CUSTOMS AUTHORITY FOR ADVANCE RULINGS

NEW CUSTOM HOUSE, BALLARD ESTATE, MUMBAI-400 001

E-MAIL: cus-advrulings.mum@gov.in

in

Application No CAAR/CUS/APPL/107/2023 - O/o Commr-CAAR-MUMBAI

Ruling

M/s Nokia Solutions and Networks India Private Limited (IEC No.: 0507000340) (Hereinafter will be referred to as 'Applicant') filed an application for advance ruling in the Office of Secretary, Customs Authority for Advance Ruling, Mumbai. The said application was received in the secretariat of the CAAR. Mumbai on 22.08.2023. along with its enclosures in terms of Section 28H(1) of the Customs Act, 1962 (hereinafter referred to as the 'Act'). The Applicant is seeking advance ruling on whether Optical Line Terminals are eligible for concessional Basic Customs Duty rate of 10% in terms of S. No. 20 of Notification no. 57/2017-Cus dated 30.06.2017 or otherwise.

2. Submission by the Applicant:

2.1 The applicant is engaged in the business of manufacturing and trading of telecommunication network equipment both within and outside India, network design, installation and commissioning, providing support services to major telecom and internet service provider and developing software.

2.2 The Applicant is importing "Gigabit Passive Optical Networks Optical Line Terminal** (hereinafter referred to as "GPON OLT/subject goods") and selling the same domestically to its customers. The Applicant is presently importing the subject goods at Chennai port and Delhi port. The quantum of imports at the Delhi port is negligible insofar as imports at Delhi port are only made for testing and related purposes and not in the ordinary course of commercial business. The different models of GPON OLTs presently being imported are as under:

2.3 For the imports made at Chennai, the Applicant was always classifying the subject goods under CTH 8517 62 90 and discharging concessional Basic Custom Duty (BCD) @ 10% in terms of S. No. 20 of the Exemption Notification No. 57/2017 dated 30.06.2017 (hereinafter referred to as the "exemption notification"), insofar as GPON OLT is not covered under any of the exclusions from (a) to (i) of S.No. 20. Copy of import documents classifying and clearing GPON OLTs at concessional BCD rate of 10% is attached herewith and marked as Annexure "C" to the CAAR-1 application.

2.4 However, recently the Central Board of Indirect Taxes and Customs (CBIC) has issued circular no. 08/2023 dated 13.03.2023 inter alia identifying the products/equipment covered under the exclusion category i.e. S. No. (b) to (h) of S. No. 20 of the exemption notification. The circular has been issued at the request of the stakeholders, and to make them more aware on the coverage of the products and equipment under S. No. 20 of the exemption notification. Further, the circular has been issued by CBIC in consultation with the Department of Telecommunication (DoT).

2.5 The Applicant is affected by the issuance of Circular No. 8 insofar as CBIC has identified following products/equipment under point no. (c) to S. No. 20 - "Combination of one or more of Packet Optical Transport Product or Switch (POTP or POTS)'' wherein concessional duty rate was historically being claimed and allowed under S. No. 20 of the exemption notification -

i. Optical Line Terminal (OLT) for FTTX (GPON/ EPON/ XGSPON/ 10GEPON/ NG-PON2 / 25GPON / 50GPON etc.);

ii. Optical Network Terminal (ONT) for FTTX (GPON/ EPON/ XGSPON/ 10GEPON/ NG-PON2 I 25GPON / 50GPON etc.).

2.6 The issuance of the circular has encouraged the field formations to saddle importers with BCD liability on import of products which finds mention in Circular No. 8. without giving any advertence to the technical submissions of the importers and their products' technical literatures. It is important to note that the most prominent stakeholders affected by the circular viz. importers of telecom products and equipment have not been called upon for consultation on the list of products and equipment, prior to issuing the circular.

2.7 Following the issuance of the circular, the customs authority at Chennai port has denied the benefit of concessional BCD rate of 10% on the import of GPON OLTs by the Applicant. The field formations have also denied the technical submissions furnished by the Applicant in support of their claim of GPON OLTs being eligible for concessional rate and how the same differentiates from products which are "Combination of one or more of Packet Optical Transport Product or Switch (POTP or POTS)"'.

