2006(11)LCX0073

IN THE CESTAT, WEST ZONAL BENCH, MUMBAI [COURT NO. II]

Ms. Archana Wadhwa, Member (J) and Shri K.K. Agarwal, Member (T)

Shaf Broadcast Pvt. Ltd.

Versus

Commissioner of Customs (Import), Mumbai

Final Order Nos. A/1281-1283/2006-WZB/C-II/(C.S.T.B.), dated 20-11-2006 in Appeal Nos. C/131-133/06-Mum.

Cases Quoted -

Collector v. Fenoplast (P) Ltd. -1994(06)LCX0055 Eq 1994 (072) ELT 0513 (S.C.) - Referred………………………………..[Para 10]

Advocated By -

Shri V. Sridharan, Advocate, for the Appellant.
Shri Ajay Saxena, S.D.R., for the Respondent.

[Order per : Archana Wadhwa, Member (J)]. -

The impugned order under challenge confirmed demand Customs duty of Rs. 2,06,97,320/- and also imposed personal penalty of identical amount upon M/s. Shaf Broadcast Pvt. Ltd. The goods imported by them during the period September 1998 to September 2002 stands confiscated with an option to the appellants to redeem the same on payment of redemption fine of Rs. 20 Lakhs. In addition, personal penalty of Rs. 10,000/- each has been imposed upon the other two appellants in terms of the provision of Section 112 of the Customs Act, 1962.


2. As per facts on record appellants are engaged in importing and trading of various equipments, which are being supplied by them mainly to the broadcasting industry. Admittedly the equipments which are mainly and basically meant for broadcasting are being classified by them as broadcasting equipments and duty paid accordingly. However, the dispute in the present appeal relates to some of the equipments imported and declared by the appellants as automatic data processing machines and units thereof. The appellants claimed the classification of the same under Heading 84.71 as computer or computer parts, whereas the revenue has classified the same under Heading 85.43 as broadcasting equipments or parts thereof.


3. It is seen that during the course of investigation statements of various persons were recorded. Shri P.R. Suresh, Director of the importer company, in his statement recorded on various dates deposed that they have been importing computer hardware, computer software for graphics and animation, editing of videos and multi-media applications; that his company was supplying goods to the persons engaged in the business of broadcasting, post production and news production. He also disclosed the names of his customers, which are mainly television channels.


4. Statement of Shri Pradeep S. Kohli, Director was also recorded wherein he stated that they are primarily into computer editing and graphics and they are supplying broadcasting equipments as well as dealing with automation of broadcasting; that all their suppliers are supplying broadcasting equipments and are broadcasting solution providers; that the equipments imported by them are primarily used in automation equipment for transmission control. However, he clarified that they had also imported 8-Port Device Control Engine from M/s. Omnibus Systems, which can control 8 individual process devices which are used for transmission; that they have also imported strong arm servicing engine, which is a computer device. On further being asked he clarified that these devices are video transmission control equipment and their purpose is not transmission but transmission control by using computers and network devices. As such, he submitted that IT network controlling transmission process.


5. Statement of Shri W.S. Rodrigues, Engineer was also recorded disclosing therein that their company is providing hardware to all the customers who are mainly the broadcaster. They are also providing software for equipment supplied by them. He also disclosed use of the various equipments imported by them. Statement of Product Manager was also recorded.


6. From the above, revenue entertained a view that the equipments claimed by the appellant as automatic data processing unit are nothing but broadcasting equipments inasmuch as they are patented items and cannot be manufactured by anybody and are required for broadcasting and post production of audio/video programme.


7. Enquiries were also caused from independent sources. The uses of the hardware was detailed by Shri Roy Joseph of M/s. Zee Telefilm, Mumbai, which stands reproduced in the impugned order of Commissioner. Similarly opinions of M/s. National Film Development Corporation, Mumbai, as regards the use of the equipments were also sought. Further enquiries were conducted from the buyers including Doordarshan who had purchased some of the equipments.

It may be sufficient to state here some of the use of the said equipments, instead of reproducing the context of the complete opinions. The experts as also buyer had detailed the uses of the equipments including software for post production and editing, making graphics, slow motion effects, for playback of audio/video programmes.


8. Based upon the result of the above investigation proceedings were initiated against the importer for re-classification of the goods under Customs Tariff Heading 85.43 and for confirmation of the differential demand of duty. The said proceedings resulted in passing of the impugned order.


9. We have heard Shri V. Sridharan, learned Advocate appearing for the appellants challenging the said order on merit as also on the point of limitation. Shri Ajay Saxena, learned S.D.R. appears for the revenue.


