Whether the product is classifiable as a telephone under Customs Tariff Heading (hereinafter referred to as “CTH”) 8517 or as a Camera under CTH 8525 and if the product is classified under CTH 8525, then whether the applicant is entitled to the benefit of

PJ/Case Law/2018-2019/3461

Case:SAMSUNG INDIA ELECTRONICS PVT. LTD.
Citation:2016 (340) E.L.T. 430 (A.A.R.)
Issue:Whether the product is classifiable as a telephone under Customs Tariff Heading (hereinafter referred to as “CTH”) 8517 or as a Camera under CTH 8525 and if the product is classified under CTH 8525, then whether the applicant is entitled to the benefit of the exemption provided under the Notification No. 25/2005.
Brief facts:The issues involved in the appeals are filed by M/s. Samsung India Electronics Private Ltd. (hereinafter also referred to as applicant) is a private limited company registered in India under Companies Act, 1956. Applicant proposes to launch a new mobile phone by the name of Galaxy K Zoom under the Galaxy series. Applicant proposes to import the said product for reselling to the distributors, retailers and the individual customers. The product is powered by Android Kit-Kat operating system and a quad 1.3 GHz processor along with the dual-core 1.7 GHz processor. It has a 4.8” HD SAMOLED (Pen tile) touch screen. It comes with 2 GB RAM, 8 GB inbuilt memory, and has external memory of up to 64 GB. It has a support system for micro SD cards. Most of the specifications in the hardware and software installed in the product matches with the other mobile phones of the Galaxy series. However, one of the distinguishing features of this product from its predecessor in the Galaxy series is the quality of its camera. It is equipped with a 20.7 MP BSI CMOS having 10x Zoom, w/Flash. Other important feature of the product is its In-Call feature. This allows the user of the product to capture and share an image even when on call, with a simple twist of zoom ring.
Appellant’s contention: Applicant submits that there are two competing headings in which the said product can be covered, i.e., 8517 and 8525. Applicant submits that items to be classified under CTH 8517 are basically equipments for transmission and reception of voice, image or data. In other words, transmission or reception of voice, image or data must be the principal function for a product classifiable under CTH 8517. In the instant case, the product performs all these functions. There is transmission and reception of calls, text messages, multimedia messages, mails, images, videos, etc. which is performed by the product. As the description provided in the CTH 8517 and the functions performed by the product are similar, the product can fall under the CTH 8517. Further, Cameras under CTH 8525 are those cameras which convert the images captured into analogue or digital data. The cameras of this heading capture an image onto a light sensitive device. According to Rule 3(b) of the General Rules for the Interpretation of the Harmonized System, in case of classification of composite goods consisting of different components, the component which gives the essential character to the goods is the determining factor. Therefore, in order to correctly classify the product to be imported, one will have to rely upon the test of essential character. It is important to consider the features of the product to identify the essential character of the product. It is a device from which user can make calls, can receive calls, send and receive messages, play music video, music player or radio, record video, can do arithmetic calculations, receive and send mails, can get directions vide navigation, can take photographs and upload them instantly, etc.
Applicant further submits that they had approached the Customs Valuation and Classification Institute, Korea Customs Service for classifying Galaxy S4 Zoom which is the predecessor of the product. The said Institute on the basis of the structure, functions and price ratio of the product has provided that the product is classifiable as Tariff Item Number 8517 12 9010, i.e., under the category of cordless phone. The applicant also imported S4 Zoom in the USA, where the US Customs and Border Protection has classified the product under H.S. Number 8517 12 0050. The Customs Entry Advice of UK has also classified the product under CTH 8517 12 0090
Respondent’s contention:Revenue submits that the product, i.e., Galaxy K Zoom proposed to be imported in the current application has similar features as compared to the Galaxy S4 Zoom. As per the literature submitted by the applicant along with the application for Advance Ruling, the Galaxy K Zoom is stated to be “Real-Zoom in your pocket”. Further, in the literature, the USPs of the product are mentioned as Slim Optical Zoom, 7mm Thinner than Galaxy S4 Zoom, Real optical Zoom (10x), High Resolution (20.7 MP), Big Size Sensor (1/2.3”0, Photographer Friend, Enjoyable pro-like photo life with smart capturing guide, Unique Accessories, Unexpected photo experience with unique camera covers, Android Based new Camera UI Experience and Simple and user-friendly UX. The principal function of the device as Camera finds support from the fact that the device automatically detects the surrounding and controls various options that can affect the photographer to allow taking best shot of the current environment. This mode is suitable for general users, as the device controls most settings and the catalogue also mentions that it captures the moments a user does not want to miss using various shooting modes. This equipment also has the capabilities to customize the options that affect the photography according to the environment where the photo is taken. This mode is suitable for advanced users, as the users are required to adjust the settings manually. The zoom is controlled by a ring around the barrel, which can also be set to control different functions or bring up menus. Twist it during a phone call and it will allow to snap a shot and instantly sends it via MMS. The Mobile Phone available in the market does have a zoom facility in the camera but this is a digital zoom not the optical zoom.
Revenue further submits that the applicant had imported Galaxy S4 Zoom, which is predecessor model to Galaxy K Zoom proposed to be imported; that the Department vide adjudication order classified Galaxy S4 Zoom under CTH 8525 80 20, as digital camera. Revenue further submits that the product Galaxy K Zoom proposed to be imported by the applicant is to be classified under CTH 8525 80 20 as camera, in view of Note 3 to Section XVI of the Import Tariff, as camera performs the principal function in the Galaxy K Zoom. In support of their contention, Revenue relied upon the judgment of the Hon’ble Supreme Court in the matter of Xerox India Ltd. v. Commissioner of Customs, Mumbai - 2010 (260) E.L.T. 161 (S.C.) as also Tribunal’s order in case of Collector of Customs, New Delhi v. Apsom Computers Ltd. - 2001 (130) E.L.T. 660 (Tri. - Del.). Revenue also submits that as per technical specification provided by the applicant on Google and other websites, the subject device has specifically been designed and marketed by Samsung as a Camera wherein mobile facility and other applications are only additional features.
Judgment:From the submissions made by the applicant and the Revenue that both have relied upon the principle of principal function for classification of subject product - Galaxy K Zoom; applicant proposes the product to be classified under CTH 8517 as mobile phone, whereas the Revenue suggests it to be classified under CTH 8525 as digital camera. Applicant’s reliance on classification by Customs Valuation and Classification Institute, Korea Customs Service, US Customs & Border Protection and UK Customs is not considered as the same is in respect of Galaxy S4 Zoom and not product under consideration, i.e., Galaxy K Zoom. For the same reasons, contents of Adjudication Order relied upon by the Revenue is also not considered. However, in order to appreciate the present issue, it may be appropriate to examine the relevant tariff entries as also Section Note, etc. Relevant extract of CTH 8517 and 8525 is as under;

