By TIOL News Service

MUMBAI, DEC 22, 2015: THE issue is classification of Optical Fibre Cables (OFC in short) used in Telecommunication - whether they would fall under Tariff Item 854470.90 and be eligible for exemption under Notification No. 24/2005 dt. 1.3.2005 (as claimed by importer) or they would fall under Tariff Item 9001000 and be leviable to Basic Customs Duty at 10% under Notification No. 21/2002-Cus. dt.1.3.2002, as alleged by Revenue.

On the basis of information that M/s. Vodafone Essar Group of Companies (M/s VEG) were misclassifying imported OFC and evading duty, 3 consignments totally valued at Rs.4.65Crore imported from M/s. Corning Cable Systems Pvt. Ltd. were placed under seizure.

Samples of the 3 consignments were drawn and sent to Telecommunication Engineering Centre (TEC), Ministry of Communication and Information Technology, Department of Communications, Government of India for expert opinion. TEC vide letter dt. 14.1.2009 opined that cables contain bundles of optical fibres which were not individually sheathed and, therefore, are covered under Customs Tariff Heading 9001.

During investigation M/s VEG paid Rs.1.83Crores towards differential duty liability.

Investigations culminated in issuance of SCNdt. 17.3.2009. The Commissioner confirmed the classification under TI 90011000 and demanded differential duty amounting to Rs.3.25crores along with interest. However, the seizure of goods was withdrawn and no penalty was imposed.

The importer is in appeal and so is the Revenue against dropping of penalty and withdrawal of seizure.

There is also another appeal by Revenue as the Commissioner (Appeals) classified the goods under Heading 8544.

The appellant justified the classification claimed and submitted that each of the strands of optical fibre is individually cladded, coated with dual acrylate coating and colour coated and, therefore, it should be treated as a fibre individually sheathed, hence classifiable under CTH 8544 & eligible for exemption.

The AR supported the stand taken by the adjudicating authority in classifying the goods under heading 9001 based on the technical opinion given by TEC, Department of Telecommunications and also took the assistance of the following decisions Reliance Communication Infrastructure Ltd. - 2015-TIOL-177-CESTAT-MUM, Alcatel India Ltd. - 2006-TIOL-13-ARA-CUS, Optel Telecommunication - 2005-TIOL-386-CESTAT-DEL as far as classification is concerned and the apex court decision in Carrier Aircon Ltd. - 2006-TIOL-69-SC-CX where it is held that "end-use" is not the criteria for determining classification of a product.

The Bench after considering the submissions decided to examine the samples seized by DRI which were presented on 9th October in the presence of the DRI Officer and observed thus -

The OFC cable was cut across its section. It was found to consist of six tubes and within each tube there were eight optical fibres, each fibre being coated with different colour. Each OFC therefore consists of forty-eight numbers of optical fibres.

The Bench then adverted to the following case laws and observed -

++ Vodafone Essar - 2009-TIOL-117-HC-MUM-CUS where it is held:

……….The fact that the petitioners themselves were classifying the goods in the past under Heading 90.01 would not preclude them from classifying the goods under Heading 85.44 in the light of the order passed by Commissioner of Customs (A), Mumbai.

……………The contention of the revenue that the petitioners have voluntarily paid the amount towards the differential duty is equally unacceptable, because, in the covering letters all dated 19-12-2008 the petitioners have specifically stated that the amount is being paid in view of the threat given by the D.R.I. officers to arrest the directions / employees if the differential duty is not paid.

++ Bharti Airtel - 2008-TIOL-2069-CESTAT-MAD - Held: The Commissioner of Central Excise (Adjudication) has no powers to decide the classification, let alone revise the classification, of any item manufactured by an assessee which is assessed by the Central Excise authorities. On this ground also the order of the Commissioner deserves to be set aside… The appeals of the assessees are allowed by way of remand.

++ M/s. Vodafone Essar South Ltd. - 2008-TIOL-1931-CESTAT-MAD - Held: the Tribunal held that the Advance Rulings Authority decision in the case of M/s. Alcatel India Ltd. is binding only on the applicant who sought the decision in terms of Section 28 J of the Customs Act. Tribunal directed that the classification should be decided after examining the goods.

++ Optel Telecommunication Ltd. - 2005-TIOL-386-CESTAT-DEL - Held: the department itself desired the goods to be classified under Heading 8544 instead of Heading 9001. The duty at that time was higher under Heading 85.44.

++ Alcatel India Ltd. - 2006-TIOL-13-ARA-CUS - Held that the goods in question are not made up of "individually sheathed fibres" and hence not classifiable under CTH 8544.

++ Reliance Communications Infrastructure Ltd. Vs. CC - 2015-TIOL-177-CESTAT-MUM - held that Optical Fibre Cables of a type imported in the present case are classifiable under Heading 9001.

