The Hindu Business Line : What is a cellular phone?

"A telephone will not be considered as a `cellular phone' merely because it works on `cellular technology'," defined `Circular No. 57 /2003 - Customs' dated June 27, 2003 of the Central Board of Excise and Customs (www.cbec.gov.in) .

The circular was issued to clarify whether fixed wireless telephones and fixed wireless terminals, which are meant to provide basic telephone services without line telephony, are eligible for the benefit of notification No. 21/2002. This notification had granted exemption, in Serial No. 313, to `cellular phones and radio trunking terminals'.

Unlike the mobile handsets working on cellular technology, fixed wireless telephones and terminals are fixed or stationary instruments, though the technology used to transmit the signals to and from these terminals is cellular technology, noted the circular.

WINGS TO FLY but cooped up.

"While the fixed wireless telephones are self-contained instruments having all the features of a telephone instrument like receiver, transmitter, dial pad, switch and bell or buzzer, fixed wireless terminals are essentially transreceivers which are required to be connected to a telephone instrument for providing basic telephone services without line telephony. The fixed wireless terminals can also be connected to a fax or computer for data communication," explained the circular.

Understanding `cellular'

Since the problem was one of understanding what `cellular phone' meant, the circular worked on the basis of settled law - that where a taxing statute does not define a term, it has to be interpreted according to its meaning in common trade parlance. "The term cellular phone, in common parlance, refers to mobile phones," stated the circular. The HSN Notes also equate cellular phones with mobile phones, added the communiqué, citing the Harmonized System of Nomenclature.

"Thus a telephone will not be considered as a `cellular phone' merely because it works on `cellular technology'," said the CBEC, talking in what may seem to be riddles. "The relevant entry in the notification is `cellular phones' and not `phones based on cellular technology'," clarified the circular, therefore, to justify its rationale.

"The technology used could either be GSM (Global System for Mobile Communication) used by AirTel, Hutch and so on, or FDMA (Frequency Division Multiple Access), or CDMA (Code Division Multiple Access) being used by WLL-Reliance and WLL-Tata," added the circular.

"The application of cellular technology for providing basic telephone services through fixed wireless telephones and fixed wireless terminals is a recent development. The term `cellular phone' traditionally and commercially refers to hand-held mobile phones only," declared the Board through the circular. Accordingly, it clarified that the exemption under Serial No. 313 covers only hand-held mobile phones working on cellular technology, and not fixed wireless terminals or fixed wireless telephones working on cellular technology.

People have been going round in circles to understand the Board's circular, and often ending in courtroom. Such as what happened recently before the apex court: Tata Teleservices Ltd vs Commissioner of Customs.

The question was whether telephone `LSP 340' imported by Tata was eligible for the exemption benefit. This phone uses cellular technology and is mobile `although within a limited range', said the company's counsel Arvind P. Datar, at the Supreme Court. Tata's grievance was that the Customs officials had rejected its demand for exemption under the notification. For the Department, it was Mohan Parasaran, Additional Solicitor-General, who argued.

`Essence of a cellular is mobility'

Tata had taken the case before the Delhi CESTAT (Customs, Excise, Service Tax Appellate Tribunal), but the decision went in favour of the Department. The tribunal's reasoning was that LSP 340 had been described as a fixed wireless terminal, and that since the essence of a cellular phone was mobility, LSP 340 did not qualify.

The apex court noted that both the Ministry of Finance and the Ministry of Commerce had made enquiries from the Department of Telecommunications (DoT) as to whether LSP 340 could qualify as a cellular phone for the purpose of the exemption notification.

One learns from the text of apex court judgment dated December 13, 2005, that the DoT had responded in 2003, and explained in a series of letters that LSP was a cellular phone as it operated on cellular technology having the properties of both transreceiver and telephone. Only, the tribunal didn't consider DoT's explanation as evidence.

At the Bombay CESTAT, however, DoT's certification made a difference. The same issue had gone before the Bombay CESTAT too, in the Bhagyanagar Metals case. And the ruling was refreshingly different. The tribunal said that the circular sought to provide conditions to the notification, which amounted to `rewriting the notification or legislating by circular', especially when the notification itself didn't stipulate any such condition such as that the cellular phone should be hand-held.

The issue had come up before the Andhra Pradesh High Court also, in Surana Telecom Ltd case. Interestingly, the high court quashed the June 2003 circular, saying that the circular sought to preclude the assessing authorities from deciding whether the particular phone was a cellular phone or not. It said that the CBEC had no right to interfere with the power of the authorities who were required to make assessment and hear the appeals, as part of their powers.

Justices Ruma Pal, Arijit Pasayat and B.N.Srikrishna of the Supreme Court studied the three different rulings. Setting aside the Delhi decision, they affirmed the other two, viz. Andhra Pradesh and Bombay.

Taking into account the clarification given by DoT, the apex court said, "Since there is no dispute that the technology used in LSP 340 and the hand-held mobile phone is the same, there is no warrant to limit either the tariff entry or the exemption notification to hand-held cellular phones. Neither the range nor the size would make any difference."

So, now we know what a cellular phone means.

Cases@TheHindu.co.in

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