2.8 The Applicant has thus cleared the goods upon payment of BCD @ 20% under protest, without accepting the view of the customs authorities, but to cater the business requirements. Sample import documents discharging BCD @20% under protest on import of GPON OLT are attached herewith and marked as Annexure "E" to the CAAR-1 application.

2.9 The Applicant submits that the subject goods cannot be considered as "Combination of one or more of Packet Optical Transport Product or Switch (POTP or POTS)" and inclusion of the same under this category in the circular is erroneous, in view of the detailed submissions provided hereunder. OLTs and POTPs/POTSs are in stark contrast to each other and by including OLTs in the category of POTP and POTS, the CBIC has gone beyond the ambit of the exemption notification.

2.10 In the above background, the Applicant intends to obtain clarity on the effective BCD rate on the import of GPON OLT products. The Applicant is thus before this Hon'ble authority seeking advance ruling on the following questions:

a. Whether the GPON OLTs are eligible for concessional BCD rate of 10% in terms of S. No. 20 of the exemption notification?

3. Applicant's Interpretation of Law:

3.1 The Applicant has submitted that POTP/POTS and OLTs are different from each other and cannot be equated by any stretch of imagination. Both the products work in different layers of the telecommunication network infrastructure and are meant for performing their specific functions.

3.2 GPON system cannot be equated to POTP/POTS key differences between a GPON setup vis-a-vis POTP/POTS is propounded below for understanding and reference -

3.3 The Applicant thus submits that inclusion of OLTs under POTP/POTS in circular is erroneous and without any technical basis.

3.4 The Applicant submits that in the instant case too. the exemption notification nowhere denies the benefit of concessional BCD rate to GPON OLTs, however. CBIC has attempted to deny such benefit by issuance of an erroneous circular which goes beyond the notification.

3.5 The Applicant submits that GPON OLTs are completely different from Packet Optical Transport Product or Switch (POTP or POTS) and by no stretch of imagination can the same be included in POTP or POTS. The Applicant further submits that when the exemption notification allows the benefit of concessional duty rate to OLTs, the same cannot be taken away by issuance of an erroneous circular.

3.6 Summarizing all the applicant has stated that GPON OLTs are eligible for concessional BCD rate of 10% in terms of S. No. 20 of the exemption notification, absent inclusion in any of the exclusion category from (a) to (i) of the exemption notification.

4. Port of Import and reply from jurisdictional Commissionerate:

4.1 The applicant in their CAAR-1 indicated that they intend to import the subject goods from O/o Pr. Commissioner of Customs, Chennai- VII. New Customs House, Meenambakkam, Chennai - 600027. The application was forwarded to the jurisdiction for their comments on 05.09.2023. 01.11.2023, 09.11.2023 & 04.12.2023 however no response was received from the jurisdictional authorities.

5. Details of Personal Hearing:

5.1 A personal hearing was held on 08.02.2024 at 03:00 PM. Shri. Naveen Kumar (Nokia Solutions/Trade Management India), Shri. Abhay Sethi (Business Dev. Manager), Shri. Rahul Agarwal (EY. Sr. Manager) appeared as Authorized Representatives on behalf of the applicant for the hearing. During the PH. The representatives of the applicant reiterated the content of submitted in the application submitted before this office. They further contended that their subject import goods i.e. OLT (Optical Line Terminal) are eligible for concessional BCD rate of 10% in terms of S. No. 20 of the exemption notification No 57/2017-Cus dated 30.06.2017. They further contended that their subject device i.e. OLT mentioned in at para (i) of the Column III in © part in Column I pertaining to the Annexure-A of Circular No 08/2023 dated 13.03.2023 is wrongly figuring as excluded. However they sought additional 2 weeks' time to submit additional submission which is granted. Nobody appeared from the department side personal hearing either in person or through e-hearing mode.

