By TIOL News Service

NEW DELHI, SEPT 05, 2018: THE Authority for Advance Rulings, Central Excise, Customs & Service Tax, New Delhi had in the matter of the application filed by M/s Amazon Seller Services Private Limited held thus-

Cus -  Classification of "Kindle" - Importer classifying goods under heading 8543 7099 and claiming exemption from BCD under notification 25/2005-Cus.

Held: Kindle Device is not a 'monitor/projector' or a 'video recording or reproducing apparatus' or a 'game' - will be covered under entry 8543 7099 being an electrical machine with translation or dictionary functions and is entitled for the benefit of Notification No. 25/2005-Cus. Dated 01.03.2005 [read with amending notification 133/2006-Cus dated 30 December 2006].

We reported this order as -   2015-TIOL-01-ARA-CUS.

For the sake of reference, the entry 8543 7099 is extracted below -

8543 ELECTRICAL MACHINES AND APPARATUS HAVING INDIVIDUAL FUNCTIONS, NOT SPECIFIED OR INCLUDING ELSEWHERE IN THIS CHAPTER

The exemption notification entry reads -

Table

[#- earlier 8543 89 before amendment by notification 133/2006-Cus]

Revenue is aggrieved by the AAR order dated 15 May 2015 and had filed a Writ Petition before the Delhi High Court in the year 2007.

It is the submission of Revenue that the primary function of Kindle e-reading devices was not to translate or perform dictionary functions and hence, they would not be covered under the expression "electrical machine with translation or dictionary function".

Reliance is placed on the Constitution Bench decision of the Supreme Court in  Hari Chand Shri Gopal And Others -   2010-TIOL-95-SC-CX-CB and  Dilip Kumar -  2018-TIOL-302-SC-CUS-CB to urge that exemption notifications should be construed and interpreted strictly and in case of ambiguity and doubt interpretation in favour of the Revenue, rather than the assessee, is mandated and required.

After considering the submissions made by both sides and examining the application dated 8 th June 2012 made by the respondent before the AAR, the High Court observed thus -

International Rulings:

+ The Court of Justice of the European Union while applying the said Rule [viz. Rule 3 of Part-I of sub-section A of the General Rules, titled "General Rules for interpretation of CN"] and principle, also applied their earlier rulings that for the purpose of classifying a product it was necessary to take into account what the consumers would consider to be ancillary or principal function. It was held that a product should be classified having regard to the principal function and not one of the ancillary functions. The Court of Justice of the European Union held that in the absence of the CN of sub-heading corresponding to the principal function of the product, electronic book readers would be classifiable under the residuary sub-head, i.e., "others" and not under the CN code "electrical machines with translation or dictionary functions".

+ However, there is contra ruling by the United States International Trade Commission in the case of Thomson Multimedia, Inc. regarding the e-book reader RCA REB 1100 and 1200 Amazon, HQ 9647 79 dated 27th February, 2002, wherein the electronic e-book readers were classified under the sub-heading 8543.89.92 "electrical machines with translation or dictionary functions".

Expression "electrical machines with translation or dictionary functions" - significance of the word "with"

+ There is no dispute or debate that Kindle Devices fall under the residuary clause, i.e., "others" covered by item No. 8543 89/8543 7099.

+ The exemption has not been granted to all products/items covered by the residuary clause 8543 89/8543 70 99. Therefore, mere classification of the e-readers under CHA 8543 89/8543 7089 as "others", is not sufficient to claim benefit of exemption.

+ The requirement and stipulation in the exemption notification under the heading "Description of Goods", is restricted to "electrical machines with translation or dictionary functions".

+ Translation or dictionary function, we would observe, qualifies the term "electrical machines" and two stipulations are connected and joined with word "with". The word "with" has been interpreted below, but at this stage, it may be stated that translation or dictionary functions would not exist in "electrical machines", until and unless they have ability to function as a translator or perform dictionary function. It is an accepted and admitted position that there were/are electrical/electronic machines preloaded with translation or dictionary software with the exclusive or primary function of translator or dictionary.

+ The word "with" can in the context mean, adding or having a material or quality or endowed with the particular character. A.K. Raghumani Singh and Others versus Gopal Chandra Nath and Others, (2000) 4 SCC 30, Star Industries =   2015-TIOL-234-SC-CUS, Novapan India Limited -   2002-TIOL-89-SC-CX-LB refers.]

+ Eligibility clause in relation to exemption notification is to be given strict meaning, thereby meaning that the notification is to be interpreted in terms of the language and once the assessee satisfies the eligibility clause, exemption clause therein has to be construed liberally. [ IVRCL Infrastructure and Projects Limited -   2015-TIOL-73-SC-CUS, Oxford University Press  -  2002-TIOL-297-SC-IT Mewar Bartan Nirmal Udyog - 2008-TIOL-188-SC-CX relied upon]

+ There is a difference between three components of a taxing statute, namely, subject of tax; person liable to tax; and rate at which tax is to be levied. In the case of ambiguity of taxation provision relating to the subject matter of tax and the person liable to tax, the State has to prove the liability and in case of ambiguity, benefit would go to the assessee as held in M/s Dilip Kumar and Company and Others -  2018-TIOL-302-SC-CUS-CB, Hari Chand Shri Gopal (supra) relied upon]

+ One has to look merely at the words stated and there is no room for any intendment or presumption to bring the subject matter and the person to tax. However, the same principle would not apply in case of tax exemption, where and when in case of doubt the issue should be decided in favour of the Revenue.

