Pranav B Prem

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Kolkata has held that face-recognition access control terminals are classifiable as Automatic Data Processing (ADP) Machines under Customs Tariff Heading (CTH) 8471, and not as electrical machinery under CTH 8543 as alleged by the department. In doing so, the Tribunal quashed the differential customs duty demands, interest, confiscation orders and penalties imposed on the importer companies and their directors/CHAs. The ruling is likely to have a significant impact on importers of biometric and AI-based access control hardware.

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The case arose when a consignment of Face IT Systems LLP imported from China was flagged by SIIB on the suspicion that the declared description, “Data Collection Terminal (based on face recognition),” was intended to secure the benefit of NIL basic customs duty under Notification No. 24/2005 by classifying the goods under CTH 84716090. The department took the view that the products were not ADP machines but electrical equipment classifiable under CTH 8543, attracting 7.5 percent duty. Similar allegations were also made against consignments imported by Fortuna Impex Pvt. Ltd. Show cause notices were issued demanding differential duty and ordering confiscation of goods, alleging misdeclared classification and the presence of certain undeclared items. These notices culminated in adjudication orders confirming duty, interest and penalties, which were upheld by the Commissioner (Appeals), leading to the present appeals before the Tribunal.

While examining the classification dispute, the Tribunal conducted an extensive analysis of the technical specifications of the devices, including expert reports from STQC IT Services (ERTL-East) and the Department of Power Engineering, Jadavpur University. These reports showed that the face-recognition access control terminals incorporate 4GB RAM and 64GB internal storage, run on an embedded Linux operating system, capture and convert facial images into Base-64 data, store biometric information, execute programs automatically without human intervention, and modify functions during operation based on logical decision-making. The Tribunal held that these features clearly satisfy the criteria listed in Chapter Note 6(A) to Chapter 84 for classification as an Automatic Data Processing Machine, and that the devices were not comparable to conventional electrical apparatus covered under Chapter 85.

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Rejecting the stand of the department, the Tribunal noted that the equipment is “not like a television or any electrical equipment” but rather a sophisticated microcomputer-based data-processing system and therefore appropriately classifiable under CTH 8471. It was further observed that the description provided in the Bills of Entry — “Data Collection Terminal (based on face recognition)” — could not be treated as misdeclaration simply because the product bore commercial labels such as “Face Recognition Terminal,” especially when the functionality remained the same and consistent with the declared heading.

The Tribunal also agreed with the appellants that the extended-period demand was unsustainable. It reasoned that the dispute concerned classification and not suppression or intent to evade duty, and that the classification adopted by the importers was already supported by earlier judicial rulings. The Tribunal also recorded that where goods are self-assessed, the department must challenge the assessment through appellate channels rather than reopen Bills of Entry, referring to the principle laid down in ITC Ltd. As a result, the extended-period invocation was held impermissible, rendering the demand time-barred.

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Since the very foundation of the duty demand failed, the Tribunal concluded that confiscation and penalties imposed on the importers, their directors and their customs house agents could not survive. It therefore directed that the goods be classified under CTH 8471, declared the demand under CTH 8543 invalid, and allowed all the appeals with consequential relief.

Appearance

Counsel For  Appellant: S.C. Ratho

Counsel For Respondent: A.K. Choudhary

Cause Title: M/s.Face IT Systems LLP Versus Commissioner of Customs (Airport & ACC), Kolkata

Case No: Customs Appeal No.76501 of 2025

Coram: R. Muralidhar (Judicial  Member), K. Anpazhakan (Technical Member)