JANUARY 01, 2020

By Akhilesh Kangsia, Joint Partner and Madhura Khandekar, Senior Associate, Lakshmi kumaran & Sridharan, Attorneys

TELECOM Industry has been facing numerous disputes on the customs front. One of such disputes is classification of 'Routers' under Customs Tariff and availability of exemption from payment of basic customs duty on importation. While Importers have been classifying 'routers' under Tariff Item 8517 69 30 as being specifically covered by name in the Customs Tariff, having 'Nil' rate of duty, the Customs department is of the view that 'routers' are specifically covered under Sub-heading 8517.62 (Tariff Item 8517 62 90) as "switching and routing apparatus" and on that basis, classifying the router under Tariff Item 8517 62 90. The controversy resulted in exemption from basic custom duty not being available to the router due to change in the classification.

This controversy, we must, attribute to the drafting error as Tariff Item 8517 69 30 for router was a misfit under Sub-Heading 8517.69. Rather, there should have been a Tariff Item for routers, under sub-heading 8517.62. In fact, routers are mentioned by name, under sub-Heading 8517.62, in other countries like, USA, Singapore, etc.

Probably realizing this, in Union Budget 2019-20, it was proposed to delete Tariff Item8517 69 30 from the Customs Tariff. The Finance Bill,though received the assent on 01.08.2019, this change (i.e., deletion of Tariff Item 8517 69 30 of router) was to be effective from a future date.

Vide Notification No. 89/2019-Cus.(NT) dated 10.12.19, the Central Government notified 01.01.2020 as the date for giving effect to this change. As a result of this, 'routers' shall be classifiable under sub-Heading 8517.62 (Tariff Item 8517 62 90) of Customs Tariff with effect from 01.01.2020.

Router being an IT product covered by Information Technology Agreement (ITA-I), it was expected a notification would be issued granting exemption from basic custom duty, to router, on account of change in classification within Heading. Accordingly, a notification has been issued now,being Notification No. 36/2019-Cus. , dated 30.12.19, amending parent Notification No.24/05-Cus.,by substituting Sr. No.13N.

The substituted entry reads as under:

This amending notification continues the same rate of duty viz. exemption from the whole of the customs duty, for routers from 1.1.2020.

The Author(s)however feel that the above changes will not put to rest the controversy. The Customs department may still dispute classification of router under Sub-Heading 8517.62 to deny the above exemption though such stand might not be correct and legal. Ideally, a clarification should be issued or sought by the Trade and Industry from the Board that all and every type of router should get the exemption irrespective of the classification within Heading 85.17 or the Notification should be amended to indicate the Heading only, as 85.17.

End to the controversy should not remain a dream!

(The views expressed are strictly personal)