A Wikipedia note, a customs case, and Paytm's big win
A bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 5 August overturned two penalty orders against Paytm over its Soundbox payment device, calling the classification 'based merely on presumption and assumption" and 'not on any authentic technical literature or any expert opinion, evidence, statement, or report."
The dispute arose when Customs alleged that the Soundbox was a 4G LTE/MIMO device, which would attract the standard 20% duty, rather than a 2G product eligible for a concessional 10% rate under the Customs Act, 1962.
That reclassification would have raised costs for Paytm's network of more than 11.7 million merchant subscribers as of December 2024—street vendors, small shops, and kirana stores—who use the device for instant payment confirmations.
Emailed queries to One97 Communications earlier today went unanswered till press time.
A cost for millions of merchants avoided
The ruling preserves Paytm's concessional duty benefit, preventing the higher import cost from being passed on to merchants.
The penalties— ₹3.29 crore for one period and ₹17.98 crore for another—were cancelled along with confiscation orders.
In the tribunal's view, Customs officials misread both the evidence and expert testimony.
'Wikipedia cannot be considered a reliable source of information since anyone can add content," the bench wrote. It faulted the principal commissioner for assuming that a device with overlapping GSM and LTE frequencies was compatible with both network standards.
Paytm Soundbox is a compact unit that provides merchants with instant audio and visual alerts for transactions via UPI, Paytm Wallet, or cards, removing the need to check a phone screen.
Paytm, which had a 6.78-6.9% share of the UPI market as of the ruling, behind PhonePe (47.67%) and Google Pay (36.38%), processed 1.27 billion transactions worth ₹1.34 trillion in June this year.
A reliance on Wikipedia and a train analogy
Between August 2019 and August 2022, Paytm imported Soundboxes claiming the 10% concessional duty. Customs issued two show-cause notices between 2022 and 2023, citing a Paytm blog, Wikipedia articles, and the device's chipset frequency overlap with LTE as evidence that it was a 4G device.
Paytm countered with lab reports from Alpha Test House and Shenzhen STS Test Services showing the Soundbox connects only to 2G GSM networks. The company also sought an expert opinion from Saif Khan Mohammed, a professor at the Indian Institute of Technology, Delhi, who confirmed that the MediaTek MT6261A chipset supports only 2G GSM/GPRS.
Frequency overlap, he explained, does not enable faster networks — just as a local train (2G) can run on tracks that also carry express trains (4G), the Soundbox remains a 2G device.
Customs dismissed the reports, and in July 2023 misinterpreted Mohammed's analogy to claim the device could operate as 4G. The tribunal bench sided with the expert, calling his analysis technically sound.
A systemic problem
Courts have previously flagged Customs' reliance on Wikipedia in product classification disputes.
In 2023, the Supreme Court overturned Customs' reclassification of Hewlett Packard India Sales' All-in-One desktops, which partly relied on Wikipedia to argue the devices were portable. The court said portability could not be judged by weight alone and cautioned authorities against using the site to resolve legal disputes.
In 2007, the top court sided with Acer India after the Department cited Wikipedia to claim micro-computers and laptops were identical for classification.
Taxation experts say the Paytm case highlights persistent gaps in Customs' technical assessments that can lead to costly misclassifications.
'This points to a failure to consult primary technical documents such as manufacturer specifications or expert analysis. The ₹21 crore demand was based on a fundamentally incorrect premise," said Rohit Jain, managing partner at Singhania & Co.
'Classification errors are a frequent source of disputes between importers and Customs authorities. They often arise from ambiguities in the tariff schedule, incomplete product descriptions, and gaps in technical understanding. Such decisions directly impact trade compliance and revenue," said Pankaj Goel, partner at chartered accountancy firm CNK.
Customs must verify facts with qualified experts rather than rely on generic online sources, said Gopal Mundhra, a partner at Economic Laws Practice. Often, assessments seem aimed at denying benefits rather than being based on careful analysis, he added.
For Paytm, the verdict not only wipes out a ₹21 crore liability but also reinforces judicial pushback against loose, assumption-driven classifications that can ripple through India's import ecosystem.
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