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CASE NO.: Appeal (civil)  1695 of 2006

PETITIONER: Commissioner of Customs, Bangalore

RESPONDENT: M/s Spice Telecom, Bangalore

DATE OF JUDGMENT: 19/10/2006

BENCH: Ashok Bhan, Altamas Kabir & Dalveeer Bhandari

JUDGMENT: J U D G M E N T

BHAN, J.

       The question that arises in the present appeal is whether  Radio Terminals imported by the respondent-assessee (for  short the Respondent) should be considered as ’Base  Transceivers Station (BTS) ancillary equipment’ in order to be  given the benefit of exemption Notification No. 11/97-Cus.  Dated 1.3.1997, as amended by Notification No. 51/97 dated  2.6.1997.

Exemption Notification and its relevant entries :                  The Central Government in exercise of powers conferred  by sub-section (1) of Section 25 of the Customs Act, 1962  issued a notification No. 11/97 dated 01.03.1997 in public  interest to exempt certain goods  mentioned in the table of the  notification read with relevant list appended thereto from  payment of duty imported into India either in entirety or  partially.

Notification No. 11/97 was amended  by Notification No.  51/97 on 2.6.1997 to include certain other goods from  payment of duty or partial duty.  Relevant entries in List 9-B  are:

"1.     Telephonic or telegraphic apparatus of the following  description:  (a)     switching apparatus for cellular mobile  telephone service.         (b)     base station controllers. 2.      Radio communication equipment including VHS,  UHF and microwave communication equipment  with following description:         (a)     base transceivers  stations (BTS)         xxx                             xxx 5.      BTS ancillary equipment."                                                         [ Emphasis supplied ]

Facts:          Respondent placed a purchase order  on M/s Italter SPA,  Italy, for the supply of 30 sets of Radio Terminals  amongst  other items.  Respondent cleared the said items at customs   on payment of applicable duties in a sum of Rs. 64,80,572/-

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without  exemption  but under protest.  In the bill of entry the  goods were classified as falling under Entry No. 8525.2009.

       Respondent had  cleared identical goods imported at New  Delhi and claimed benefit of Notification No. 11/97 as   amended by Notification No. 51/97.  The Bill of Entry  described the goods as radio equipment SRAL/7GHZ by the  8/2 MBPS under Tariff Heading 8525.20.  Based on the  Respondent’s submissions and representation, Delhi Customs  extended the benefit of the said notification to the goods  imported by the Respondent.          Respondent filed a refund claim for an amount of R.  34,73,385/- on 26.8.1999 for the goods imported at  Bangalore.  Respondent in the refund claim had annexed  thereto technical literature and details explaining the nature of  the equipment to show that radio terminals are to be classified  either as ’BTS’  equipment or ’ BTS ancillary equipment’.  

       Deputy Commissioner of Customs (Refunds) Bangalore  by his order dated 10.4.2000 rejected the Respondent’s claim  for exemption by holding that radio terminals  are only  interconnectivity apparatus  between BTS and the Main  Switching Centre (MSC).  Deputy Commissioner took the view  that the notification gives exemption only to BTS and not to  parts. Radio terminals have an independent function and  identity and therefore are not a part of BTS or MSC.   It was  accordingly held that the radio terminal is only part of cellular  network and the same cannot be treated either as BTS itself or  as an ancillary of BTS equipment.          Aggrieved by the order dated 10.4.2000 the respondent  preferred an appeal before the Commissioner of Appeals who  by his order dated 13.3.2003  dismissed the appeal by holding  that merely because the radio terminals are co-located at the  same site, it does not  mean that the said equipment is a  part  of the main equipment.   The technical literature filed by the  respondent was disregarded and instead of applying the test of  co-location of the equipment dismissed the appeal.

