Mobile Phone Front, Middle & Back Covers Held as Parts of Cellular Phones Under CTH 85177090 — CESTAT Delhi

Overview of the Dispute

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, in Samsung India Electronics Pvt. Ltd. Vs Principal Commissioner of Customs, adjudicated a significant classification dispute involving imported covers of cellular mobile phones. The Tribunal allowed the appeal filed by Samsung India Electronics Pvt. Ltd., setting aside the order-in-original dated 23.02.2021 passed by the Principal Commissioner of Customs, Air Cargo Complex, New Delhi.

The impugned order had confirmed a differential customs duty demand of Rs. 62,44,28,858/- upon the appellant and further imposed a penalty of Rs. 6,00,00,000/- under Section 112(a)(ii) of the Customs Act, 1962, covering the period from 06.02.2018 to 21.12.2019.

Background and Nature of Goods

Samsung India Electronics Pvt. Ltd. had been importing front covers, middle covers, and back covers of cellular mobile phones. The appellant self-assessed and paid customs duty, classifying these goods under CTH 85177090 — the residual entry for parts of telephone sets including cellular network devices.

During post-clearance audit, the Customs Department took the position that these covers should instead be classified under CTH 39209999, attracting Basic Customs Duty at 15% in terms of S. No. 10 of Customs Notification No. 57/2017-Cus dated 30.06.2017 as amended. A consultative letter dated 01.02.2020 failed to resolve the dispute, following which a show cause notice dated 19.02.2020 was issued by the Principal Commissioner proposing reclassification, recovery of differential duty with interest, confiscation under Section 111(m), and penalty under Section 112(a)(ii) of the Customs Act, 1962.

Functional Description of the Imported Goods

The appellant placed on record the following characteristics of each type of cover:

  • Back Cover: Provides safety to the battery and internal components including PCBs and sub-components; offers ingress protection and structural support; shields internals from dust, moisture, and foreign particles. In select models, the back cover is additionally layered with zinc, aluminium, and other metallic alloys to facilitate heat dissipation. It may also incorporate rubber gaskets and glass for sealing the camera lens.

  • Front Cover: Forms the primary structural frame housing the camera, buttons, and infrared sensors, among other components.

  • Middle Cover: Laminated with zinc, it provides housing and protection to sub-parts and aids in heat dissipation.

Multi-Stage Manufacturing Process

The appellant explained that these phone covers underwent the following sequence of manufacturing steps prior to import:

  1. Extrusion: Two layers — Polymethyl Methacrylate (PMMA) and Polycarbonate (PC) — are combined through an extrusion machine to produce a sheet of 0.64 mm thickness.
  2. Printing: The sheet undergoes Logo Silk Print, Offset Print, and Nano Pattern Imprinting.
  3. **Physical Vapour Deposition (PVD)😗* Thin film coating is applied in a high-vacuum chamber, akin to lamination for desired finish.
  4. Second Round of Printing: Colour silk print and dyne silk print are applied at this stage, depending on the specific model.
  5. Hard Coating: The sheet is layered, levelled, and UV dried.
  6. Thermoforming: Using vacuum and air pressure, the sheet is pulled over a solid mould to produce the desired three-dimensional shape with grooves and ground edges, enabling the cover to clip onto a specific phone model.
  7. CNC Milling: Final cuts, speaker grills, and compartments are milled into the cover, giving it its finished shape.

Three Grounds Raised in the Show Cause Notice

The Department's show cause notice proposed reclassification on three distinct grounds:

  1. The goods — described as Battery Cover, Front Cover, Middle Cover, Back Cover, and Camera Lens — are classifiable under CTH 39209999 and attract BCD @ 15% in terms of S. No. 10 of Notification No. 57/2017-Cus dated 30.06.2017, as amended.

  2. Chapter Note 10 to Chapter 39 of the Customs Tariff Act, 1975 stipulates that the expression "plates, sheets, film, foil and strip" in headings 3920 and 3921 applies only to items of regular geometric shape, whether or not printed or surface-worked, but not further worked.

  3. A policy notified by the Ministry of Electronics and Information Technology (MeitY) vide Notification F. No. 33(5)2017–IPHW dated 01.08.2018 treated front covers, middle covers, and back covers as falling under HS Code 39209999.

The Principal Commissioner's Impugned Order

The operative portion of the order-in-original dated 23.02.2021 held as follows: