Krcd (India) Pvt. Ltd vs Commissioner Of Central Excise, ...

(Arising out of Order-in-Appeal No. M-I/AV/242/2010 dated 20.9.2010 passed by Commissioner of Central Excise (Appeals), Mumbai-IV)

For approval and signature:

Honble Mr. P.K. Jain, Member (Technical) and Honble Mr. Ramesh Nair, Member (Judicial)

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1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the :

CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy : Seen of the Order?

4. Whether Order is to be circulated to the Departmental : Yes authorities?

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KRCD (India) Pvt. Ltd. Appellant Vs. Commissioner of Central Excise, Mumbai-IV Respondent

Appearance: Shri Gajendra Jain, Advocate, for appellant Shri Ashutosh Nath, Assistant Commissioner (AR), for respondent

CORAM: Honble Mr. P.K. Jain, Member (Technical) Honble Mr. Ramesh Nair, Member (Judicial)

Date of Hearing: 31.3.2015 Date of Decision: 31.3.2015

ORDER NO

Per: P.K. Jain

Brief facts of the case are that the appellant is manufacturing Panasonic MP3 CD-ROM. Essentially they are first manufacturing the CDS on which audio music/songs are recorded in MP3 format. The appellant is claiming that the said goods are classifiable under sub-heading 8524.20 and are chargeable to nil rate of duty. The said sub-heading covers software. The Revenue, on the other hand, is of the view that the said goods are classifiable under sub-heading 8524.90 and are chargeable to duty @ 16%. The said sub-heading is a residuary sub-heading and covers Other.

2. The learned counsel for the appellants main contention was that the goods being manufactured are nothing but software. Heading 85.24 covers Gramophone records which are used for recording the sound. This also covers audio tapes and cassettes which are also used for recording of sound. Video cassettes and tapes are used for recording sound and image and magnetic disks are used for recording of both sound as well as video and the said sub-heading also covers software and what is being manufactured by them is appropriately covered under the software category. It was also submitted that the term software is not restricted to computer software but is a very term but would include all types of software. It was further submitted that compact disks are not magnetic and Heading 8524.20 would be preferred over 8524.90 since it is more specific. It was also submitted that CD-ROM disc with MP3 files is not an audio CD but it is a software. The said CD-ROM disc contains audio songs in a MP3 format and the files are structurally and technologically different and the data can be manipulated and in view of the said position, it has to be considered as software. It was also submitted that the impugned order is passed on the basis of Wikipedia and is not sustainable.

2.1 Another contention of the learned counsel was that the demand is barred by limitation as the appellant was under bona fide belief that the MP3 CDs are software classifiable under 8524.20 and they have been regularly filing the return indicating nil rate of duty and the department cannot allege suppression of facts. It was also submitted that no penalty is imposable under the facts and circumstances of the case.

2.2 The learned counsel also relied upon the following case laws:-

(i) Multimedia Frontiers Ltd. vs. CCE reported in 2003 (156) ELT 272 (Tri.-Mum.);

(ii) ITI Ltd. vs. CCE, Cochin reported in 2004 (168) ELT 115 (Tri.-Bang.), and

(iii) CC, Chennai vs. Pentamedia Graphics Ltd. reported in 2006 (198) ELT 164 (SC).

3. The learned AR, on the other hand, submitted that MP3 format is only a format of recording audio songs and under the said format, the songs are recorded in the compressed format and can be played on any player having the MP3 facilities. It was further submitted that it is incorrect to say that this is an interactive software. No data can be manipulated on the said CD-ROM. Just switching over from one song to other, the song cannot be called as manipulation of the data. Such a thing can be done even in the audio cassette by fast forward facilities etc. The learned AR also submitted that certain literature downloaded from internet explains the difference between audio MP3 and data CDs. The learned AR further submitted that the Honble Supreme Court in the case of LML Ltd. vs. CC reported in 2010 (258) ELT 321 (SC), has discussed in detail the scope of software and the essential thing in any software is that the software is a computer programme which enables computer to function. Further, such a software functions manipulating the data. The learned AR also submitted that it is very interesting to note that in all the ER-1s, the appellant was not indicating the goods as MP3 CD-ROM but was only indicating CD-ROM. From the said description, nobody can make out that the goods are MP3 CDs. It was only during the audit when the invoices were seen that it was found that in the invoices, the description of the goods is Panasonic MP3 CD-ROM. There is no reason why the appellant should not write the same description in the ER-1. This itself proves that there was a clear cut suppression with an intention to mislead the department and evade payment of duty. In view of this fact, extended period of limitation is applicable. Keeping in view the conduct of the appellant, penalty imposed is line and the appeal needs to be rejected.

4. We have considered the submissions of both the sides. To appreciate the lis, the tariff description at the relevant time is reproduced below:-

85.24 Records, tapes and other recorded media for sound or other similarly recorded phenomena, including matrices and masters for the production of records, but excluding products of Chapter 37.

