2018 (9) TMI 272 - HC - Customs

Classification of an item - Kindle e-reading devices - whether Kindle e-reading devices were electrical machines with translation and dictionary function ? - Exemption Notification No. 25/2005-CUS dated 1st March 2005 as amended by notification No. 133/2006-CUSTOMS dated 30th December 2006. Held that - 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. The word with is equally capable of referring to the dominant or the main purpose and not the ancillary or the secondary function - the restrictive interpretation would be appropriate and inconsonance with principles of interpretation applicable to tariff items. Broad and wide ambit propounded by the respondent unintelligibly articulates a rather far-fetched interpretation. The 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 . Kindle devices are not covered under the exemption notification as they were/are not electrical machines with translation or dictionary functions . Whether our judgment should be made applicable with effect from the date on which the writ petition was filed or should have retrospective effect i.e. from the date of filing of the application by the Respondent before the AAR? - Held 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. As noticed above 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 the dated 15th May 2015 when the e-book readers were themselves not attracting any basic customs duty - 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. 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. Petition allowed.

Summary

Issues Involved:
1. Interpretation of the expression "electrical machines with translation or dictionary functions" in the exemption notification.
2. Classification of Kindle e-reading devices under the Customs Tariff Heading (CTH) 8543 89/8543 7099.
3. Applicability of the exemption notification to Kindle devices.
4. Retrospective or prospective application of the judgment.

Detailed Analysis:

1. Interpretation of the Expression "Electrical Machines with Translation or Dictionary Functions":
The core issue was whether Kindle e-reading devices qualify as "electrical machines with translation or dictionary functions" under Serial No. 26 of the Exemption Notification No. 25/2005-CUS as amended by Notification No. 133/2006-CUSTOMS. The Revenue argued that the primary function of Kindle devices is reading e-books, not translation or dictionary functions, and thus they should not be exempt from customs duty. The respondent contended that the presence of a dictionary function, even if secondary, should suffice for the exemption. The court held that the exemption should be interpreted strictly, requiring the primary function of the device to be translation or dictionary functions. Therefore, Kindle devices, primarily functioning as e-book readers, do not qualify for the exemption.

2. Classification of Kindle E-Reading Devices Under CTH 8543 89/8543 7099:
Both parties agreed that Kindle devices fall under the residuary tariff item CTH 8543 89/8543 7099, classified as "others" under Chapter 85 heading "electrical and electronic machinery and equipment." This classification was not contested before the court.

3. Applicability of the Exemption Notification to Kindle Devices:
The court examined whether Kindle devices, which have an in-built dictionary function, qualify for the exemption. It was determined that the word "with" in the exemption notification implies that the primary function of the device must be translation or dictionary functions. Since the primary function of Kindle devices is to enable users to read e-books, they do not meet the criteria for the exemption. The court emphasized that exemption notifications should be interpreted strictly, and any ambiguity should favor the Revenue.

4. Retrospective or Prospective Application of the Judgment:
The court considered whether the judgment should apply retrospectively from the date of the application before the AAR or prospectively from the date of filing the writ petition. Given the delay by the Union of India in challenging the AAR's order and the subsequent changes in customs duty exemptions for e-readers, the court decided that the respondent would not be liable for basic customs duty for the period between 15th May 2015 (the date of the AAR's order) and 11th May 2017 (the date of filing the writ petition). This decision was made to balance the delay in filing the writ petition and the respondent's reliance on the AAR's order.

Conclusion:
The writ petition was allowed, setting aside the AAR's order. However, the court granted partial relief to the respondent by holding that the petitioner could not recover basic customs duty for the period between 15th May 2015 and 11th May 2017. There was no order as to costs.