5.17 Thus, in view of the above discussion, it is submitted that the Pearl Assembly Module Subassembly is not covered within the scope of CTH 8525 as "digital camera".

The Pearl Assembly Module Subassembly is a "part" of mobile phone in terms of Section Note 2 (b) to Section XVI.- ///. The Pearl Assembly Module Subassembly is a "part" of mobile phone.

5.18 CTH 8517 inter alia covers "smartphones and its parts". In view of the above, it becomes pertinent to analyze whether the Pearl Assembly Module Subassembly can be considered as a 'part' of mobile phones. The term "parts" has not been defined in the HSN Explanatory Notes or the Customs Tariff. Hence, reliance must be made to the Hon'ble Supreme Court's Ruling in the case of CCE, Delhi Vs. Insulation Electrical (P) Ltd., [2008 (224) E.L.T. 512 (S.C.)]. In this case, the Apex Court while relying on various other earlier rulings has defined the term "parts" as "an essential component of the whole without which the whole cannot function".

5.19 A similar ruling has been made in the case of Electrosteel Castings Vs. CCE, [1989 (43) E.L.T. 305 (Tribunal)] which has been maintained by the Hon'ble Supreme Court in [1996 (83) ELT A48 (Supreme Court)].

5.20 In the present case, as stated in the facts in Annexure-I, the product under consideration is a Pearl Assembly Module Subassembly which is the subassembly designed not only for capturing images / videos from the front end of the mobile phone but also to assist the user in handsfree applications such as unlocking the phone and authentication for payments via Apple Pay etc. Thus, it can be said that the subassembly provides for an enhanced functionality and user experience of the mobile phone.

5.21 In view of the above facts, the Pearl Assembly Module Subassembly of the mobile phone is an essential component of the modern-day mobile phone which enhances the functionality and user experience of a mobile phone. Hence, the Pearl Assembly Module Subassembly should be considered as a "part" of the mobile phone Further, classification of 'parts' under Chapter 84 and Chapter 85 is governed in terms of rules provided in Section Note 2 of Section XVI. Section Note 2 is sub-divided in 3 sub-rules. Each of the sub-rule must be sequentially applied. For ease of reference. Section Note 2 has been extracted as follows

"2. Subject to Note 1 to this Section, Note 1 to Chapter 84 and to Note 1 to Chapter 85, parts of machines (not being parts of the articles of heading 8484, 8544, 8545, 8546 or 8547) are to be classified according to the following rules:

(a) parts which are goods included in any of the headings of Chapter 84 or 85 (other than headings 8409, 8431, 8448, 8466, 8473, 8485, 8503, 8522, 8529. 8538 and 8548) are in all cases to be classified in their respective headings;

(b) other parts, if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading (including a machine of heading 8479 or 8543) are to be classified with the machines of that kind or in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as appropriate.

However, parts which are equally suitable for use principally with the goods of headings 8517 and 8525 to 8528 are to be classified in heading 8517. and parts which are suitable for use solely or principally with the goods of heading 8524 are to be classified in heading 8529;

(c) all other parts are to be classified in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522,
8529 or 8538 as appropriate or. failing that, in heading 8485 or 8548."

5.22 Upon perusal of the aforementioned note, the classification of 'parts' under Chapter 84 and Chapter 85 is to be done in the following manner:

i. As per Section Note 2 (a), the parts for which there is a specific entry under Chapter 84 or 85 [other than a few entries listed in Section Note 2 (a)] have to be classified in their respective headings;

ii. As per Section Note 2 (b), all parts other than those covered in Section Note 2 (a), which are suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading are to be classified with the machines of that kind or in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as appropriate;

iii. Lastly, all the other parts which are not covered in Section Note 2 (a) and Section Note 2 (b) above, are to be classified in heading 8409, 8431, 8448, 8466, 8473, 8503. 8522. 8529 or 8538 as appropriate or, failing that, in heading 8485 or 8548.