10. As regards the merits of the case, we find that use of the various equipments for non-linier editing of audio/video programmes, computer graphics, and special effects with the help of audio/video hardware and software, for animation etc. have not been disputed. The goods have been held has classifiable under Heading 84.73 on the main ground that the same were used by the broadcasting companies and were being used for the purpose of controlling the broadcasting equipments. As such it has been held that they cannot be classified under Heading No. 84.71. The learned Advocate has strongly contested the above reasoning of the adjudicating authority on the ground that end use of the equipments cannot be made the basis for classification of the equipments in question which is nothing but automatic data processing machine, which has been defined in Chapter Note 5A to Chapter 84. We observe that merely because the equipments are being mainly supplied by the appellant to broadcasting units, does not convert their character from being automatic data processing unit to broadcasting equipments, if they otherwise satisfy the definition of the automatic data processing units. Wherever the classification is based upon the end use of the same, sufficient indication to that effect is available in the tariff. Automatic data processing unit will not go on changing their classification depending on the type of industry in which they are used. As such, when there is a definition of automatic data processing machine available in the statute, it is not open to the revenue department to resort to commercial parlance test to classify the goods, as held by the Hon'ble Supreme Court in the case of C.C.E. v. Fenoplast (P) Ltd. -1994(06)LCX0055 Eq 1994 (072) ELT 0513 (S.C.). The definition of automatic data processing unit is given in Chapter Note 5 of Chapter 84 which is reproduced below :-
The Note 5 of Chapter 84 reads as under :
"(A) for the purpose of Heading 84.71, the expression "automatic data processing machines means:
(a) Digital machines, capable of (1) storing the processing program or programs and at least the data immediately necessary for the execution of the program; (2) being freely programmed in accordance with the requirements of the user; (3) performing arithmetical computations specified by the user; and (4) executing, without human intervention, processing program which requires them to modify their execution, by logical decision during the processing run;
(b) Analogue machines capable of simulating mathematical models and comprising at least : analogue elements, control elements and programming elements;
(c) Hybrid machines consisting of either a digital machine with analogue elements or an analogue machine with digital elements.

(B) Automatic data processing machines may be in the form of systems consisting of a variable number of separate units. Subject to paragraph (E) below, a unit is to be regarded as being a part of a complete system if it meets all of the following conditions:
(a) It is of a kind solely or principally used in an automatic data processing system;
(b) It is connectable to the central processing unit either directly or through one or more other units; and
(c) It is able to accept or deliver data in a form (codes or signals) which can be used by the system.

(C) Separately presented units of an automatic data processing machine are to be classified in Heading 84.71.
(D) Printers, keyboards, X-Y co-ordinate input devices and disk storage units which satisfy the conditions of paragraphs (B) (b) and (B)(c) above, are in all cases to be classified as units of Heading 84.71.
(E) Machines performing a specific function other than data processing and incorporating or working in conjunction with an automatic data processing machine are to be classified in the headings appropriate to their respective functions or, failing that, in residual headings."

As is clear from above, automatic data processing machines are digital machine which are capable of storing the processing programme, being separately programmed in accordance with the requirement of the uses. Such units may be in the form of systems consisting of various number of separate units. Applying the above definition of automatic data processing machine, to the items imported by the appellant, when viewed and examined in the light of their uses, as detailed by various persons in their statement, it has to be concluded that the equipment is nothing but automatic data processing machine. Merely because the same are used for broadcasting purposes, will not take then away from the category of data processing machines. This finding get support from Note 2(a) of Section XVI, which is to the effect that parts which are goods included in any of the headings of the Chapters 84 and 85 are in all cases to be classified in their respective headings. As such, the goods to fall under Chapter 85, it is necessary to exclude their entry under Chapter 84 and the goods being covered by the specific heading under Chapter 84, they have to be classified under the said heading, even if they are solely and principally used with the broadcasting industry, by virtue of the said Note 2(a) of Section XVI. Hence we are of the view that Heading 84.71, specifically covers automatic data processing machines cannot be ignored and such goods cannot be classified under Heading 85.43 which is residuary entry.


11. Reference here may also be made to the HSN Explanatory Notes. Page 1701 to Heading 85.43 clearly mentions that in order to classify a product under Heading 85.43, the product should not be electrical appliance and apparatus falling in any other heading of Chapter 85 and also it should not be covered more specifically by a heading of any other chapter of the nomenclature. The relevant portion of this explanatory note at page 1701 is as under :-

"This heading covers all electrical appliances and apparatus, not falling in any other heading of this Chapter, nor covered more specifically by a heading of any other Chapter of the Nomenclature, nor excluded by the operation of a Legal Note to Section XVI or to this Chapter. The principal electrical goods covered more specifically by other Chapters are electrical machinery of Chapter 84 and certain instruments and apparatus of Chapter 90."


