Back Of cables and classification...
D. Murali
| Alcatel and the tax man fight it out over `individually sheathed fibres' for customs duty purpose. |
LAYERS of definition: K.K. Mustafah
Cables were the focus of a recent ruling of the AAR (Authority for Advance Rulings, New Delhi). Alcatel India Ltd wanted to import telecommunication cables, both for submarine and terrestrial use, and therefore approached the Authority to find out how the items were to be classified for customs duty purpose.
Submarine telecommunication cable, used in transmission of aggregate data, is described in the text of AAR's ruling dated February 28. Such as, that the cable can accommodate up to 48 fibre pairs, and that the fibres are housed in a jelly-filled (non-hygroscopic filling compound) steel tube surrounded by further layers of steel wires that provide tensile strength.
"This steel tube is insulated with a layer of polyethylene to form the telecommunication cable. Such cables are designed to protect and facilitate the optical fibre transmission path during operation (carry the signal), during installation (laying and burial at sea), and recovery operations."
The terrestrial one, in contrast, comprises optical fibres (glass fibre reinforced with plastic material), and is set "in a thermoplastic tube containing up to 12 fibres... and filled with a non-hygroscopic compound." The inner and the outer sheaths are made of a non-flammable, black high-density polyethylene/copolymer.
Question of sheath
Alcatel proposed that the goods under consideration would fall under Tariff heading 8544. This heading covers "insulated (including enamelled or anodised) wire, cable (including co-axial cable) and other insulated electric conductors, whether or not fitted with connectors; optical fibre cables, made up of individually sheathed fibres, whether or not assembled with electric conductors or fitted with connectors." And the Department too supported the same.
The Authority would have affirmed such classification, but something interesting came up at the first hearing: "that for any optical fibre cable to be classified under the heading 8544, it is essential to establish that it is made up of individually sheathed fibres." The AAR gave time to the company to clarify whether its cables were thus made, and also asked the company to produce samples of the goods in question. Meanwhile, the taxman did something smart. He sought the opinion of the Department of Information Technology (DIT) on whether the optical fibre cables in question are made of individually sheathed fibre. On October 6, 2005, DIT replied, "14 Nos. Optical Fibre Cables under reference are not made up of individually sheathed fibre."
What did Alcatel have to say on that? It only reiterated its earlier stand, and also forwarded 10 samples of cables. Since DIT's opinion had been given without looking at the samples, the AAR sent the samples to DIT and sought a second view.
DIT sent in a detailed response, dated January 5. The first question it answered was "Whether the samples furnished vouch for the claim of the applicant that the optical fibre cables have been manufactured by a process in which `the fibres are coated with different colours and are housed in jelly material which would amount to individually sheathing the fibre as per the modern technology.'"
DIT stated that the optical fibres consist of the core and cladding (glass) and the UV curable resin, which for identification of the individual fibre are in different colours. "Several fibres are then housed in a single plastic tubing filled with jelly material. This does not amount to individually sheathing the fibre," opined DIT.
The second query was whether the optical cables in the samples were made of optical fibres with `individual protective sheath made of a UV-curable resin (also described as coating),' as Alcatel had claimed. In response, DIT said that optical fibres consist of `the core, cladding and UV coating.' And that it is not correct to try to call the UV coating a sheath in the context of the tariff heading.
DIT pointed out that in the input-output norms for import of raw materials for production of optical fibres, UV curable coating is listed under the list of raw materials for optical fibres. "It is not listed under the raw materials for cabling the fibre into cables. The tariff heading refers to a further individual sheath, which is placed over the UV curable resin coated optical fibre."
No, no, no
It may seem like a repetition, but the third question was whether the optical fibre cables are made of individually sheathed fibres. "In this context, what is regarded in the modern technology as individually sheathing of optical fibres may also please be elaborated," the AAR had asked.
DIT's response read, "In our technical opinion and on physical examination of the samples in question, these optical fibre cables are not made up of individually sheathed fibres."
In view of the detailed opinion of the DIT, the taxman drew reference to Tariff heading 9001 for the items under discussion. Heading 9001 reads: "Optical fibres and optical fibre bundles; optical fibre cables other than those of heading 8544; sheets and plates of polarising material; lenses (including contact lenses), prisms, mirrors and other optical elements, of any material, unmounted, other than such elements of glass not optically worked."
The AAR Chairman, Justice Syed Shah Mohammad Quadri, and Members Somnath Pal and B.A. Agrawal studied different aspects of the modern technology in sheathing of optical fibres. The tremendously informative text of the ruling is on the blog.
What was the final ruling? That heading 9001 was appropriate; not 8544. One wonders if Alcatel's logic ended up exposed because it was too inadequately sheathed to stand ground.
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