By TIOL News Service

MUMBAI, SEPT 14, 2015: THE appellant filed a bill of entry for the clearance of goods declared as "designs and drawing is for Hull number 398 and 397" through the CHA. The said B/E was facilitated by the Risk Management System (RMS) where no assessment and examination was prescribed.

The appellant had declared the said goods as classifiable under CTH49060000 claiming benefit of exemption under serial number 271 of notification number 12/2012-CUS.

Being a high value consignment the goods were examined by the shed staff under supervision of AC, CEX and on opening the consignment, in addition to the drawings and designs printed on paper, one number CD was also found. On being asked to explain the contents of the CD, the appellant informed that they had placed an order for supply of designs and drawings for construction of ship and had not placed any order for supplying designs and drawings on CD.

Not convinced, the Customs authorities conducted an investigation and after recording statements of company personnel came to a conclusion that appellant had tried to evade duty by mis-declaring the description of the goods imported.

A SCN was issued for classification of the CD under CTH 8523 8020 and demanding duty.

The appellant contested the SCN submitting that they had placed an order for design and drawings in CD form and even if the classification as claimed by the revenue is correct then also benefit of supplementary note to chapter 85 will apply as imported goods i.e. CD will fall under the category of "information technology software"; there was no intention to misdeclare the goods as the purchase orders were placed specifically for the designs and drawings in printed form only and that they be allowed to re-export the CD back to the supplier.

The adjudicating authority did not agree and held against the appellant.

Elaborate submissions were made by both sides.

The Bench after considering the submissions extracted the supplementary note to chapter heading number 8523 which reads -

Supplementary Note:

For the purposes of heading 8523, "Information Technology software" means any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form and capable of being manipulated or providing interactivity to a user, by means of an automatic data processing machine.

(emphasis supplied)

Thereafter, the CESTAT observed -

+ It can be seen from the above reproduced note that the information contained in the CD in question is definitely a data, image and is recorded in machine readable form. It is not the case of the revenue that the data on the CD is not machine readable. The date on the CD if is read in an automatic data processing machine would mean that the data on the CD is machine readable. The CD containing the designs and drawings is definitely satisfying the first limb of the definition of information technology software. The term "information" has been defined in section 2(1)(v) of the Information Technology Act, 2000 to include data, message, text, images, sound, voice, codes, computer programs, software and data basis and microfilm or computer generated Micro fiche.

+ Secondly, the 2 nd limb of the definition of information technology software requires that the representation of instructions, data, sound or image is capable of being manipulated. In the course of the hearing, it was demonstrated before us that the drawings contained in a CD form, when used in conjunction with AUTOCAD software provides interactivity to the user and the data in such a CD is also capable of being manipulated. The printed literature pertaining to AUTOCAD software, as extracted in the synopsis filed by the Appellant, shows that a user can change a drawing i.e manipulate it by giving different commands.

The commands appearing in the printed literature were extracted by the Bench and it was noted that the above features of the CD were explained in the course of investigation by Mr. Vipul Srivastav, Deputy General manager in his statement.

While rejecting the findings of the adjudicating authority as being without any basis, it was further observed -

+ We therefore find that the features of AUTOCAD software, as demonstrated before us, are consistent with the evidence on record. We find considerable substance in the argument that a drawing in a "soft" form which enables a user to view cross section when used to in conjunction with AUTOCAD software is information technology software, providing interactivity to the user as well as being capable of manipulation.

+ The manipulation to data on CD that could be undertaken as was demonstrated to us indicates that after the manipulations, the automatic data processing machine culls out immense information with respect to so many aspects of the vessel. The drawings and the designs on the CD is in a software form as stated above and can be manipulated to suit to the requirements of appellant's customer or the user. The interactivity of the information on the CD can be also gauged from the fact that the appellant can entirely change the design and use the new design and also work of the minutest detail, a fact undisputed by the lower authorities.

+ The definition of information technology service talks about including of source code and object code; which we find is not required in the case in hand, inasmuch that when the CD is capable of being manipulated without having a source code or and object code would in itself mean that the said codes are built in the designs and drawings as found in the CD.

+ The definition of manipulation, as per Black's law dictionary also talks about alteration in the data, which we find can be done in the case in hand. The interactivity to the user is demonstrated from the fact that three-dimensional picture is presented on the screen after required changes are made to the data on the CD. The fact that software AutoCAD is being used by the importer to manipulate the information on CD is itself a indicator that the designs and drawings on the CD are interacting with the automatic data processing machine.

The apex court decision in Pentamedia Graphics Ltd. - 2006-TIOL-44-SC-CUS was held to be directly on the point whereas the decision relied by the adjudicating authority and special counsel for the Revenue in LML Ltd - 2010-TIOL-75-SC-CUS was distinguished.

The Bench concluded -

"…we find that the designs and drawings contained in the CD were correctly classifiable under Heading 8523 8020 and attracts ‘nil' rate of duty as per Customs Tariff. The requirements of supplementary note to Chapter 8523 are therefore satisfied. Since designs and drawings in paper form as well as in the CD form attract nil rate of duty, the finding of the Commissioner about the applicability of section 19 of the Customs Act, 1962 becomes irrelevant since the rate of duty applicable to both goods even assuming them to be constituting a set, is ‘nil' in view of the classification determined by us. The question whether a separate value could be attributed to the CD also becomes irrelevant in view of the classification under Heading 85238020 of the Tariff."

The order passed by the Commissioner of Customs (Import), Air Cargo Complex, Sahar, Mumbai was set aside and the appeal was allowed with consequential relief.

(See 2015-TIOL-1924-CESTAT-MUM)