Sangeetha Prathap

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the AI-powered “MIKO-3” smart robot is classifiable as an Automatic Data Processing (ADP) machine and not as an electronic toy, thereby making it eligible for exemption from Basic Customs Duty. The Tribunal observed that the presence of learning or entertainment features does not dilute the core functional character of the product as an ADP machine.

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The ruling was delivered by a Bench comprising P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member), which found that the Revenue failed to discharge its burden of disproving the classification declared by the assessee. The Tribunal also noted that the authorities had not placed sufficient technical evidence on record to justify re-classification of the product as an “electronic toy”.

The assessee was engaged in the business of import and manufacture of Automatic Data Processing Units for learning and entertainment under the brand name “MIKO”. Initially, the company launched a basic model known as MIKO-1, which was classified under Customs Tariff Heading (CTH) 95030030. Subsequently, with technological advancements, the assessee introduced higher and more sophisticated models, namely MIKO-2 and MIKO-3, which incorporated artificial intelligence, cloud connectivity, and advanced data processing capabilities.

Considering the enhanced technical composition and functional attributes, the assessee classified MIKO-2 and MIKO-3 under CTH 84714190 as ADP units for learning and entertainment. In particular, MIKO-3 was marketed as a social robot capable of processing data, interacting with users, learning through artificial intelligence, and executing commands autonomously. On this basis, the assessee claimed exemption from Basic Customs Duty under Sl. No. 8 of Notification No. 24/2005-Cus dated 01.03.2005.

However, the Faceless Assessment Group took the view that MIKO-3 was essentially a toy and proposed its classification under CTH 9503, attracting Basic Customs Duty at the rate of 60 percent. The Adjudicating Authority rejected the classification declared by the assessee, ordered confiscation of the goods, and allowed re-export upon payment of a redemption fine of ₹10 lakh. This order was subsequently upheld by the Commissioner of Customs (Appeals), Chennai.

Challenging these orders, the assessee approached the Tribunal, contending that MIKO-3 performed the essential functions of an ADP machine and that its classification could not be altered merely because it also offered educational or entertainment content. It was further argued that the authorities had ignored crucial technical material, including certifications issued by MeitY and BIS, as well as expert opinions supporting the declared classification.

After examining the technical specifications, functional capabilities and documentary evidence, the Tribunal observed that the lower authorities had placed undue emphasis on packaging and marketing descriptions, while disregarding the core technological attributes of the product. The Bench noted that the Commissioner had failed to consider the advice of the Principal Scientific Advisor to the Government of India and the relevant certifications, which clearly supported classification under CTH 84714190.

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The Tribunal held that MIKO-3 performs data processing functions independently and satisfies the essential requirements of an Automatic Data Processing machine. It further clarified that the mere presence of learning or entertainment features does not alter the principal character of the device. The Bench concluded that the Revenue had not established any valid basis to re-classify the product as an electronic toy. In view of these findings, the Tribunal upheld the classification declared by the assessee under CTH 84714190, set aside the impugned orders, and allowed the appeal, thereby granting the benefit of exemption from Basic Customs Duty to the assessee.

Appearance

Counsel for Appellant/ Assessee: Prakash Shah and Mihit Mehta

Counsel for Respondent/ Department: O.M. Reena

Cause Title: M/s. RN Chidakashi Technologies Pvt. Ltd. v. The Commissioner of Customs, (Imports)

Case No: Customs Appeal No. 40655 of 2023

Coram: P. Dinesha (Judicial Member), Vasa Seshagiri Rao (Technical Member)