8517		Telephone sets, including telephones for cellular networks or for other wireless networks; other apparatus for the transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network), other than transmission or reception apparatus of heading 8443, 8525, 8527 or 8528
	-	Telephone sets, including telephones for cellular networks or for other wireless networks :
8517 11	--	Line telephone sets with cordless handsets :
8517 11 10	---	Push button type
8517 11 90	---	Other.......................
8517 12	--	Telephones for cellular networks or for other wireless networks :
8517 12 10	---	Push button type…………………………
8517 12 90	---	Other…………………………………
8525		Transmission apparatus for radio-broadcasting or television, whether or not incorporating reception apparatus or sound recording or reproducing apparatus; television cameras, digital cameras and video camera recorders
8525 80	-	Television cameras, digital cameras and video camera recorders :
8525 80 10	---	Television Cameras u 10% ……………………………………..
8525 80 20	---	Digital cameras u 10% ………………………………………….
8525 80 30	---	Video camera recorders u 10% ………………………………...
8525 80 90	-	Other……………………………………………………………...

11. Relevant part of HSN Explanatory Notes appended to the Tariff Headings 8517 and 8525 are as under :
85.17
(I) TELEPHONE SETS, INCLUDING TELEPHONES FOR CELLULAR NETWORKS OR FOR OTHER WIRELESS NETWORKS
(B) Telephones for cellular networks or for other wireless networks.
            This group covers telephones for use on any wireless network. Such telephones receive and emit radio waves which are received and retransmitted, e.g., by base stations or satellites.
            These include, inter alia :
(1) Cellular phones or mobile phones
(2) Satellite phones.
85.25
(B)       TELEVISION CAMERAS, DIGITAL CAMARAS AND VIDEO CAMERA RECORDERS
This group covers cameras that capture images and convert them into an electronic signal that is :
(1) Transmitted as a video image to a location outside the camera for viewing or remote recording (i.e., television cameras); or
(2) Recorded in the camera as a still image or as a motion picture (i.e., digital cameras and video camera recorders)
It is noticed from the CTH 8517 and 8525 as also HSN Explanatory Notes above that mobile phone will be classified under CTH 8517 and digital camera under CTH 8525. But the issue remains unresolved, as the applicant proposes the subject product to be classified under CTH 8517 (mobile phone) and the Revenue under CTH 8525 (camera). In this connection, Rule 1 of General Rules for Interpretation (GRI) for the purpose of classification and Note 3 of Section XVI of the Import Tariff is relevant and is reproduced as under;
Rule 1- The titles of sections, Chapters and Sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes.
Further, Note 3 to Section XVI, of the Import Tariff reads as - Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines designed for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function.
Further, applicant has also relied upon Rule 3(b) of GRI, which inter alia states that in case of classification of composite goods consisting of different components, which gives the essential character to the goods, is the determining factor.
It is noticed that the mobile phone is essentially a communication device working on the basis of towers and base stations arranged into a network of cells, which send and receive radio signals for cellular/mobile phone for communication. Further, such cellular/mobile phone will remain telephony. To classify the subject product as camera, on the basis that it has higher Megapixel of 20; optical zoom instead of digital zoom and has the capability to click picture and send them via multimedia message while on call, in our view is not correct, as such additions are related to the phone and not to the camera. It also may not be appropriate to shift classification of the product from the category of mobile phone to camera, on the basis of said 3 additional features, i.e., higher megapixel, optical zoom and click picture and transmit the same while on call
Further, Galaxy K Zoom is also classifiable as cellular/mobile phone as per trade parlance and consumer perception test. It is reiterated that the applicant advertise said product as smart phone. We also agree with the applicant that the product is sold and marketed in India as smart phone and not as camera. In this connection, Hon’ble Bombay High Court in case of P.M.P. Auto Industries Ltd. v. Union of India & Others - 1987 (31) E.L.T. 369(Bom.),
Decision: Galaxy K Zoom is classifiable as telephone under Customs Tariff Heading 8517.
Comment:The gist of the case is that if there is any confusion regarding classification of composite goods consisting of different components, then as per General Rules for the Interpretation of the Harmonized System, in case of classification of composite goods consisting of different components, the component which gives the essential character to the goods is the determining factor.
Prepared by: Bhavika Kanjani

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PJ/Case Law/2018-2019/3461

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