1999(06)LCX0154

IN THE CEGAT, SOUTH ZONAL BENCH, MADRAS

S/Shri S.L. Peeran, Member (J) and V.K. Ashtana, Member (T)

CINE LAND

Versus

COMMISSIONER OF CUSTOMS, CHENNAI

Final Order No. 1489/99, dated 22-6-1999 in Appeal No. C/66/99

Cases Quoted

Richardson Hindustan Ltd. v. U.O.I. — 1988(06)LCX0049 Eq 1988 (037) ELT 0496 (Bom.) — Referred                            [Para 4]

M.J. Exports Ltd. v. CEGAT — 1992(05)LCX0008 Eq 1992 (060) ELT 0161 (S.C.) — Referred                                                [Para 4]

ESPI Industrial Corpn. v. Collector — 1986(07)LCX0033 Eq 1987 (029) ELT 0340 (Tribunal) — Referred                        [Para 7]

Commissioner v. Cinetek — Final Order No. 1748/96 — Referred                                                   [Para 12]

Commissioner v. HCL, Hewlett Packard — 1998(11)LCX0180 Eq 1999 (105) ELT 0362 (Tribunal) — Relied on [Paras 14, 16, 23]

Advocated By : S/Shri Habibulla Badsha, Sr. Advocate, E.S. Govindan and R. Sudhakar, Adovcates, for the Appellant.

 Shri S. Sankaravadivelu, JDR, for the Respondents.

[Order per : V.K. Ashtana, Member (T)]. - This appeal is against Order-in-Appeal No. 1296/98, dated 5-1-1999 passed by Commissioner (Appeals) wherein the goods imported were confiscated but allowed on redemption fine of Rs. 1 lac and penalty of Rs.10,000/- was confirmed.

2. Briefly, the appellants imported DTS-6D Sound Processor System and CP-65 System. The former is a sound processor (player) which can be further sub-divided into two sub-assemblies namely, the Time Code Reader Head and the Processor. The CP-65 is a Cinema Processor. The dispute is basically with respect to the requirement or otherwise of an Import Licence. While the order-in-appeal has upheld that because the goods are to be classified under sub-heading 8519.99 of the Customs Tariff, therefore the corresponding tariff in the ITC HSN requires that a licence be produced because the items falling under that heading are restricted for import, being consumer goods. The appellants contention is that the goods would fall under 8543.89 or 9007.92 and the corresponding ITC HSN classification being 900711.02. Therefore, as there is no restriction against the said ITC HSN heading hence the goods would be under OGL. They are in appeal against the confiscation, redemption fine and penalty.

3. Heard Shri Habibulla Badsha, learned Senior Advocate assisted by Shri R. Sudhakar and Shri E.S. Govindan, learned Advocates for the appellants and Shri S. Sankaravadivelu, ld. DR.

4. Learned Sr. Advocate submits that the goods imported would be either parts or accessories of a Cinematographic Projector and would therefore not require any import licence for the following reasons :-

(1) Since the goods cannot directly satisfy the human needs unlike a Tape Recorder or Turntable or Gramophone etc. Therefore, they are not consumer goods. Instead, they are sub-systems of Cinematographic Projector because they can only function when they are connected with such a projector.

(2) Secondly, the Time Code Reader picks-up the signals from the celluloid film being run on the Cinematographic Projector and these signals are then input into the DT-6D processor. From this processor, the six track output is received as an input in the CP-65 cinema processor. Similarly, the output from the CP-65 cinema processor becomes inputs for the DTS-6D processor. Therefore, there is constant transfer of signals, mostly digital, between the time code recorder, DTS-6D processor and CP-65 cinema processor as is evident from the technical literature available in the paper book. The conclusion inescapable is that each of these are required to work in conjunction with the other including Cinematographic Projector, only then the desired output of 6 track digital sound is available as an output. This output needs to be connected to any high power amplifier and speaker system in the movie theatre. An amplifier and the speaker etc. have not been imported and not under consideration. Ld. Sr. Advocate concluded that the above facts clearly show that the goods imported are not consumer goods as each of these independently cannot reproduce the desired sound unless they are not only connected with each other but also with (a) the cinematographic projector at one end and the sound amplification and reproduction system on the other end. (b) It is merely a sub-system for processing certain audio signals in syncronisation with the video frames being projected by this Cinematographic projector.