5.23 Since in the present case, the Pearl Assembly Module Subassembly does not have a principal function of its own, that is to say that even though the two sub-components of the assembly work in conjunction with each other, the two carry out separate identifiable functions, one is to allow capturing images / videos from the front end of the mobile phone and the other to allow facial recognition functioning to enable the user to carry out handsfree functionality such as unlocking of phone without the use of hands, or authentication for payment in Apple Pay application, etc. Hence, there is no one particular identifiable function of the Pearl Assembly Module Subassembly. Hence, upon sequential application of the rules provided in Section Note 2 in the present case, since there is no specific entry at four-dash level (as discussed above), under Chapter 84 or Chapter 85 which specifically cover Pearl Assembly Module Subassembly (having two separate identifiable function), the Pearl Assembly Module Subassembly is excluded from the purview of Section Note 2 (a).

5.24 Therefore, reference must be made to Section Note 2 (b) which covers other parts which are suitable for use solely or principally with a particular machine. In the present case, the Pearl Assembly Module Subassembly exported by the Applicant is a tailor made for the manufacture of mobile phones and therefore capable of use solely and principally with mobile phones. Further, the subassembly is incapable of standalone function and required connection with other components of the mobile phone to fully operative. Hence it is submitted that the Pearl Assembly Module Subassembly fulfills the condition of sole and principal test as enunciated in Section Note 2 (b). Accordingly, the Pearl Assembly Module Subassembly is covered under Section Note 2 (b) and is to be classified under CTH 8517 along with mobile phone.

///. Pearl Assembly Module Subassembly satisfies the twin test of what is considered to be a "part"

5.25 Reliance is placed on the judgment of the Hon'ble CESTAT Delhi in the matter of M/s. Vodafone Idea Limited Vs. Principal Commissioner of Customs (Imports), Final Order No. 50874 / 2022 dated 20.09.2022 wherein the Hon'ble bench held that an item will not be considered as a 'part' if, on a standalone basis, it can be considered as an article classifiable under its own appropriate heading. To this effect, it laid down the twin test for determining whether an item is classifiable under the separate heading or as part of the main machine:

a) Test 1: No separate identifiable function of its own.

b) Test 2: Incapable of operating independently of the main machine.

5.26 Therefore, where an article does not satisfy both the conditions of the twin test, it cannot be classified under a separate heading as an apparatus falling under its own appropriate heading and the same shall merit classification as parts of the main machine.

5.27 In view of the twin test laid above, it is submitted that even though the subassembly has a separate identifiable function of capturing images and videos and face recognition, as the Pearl Assembly Module Subassembly in its as imported condition does not contain essential features such as internal storage, analogue/ digital converter (ADC), output terminal, etc. which are required for a camera module to function independently on its own, it cannot be said to be a standalone device. Further, the images and video captured by the subassembly have to be stored within the mobile phone's internal storage. Similarly, to display the images or video captured by the subassembly, the subassembly has to interact with the display module of the mobile phone. Thus, for the subassembly to function effectively i.e., from capturing images and videos to processing and storing them, it needs to work in conjunction with other components of the mobile phone. Hence, it is submitted that the subassembly is not capable of functioning independently of the complete mobile phone. To this extent, it does not qualify both the conditions of the twin test, and hence Pearl Assembly Module Subassembly shall not merit classification under the separate heading and shall merit classification only as part of the mobile phone. Accordingly, the product will be covered within the single dash entry of "parts" under CTH 8517.

5.28 In view of the above discussion, as the Pearl Assembly Module Subassembly is a 'part' of mobile phone and is solely and principally used with a mobile phone, it is to be classified under CTH 8517. in terms of GIR 1 read with Section Note 2 (b) to Section Note XVI. Coming to classification at eight-digit level under CTH 8517, as the Pearl Assembly Module Subassembly is not covered under any specific entry at eight-digit level, it will be classified under the residuary entry under CTH 8517, i.e., under CTH 8517 79 90 which reads as "Telephone sets, including 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 8443, 8525. 8527 or 8528- Pads—Other—Other

5.29 As far as the eligibility of availing exemption benefit under Sr. No. 6J of Notification No. 57/2017 is concerned, the concerned entry is "all goods for use in manufacture of cellular mobile phone" which are covered under CTH 8517 79 90. This exemption is available subject to compliance with the procedure set out in the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 [as amended by Customs (Import of Goods at Concessional Rate of Duty or for Specified End Use) Rules. 2022] ('IGCR Rules 2022'). For ease of reference, the aforementioned entry under Notification No 57/2017 has been extracted as follows:

Thus, by virtue of Sr No 6J. BCD at the rate of 10% is applicable for all goods for use in manufacture of cellular mobile phone" which are covered under CTH 8517 79 90.

