GPS enabled mobiles reclassified
Circular No.17/2007-Cus F. No.528/26/2005-Cus(TU)
Government of India, Ministry of Finance, Department of Revenue, Central Board of Excise & Customs
Sub: Clarification in respect of classification of higher technology featured mobile / cellular handset or telephones – regarding.
Board has received certain representations from the trade and industry regarding classification of higher technology featured mobile / cellular handsets or telephones, which contain GPS features apart from other functions like music, camera, voice recording, e-mail, internet and related editing features. Field formations have also requested to issue a clarification in the matter of classification of a hybrid product containing PDA, mobile phone with camera and GPS, which are being imported presently…
3. The issue was examined in the Board. Telephones for cellular networks or other wireless networks are presently classified under sub-heading 8517 12 of the First Schedule of the Customs Tariff Act, 1975. This Act does not provide specific Chapter Note or Sub heading Note on this product. As per Harmonized Commodity Description and Coding System (HS in short) effective from 1.1.2007, ‘telephones for cellular networks or for other wireless networks’ are classified under heading 8517. Earlier, prior to HS changes 2007, cellular phones were classified under heading 8525. There is no mention of the mobile phones that also have features of word processing, e-mail, internet, Global Positioning System (GPS) Receiver, Personal Digital Assistant (PDA), Smart phone etc. in the HS Notes. Further, tariff Item 8526 91 90 covers ‘other radio navigational aid apparatus’, which, inter alia, includes Global Positioning System (GPS), radar apparatus. Similarly, sub-heading 8471 30 covers ‘portable digital automatic data processing machines, weighing not more than 10 kg., consisting of at least a central processing unit, a keyboard and a display’. HS explanatory notes to sub-heading 8471 30 state that machines which are equipped with flat screen, capable of operating without an external source of electric power and having an acoustic modem for establishing a link via the switched network are classifiable under sub heading 8471 30. However, there is no exclusion or specific note for classification of mobile/cellular phones with other functions as described above, in the HS Notes. Therefore, field formations were experiencing difficulty in classifying a product having combination of characteristics of a Personal Digital Assistant (PDA) / Personal Computer, GPS receiver, Camera and cellular phone…
5. In terms of the First Schedule to the Customs Tariff, ‘telephones for cellular networks or other wireless networks, push-button type or other’, would be classifiable under sub-heading 8517 12. Similarly, ‘portable automatic data processing machine weighing not more than 10 Kgs., consisting of at least a CPU, a key board and a display’ would be classifiable under sub heading 8471 30; and ‘radio navigational aid apparatus’ would be classifiable under sub heading 8526 91. From the scope of the headings / sub-headings, Board found that all mobile or cellular telephones whether working on the Global System for Mobile Communications (GSM) standard, Code Division Multiple Access (CDMA) cellular systems, Wireless Local Loop (WLL) or any other Mobile technologies, principally used as communication device would get covered under subheading 8517 12. These are essentially communication devices working on the basis of towers and base stations arranged into a network of cells, which send and receive radio signals for the cellular / mobile phone for communication. In view of the above, Board clarifies that sub-heading 8517 12 will cover all types of telephones that work on cellular networking technology or other wireless network…
7. Certain cellular/ mobile phones called as ‘smart phones’ may also have other additional features such as accessing the Internet, sending and receiving E-mails, video recording/ camera, word processing, radio or audio capabilities with color screens, QWERTY keyboard, touch screen. It may also run application software and synchronize with PCs, function as Global Positioning System (GPS) receiver. These devices work on operating systems (software) like Symbian OS, Microsoft Windows Mobile OS, Linux OS, which are similar to the software used in desktop PC / laptop. All these functionalities grouped as PDA or pocket PC or camera or GPS receiver, contained in cellular/ mobile phones, though represent as composite machine, for the purpose of classification, it will be governed by the Customs Tariff Act and the General Rules for Interpretation (GRI) as explained in para 4 above. Accordingly, in terms of Section Note 3 to Section Note XVI when the goods satisfy the following conditions these would be characterized as transmission apparatus in cellular / wireless network rather than as an Automatic Data Processing (ADP) machine or camera or GPS receiver.
