Judgment
1. The facts of the case are that the appellants herein, entered into a licence agreement with the Department of Telecommunication in August 1994 to establish, maintain and operate closed user group domestic 64 kbps Data Network via INSAT Satellite system and have been providing Satellite Communication Service through VSAT (Very Small Aperture Terminal) from February 1995. The Department of Telecommunication has licensed the appellants to provide the electronic link through satellite media to the user organisations for inter-connecting only offices for the purpose of transferring electronic data between the locations. The electronic link is provided with the help of an earth station (called Hub) located at Gurgaon DOT has provided the appellants the satellite space on rental basis to provide the link to the user organisation. In addition to transmission of data through satellite, the appellants also provide the facility to transmit data through fascimile. However, since fax machines work on analogue telephone lines and not on digital lines or satellite links, the appellants imported Fax Interface Modules (FIMs) to provide the user organisation the facility to enable them to transmit information through their network via fax machine. The present appeal pertains to 441 FIMs imported under 9 Bills of entry filed between 28th November and 19th December, 1998.113 pieces of FIMs were also cleared under 4 bills of entry under Customs Tariff heading 8517.90 as parts of fax machines and the balance 328 pieces of FIMs were awaiting customs clearance.
2. A show cause notice dated 1.4.98 was issued to the appellants alleging that the goods were not parts of fax machine but complete apparatus for Carrier Current Line Systems or Digital Line systems under Customs Tariff heading 8517.50. The notice also proposed confiscation of goods under Section 111(d) and 111(m) of the Customs Act since goods falling under this heading are not permitted to be imported without licence. The notice proposed recovery of differential duty since goods falling under heading 8517.50 of the First Schedule to the CETA, 1985 attracted duty at the rate of 30% Ad valorem (Basic) + 5% Special Customs duty + 18% C.V.D.+4% SAD, instead of at the rate of 20% + 5% + 18% + 4% applicable to goods falling under Customs Tariff heading 8517.90, and also proposed imposition of penalty.
3. The Adjudicating authority upheld the classification under Customs Tariff heading 8517.50 rejecting the claim of the importers under heading 8517.90 and also rejecting the alternative plea for classification under heading 8543.89 which covers "Electrical machines and apparatus having individual functions, not specified or included elsewhere in this Chapter" on the ground that a specific heading viz.
8517.50 was available for the goods, confiscated the goods with option to redeem them on payment of a fine of Rs. 20 lakhs and also imposed a personal penalty of Rs. 5 lakhs on the importers. Hence this appeal.
4. We have carefully considered the rival submissions and perused the records. A fax machine is used for the purpose of transmitting digital signals through a telephone line through an in-built module, the ordinary telephone line, based on copper cables is referred to as the analogue line. Whenever information has to be transmitted not through ordinary line but through a digital line or Satellite link, FIM is necessary. FIM receives analogue signals from the fax machine and converts them into digital signals which then can be fed into digital line for being carried to the destination. Alternatively, the digital signals from the FIM can be provided to a Personal Earth Station (PES/ VSAT) from where it will be transmitted through an antenna and is received by the antenna attached to the Personal Earth Station (PES/VSAT) at the receiving end and on to the FIM and the fax machine.
It is seen from the catalogue that the FIM is required for imparting some additional properties to the fax machine, namely to make it acceptable with the digital network. A fax machine is complete even without the FIM and therefore, FIM cannot be considered as a part of fax machine. FIM is a complete apparatus which can receive signals, temporarily store them as well as transmit them down the lines. FIM enables fax machine to communicate with the digital line. The contention of the learned Counsel that FIM is part of fax machine because it is essential to the functioning of the fax machine in cases where the machine is to be used for communication through a digital line or PEC or VSAT system is not tenable, because the test to be satisfied in order to determine whether an item is a part or not, is to see whether the goods of which item is claimed to be a part are complete in themselves, even without that item. For example, if a plea is made that petrol or diesel is a part of a motor vehicle because the motor vehicle cannot run without petrol or diesel, the claim will have to be rejected because the motor vehicle is complete in itself even without petrol or diesel, although it cannot function without it. We therefore, rule out classification of FIM under Customs Tariff heading 8517.90 as parts of fax machine.
