Samsung India Entitled To Customs Duty Exemption On Imported IC-Codecs: CESTAT

The Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that Samsung India is entitled to customs duty exemption on imported IC-Codecs.

The bench of Justice Dilip Gupta (President) and P. V. Subba Rao (Technical Member) has observed that HSN Explanatory Notes to CTH 8542 provide that monolithic ICs may be in the form of un-diced wafers. The IC-Codecs, as imported by the appellant, are in the form of rolls, i.e., un-diced wafers. It, therefore, clearly follows that the goods imported by the appellant are IC-Codecs and are classifiable under Customs Heading 8542 and more specifically under CTI 8542 39 90.

The appellant/assessee is in the business of manufacturing and selling mobile phones and tablet computers. In connection with its manufacturing activities, the appellant imports 'Integrated Circuits-Codecs' for use in the manufacture of mobile phones and tablets. The goods are integrated circuits, which function as codecs, i.e., compressors and decompressors, and comprise a digital signal processor, general purpose input and output pins, and an inter-integrated circuit (10). The DSP, GPIO pins, and 12C interface are only functional when the goods are mounted on the printed circuit board (PCB) and power is supplied within the PCB. The DSP is the main functionality of the goods, which functions in data compression or decompression upon the inflow of data. The GPIO pins are digital control pins of the goods that enable connection with the master, such as a CPU or FPGA, through the PCB. These masters, in turn, control the operation of the goods and the flow of the data within the DSPs using GPIO pins and 12C interfaces, respectively. The 12C interface is the communication protocol that allows the to and fro of data from the communication input.

During the period from March 5, 2018 to March 7, 2019, the appellant imported the goods and classified them under CTI 8542 39.00. The appellant availed himself of the concessional rate of duty under Serial No. 24 of Notification dated March 1, 2005, and paid 12% IGST on the import of the goods.

The department conducted an audit of the imports of the goods. It was understood by the audit team that the goods are a kind of Codec that have the capability of transmission and reception of digital information and would, therefore, be classifiable under CTI 8517 62 90 as 'other communication apparatus' and, accordingly, would be subject to a levy of basic 10% customs duty and 18% IGST.

A demand for show cause notice was issued to the appellant, proposing to reclassify the goods under CTI 8517 62 90. The appellant filed a detailed reply to the show cause notice refuting all the allegations.

The Principal Commissioner passed the order rejecting the classification of the goods claimed by the appellant under CTI 8543 39 00 and re-classifying the goods under CTI 8517 62 90 of the Tariff Act. The order, therefore, confirms the demand for customs duty and IGST to the extent of Rs. 1,89,05,965 with interest under Section 28AA of the Customs Act.

The assessee contended that the order passed by the principal commissioner is a non-speaking order, and the burden of proof lies on the department if the department wishes to classify the goods under a different heading. The goods are correctly classifiable under CTI 8542 29 00, but they cannot be classified under CTI 8517 62 90 of the Customs Tariff.

The department contended that Section Notes 3 and 4 to Section XVI provide that the classification of sub-parts will eventually depend upon the machine that performs the principal function. The goods are being put to further use in those apparatuses that have a specific principal function of transmission and reception capability as well as communication capability. The goods are one of the components that, when assembled and programmed with other components, enable the communication capability of mobile phones. Thus, once the main apparatus is classifiable under CTH 8517, the components used therein will be classifiable in that Chapter Heading only in line with the provisions of Note 3 and Note 4 to Section XVI of the Customs Tariff Act.

The issue raised was whether the goods imported by the appellant, namely "IC-Codecs,” deserve classification under CTI 8542 39.00 as claimed by the appellant or under CTI 8517 62 90 as determined in the order.

The tribunal noted that the goods are IC-codecs, which are electronic integrated circuits and are also known as microelectronic circuits, microchips, or chips. An 'IC-Codec' is a semiconductor wafer on which multiple components are fabricated. The IC Codec imported by it is an array of miniaturized and microscopic components consisting of active components and devices such as transistors and diodes and passive components and devices such as capacitors and resistors. The goods are imported in the form of rolls, and after importation, they undergo further processing to make them functional. Thus, it is claimed by the appellant that at the time of importation, the goods do not have the capability of transmission or reception of data.

The tribunal stated that the goods are IC chips, which are incapable of stand-alone function or connection with any other device. The ICs are only capable of functioning as compressors and decompressors upon connection with external peripherals like power supplies and interfaces. The goods imported only interact with components that are mounted on the PCB. No network like LAN/WAN is established between the impugned goods and other components of the PCB. The imported goods are not in the nature of machines or apparatus that are deployed in a network like LAN or WAN.

The CESTAT, while allowing the assessee's appeal, held that the department has not provided any technical literature or material in the impugned order to show that the imported ICs, at the time of import, have any capability of transmission or reception of digital information. The allegations made in the show cause notice and confirmed in the order are only based on presumptions.

Counsel For Appellant: B.L. Narasimhan

Counsel For Respondent: Nagendra Yadav

Case Title: M/s. Samsung India Electronics Pvt. Ltd Versus Commissioner Of Customs

Case No.: Customs Appeal No. 51172 of 2020

Click Here To Read The Order