(3) This position has been also accepted and supported by the clarification given by the Office of the Director General of Foreign Trade New Delhi vide their letter dated 20-11-1998 which was produced even before the original authority in the proceedings culminating in this appeal. The opinion contained therein was that the items imported being cinematographic sound reproducing apparatus for projectors, they would be covered under sub-heading 90071102 of ITC (HS) classification. The said letter has been signed by the Joint Director General of Foreign Trade but it emanates from the Office of the Directorate General of Foreign Trade, New Delhi .

In this connection, he cites the case-law of Richardson Hindustan Limited v. Union of India as in 1988(06)LCX0049 Eq 1988 (037) ELT 0496 (Bom.) and M.J. Exporters as reported in 1992(05)LCX0008 Eq 1992 (060) ELT 0161 (S.C.) wherein it has been that the interpretation of import policy given in writing by the C.C.I. & E. (now DGFT) is binding on Customs authorities and that the Joint C.C.I. & E. can issue such clarification. Therefore the order-in-original which has brushed aside this clarification as being against the policy as well as the Customs Tariff is totally illegal and erroneous and the order-in-appeal impugned which upholds the same also suffers from the same infirmity.

5. Learned Senior Advocate therefore submits that the items imported falling under 90071102 of ITC (HS) and not being consumer goods are not having any restrictions for import, and hence there was no need for their obtaining any import licence prior to their import. He therefore prayed for the orders impugned to be set aside with consequential relief.

6. Learned DR on the other hand led us through the order-in-original and strongly reiterated the findings contained in paras 8.01 to 8.11 thereof which need not be repeated for brevity’s sake here. Ld. DR also submitted that the equipment can be connected to a cinema projector by a mere clamp and was therefore not an integral part or sub-systems of the cinematographic projector. Thirdly, while he fairly conceded that a clarification issued by DGFT would be binding on the department, he submits that since the JDGFT is not included under the rank of DGFT under law, therefore the clarification issued by the said Joint Director would not amount to be a clarification issued by the Director General. Therefore its validity needs to be reconfirmed by a reference to the office of DGFT.

7. Ld. DR also submits that the case-law cited did not lay down that clarification issued by the Joint Director would be valid. He also submits that the case-law cited with respect to 1987 (029) ELT 340 in their appeal is also not relevant. Ld. DR took us to Chapter 90 of the Customs Tariff and said that when it is read with the HSN explanatory notes [page 1469) it shows that cinematographic projector could be with or without sound. Therefore a sound apparatus need not necessarily be a part of cinematographic projector under Chapter 90. At best it could be an accessory. If so, this import violates the Accessories Rules, 1963 under the Customs Act as the goods have not been imported along with the main equipment and neither has price thereof been included in the main equipment i.e. a cinematographic projector. As against this, in view of explanatory notes at page 1367 of the HSN cinematographic sound reproducing system are covered under 8519 and since in ITC HS 8519 is a restricted entry, therefore the import without licence was unauthorised. He also referred to Note 1(h) to Chapter 90 which excludes the said item imported from that chapter. Therefore, ld. DR submits that there is no infirmity in the orders impugned.

8. Ld. Senior Advocate rose to counter and submitted that the submission of ld. DR that a clarification by JDGFT is not from DGFT was a new argument as the same was not considered either in the order-in-original or the order-in-appeal. He refers to page 103 of the paper book and submits that order-in-appeal has held that the DGFT clarification goes beyond the ITC Policy but does not dispute the validity, genuineness or jurisdiction pertaining to the said clarification by the JDGFT. Secondly, he submitted that the appellant’s letter seeking such a clarification was addressed to DGFT. It is not their fault if the Office of the DGFT replied to their query under the signature of the Joint Director. Obviously, such a Senior Officer as the Joint Director would sign this clarification only if he had the authority to act on behalf of the Directorate General of Foreign Trade and not otherwise. Therefore, the said clarification could not be brushed aside in the manner in which the ld. DR has sought to do so.

9. In further rebuttal, ld. Senior Counsel submitted that any reference to explanatory notes of HSN is totally irrelevant for the purpose of classifying the items imported under ITC Policy. When the ITC (HS) is now available as fully aligned with the HSN system therefore as far as ITC classification is concerned, any recourse to the HSN explanatory notes would not be legally correct.