Upon examination of the samples and after referring to Technical Books/Articles on the subject matter, the Bench further observed -

+ From the Headings of the two entries we find that the only differentiating factor is that to fall under Heading 8544 the cables should be made up of individually sheathed fibres.

+ Although we have seen the cables in question to be composed of individual fibres, which according to Technical Literature reproduced above are sheathed, we may refer to the internationally accepted nomenclature i.e. HSN on which our tariff is based and the Explanatory Notes to the HSN, for more clarity.

+ Under the Explanatory Notes to Heading 8544, "the heading also covers optical fibre cables, made up of individually sheathed fibres, whether or not assembled with electrical conductors. The sheaths are usually of different colours to permit identification of the fibres at both ends of the cable. Such cables are used mainly for telecommunication because their capacity for the transmission of data is greater than that of electrical conductors." Looking at the OFC imported in the present case, we find every sheathed optical fibre is colour coated for identification of each fibre at both ends of a cable and the cables are imported for use in long distance telecommunication. To us, it does seem that it satisfies the description of Heading 85.44.

+ HSN Notes under Heading 9001 covers optical fibres, optical fibre bundles and optical fibre cables. It states that "Optical Fibers consist of concentric layers of glass or plastics of different refractive indices. Those drawn from glass have a very thin coating of plastics, invisible to the naked eye, which renders the fibers less prone to fractures. They are used to make optical fiber bundles and optical fiber cables. Optical fiber bundles--If coherently bundled, they are used for transmission of images, but if randomly bundled they are suitable only for transmission of light for illumination. The optical fibre cables consist of a sheath containing one or more optical fibre bundles, the fibres of which are not individually sheathed. Optical fibre bundles and cables of Heading 9001 are used primarily in optical apparatus, particularly in endoscopes."

+ OFC imported has, in all, 48 optical fibres (6 tubes X 8 fibre each). They cannot be called as optical fibre bundle as the optical fibre bundle of Heading 90.01 consist of hundreds or thousands of optical fibres. The fibres used in the present case are for transmission of data. The 48 fibres as such, cannot transmit light or image as required by endoscope or an optical apparatus. As per HSN, optical fibre bundles are used only for illumination or image transmission, that too in endoscope etc. Reading the HSN notes, and seeing the construction and use of the product, it appears that Heading 8544 is more appropriate in the present case. The Supreme Court in the case of CCE v. Woodcraft - 2002-TIOL-278-SC-CX-LB held that any dispute regarding tariff classification must, as far as possible, be resolved with reference to the nomenclature indicated by the HSN unless there be an express different intention indicated by the Central Excise Tariff itself.

+ Moreover, the Ruling of AAR (in this case in Alcatel India Ltd.) will apply only in respect of the party that applied for such Ruling in terms of Section 28J of the Customs Act.

+ We find that CESTAT in the decision in the case of Reliance - 2015-TIOL-177-CESTAT-MUM, solely and largely relied on the decision of ARA in Alcatel India Ltd. In the Alcatel case, the ARA relied on the dictionary definition of the terms "sheath" and "coating" to draw the distinction between these terms and assumed that "sheathing" means drawing of a tube over an object and held that the dual acrylate coating of different colours is coating and not sheathing. The ARA faulted with HSN and held that HSN confuses between sheathing and coating. Accordingly, the ARA held that the HSN erred in describing the dual acrylate coating of different colours (which is a coating) as sheathing.

+ In our considered view the OFC merit classification under Heading 8544. One of us was a member of the Bench in the case of Reliance Communications Infrastructure Ltd. which decided the classification of similar goods to be under Heading 9001. Our differing view is based to a significant extent on the Technical books/Literature, the benefit of which was not available to the bench in the case of Reliance Communications Infra Ltd case or in Optel Telecommunication Ltd. Therefore in our opinion, the matter needs to be referred to a Larger Bench of the CESTAT for resolving the dispute. At this stage we find that other issues such as confiscability and penalties would depend on the decision regarding classification. Therefore we do not propose to take a view on these issues till the larger question of classification is decided.

Conclusion: Registry is directed to place the matter before the President CESTAT for constitution of a Larger Bench to decide the following question of law:

Whether Optical Fibre Cables (OFC in short) imported by Vodafone Group of Companies and used in Telecommunication are classifiable under Customs Tariff Heading 8544 and eligible for exemption under Notification No. 20/2005 dt. 1.3.2005 or they would fall under Customs Tariff Heading 9001 leviable to basic Customs Duty at 10% under Notification No. 21/2002-Cusdt. 1.3.2002?

In passing: Also see 2008-TIOL-1931-CESTAT-MAD.

(See 2015-TIOL-2739-CESTAT-MUM)