2014 (9) TMI 135 - AT - Central Excise

Valuation of services - Under valuation of Pre-recorded Audio Cassettes - Non inclusion of cost of DTA, Royalty paid by music companies to the artists for obtaining title rights - Held that - Demand is for the period May, 1997 to September, 1997 and the Chapter Note 7 of Chapter 85 of the Central Excise Tariff was introduced vide Finance Bill 1997, as per Chapter Note recording of sound will amount to manufacture. Further, we find that Hon ble Supreme Court in the case of Gramophone Co. of India Ltd. (1999 (11) TMI 62 - SUPREME COURT OF INDIA) held that recording of audio cassettes on duplicating music system amounts to manufacture as blank audio cassette is distinct and different from pre-recorded audio cassette and two have different use and name. In these circumstances, the finding in the impugned order that recording of sound does not amount to manufacture is not sustainable. The impugned order is set aside and matter is remanded to the Commissioner (Appeals) to decide issue of valuation - Decided in favour of Revenue.

Summary

Issues Involved:
- Appeal against impugned order regarding valuation of pre-recorded audio cassettes
- Whether recording of sound on blank cassettes amounts to manufacture
- Interpretation of Chapter Note 7 of Chapter 85 of Central Excise Tariff
- Reliance on decision of Hon'ble Supreme Court in Gramophone Co. of India Ltd. v. Collector of Customs, Calcutta

Analysis:

The appeal before the Appellate Tribunal CESTAT MUMBAI involved a dispute regarding the valuation of pre-recorded audio cassettes. The Revenue challenged the impugned order where the Commissioner (Appeals) set aside the adjudication orders, stating that recording of video sound blank cassettes does not constitute manufacture, thus impacting the question of valuation. The show cause notices were issued to the respondents for undervaluing their cassettes by not considering the cost of DTA and royalty paid by music companies for title rights. The Revenue contended that the demand period was from May 1997 to September 1997, and Chapter Note 7 of Chapter 85 of the Central Excise Tariff, introduced via the Finance Bill 1997, clarified that recording of sound does amount to manufacture.

The Tribunal examined the provisions and noted that the recording of sound on blank cassettes was considered as manufacturing under Chapter Note 7 of Chapter 85. Citing the decision of the Hon'ble Supreme Court in Gramophone Co. of India Ltd. v. Collector of Customs, Calcutta, the Tribunal emphasized that recording audio cassettes on duplicating music systems constitutes manufacture, as blank and pre-recorded cassettes serve different purposes. Consequently, the Tribunal found the impugned order's conclusion that sound recording does not amount to manufacture as unsustainable. Thus, the Tribunal set aside the order and remanded the matter to the Commissioner (Appeals) for reevaluation of the valuation issue after providing the respondents with a hearing opportunity. The appeal was disposed of through remand, ensuring a comprehensive reconsideration of the valuation aspect.

In conclusion, the Tribunal's detailed analysis highlighted the significance of Chapter Note 7 of Chapter 85 in determining whether recording of sound on cassettes constitutes manufacture. By referencing the relevant legal precedent, the Tribunal clarified the distinction between blank and pre-recorded cassettes, ultimately leading to the decision to remand the matter for further evaluation on the issue of valuation.