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Cus – If there was doubt on technical functionality of imported items, Dept. could very well have taken samples and got them tested from reputed GOI institutions – allegations based on assumptions and presumptions are unsustainable: CESTAT

2019-TIOL-2240-CESTAT-MAD

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
DIVISION BENCH B1
COURT NO. III

Appeal Nos. C/42127 & 42129/2014

Sl. No.Appeal Nos.AppellantsRespondents
1.C/42127/2014M/s ONKYO SIGHT AND SOUND INDIA PVT LTD
CHENNAI
THE COMMISSIONER OF CUSTOMS, CUSTOM HOUSE CHENNAI
2.C/42129/2014SHRI M A DHANDAPANI, MANAGING DIRECTOR OF
M/s ONKYO SIGHT AND SOUND INDIA PVT LTD, CHENNAI
THE COMMISSIONER OF CUSTOMS, CUSTOM HOUSE CHENNAI
Arising out of Order-in-Original No. 27174/2014, Dated: 30.06.2014
Passed by the Commissioner of Customs, Custom House, No. 60 Rajaji Salai, Chennai.

Date of Hearing: 20.03.2019
Date of Decision: 20.03.2019

Appellant Rep by: Shri B. Kumar, Sr. Shri. S. Krishnanandh, Shri. B. Satish Sundar, & Shri. A. Ganesh, Advs.
Respondent Rep by: Shri. K. Veerabhadra Reddy, ADC (AR)

CORAM: Sulekha Beevi C S, Member (J)
Madhu Mohan Damodhar, Member (T)

Cus – The assessee is importer of Audio and Video equipment and are engaged in trading of same in India – Dispute relates to the classification of imported items viz. Audio Visual Receivers (AVR) and Home Theatre Systems (HTS) imported by assessee, whether required to be classified under Heading 8527 of Customs Tariff as held in impugned Order or under Heading 8518 ibid as claimed by assessee – The device having an AM/FM receiver built-in is only by way of an added functionality and is definitely not the main function of the item – The facility for receiving AM/FM radio signals is verily present in a number of audio/video devices as an add-on feature, such as in mobiles, watches, speakers and even devices with USB connection – This is not just because the cost of such radio receptors has come down, but also that the size of such receivers has shrunk from the large size transistor era receivers of long ago – To allege that the Audio Visual Receiver (AVR) or, for that matter, the Home Theatre System (HTS), has a predominant usage as an AM/FM receiver is surely ludicrous – It is seen that the SCN has demanded differential duty in respect of both AVR and HTS imported by assessee – However, most of the discussions, if not all, in the SCN have focussed on AVR and there is no separate ground or reasoning as to why the HTS should also be brought into CTH 8527 other than the common allegation that they too are predominantly AM/FM receivers – It cannot be dispute that even the built-in AM/FM receiver cannot play on its own on the AVR – It definitely will require connected speakers for that purpose – In the radio reception apparatus envisaged in classification under CTH 8527, one important aspect is that such receivers will not only be able to receive signals, but also make playback without the requirement of any additional add-on speakers or other equipment – The premises on which the Department has homed in to bring in the classification of AVR and HTS under Chapter Heading 8527 cannot be sustained – Assessee had produced the opinion of Director, Department of Electronics, Information Technology, who had advised that the AVR should be treated as an amplifier – The adjudicating authority has not accepted the said opinion – However, there seems to be no such objection in accepting the opinion given by Senior Manager in charge of Supply Chain, who is not even a technical person of a competitor company – If there was doubt on the technical functionality of imported items, they could very well have taken samples and got them tested from reputed institutions under the Government of India – This was certainly not done and the entire allegation has been based on assumptions and presumptions – The investigations have definitely commenced four years after the first import vide Bill-of-Entry – As correctly mentioned by assessee, most of these assessments were completed by proper officer of Customs and there was nothing untoward found by Department – The charge of mis-declaration or mis-classification with intention to evade payment of Customs Duty cannot be appreciated – The demand for the predominant period covered in SCN cannot be sustained – On both merits and limitation, the impugned Order cannot be sustained: CESTAT

Appeals allowed

Case laws cited:

M/s. Padmini Products Vs. Collector of Customs – 1989 (43) E.L.T. 196 (S.C.)… Para 3

M/s. Logic India Trading Co. Vs. C.C., Cochin – 2016-TIOL-1800-CESTAT-BANG… Para 3

M/s. Global Enterprises Vs. C.C.E., Delhi-II – 2017-TIOL-2791-CESTAT-DEL… Para 3

M/s. Aveco Technologies Pvt. Ltd. Vs. C.C., Hyderabad – 2018-TIOL-1150-CESTAT-HYD… Para 3

M/s. Epson India Pvt. Ltd. Vs. C.C., Chennai – 2018-TIOL-2693-CESTAT-MAD… Para 3

C.C.,Chennai Vs. M/s. Sri Krishna Sounds & Lightings – 2018-TIOL-3505-CESTAT-MAD… Para 3

FINAL ORDER NOS. 40618-40619/2019

Per: Bench:

The facts of the matter are that the appellants are importers of Audio and Video equipment and are engaged in trading of the same in India.

2.1 Intelligence was gathered that they were importing Audio Video Receivers (hereinafter referred to as ‘AVR’) and Home Theatre Systems (hereinafter referred to as ‘HTS’) classifying them under Customs Tariff Heading 8518 claiming the AVRs as audio frequency amplifiers and HTSs as multiple loudspeakers mounted in the same enclosure and audio frequency amplifiers instead of correctly classifying them under Customs Tariff Heading 8527 and hence, were not discharging appropriate Customs Duties thereon.

