2017 (8) TMI 143 - AT - Customs

Classification of goods - Discreet Lustre Master Station, consisting of computer system, storage devices, PCB cards - whether the lower appellate authority s order upholding of classification of Discreet Lustre Master Station imported by the appellant under CTH, 85438960 is correct or whether the goods are required to be classified under CTH, 87413090 as claimed by appellant? Held that - in the case of a machine involving a combination of machines or a combination of individual components which together perform a clearly defined function, then the whole machine will require to be classified in the heading appropriate to that function - the item under import is designed for a specific functionality relating to grading of digital intermediates in digital cinema. The features of this system include primary and selective colour correction, continual grading and grade editor, vector shapes and tracking effects, animation, playback, video capabilities - pan and scan, conforming and editing - As correctly observed by the lower appellate authority, M/s. Autodesk had specifically designed the generic panel device for the above purposes, Similarly DVS Centaurus audio video devices were designed to perform a specific function which a normal data processing machine would not contain. Hence the impugned goods will necessarily go out of the scope of CTH 84713090. Though the imported goods may well have a high performance IBM CPU (server) with advanced key boards and although the equipment may have many of the elements of an automotive data processing machine, nonetheless, they are specifically designed to perform a specific function other than data processing, namely, that of performing high end task of colour gradation/correction. Hence the classification of the goods will then be governed by Section notes 3 & 4 of the first Schedule to CTA read with Chapter Note 5E of Chapter 84, and the imported goods will then have to be considered as a machine intended to contribute together to a clearly defined function covered by heading 85438960 as a colour corrector. Classification of the impugned goods under CTH 85438960 having the primary function of colour corrector upheld - appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Classification of imported goods under the correct Customs Tariff Heading (CTH).
2. Eligibility for exemption from customs duty under Notification No. 24/2005-Cus.

Detailed Analysis:

1. Classification of Imported Goods:

Issue:
The primary issue revolves around whether the imported Discreet Lustre Master Station should be classified under CTH 85438960 as "Colour Correctors" or under CTH 84713090 as "Automatic Data Processing Machines."

Arguments by Appellant:
- The appellant argued that the computerized colour grading system does not process data but rather controls the machine used for colour grading films. They contended that the system should be classified as an automatic data processing machine under CTH 84713090.

Arguments by Respondent:
- The respondent countered that the imported items should fall under CTH 85438960, which specifically covers colour correctors. They asserted that the appellant's classification was an attempt to claim benefits under Notification No. 24/2005, which provides for a nil rate of BCD and 7% CVD for goods under CTH 8471.

Tribunal's Analysis:
- The Tribunal examined the tariff entries and chapter notes relevant to the case. The key points considered include:
- The description of goods under CTH 8471 and CTH 8543.
- The specific functionalities of the imported goods, which include primary and selective colour correction, grading, tracking, effects, animation, playback, and video capabilities.
- The Chapter Notes 5A to 5E of Chapter 84, which define "automatic data processing machines" and clarify that machines performing specific functions other than data processing should be classified under headings appropriate to their functions.
- Section Notes 3, 4, and 5 to Section XVI, which provide interpretative rules for classification.

Conclusion:
- The Tribunal concluded that the imported goods are designed for a specific functionality related to grading digital intermediates in digital cinema, making them colour correctors rather than automatic data processing machines. Therefore, the goods should be classified under CTH 85438960.

2. Eligibility for Exemption from Customs Duty:

Issue:
The secondary issue is whether the imported goods are eligible for exemption from customs duty under Notification No. 24/2005-Cus, which applies to goods classified under CTH 8471.

Tribunal's Analysis:
- The Tribunal noted that the goods falling under CTH 8471 are included for exemption under the notification, but CTH 85438960 is not.
- Since the imported goods were classified under CTH 85438960, they do not qualify for the exemption provided by Notification No. 24/2005-Cus.

Conclusion:
- The Tribunal upheld the lower appellate authority's decision that the imported goods are to be classified under CTH 85438960 and are not eligible for the exemption from customs duty under Notification No. 24/2005-Cus.

Final Order:
- The appeal was dismissed, and the classification of the imported goods under CTH 85438960 as colour correctors was upheld. The Tribunal found no merit in the appellant's arguments and confirmed that the goods do not qualify for the customs duty exemption.

Operative Part of the Order:
- The operative part of the order was pronounced in court, affirming the classification and denying the appeal.