10. He further counters that in para 8.2 of the order-in-original the main point upheld is that since the goods are consumer goods falling under 8519 of the Customs Tariff therefore they would require a licence. In this connection, he reiterated his arguments noted above that the goods were not consumer goods.

11. He also counters the argument of ld. DR that the Accessories Rules, 1963 would apply in this case on the ground that such Rules would only apply at best for computation of customs duty but for the said rules had no application to the interpretation of ITC Policy, which was the main issue in consideration of this appeal.

12. Finally, with respect to the scope of the term `consumer goods’ he submitted that the same have been considered at length by the Hon’ble Tribunal in Final Order No. 1748/96, dated 16-10-1996 in the case of C.C. v. Cinetek wherein it has been held that projector system installed in a cinema theatre is capital goods and that the sound reproduction system also would be capital goods. Sound speakers would not be consumer goods as they do not satisfy the definition of consumer goods.

13. We have carefully considered the rival submissions and records of the case. We find that there is great merit in this appeal because of the following reasons :-

(i)  Department seeks to classify these goods under 8519.99. The relevant entry in the Customs Tariff reads as follows :-

14. We find that these would basically be capable of functioning independently i.e. produce sound signals as output on their own and not needing to be attached or connected to any other equipment for receiving any other inputs and that they would be also capable of reading the media containing the software e.g. a recorded magnetic tape/a CD ROM/a plastic record etc. Thus, a turn table or record player picks up the software from a plastic record and delivers an audio signal as output on its own. Similarly, a cassette player picks up the software (music/speech) from the magnetic tape (cassette) and delivers (as output) an audio signal. These signals then may require further amplification etc., but that is immaterial. What is material is that such sound reproducing devices and apparatus must be capable of functioning independently. This test of capability to reproduce sound independently has been accepted as the main criterion in the following decision :

(a)  Sound blaster cards cannot reproduce digital sound on their own, but can work only if connected to a computer. Thus, it was held by the Tribunal in C.C. v. HCL HP in 1998(11)LCX0180 Eq 1999 (105) ELT 0362 (T) that they would be classifiable under 8473.30 and not under 8519.99.

(b) In this connection, the Tribunal also held that a TV coder works only in conjunction with the PCB of a computer and is therefore not a video reproducing apparatus falling under 8519.99/8521.99 but under 8473.30 as parts of a computer.

(c)  Similarly, it was held therein that Video blaster cards work only as accessories to the computer to generate video signal (i.e. they cannot generate the signal by themselves independently of the computer) and therefore would not fall under 8521.99 but under 8473.30

15. Applying this test to the present items in dispute we find that the technical characteristics of these has been discussed at great length in para-8 onwards in the order-in-original. It has been noted therein that

(a) the two items imported work in conjunction;

(b) the time code reader reads the code (not sound) from the film on the projector then feeds into DTS-6D; and

(c) the main functions were to synchronise between the video frames on the cinema film and the sound played through a CD ROM.

In view of these and other minor functions, the order concludes that the equipment reproduces sound and is therefore falling under 8519.99. While we agree with the technical findings in the order at (a) to (c) above, we are not in a position to arrive at the same conclusions from them. Instead we find that though the items do contribute to sound reproduction, but that by itself would not classify them under 8519.99 because they do not reproduce sound independent of the cinematographic projector i.e. by themselves they cannot output an acceptable sound signal. This is because the equipment is designed with two objectives :-

(a) to convert sound into 6 tracks and

(b) also to synchronise these sound signals with the video images emerging from the cinematographic projector.

16. Thus, we find that without the input of time code which the Reader picks-up from the film being run on the projector, this synchronisation of sound is not possible. Secondly, the audio signals read from the CD ROM are of a nature which are dedicated to the video images of the cinema film and hence have no user relevance if divorced therefrom. We hence come to the clear conclusion that the items imported are not independent sound reproducers but are supporting sub-systems dedicated to the cinematographic film being run on the cinematographic projector. Thus, the principle involved herein is the same as in HCL, HP (supra) - the equipment functions only in conjunction with a cinematographic projector (of computer in that case) and hence would be classifiable as a part/sub-system of the said projector i.e. under Chapter 90 and not under 8519.99.