+ Thus, the only issue is whether the said device is "with translation or dictionary functions". The words "with translation or dictionary functions" have been used to restrict and keep the benefit of the exemption notification within bounds and not expand scope of exemption.

+ Kindle device is an electronic device designed for use as an electronic book reader. As an electronic book reader, it has several e-books pre-installed in the device and other e-books can be downloaded.

+ The product is developed and designed to function as an e-book reader and is sold and bought as a e-book reader and not as a translator or as a dictionary.

+ The e-book reader has an inbuilt dictionary feature, which is a secondary or additional feature, useful for the reader. This secondary or additional feature would not make it and qualify the e-reading machine as an "electrical machine with translation or dictionary function".

+ The word 'with' can have diverse and varied meaning depending upon the context in which it is used. A restricted meaning to the word "with" is in consonance with the judgments of the Supreme Court on strict construction of exemption notification.

+ In the context of the present notification, we observe and hold that the words 'translation' and 'dictionary' functions qualifies the words 'electrical machines' with the mandate that translation or dictionary function should be the primary and relevant function of the said machine for which they are purchased and used.

+ The exemption is restricted to machines which translate or perform dictionary functions and not to other machines that primarily perform some other function.

+ Exemption granted is in terms of the international obligation on signing ITA-1, which obligation is duly fulfilled when exemption was granted to devices with primary and relevant function to act as translator or dictionary. The electronic dictionary provided is pre-installed in the Kindle device. Downloading of additional dictionaries though not stated in the application before the AAR could be optional, as in case of several electronic devices. E-reading devices are designed, purchased and used for reading text and not as a dictionary or translator.

+ The word "with" is equally capable of referring to the dominant or the main purpose and not the ancillary or the secondary function. For reasons stated …, the restrictive interpretation would be appropriate and in consonance with principles of interpretation applicable to tariff items. Broad and wide ambit propounded by the respondent unintelligibly articulates a rather far-fetched interpretation.

Conclusion:

++ Exemption notification would apply where the device is an electrical machine covered under tariff item No.8543 89/8543 7099, and its primary and basic function should be to translate or perform dictionary function.

++ Primary function of Kindle device is to enable the user to read e-books. It is an e-book reading device and not a translator, and is not procured or purchased to perform dictionary function.

++ No one purchases a Kindle device because it is a translator or device "with" a dictionary function. E-book readers are purchased because a person wants to read e-books which are pre-loaded or can be downloaded from internet.

++ Dictionary in a Kindle device enables the reader to make use of the dictionary while reading the e-book. E-book reader as such is not a dictionary or translator device. E-book readers would be appropriately classified in "others" as distinct from "electrical machines with translation and dictionary function".

The writ petition filed by the Revenue is allowed holding that Kindle devices are not covered under the exemption notification as they were/are not "electrical machines with translation or dictionary functions".

Applicable date of the judgment, whether w.e.f date on which Writ Petition was filed or whether to have retrospective effect i.e. from the date of filing of the application by the Respondent before the AAR:

++ Judgment and decisions by the Courts interpret and declare the law as it exists and they do not create and enact any new law. In this sense, judgments of the Courts would be always retrospective, unless for special reasons, the judgment is given prospective effect. [see  Assistant Commissioner, Income Tax, Rajkot Vs. Saurashtra Kutch Stock Exchange Limited -   2008-TIOL-170-SC-IT

++ In the context of the present case, we would notice that there has been considerable delay and laches on the part of the Union of India in challenging the order of the AAR dated 15th May, 2015, as the present writ petition was filed only on 11th May, 2017. The order dated 15th May, 2015 had its consequences.

++ The respondent could have verily believed that the government had accepted the order.

++ E-book readers were granted specific exemption from basic excise duty vide Budget of 2014, but subsequently by Budget of 2016-17 the exemption was withdrawn with the e-readers attracting basic customs duty of 7.5%.

++ The respondent had filed their application before the AAR on 8th June, 2012 and the pronouncement was by way of order dated 15th May, 2015, when the e-book readers were themselves not attracting any basic customs duty.

++ Given the aforesaid facts and background, we direct that the respondent would not be entitled to benefit of exemption notification on e-book readers till 15th May, 2015 for this was a risk which the respondent had knowingly taken.

++ We would, in view of the delay and laches on the part of the petitioner in approaching the Court, hold that the respondent would not be liable to pay basic customs duty re-introduced by the Budget of 2016-17 for the period post-Budget 2016-17 till the filing of the present writ petition on 11th May, 2017.

The order of AAR was quashed and the Writ Petition filed by Revenue was allowed.

Partial relief granted to the respondent by holding that the petitioner would not be entitled to recover basic customs duty for the period between 15th May, 2015 till 11th May, 2017, i.e., the date on which the impugned order was passed and till the present writ petition was filed.

(See 2018-TIOL-1822-HC-DEL-CUS)