5.2 A personal hearing was held on virtual mode again on 29.02.2024 at I 1:30 am. Shri. Naveen Kumar and Shri. Rahul Agarwal appeared on behalf of the applicant for the hearing. They provided an additional submission dated 29.02.2024 and submitted that it is a settled principle of law that the judicial/quasi-judicial authorities are empowered to conduct an independent analysis of the matter and shall not be bind by the direction of the Central Board of Indirect Taxes and Customs. They further relied upon certain case laws submitted in the additional submission. Nobody appeared from the department side personal hearing either in person or through e-hearing mode.

6. I have considered all the materials placed before me in respect of the subject goods. I have gone through the submissions and additional submission made by the applicant during the personal hearing. Therefore. I proceed to pronounce a ruling on the basis of information available on record as well as existing legal framework, The issue before me is whether Optical Line Terminals are eligible for concessional Basic Customs Duty rate of 10% in terms of S. No. 20 of Notification No. 57/2017 dated 30.06.2017 or otherwise.

6.1 Before deciding on the issue, let me deliberate on the legal framework prescribed in Customs Tariff Act. 1975, Chapter/ Section notes along with HSN explanatory notes. I find that there is no ambiguity in the classification of the subject goods since they are classified under CTH 85176290.

6.2 Relevant portion of CTH 8517 is reproduced below tor ease of reference:

7.3 The submission of the applicant was scrutinized in view of Sr. No 20 H of Notification No 57/2017 dated 30.06.2017 as amended. In this regard, it is to mention that the relevant portion of the Notification is as under: -

7.3.1 From the above it is evident from Sr. No. 20 para (c) that Combination of One or more of Packet optical Transport Product or Switch (POTP or POTS) will not be eligible for exemption benefit available as per Notification No 57/2017-Cus dated 30.06.2017.

7.4 I find that the Board has vide its Circular No. 08/2023 dated 13.03.2023 has clarified items under said entries specifically those at (b) to (h), amongst (a) to (h), in the Notification No 57/2017-Cus dated 30.06.2017. for better understanding by all stakeholders for a more effective identification of products and equipment covered therein. The relevant para of the said circular is reproduced verbatim:

Attention of the field format ions is invited to Notification No. 57/2017-Customs, dated 30-6-2017 amended by Notification No. 2/2019-Customs, dated 29-1-2019 which, against tariff items 8517 62 90 and 8517 69 90, gives descriptions of certain goods that are telecommunication products or equipment.

2. In (his context, the Board was apprised that some of these technology related descriptions, specifically those at (b) to (h), amongst (a) to (h), in the notification, need to be better understood by all stakeholders for a more effective identification of products and equipment covered therein.

3. Accordingly, in order to make stakeholders more aware in the mailer, and in consultation with the Department of Telecommunications (DoT),-

(a) the identification of products/equipment covered thereunder, at (b) to (h) of the notification, is illustrated in Annex are -1.

(b) it is decided that, in terms of the Bill of Entry (Electronic Integrated Declaration and Paperless Processing) Regulations, 2018, an identification of products/equipment under 85176290 and 85176990 shall be enabled from the beginning, that is, from the time of filing of import declarations itself, bringing certainly, for which an alpha numeric code/identifier as provided for in Annexure-2 will need to be additionally declared in bill of entry by the importer with effect from 1-4-2023.

Annexure -1

From the above it is aptly clear that CBIC has issued the Circular No 08/2023 dated 13.03.2023 in consultation with the Department of Telecommunication and Annexure-1 to the said circular clearly states that Notification description oV Combination of one or more of Packet Optical Transport Product or Switch (POTP or POTS)' covers following Machines/apparatus:

i. Optical Line Terminal (OLT) for FTTX (GPON/ EPON/ XGSPON/ 10GEPON/ NG-PON2/ 25GPON / 50GPON etc.);

ii. Optical Network Terminal (ONT) for FTTX (GPON/ EPON/ XGSPON/ IOGEPON/ NG-PON2 /25GPON / 50GPON etc.)

8 The applicant in the Para 5.2 above has submitted that the authority can conduct an independent analysis and CBIC instruction/circular is not binding upon him. In this regard it is observed that:

8.1 In a catena of Supreme Court Judgments, it is already settled that circulars are binding upon departmental authorities but the circulars contrary to the plain words of a statute, cannot bind the courts. The court independently interprets the statute in their own terms.

