2003(05)LCX0109

IN THE CESTAT, WEST ZONAL BENCH, MUMBAI

S/Shri Gowri Shankar, Member (T) and G.N. Srinivasan, Member (J)

MULTIMEDIA FRONTIERS LTD.

Versus

COMMISSIONER OF C. EX., AHMEDABAD-II

Order Nos. 1094-1098/2003-WZB/C-II, dated 20-5-2003 in Appeal No. E/1438/2002-Mum.

CASE CITED

Sprint RPG v. Commissioner — 2000(01)LCX0171 Eq 2000 (116) ELT 0006 (S.C.) — Referred.............................................. [Para 6]

DEPARTMENTAL CLARIFICATION CITED

C.B.E. & C. Circular No. 7/98, dated 12-2-1998...................................................................................... [Para 7]

REPRESENTED BY :      Shri V. Sridharan, Advocate, for the Appellant.

Shri R.K. Pardeshi, DR, for the Respondent.

[Order per : Gowri Shankar, Member (T)]. - The question for consideration in this appeal is the classification of various kinds of CD-ROM’s that the appellant manufactured. It has claimed classification under sub-heading 20 of Heading 85.24 of the tariff. Show cause notice proposed to classify them in sub-heading 90 of the same heading. The Assistant Commissioner whose order has been confirmed by the Commissioner (Appeals), accepted the proposal in the notice demanding duty consequentially required. The Assistant Commissioner’s order imposing penalty has been set aside by the Commissioner (Appeals). Hence this appeal.

1. Heading 85.24 and the relevant sub-headings, as this stood at the relevant time, are reproduced below :-

2. The reason that the Assistant Commissioner and the Commissioner (Appeals) advanced for classifying the goods in sub-heading 90 instead of sub-heading 20 are these. The compact disc in question does not arise as a result of recording digital data of a blank compact disc; the product emerges as a direct result of process in which the entire disc, complete with the data, is moulded by one operation after it is metallised and coated with vinyl. The second reason is that treating such goods as software to the result will lead an absurd situation in which all video and audio cassette recording will be treated as a software.

3. We are not able to see the relevance of the process of manufacture to the classification of the goods. The Deputy Commissioner has expatriated a great deal upon this fact to come to his conclusion that the tariff is outdated and says that he is deciding the classification in accordance with the universal law. It is possible to manufacture CD-ROM’s by one of two methods. The first, which the appellant has utilised, is direct creation of CD-ROM containing the digitised data. The second is by recording on a blank compact disc. Whatever method adopted, the net result that we are concerned is a packed disc containing on it data in digitised form.

4. We note here that the process that the appellant adopts for the manufacture of its recorded compact disc, by employing the stamper which impresses by means of each the data is impressed upon the material which dispute the compact disc is not dissimilar to the manufacture of gramophone records using the material made out of the master records. Therefore, it is completely irrelevant whether the appellant manufactured the recorded media directly, or by first taking the unrecorded discs and thereafter imprint the data upon it.

5. The Deputy Commissioner proceeds to decide the issue by application of what is called “universal law.” He notes that compact disc containing software can be obtained by one of two manners, either by recording the data on a blank compact disc or by manufacturing directly, as the appellant has done, recorded compact disc ROM. He concludes that by classifying the product manufactured by the appellant under sub-heading 20, it would enjoy an unfair advantage over a person who records the data on to a blank compact disc; in the latter case, the duty burden has to be suffered on the compact disc unlike in the former case. This is no doubt true, but we do not see how it is relevant for classification. It is not anybody’s function while deciding the classification to take into account any inadequate burden of duty. It is settled law that in matters of taxation equity is not the criterion and statute relating to taxation are to be strictly construed.

6. The example that the Deputy Commissioner gives to support his case is unfortunate. He says that if the goods under consideration are software so would a computer hard disc on which software is imprinted be considered software. In point of fact, this is what exactly the Supreme Court has said in its judgment in Sprint RPG v. CC - 2000 (116) ELT 6. In that judgment it said that hard disc loaded with software is to be classified, not as a unit of data processing machine in heading 8471 but as software. We do not see how these goods are not to be considered as software. We have to keep in mind that a software cannot exist by itself and for it to be put to use it has necessarily to exist on some suitable medium such as a floppy disc or a tape or a compact disc. Once it is accepted, as the Deputy Commissioner does, that software recorded on to an existing unrecorded compact disc renders that disc an item of software it would necessarily to follow that the software recorded directly in the course of manufacture of the compact disc is also an item of software.

7. The appeal would have to be allowed on another ground too. Prior to 1996, there was no separate sub-heading in Heading 85.24 specifically for software. In 1996, a sub-heading 20 was introduced covering “computer software”. The appellants had cited before the Commissioner (Appeals) the Board’s circular 7/98, dated 12-2-98. This circular explained that the term “computer software” figuring in entry 173 of Notification 11/97, which exempted it from customs duty, would not cover “software required for operation of any machine performing a specific function other than data processing and incorporating or working in conjunction with an automatic data processing machine. More specifically, software for telecom, medical or other applications is not eligible for exemption from duty. However software containing encyclopedia, games, books, etc. will be eligible for the exemption wherever they satisfy the interactivity criterion.” As stated in the circular, the definition of the term “computer software” was incorporated as an Explanation below entry 173. The appellant’s contention was that even prior to the amendment of sub-heading 20 in 1998 to broaden its scope by omitting from it the word “computer”, making it available to all software, the Board had interpreted an identically worded entry to provide exemption to software of the kind that is manufactured.

8. The Commissioner (Appeals) has declined to accept this contention by saying that “for the purposes of Notification No. 11/97-Cus., dated 1-3-97, the CD containing the above material will be eligible for the exemption as computer software, but this could not be interpreted that CD-ROM containing books, games, telephone directory, educational materials of NIIT, programs of NIC could be treated as software per se.” This is clearly unacceptable. If interactive software containing encyclopedia, books, is eligible for the exemption, there is no reason why the software of the kind that the appellant manufactured, which stands on the same footing should be treated differently. In the absence of any definition of software in the tariff heading, it would be appropriate to apply the definition contained in the Notification No. 11/97 issued under the Customs Act, 1962.

9. It is not possible to accept the Commissioner (Appeals) view that the software in question is not interactive. The difference between the interactive software and other software is clearly explained in Dictionary of Computer Terms, Third Edition as under :

Batch Processing : In batch processing the user gives the computer a ‘batch’ of information, referred to as a job for example, a program and its input data on punched cards and waits for it to be processed as a whole. Batch processing contracts with interactive processing, in which the user communicates with the computer by means of a terminal while his program is running. The crucial difference is that with batch processing the user must put all of the data into the computer before seeing any of the results, while with interactive processing the user can decide how to handle each item on the basis of the results obtained with earlier items.

The software such as telephone directory etc. that the appellant manufactured is clearly interactive. The user has necessarily to communicate with the computer while the program is running, in order to locate the number of a particular subscriber among many with a similar name, to give an example.

10. The further point that the Commissioner (Appeals) raises, that applying the definition would result in items such as video-cassettes, which are not clearly software, being considered software, need not detain us. It is not possible for us to say whether, by applying the definition, video-cassettes would or would not be software. That in any case is not an issue before us. It can however be safely said that it cannot be assumed that video-cassettes cannot be software.

11. Appeals allowed. Impugned orders set aside.

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Equivalent 2003 (156) ELT 0272 (Tri. - Mumbai)