5.30 In view of the above, considering that the Pearl Assembly Module Subassembly which is to be exported by the Applicant is classifiable under CTH 8517 79 90 and is an essential part of mobile phone, as discussed above, the benefit of concessional rate of duty under Sr. No. 6J should be available at the time the import of Pearl Assembly Module Subassembly, subject to compliance with IGCR Rules, 2022.

5.31 M/s Apple Operations International Limited through letter dated 15.01.2025 made the additional submission with rebuttal:-

Specific rebuttal to the comments provided by Bengaluru port -

a As per the comment of Bengaluru Port, the presence of cameras in the subassembly justifies its classification under CTH 8525 as "digital cameras". Consequently, the Port suggests that the benefit under Serial No. 6J of Notification No. 57/2017 should not be granted, and instead, benefit under Serial No. 5A, which applies to camera modules used in mobile phones, should be considered.

b. At the outset, it is important to note that for all other parts in question, the Port has classified them as components of a mobile phone. In this case, however, the Port has made a distinction and classified the subassembly as a camera, without providing adequate reasoning for this departure from their previous position. Further, no sound reasoning has been provided for classifying this product as a "digital camera".

c. The Port has failed to consider the fact that this subassembly comprises of two components
which although work in conjunction they carry out different functions. One is a front camera while the other is a face recognition module.

d. Additionally, the Bengaluru Port has not addressed the submissions of the applicant concerning why the product does not meet the definition of a digital camera under CTH 8525. The Bengaluru Port has not considered the fact that the subassembly lacks certain essential parts such as analogue / digital converter, output device, etc. and that the subassembly can only function in conjunction with other components of mobile phone.

e. Therefore, the classification proposed by Bengaluru Port is incorrect, and the subassembly need to be classified as "parts" under CTH 8517, i.e., CTH 8517 79 90 and the benefit under Serial No. 6J of Notification No. 57/2017 is allowed.

6. In view of the aforesaid, the following is held:

a. Whether the Pearl Assembly Module Subassembly exported by the Applicant to India merits classification under CTH 8517 79 90 of the First Schedule of the Customs Tariff ?

Answer: Yes, the Pearl Assembly Module Subassembly exported by the Applicant to India merits classification under CTH 8517 79 90 of the First Schedule of the Customs Tariff.

b. Whether benefit of concessional rate of BCD under Sr. No. 6J of the Notification No. 57/2017 is available for export of such Pearl Assembly Module Subassembly to third-party manufacturers engaged in manufacture of mobile phones in India?

Answer: Yes, benefit of concessional rate of BCD under Sr. No. 6J of the Notification No. 57/2017 is available for export of such Pearl Assembly Module Subassembly to third-party manufacturers engaged in manufacture of mobile phones in India.

7. I, rule accordingly.

(Samar Nanda)
Customs Authority for Advance Rulings

F. No. VIII/CAAR/Delhi/Apple Operations (Bengaluru)/161/2024            Dated: 23.01.2025

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

1. M/s Apple Operations International Limited, Hollyhill Industrial Estate Hollyhill, T23
YK84, Ireland.

2. The Pr. Commissioner/Commissioner of Customs, Airport & Air Cargo Complex, Air

3 The Customs Authority for Advance Rulings. Mumbai. New Custom House. Ballard Estate, Mumbai-400001.

4. The Chief Commissioner (AR), Customs Excise & Service Tax Appellate Tribunal (CESTAT), West Block-2, Wing-2, R.K. Puram, New Delhi-110066.

5. The Principal Chief Commissioner of Customs, Delhi Customs Zone, New Custom House, IGI Airport Complex, New Delhi-110037.

6. Guard file.

7. Webmaster.

(Bharti Sharma)
Additional Commissioner & Secretary,
Customs Authority for Advance Rulings. Delhi