8524.10 - Gramophone records 16% 8524.20  Software Nil

- Magnetic tapes:

8524.31 - Audio tapes in any form 16% 8524.32  Audio cassettes 16% 8524.33  Video tapes in any form 16% 8524.34  Video cassettes 16% 8524.39  Other 16% 8524.40  Magnetic discs 16% 8524.90 - Other 16%

It would be seen from the above heading that 85.24 covers records, tapes and other recorded media. Thus the essential thing is that the heading covers the recorded media. It is not in dispute that the goods under dispute were recorded with audio songs and there is no dispute that the goods will be covered by the Heading 85.24. The dispute is only whether these would be classifiable under Heading 8524.20 or 8524.90. It would be seen that 8524.20 covers software while sub-heading 8524.90 is residuary heading relating to recorded media. If one analyses the scope of the term software in the background of various sub-classifications, it would be evident that 8524.20 covers the software which is interactive in nature and would be used on automatic data processing machine. In the present case, the Panasonic MP3 CD-ROM is not containing anything interactive. On the contrary, it contains audio songs alone. The fact that the songs are recorded in MP3 format is irrelevant to the issue. MP3 format does not imply that the content of the goods in question is interactive in nature. It only implies the format in which the songs are recorded. The fact that for playing such a disc, a MP3 player is required is also of no consequence as it is obvious that the format of the recorded media as also the player should be similar, otherwise no data can be retrieved.

5. We have gone through the three case laws mentioned by the learned counsel for the appellant and find that in all the cases, the basic thing was that the recorded information was interactive in nature. In the case of Multimedia Frontiers Ltd. (supra), this Tribunal has found that the CD-ROMs manufactured in that case were interactive in nature and were thus an item of software. Similarly, in the case of ITI Ltd. (supra), it was found that application softwares were also recorded in the CD-ROM along with documentation and, therefore, it was held that the same would be considered as software. It was also observed in the case law that the meaning of the term software under Chapter sub-heading 8524.20 should be according to its popular meaning or meaning attached to it by those dealing with it or as understood by the common parlance. In the case of Pentamedia Graphics Ltd. (supra), the Honble Supreme Court has observed that the data recorded was capable of being manipulated by means of an automatic data processing machine and hence came to the conclusion that the said goods are software.

6. We also note that in the case of LML Ltd. (supra), the Honble Supreme Court has observed as under:-

18. The term software is defined by the Advanced Law Lexicon (3rd Ed.) as distinct from hardware, the computer program enabling a computer to function. The same expression software is also defined in Britannica Concise Encyclopedia as the entire set of programs, procedures and routines associated with the operation of a computer system, including the operating system. We have also considered the meaning of the word software given by the Merriam-Webster Dictionary as the entire set of programs, procedures and related documentation associated with a system and especially a computer system; specifically computer programs.

19. The aforesaid definitions, therefore, make it crystal clear that software is the set of instructions that allows physical hardware to function and perform computations in a particular manner, be it a word processor, web browser or the computers operating system. These expressions are in contrast with the concept of hardware which are the physical components of a computer system, and data, which is information that performs no computation and gives no enabling instructions to computer hardware but is ready for processing by the computer software.

20. In the light of the aforesaid background, the question that arises for our consideration is whether the data in a compact disk falls within the meaning of the term software. It is needless to reiterate that data at issue in this case are images of drawings and designs intended to be used for engineering projects, therefore, the core issue to decide is whether such drawings, designs intended to be used for engineering projects be termed software so as to entail the benefit of the aforesaid Notification 17/2001-Cus., dated 1-3-2001.

21. There can be no doubt that such engineering drawings and designs do not provide instructions for the computer hardware to perform. At best, the said drawings and designs can be said to be are by-products and outputs of the computer software, which generate the designs and drawings. Therefore, such engineering drawings or designs data in a CD cannot be placed in the category of the term software. It is therefore held that the engineering drawings and designs contained in a CD ROM will not be covered Heading 85.24 of the Tariff.

7. Keeping in view our observation earlier that the MP3 CD-ROMs contain only audio songs which can be played on any MP3 CD player, these discs are neither interactive nor it is possible to manipulate the details in such CDs. In view of the said position, we have no hesitation in holding that the goods cannot be considered as software so as to classify under Heading 8524.20.

8. The appellant has submitted that the extended period of limitation cannot be invoked as they were filing ER-1 return and they had the bona fide belief that the goods are chargeable to nil rate of duty. We have gone through the ER-1 returns filed by the appellant and submitted in the appeal. It is seen from the ER-1 returns that the appellant has not given the complete description in the ER-1 return. The ER-1 return indicated the description as CD-ROM. On the other hand, if we see the corresponding invoices, the description is very clear as Panasonic MP3 CD-ROM. There was no reason for the appellant to give different description in the statutory return. In fact, from seeing the statutory return, one would conclude that CD-ROM contains some software and would, therefore, be classifiable under Heading 8524.20. In view of the said fact, we have no hesitation in holding that there was suppression of facts with a wilful intention to evade duty. Therefore, in our view, the extended period of limitation has been correctly invoked and we accordingly uphold the same.

9. As far as penalty under Section 11AC is concerned, the ingredients are similar and for the same reason as are true in the present case for extended period, the penalty imposed under Section 11AC is upheld.

10. In the result, the appeal is dismissed.

(Operative part pronounced in Court)

(Ramesh Nair) Member (Judicial) (P.K. Jain) Member (Technical)

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