CESTAT Chennai Treats “MIKO-3” Smart Robot as Automatic Data Processing Unit, Not Electronic Toy
Background of the Dispute
The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT Chennai) was called upon to decide two connected appeals filed by RN Chidakashi Technologies Pvt. Ltd. The core controversy in both matters was identical – the customs tariff classification of the AI-enabled “MIKO-3” smart robot imported by the assessee.
Although the appeals arose from two separate adjudication orders, the facts, period, and product description were substantially the same. Accordingly, the Tribunal heard both appeals together and issued a single common order disposing of them.
The assessee is engaged in importing and manufacturing Automatic Data Processing Units designed for learning and entertainment, marketed under the brand “MIKO.” Over time, three models were introduced:
- MIKO-1 – the original and more basic model
- MIKO-2 – an upgraded version with enhanced features
- MIKO-3 – the most advanced version and the model under dispute
Historically, MIKO-1 had been classified under Customs Tariff Heading (CTH) 95030030, which broadly covers toys. With technological improvements, the assessee began classifying MIKO-2 and MIKO-3 under CTH 84714190 as Automatic Data Processing Units (ADPU) for learning and entertainment, and cleared them accordingly.
Imports, Exemption Claim, and Departmental Objection
Initial clearance of MIKO-3
For the relevant period, the assessee imported 2,876 units of MIKO-3 under a Bill of Entry dated 28.04.2022. These were declared under CTH 84714190 as:
- ADPU for learning and entertainment model MO201 (for MIKO-2)
- ADPU for learning and entertainment model EMK301 (for MIKO-3)
On this basis, the assessee claimed exemption from Basic Customs Duty (BCD) under Serial No. 8 of Notification No. 24/2005-Cus. dated 01.03.2005, which exempts “8471 All goods” from BCD. Integrated GST (IGST) was duly paid.
Subsequent consignments blocked
When subsequent consignments of the same MIKO-3 model were imported with the same declared classification and exemption claim, the Faceless Assessment Group raised objections. The group formed a view that:
- The product should be viewed as an “electronic toy”;
- It fell more appropriately under CTH 9503;
- Goods under CTH 9503 attracted BCD at 60%.
On this basis, clearance of these consignments was withheld, and proceedings were initiated to re-classify the goods under Heading 9503, deny the exemption, and levy duty, interest, and penalties.
Adjudication and First Appellate Orders
First Order-in-Original – Confiscation and Penalty
In the first proceeding, the Additional Commissioner of Customs, Group-5, passed Order-in-Original No. 92764/2022 dated 01.11.2022. Key directions included:
- Rejection of the declared classification under CTH 84714190;
- Re-classification of MIKO-3 as “toys” under CTH 9503;
- Confiscation of the goods under the Customs Act, 1962;
- Option for redemption of the confiscated goods against a fine of Rs. 10 lakhs for re-export;
- Imposition of a penalty of Rs. 10 lakhs under
Section 112(a)of the Customs Act, 1962.
The assessee challenged this order before the Commissioner of Customs (Appeals), Chennai. However, the Order-in-Appeal dated 12.07.2023 affirmed the adjudication order, leading to Appeal No. C/40655/2023 before CESTAT Chennai.
Second Order-in-Original – Demand of Duty and Equal Penalty
In a separate but related proceeding, the Commissioner of Customs, Chennai II (Imports) issued Order-in-Original No. 103837/2023 dated 06.12.2023, which:
- Rejected the classification under CTH 84714190;
- Confirmed a customs duty demand of Rs. 1,79,10,790/- with applicable interest;
- Ordered confiscation of the goods with an option to redeem on payment of a fine of Rs. 26 lakhs;
- Imposed an equivalent penalty under
Section 114Aof the Customs Act, 1962.
Aggrieved, the assessee filed Appeal No. C/40288/2024 before the Tribunal.
Both appeals thus raised a single legal question: whether MIKO-3 was correctly classifiable as an Automatic Data Processing Unit under Heading 8471 or whether the Revenue’s attempt to classify it as an electronic toy under Heading 9503 was legally sustainable.