Customs Duty Classification Dispute Settled in Favor of M/s Proffer IT Consultancy, Saving Significant Duty Costs
In a landmark decision, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) in New Delhi has ruled in favor of M/s Proffer IT Consultancy Private Limited, determining that the company's imported handheld barcode scanners should be classified under the Customs Tariff Heading (CTH) 84716050 as Automatic Data Processing Machines. This decision overturns the prior classification under CTH 85171300 as smartphones, which would have subjected the imports to a higher rate of Basic Customs Duty (BCD) at 20%.
The case revolved around the classification of Newland NLS Handheld Barcode Scanners imported by M/s Proffer IT Consultancy. The company initially classified the scanners under CTH 84716050, arguing that their primary function was barcode scanning, with additional features like calling and internet access serving only ancillary roles. The classification under this heading benefits from an exemption on Basic Customs Duty, reducing costs significantly.
However, the Customs authorities reassessed the products under CTH 85171300, alleging they functioned as smartphones due to their capabilities for making calls, supporting Android OS, and running third-party applications. This reclassification resulted in a demand for a differential customs duty of INR 8,47,416.
The Tribunal, comprising Dr. Rachna Gupta and Mr. P.V. Subba Rao, examined the issue thoroughly. They referred to relevant Chapter Notes and precedents, including the "trade parlance test" to determine how the products are perceived in the market. They concluded that the scanners' primary function was not communication but data processing, aligning with their use in logistics and inventory management.
The Tribunal's decision emphasized that ancillary features such as SIM slots, Bluetooth, and cameras do not redefine the scanners' principal function. The Tribunal also observed that the scanners are recognized in the trade for their scanning capabilities and not as mobile communication devices.
This ruling not only provides financial relief to M/s Proffer IT Consultancy but also sets a precedent for similar cases, reinforcing the principle that product classification should reflect the primary function rather than ancillary capabilities.
Bottom Line:
Classification of imported goods under Customs Tariff - Handheld Mobile Barcode Scanners classified under CTH 84716050 as Automatic Data Processing Machines (Scanners) and not under CTH 85171300 as Smartphones. Ancillary functions such as calling and internet access do not change the principal function of the product, which is scanning barcodes.
Statutory provision(s): Customs Tariff Act, 1975, CTH 84716050, CTH 85171300, General Rules for Interpretation, Chapter Notes of Chapter 84 and Chapter 85.