8.2 The Hon'ble Supreme Court in the case of CCE Vs. Dhiren Chemical Industries  2002 (139) E.L.T. 3 (S.C.) and CCE Bolpur Vs. Ratan Melting & Wire Industries 2008 (12) S.T.R. 416 (S.C.) [14-10-2008] upheld the same view. In the matter of CCE Bolpur Vs. Ratan Melting & Wire Industries, the constitution bench of the Hon'ble SC held that:-

6. Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court. So far as the clarifications/circulars issued by the Central Government and of the Slate Government are concerned (hey represent merely their understanding of the statutory provisions. They are not binding upon the court. It is for the Court to declare what (he particular provision of statute says and it is not for the Executive...

8.3 the Hon'ble High Court of Jharkhand in the case ofM/s. LMB Sons Vs. UOI (2023) 11 Centax 271 (Jhar.) vide its order dated 09.10.2023 (W.P. (T) No. 5364 of 2022) by reiterating the same view further observed that: -

it is also a well-established principle of law that if law prescribes a manner in which a power has to he exercised, then such power can be exercised only in such manner. This has been recently reiterated by the Hon'ble Apex Court in its judgment passed in the case of Dharani Sugars & Chemicals Limited r. Union of India reported in (2019) 5 SCC 480, (Para 55).

8.4 the Section 151A of Customs Act reads as follow:

Instructions to officers of customs.

151A. The Board may, if it considers it necessary or expedient so to do for the purpose of uniformity in the classification of goods or with respect to the levy of duty thereon, [or for the implementation of any other provision of this Act or of any other law for the time being in force, insofar as they relate to any prohibition, restriction or procedure for import or export of goods] issue such orders, instructions and directions to officers of customs as it may deem fit and such officers of customs and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board:

Provided that no such orders, instructions or directions shall be issued,-

(a) so as to require any such officer of customs to make a particular assessment or to dispose of a particular case in a particular manner: or

(b) so as to interfere with the discretion of the Commissioner of Customs (Appeals) in the exercise of his appellate functions.

On going through the above provision of Section 151A of the Customs Act it is evident that Commissioner of Customs (Appeals) enjoys the discretion in exercising its power in capacity of appellate functions. The Customs Authority for Advance Rulings lacks such discretionary and appellate functions.

Further the provisions of Advance Rulings are derived from the WCO Conventions under the provisions of Articles 3 of the WTO Agreement on Trade Facilitation, by virtue of that the member countries have to adopt the advance rulings mechanism. As per "Technical Guidelines on Advance Rulings for Classification, origin and Valuation" issued by World Customs Organization the objectives of Advance Rulings are enumerated as follows:

"The key objective of pre-entry advance ruling programmes is to provide decisions on the classification, origin and valuation of commodities prior to their importation or exportation, thus adding certainty and predictability to international trade and helping traders to make informed business decisions based on legally binding rulings. "

On conjoin reading of provisions of section 151A of the Customs Act 1962 read with the ratio of the judgements passed in the cases cited supra, the existing circulars issued by the board cannot be disregarded.

9. Therefore, in view' of the above discussions, it can be deduced that the subject goods 'Optical Line Terminals' has been clearly defined by Circular No 08/2023 dated 13.03.2023 to be falling under the Notification Description of 'Combination of one or more of Packet Optical Transport Product or Switch (POTP or POTS)' covered under Sr. No. 20 of Notification No 57/2017-Cus dated 30.06.2017 as amended. Moreover, it is further important to note that Circular No 08/2023 dated 13.03.2023 has been issued in consultation with the Department of Telecommunication.

10. In view of the above facts and circumstances of the case I find that Optical Line Terminals are not eligible for concessional Basic Customs Duty rate of 10% in terms of S. No. 20 of Notification No. 57/2017-Cus dated 30.06.2017 in terms of Circular No 08/2023 dated 13.03.2023.

11. I rule accordingly.

(P K Rameshwaram)

Customs Authority for Advance Rulings, Mumbai