(i) use transmission of signals (representing speech, messages, data or pictures) by means of electro-magnetic waves which are transmitted through the ether without any line connection i.e., wireless, in any of the bandwidth allotted to mobile/ cellular networks say 850 MHz to 1900 MHz; and
(ii) consist of transmission and reception hardware such as transceivers, antenna, microphone, speaker, battery, radio-frequency chip, basic band chip, power management chip, Subscriber Identity Module (SIM), International Mobile Equipment Identity (IMEI) or other unique identity for cellular/mobile phone as well as radio-frequency transmission software such as GSM, General Packet Radio Service (GPRS) and Enhanced Data rates for GSM Evolution (EDGE) etc.,
Hence, such cellular/ mobile phones remain classified in sub-heading 8517 12, as the principal function of these equipments remain as ‘telephony’.
8. It is further explained that cellular / mobile phones can also be employed as data modems to form a wireless access point connecting a personal computer to the Internet. In this use, the mobile phone is providing a gateway between the cellular service provider’s data network and PCs. In terms of chapter note 5 D (ii), it is made clear that such mobile phones shall not be classified under heading 8471 when they are presented separately. In other words, only when such phones are presented along with ADP machine or when composite machines consisting of ADP and mobile phones, where ADP is the principal function, these would be classified under heading 8471. Further, it is clarified that GPS receivers having phone function that does not operate through any of the cellular network or mobile technologies for the transmission or reception of signals, but operates exclusively through direct satellite connection or differential GPS (on the longwave radio frequencies between say 285 kHz to 325 kHz) is however classifiable under sub-heading 8526 91 as other radio navigational aid apparatus…
A sigh of relief!
The Central Board of Excise and Customs (CBEC) has gone back on a move to classify GPRS phones as radio navigational apparatus (better known as satellite phones) for tax purposes. This means GPRS-enabled phones will face a 4% Customs duty rather than the 34% applicable on satellite phones.
The move comes as a major relief to mobile phone and PDA manufacturers like Nokia, Samsung, Blackberry, Motorola, PalmOne, O2, i-mate and HP.
In January 2007, a circular from the Office of the Commissioner Customs classified HP’s iPAQ 6515 GPRS phone as a GPS receiver, subjecting it to a Customs duty of 34% instead of 4% levied on mobile phones. The circular caused widespread panic in the industry, which feared prices of GPRS phones would go up by 25% if the same principle is applied to other similar models.
The mobile handset market in India is estimated at over Rs.30,000 crore at present, with high-end (GPRS, MP3, camera) phones accounting for nearly 40% of the market.
On April 19, the under-secretary, Customs policy, in CBEC issued a clarification rescinding the January circular. “An apparatus will be classified as a mobile phone rather than an ADP machine or camera or GPS receiver when its principal function is telephony. For transmission of signals, it should use the bandwidth allotted to cellular/mobile networks.
It should comprise a transceiver, antenna, subscriber identity module (SIM), IMEI (International Mobile Equipment Identity) or other unique identity for cellular/mobile phones as well as software such as GSM, GPRS and EDGE etc,” the clarification said. Despite the presence of many advanced features, many users of GPRS phones use them mainly for basic functions such as voice calls and text messages.
After the January circular, GPRS-enabled phones with GPS (global positioning system), MP3 and PDA features were being compared with GPS, MP3 players and computers (as they carry higher duty) by tax officials though no formal order had been issued in this regard. There was also confusion among taxmen over classification of PDAs, camera phones and GPS receivers with respect to the duty bracket.
In the HP iPAQ case, the now withdrawn January circular noted that since the equipment had “three principal functions of phone, GPS receiver and PC, it was thus classifiable under CTH (custom tariff heading) 8526 as a GPS receiver (satellite phones)”.
GPS receivers having a phone function that doesn’t communicate through cellular/ mobile networks but satellite connection or differential GPS (on longwave radio frequencies) are now, following the April clarification, classifiable as radio navigational aid apparatus. HP iPAQ used normal cellular networks.