By TIOL News Service

MUMBAI, MAY 27, 2015: THE appellant is manufacturing Panasonic MP3 CD-ROM on which audio music/songs are recorded in MP3 format. The appellant is claiming that the said goods are classifiable under SH 8524.00 [as Software]and are chargeable to nil rate of duty.

The Revenue is of the view that the said goods are classifiable under the residuary sub-heading 8524.90 [Others] and are chargeable to duty @16%.

Before the CESTAT against the order passed by the Commissioner(A), the appellant inter alia submitted -

+ The term 'software' is not restricted to computer software but is a very wide term and would include all types of software; that compact disks are not magnetic and Heading 8524.20 would be preferred over 8524.90 since it is more specific; that CD-ROM disc with MP3 files is not an audio CD but it is a software; 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.

+ 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.

+ CC, Chennai vs. Pentamedia Graphics Ltd. - 2006-TIOL-44-SC-CUS refers

The AR submitted that MP3 is only a format for recording audio songs and can be played on any player having the MP3 facilities;as no data can be manipulated on the said CD-ROM it is incorrect to say that this is an interactive software; just switching over from one song to other cannot be called as manipulation of the data as same can be done even in the audio cassette by fast forward facilities etc. It is further submitted that the Supreme Court in the case of LML Ltd vs. CC - 2010-TIOL-75-SC-CUS 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. In the matter of limitation, the AR submitted that in all the ER-1s the appellant was not indicating the goods as MP3 CD-ROM but was only indicating CD-ROM and 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 and which proves that there was a clear cut suppression with an intention to mislead the department and evade payment of duty.

The CESTAT after extracting the competing entries of Tariff observed -

Merits:

++ 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 8424.90. 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.

++ 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.

The case laws cited by the appellant were distinguished and that by the AR was relied upon.

Limitation:

++ 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.

Penalty:

The penalty imposed u/s 11AC was also upheld by noting that the ingredients are similar as while invoking the extended period.

In fine, the appeal was dismissed.

(See 2015-TIOL-955-CESTAT-MUM)