       Aggrieved by the order of Commissioner of Appeals  respondent filed an appeal before the Customs, Excise and  Service Tax Appellate Tribunal, South Zonal bench at  Bangalore (for short "the Tribunal").  The Tribunal by its order  dated 20.5.2005 after taking into consideration the technical  literature held that the radio terminals and antenna are  ancillary equipments of BTS and without radio terminals there  cannot be interconnectivity in the network system. The  Tribunal accordingly granted the benefit of the exemption  notification as had been given by the Delhi Customs House.   Aggrieved by the same revenue has come up in appeal.

Discussion : It is the case of the respondent that the radio terminals  imported by it are BTS ancillary equipments, essential for  providing connectivity for use of cellular phones.  Whereas  according to the Revenue the radio terminals are independent  equipment having independent identity and function and are  not ancillary equipments of BTS and are not covered under the  said exemption notification.

What is exempted under the notification is Base  Transmeter Station (BTS) or BTS ancillary equipment.  Ancillary has been assigned the meaning in various  dictionaries  as :

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" P. Ramanatha Aiyar: The Lax Lexicon: "aiding auxiliary; subordinate; attendant  upon; that which aids or promotes a  proceeding regarded as the principal.   A work is said to be "ancillary or  incidental" to a thing, trade, or business  when it is not necessary thereto or a  primary part thereof."

Stroud’s Judicial Dictionary:

"A work is said o be "ancillary or  incidental" to a trade or business when it  is not necessary thereto or a primary part  thereof."

This Court in Vareed Jacob vs. Sosamma Geevarghese,  2004 (6) SCC 378, has accepted  the meaning assigned to the  word "ancillary"  in The Lax Lexicon:            "The expression "ancillary" means; aiding  auxiliary; subordinate; attendant upon;  that which aids or promotes a proceeding  regarded as the principal."           In order to understand the nature of the goods, a brief  background of the cellular network system is required to be  understood, as per literature supplied to us on which the  reliance was placed by the Tribunal as well.

       " A Cellular Network comprises of Main  Switching Centre (MSC) operating in tandem with  the following:

?       Base Transceiver Stations ?       Base Station Controller ?       Transcoder ?       Operation Maintenance Centre (OMC-R) ?       Digital Cross Connect Systems.

BASE TRANSCEIVER STATION:

The Base Transceiver Station is the interface  between the cellular network and the mobile  subscriber.  The basic funbction is to receiver  and transmit mobile calls from the subscriber  to the caller through the GSM cellular network  supported by BTS equipment and the following  anciallary equipments of BTS:

?       Miscrowave Communication Equipments  (Radio Terminals & Antennas). ?       Power Converter Unit ?       Battery Back-up Unit ?       GSM & Miscrowave Antennas ?       Installation/Ancillary Items.

BTS equipment is a 19 inch cabinet consisting  of Transceiver Control Units, RF modules like  Combiner band pass filter, duplexer,  integrated antenna distribution unit (IADU),  Digital Cage consisting of Main Control Unit  (MCU), Fibre optic extender (FOX), Network  Interface unit (NIU), power supplies (NPSM &

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BPSM) and interconnecting feeder cables. The  BTS equipment operates in 900 MHz GSM  Band.  The speech is converted into digital  mode by the mobile and sent to the BTS  situated at the caller’s area at 13 kbps and is  further transported to the BSC  at 64 kbps  through the microwave radio terminal, which  is further routed to the MSC at 2 Mbps.  The  BTS controls the operation of the subscriber  and enables handovers between cell (BTS)  when the mobile subscriber is traveling.   