17. We also find that while the said projector can function independently of the goods imported it can do so only in a totally different mode i.e. without a 6 track Digital Sound system. On the other hand, these goods cannot be used divorced from the said projector. As such they are sub-systems of the cinematographic projector which go to change the performance of the said cinematographic projector. Being therefore of a clearly different genre than independent sound reproducing apparatus including cassette players or record players, they are also not consumer goods. Instead, they would more appropriately fall within the ambit of capital goods which change radically the nature of performance (output) of already (previously) installed capital goods in a cinema theatre viz. the projector and the sound system. Since the output of the cinematographic projector, on use of the items imported, changes radically in its fundamental nature and content (from an ordinary 2 track sound system to a 6 track surround, high fidelity sound system with the clarity of a digital system if needed), therefore it cannot be a mere accessory. An accessory merely enhances the efficiency of a capital goods, but in this case there is a distinct and radical change in the characteristics of the output itself.

18. We find that the appellants had applied to the DGFT, New Delhi for a clarification on these items’ classification under ITC (HS) and the ITC Policy. Merely because the reply was signed by the JDGFT, its validity cannot be discarded. The JDGFT is a Senior Officer in the office of the DGFT. The reply is from the DGFT as per the letter-head. Therefore, obviously the JDGFT has issued it acting in the office of DGFT as per their internal procedures. There are thousands of importers and exporters who apply for such clarifications to the DGFT. It sounds to reason that it would be physically impossible for one DGFT to personally sign replies to these apart from his numerous other responsibilities. Secondly, here there is no certification required of a named authority in the body of a fiscal notification concerning exemption from Customs duty. Such a clarification required from only a named authority is a different requirement than the issue of a clarification on import policy. Therefore, we cannot agree with ld. DR that the clarificatory letter needs to be rechecked by a reference to the DGFT on whether it reflects the opinion of DGFT as it is signed by JDGFT.

19. We also find that it is now a well settled law that clarifications on Import Policy issued by office of DGFT is binding on Customs as far as ITC Policy is concerned in view of the decisions cited by ld. Senior Advocate supra.

20. The argument of ld. DR that the items are not components of the projector as they can be clamped on it, is not material to the issue. As held above, instead of the manner of attachment to the projector, the need to attach it for a new type of output to emerge is more relevant to the issue of its classification.

21. Since we do not find these items to be in the nature of mere accessories, therefore there is no need to consider the Accessory Rules under the Customs Act. This would be all the more so when ITC (HS) classification is to be considered.

22. We cannot also subscribe to the view that since cinematographic projector under Chapter 90 can be with or without sound, therefore sound processors would not fall under Chapter 90 at all. On the contrary, since Chapter 90 does not exclude sound projector, therefore sound processing equipment working only in conjunction with the sound projector (and not independently) would clearly fall under Chapter 90 as discussed above.

23. Ld. DR refers to Note 1(h) of Chapter 90, and seeks to exclude these items as being cinematographic sound reproducing system from Chapter 90. But in preceding paragraphs above, we have already found that the items imported do not constitute a complete sound reproducing system capable of functioning independently. Therefore, these would not be hit by provisions of Note 1(h) ibid. We also note that this equipment does not have a sound track head which reads the sound track from the film. Therefore, no audio signals are input (neither magnetic nor photoelectric) into these items by such a sound head from the cinematographic film. Picking-up of such a sound signal as input from the face of the cinematographic film would be an essential character of a cinematiographic sound reproduction system. Its absence herein is therefore significant, just as the absence of sound head in the sound Blaster card was significant to classification thereof under 8473.30 and not 8519.99 in HCL, HP (supra). What is picked-up by the Time Code Reader is a time code signal which is not a sound (audio) signal.

24. In view of the aforesaid analysis and findings, we are of the considered opinion that the items imported are sub-system of a sound cinematographic projector, that they are not consumer goods, that they are classifiable under Heading No. 9007.92 of CTA, 1975 and under Heading No. 900711.02 of the ITC (HS). We therefore also accept the clarification of JDGFT in this behalf. The goods imported are therefore not restricted and did not require any Import Licence. The order-in-appeal impugned is set aside and the appeal allowed with consequential relief as per law.

______

Equivalent 1999 (114) ELT 653 (Tribunal)

Equivalent 1999 (034) RLT 0800