12. Similarly, we find invocation and application of interpretative Rule 3 to Rules of interpretation of the Schedule to the Customs Tariff Act, relied upon by the Commissioner is also not appropriate. The same gets invoked when the goods are prima facie classifiable under two or more headings. Inasmuch as there is no dispute that Heading 84.71 covers the goods in question, and Heading 84.43 is residuary in nature covering "electrical machine and apparatus having individual function, not specified or included elsewhere in this chapter." Inasmuch as we have already held that data processing units being specifically covered by Heading 84.71, the same cannot be held to be covered by residuary entry by resolving Rule 3 of interpreting Rules.


13. We further find that the Commissioner's reliance on Chapter Note 5(E) of Chapter 84 is not appropriate. It only excludes machine performing a specific function other than data processing and incorporating or working in conjunction with an automatic data processing machine are to be excluded from Heading No. 84.71. For example, the lathe machine which operates with the aid of the computer or "automatic data processing machine" cannot be classified under Heading 84.71 as a unit of automatic data processing machine since the lathe machine is performing a specific function other than data processing machine and it is incorporating or working in conjunction with an automatic data processing machine. By applying Note 5(E) to Chapter 84, the automatic data processing machine itself cannot be excluded from Heading No. 84.71. The Commissioner has precisely done the same thing. The automatic data processing machines are presented separately. When the automatic data processing machines are presented together with the machine performing a specific function other than data processing machine and such machine with specific function is incorporating or working in conjunction with an automatic data processing machine, then the automatic data processing machine and the other machine having specific function, presented together should be classified under the Headings appropriate to the functions of that other machine. In the present case, it is an undisputed fact that the items in question are presented separately and the function of the said machines are automatic data processing. Therefore, these items are correctly classifiable under Heading No. 84.71 by application of Note 5(A) to Chapter 84.


14. The second category of items covered by Show Cause Notice is disk storage unit, channel raid card, hard disk which would get covered under Heading 84.71 on account of Chapter Note 5(D) extracted above. Similarly computer accessories like keyboard, computer application card etc. are part of computer which is classifiable under Heading 84.73.


15. In view of the foregoing discussion, we do not find favour with the impugned order as regards the classification of goods under Heading 85.43 and hold that the goods have correctly been assessed by the appellants and duty correctly paid.


16. In any case, we find that the period involved in the present appeal is from 12-9-1998 to 27-9-2002 whereas the show cause notice was issued on 17-5-2003 i.e. beyond the normal period of limitation. The demand has been strongly assailed by the appellants on the point of limitation. The Commissioner while dealing with such plea observed as under :-

"I find that importers were aware about the specific nature, function and usage of the imported item. They were having two qualified engineers as their employees who were having thorough knowledge about the imported items. From the submissions made by importer it is revealed that they are aware about the classification of goods under Custom Tariff Act but they have manipulated the scope of CTH 8471 /8473 to evade the Customs Duty. The extended period is applicable, as knowing that the goods are to be used in edit control, they deliberately misclassified the goods with intention to evade payment of duty. They have expressed their surprise regarding corrigendum issued by the DRI and stated that Department itself is not clear as to where the goods in question are classifiable. I find that DRI under corrigendum date 10-1-2005 has corrected the classification in 32 cases which are extremely minor e.g. treating the goods as the machine (8543.89) instead of parts (8543.90). Neither any error in classification can be allowed to perpetuate nor the corrigendum issued at a later stage extinguish the duty liability that arose at the time of import. Anyway, I find that the corrigendum was issued on 10-1-2005 which covers substantial number of consignments within the period of 5 years."


17. We are unable to accept the above reasoning by the adjudicating authority for invocation of longer period of limitation. There is no denial of the fact that the goods were appropriately described in the relevant documents and there was no mis-statement or suppression as far as the description of the same is concerned. Claim of the classification of goods under Chapter 84 instead of Chapter 85 cannot be held to be mis-statement. If the revenue was of the view that classification claimed by the importer is not correct, they were within their rights to reassess the same. It is too late in the day to hold that claim of classification under a particular heading amount to suppression so as to give right to the revenue to invoke the longer period. The law on the above issue is settled. The Customs authorities having allowed the clearance of the goods, is deemed to have satisfied themselves about the description, classification and other particular of the goods and cannot attribute any suppression to the importer especially in the absence of any allegation of withholding of any information relatable to the goods. As such, we are of the view that the demand is also barred by limitation.


18. In view of our above foregoing discussion, we set aside the confirmation of demand of duty against the importer and imposition of personal penalties imposed upon all the appellants. In a nut-shell all the appeals are allowed with consequential relief to the appellants.
(Pronounced in Court on 20-11-06)

Equivalent 2007 (207) ELT 0554 (Tri. - Mumbai)

Equivalent 2007 (078) RLT 0672 (CESTAT-Mum.)