MISCROWAVE COMMUNICATION  EQUIPMENTS (RADIO TERMINALS &  ANTENNAS):

The Miscrowave Communication Equipment  comprises of radio terminals and Antennas.   The radio terminal is made-up of Indoor units  and outdoor units.  The indoor unit consists of  Multiplexer, base Band Unit.  The Miscrowave  Equipment operates at 7 Ghz/15 Ghz/23 Ghz  Radio Frequency and transports the already  converted digital speech and control  information from the BTS equipment to the  Base Station Controller (BSC ) through the  Outdoor units and antennas.  Each  communication link consists of one set  comprising of two numbers radio terminal  (IDU, ODU) and antennas at both ends."         In order to have inter-connectivity Radio terminals  are a must.  The technical literature produced indicates that  the radio terminal and antennas as ancillary equipment.  It  "aids and attends" to discharge the functions it is meant to  discharge.  The authority in original as well as the  Commissioner (Appeals) have held that radio terminals are  part of BTS therefore they are not eligible for exemption.   Upholding the said view would amount to reading ’ BTS  components’ in the notification instead of ’BTS ancillary  equipment’ which  is not permissible under law.  

The technical literature  submitted makes it clear that  the radio terminals transport the already converted digital  speech from BTS equipment to the BSC (Base Station Control)  through the outdoor units and antennas.  It demonstrates that  these radio terminals are solely and principally used with the  BTS and therefore they rightly qualify as BTS ancillary  equipments to be eligible to the benefit of Notification No.  11/97 dated 1.3.1997 as amended by Notification No. 51/97  dated 2.6.1997.  Radio terminal is not independent equipment  having its own independent function.  It cannot be termed as a  general purpose radio equipment as the technical literature  clearly indicates that this is specially designed to support  Mobile Communication Network in particular GSM. The  literature  makes it abundantly clear that the radio terminal is  not a stand alone equipment and cannot function at all, on its  own, as contended by the Department.  Revenue in its appeal  has admitted that the radio terminal functions as a radio wave  transmitter between BTS/BSC/MSC.  Without this function  BTS/BSC/MSC will be rendered useless as there will be no  connectivity.

Revenue has relied upon the subsequent Notification No.  21/2002 dated 1.3.2002.  The subsequent notification defines

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the scope of ancillary equipment for BTS by restricting the  entry to only three equipments, namely, i) Cellular repeaters,  ii) Amplifiers and iii) Waves Guides (List 22 S. No. 239 of the  Table).  Radio terminals  in this notification have not been  considered as ancillary equipment of BTS.  Revenue contends  that Notification No. 21/2002 is  clarificatory in nature and  would be applicable to the radio terminals imported by the  respondent in the year 1998 as well.  We do not find any  substance in this submission.  The subsequent notification  which defines the scope of ancillary equipment is effective only  from 1.3.2002 and does not have retrospective effect.   Respondent’s clearance pertains to July, 1998 and the  Notification No. 21/2002 has come into effect with effect from  1.3.2002.  It would not apply to the goods which have already  been cleared.  Notification No. 21/2002 cannot be given  retrospective effect.  In the absence of any express provision  contained in the  notification ordinarily it cannot be presumed  that the same is retrospective in nature.  Learned counsel for  the Revenue has failed to show that the subsequent  notification is clarificatory in nature.  Incidentally, it may be  mentioned  that with regard to the identical goods imported  through Delhi, wherein the items were classified under the  same heading, Delhi Customs House extended the benefit of  the said notifications to the respondent.

Tribunal in its order after referring to the literature to  which we have also made the reference came to the  conclusion: "\005From the above it is very clear that  without the Radio Terminals there cannot  be any interconnectivity between BTS and  BTS or BSC or MSC. In view of this the  Radio Terminals definitely qualify to be  ancillary equipments for BTS. On going  through the technical literature it is seen  that without the Radio Terminal there  cannot be any interconnectivity at all and  the Cellular Telephony System would not  work. Hence, we hold that the imported  items namely, Radio Terminals should be  considered as BTS ancillary equipments  and given the benefit of the above- mentioned notification\005".

We do not find any infirmity at the finding arrived by the  Tribunal.  The said finding is approved.

For the reasons stated above, we do not find any merit in  the appeal and dismissed the same leaving the parties to bear  their own costs.