5. Let us now consider whether classification under Customs Tariff heading 8517.50, as held by the Commissioner is correct. He has held that the importers have accepted that FIM performs the function of modulation of analogue and digital signals; that modem (modulator and de-modulator) and FIM have similar function and since modem which is required as an interface between analogue telephone line and personal computer (PC) is covered by heading 8517.50 as an item of carrier current line system, FIM is also an item of such system. However, conversion of analogue signals into digital signals which is done by FIM does not amount to modulation. Modulation involves the super imposition of analogue or digital signals on carrier wave which alone enables the signals to be carried through a telephone line or digital line. The HSN Explanatory notes to heading 8517 set out that apparatus for carrier current line system or for digital line system are based on the modulation of an electrical carrier current or of a light beam by analogue or digital signals. Use is made of the carrier-current modulation technique and pulse code modulation (PCM) or some other digital system. These systems are used for the transmission of all kinds of information (words, date, images, etc.) 6. These systems include all categories of multiplexers and related line equipment for metal or optical-fibre cables. "Line equipment" includes transmitters and receivers or electro-optical converters.
Combined modulators-demodulators (modems) are also classified here.
Therefore, in order to merit classification under heading 8517, an apparatus has to be based upon the modulation of an analogue or a digital signal. The FIM does not generate any carrier waive for modulation of signals to be transmitted through the digital line of the VAST system using either pulse code modulation or other digital system of modulation.
7. It is seen from the book "Applied Data Communications - A Business Oriented Approach" by James E. Goldman that the modem generates a carrier wave which is then altered (modulated) to represent the bits of data. It is because the modem generates a carrier wave that it is treated as an apparatus for carrier - current line systems. On the other hand, a modem is not required in a digital network since there is no need to modulate the digital signal into an analogue signal. In digital network, a CSU/DSU (Channel service unit/Data service unit) is used to terminate the digital circuit. Therefore, apparatus for digital line system will start at this terminating point. The book further states that while dealing with Integrated Service Digital Network (Digital Line System), a device that performs the same basic function as a CSU/DSU is required in order to access the ISDN service. Such a device is called terminal adapter, Network Terminating Unit (NTU) or digital modem. It is thus clear that terminal adapter is the starting point of apparatus for digital line system and the modem is the starting point of apparatus for carrier current line system. Modulation is performed by the equipment subsequent to the FIM, namely the personal earth station.
8. In the light of the above discussion, we hold that FIM is not an apparatus for a carrier current line system or for digital line system and hence classification under heading 8517.50 is also not correct.
9. Where then does FIM fall for classification? Since it is an electrical apparatus having individual function (of coversion of analogue signals to digital signals), it is classifiable under Customs Tariff heading 8543.89 which is the alternative claim of the importers.
10. The DR raises the plea that the goods are to be considered as falling for classification under Customs Tariff heading 8517.80 as "other Telecommunication Apparatus for Carrier Current Line System or for Digital Line System". However, as seen from HSN Explanatory Notes to heading 8517, Electrical apparatus for line telephony or line telegraphy including....Telecommunication apparatus for Carrier Current Line system or for digital line system means apparatus for transmission between two points of speech or other sounds... by variation of goods, electric current or optical wave flowing in a metallic or di-electric circuit connecting the transmission station to the receiving station while in the goods in dispute, there is no connecting circuit (transmission is by wireless).
11. The goods falling under heading 8543.89 are not restricted for import under the Import Trade Control Policy; hence confiscation of the goods is not sustainable and we accordingly set aside the same.
Consequently penalty is also set aside.
12. In the result, we hold that FIMs imported by the appellants herein are classifiable under Customs Tariff heading 8543.89, set aside the impugned order and allow the appeal.