2.2 The Department alleged inter alia as under :

(i) AVR and HTS imported by appellants are similar to those manufactured by M/s. Onkyo, USA, M/s. Pioneer Electronics, USA, Inc., M/s. LG Electronics, USA, Inc., M/s. Yamaha Corporation of America, etc.

(ii) AVRs and HTSs are not sold by M/s. Onkyo to their customers describing them as “amplifiers”, but are sold as AVRs/HTSs only.

(iii) Advance Rulings given by USA Advance Ruling Authorities for M/s. Onkyo USA, M/s. Pioneer Electronics, USA, Inc., M/s. LG Electronics, USA, Inc., and M/s. Yamaha Corporation of America for confirmation that Audio Video Receivers (AVRs) and Home Theatre Systems (HTSs) are to be classified under 8527.91.6080 of the Harmonized Tariff Schedule of the United States (HTSUS).

(iv) CTH 85184000 is specific to audio frequency amplifiers while CTH 85182200 is specific to multiple loudspeakers mounted in the same enclosure.

(v) AVRs/HTSs are not mere audio frequency amplifiers or multiple loudspeakers, but have many features including AM/FM receiver, playback of sound through F5.1/7.1/7.2 Channel speakers by receiving external inputs. Hence, AVRs/HTSs are not mere audio amplifiers or multiple loudspeakers.

(vi) The product literature of AVR/HTS does not mention either that the principal/main function of AVR/HTS is amplification or that HTS are multiple loudspeakers.

(vii) It therefore appears that appellants, to suit their needs, have claimed that AVRs/HTSs are amplifiers/multiple loudspeakers with an intention to evade payment of appropriate Customs duties. AVR/HTS are therefore to be classified under CTH 8527 as radio broadcasting receiver and leviable to Additional Duty of Customs under the Central Excise Tariff 8527 on the basis of Retail Sale Price (RSP) in terms of Notification No. 14/2008-CE (NT) dated 01.03.2008 and 49/2008 -CE (NT) dated 24.12.2008 as amended under Section 4A of the Central Excise Act, 1944.

(viii) Shri. Sukanto Mukherjee, Senior Manager, (Supply Chain – Lifestyle Division), M/s. Harman International (India) Pvt. Ltd., Bangalore has confirmed that AVR/HTS are correctly classified under CTH 8527.

(ix) Levy of appropriate Customs duties based on MRP have therefore been suppressed from the Customs Department and also mis-declaration in Bills-of-Entry leading to contravention of provisions of Section 46(4) of the Customs Act, 1962 and consequent evasion of Customs duties.

(x) Hence, valuation of AVR/HTS imported by the appellants based on transaction value needs to be rejected since such goods have been notified for valuation under Section 4A of the Central Excise Act, 1944. There has been deliberate mis-classification on the part of the appellants.

2.2 Based on these main allegations, the Show Cause Notice proposed as under :

(a) Re-classification of AVR/HTS under Sub Heading 8527 of the Customs Tariff Act, 1975 and the Central Excise Tariff Act, 1985.

(b) Rejection of valuation of AVR/HTS and assessment of the same under Additional Duty of Customs under the first proviso to Section 3(2) of the Customs Tariff Act, 1975 read with Section 4A of the Central Excise Act, 1944 on MRP/RSP basis as the same attract the provisions of the Legal Metrology Act, 2009 and the Rules made thereunder.

(c) Differential duty of Rs. 4,61,81,449/- with interest thereon should be demanded from the appellants.

(d) AVR and HTS totally valued at Rs. 35,97,42,024/- should be held liable for confiscation under Section 111(m) of the Customs Act, 1962 for the aforesaid reasons.

(e) Penalty should be imposed on them under Section 112 and/or 114A and 114AA of the Customs Act, 1962.

2.3 In adjudication, the Commissioner of Customs vide Order dated 30.06.2014 confirmed the re-classification of the impugned items and demand of differential duty with interest thereon and confiscation of the AVR and HTS as proposed in the Show Cause Notice. The adjudicating authority has also imposed equal penalty of Rs. 4,61,81,449/- under Section 114A ibid and penalty of Rs. 25,00,000/- under Section 114AA ibid on the appellant. Penalties of Rs. 10,00,000/- under Section 112(a) ibid and Rs. 5,00,000/- under Section 114AA ibid were imposed on Shri. M.A. Dhandapani, Managing Director of the appellant. Aggrieved, the appellants have filed this appeals.

3. Today when the matter came up for hearing, on behalf of the appellants, Ld. Senior Advocate Shri. B. Kumar assisted by Ld. Advocates, Shri. S. Krishnanandh, Shri. B. Satish Sundar and Shri. A. Ganesh, made oral and written submissions which can be broadly summarized as under :

(i) The earliest Bill-of-Entry mentioned in the Show Cause Notice is dated 22.05.2008. Till 08.04.2011, it is the mandatory duty of Customs Department to assess the imported goods and therefore, for revising such assessment in terms of Section 28, the Department had six months which was amended to one year from the enactment of the Finance Act, 2011 with effect from 08.04.2011. Therefore, it is submitted that major portion of the demand is barred by limitation. In the absence of any tangible material to show that there was mens rea and wilful intent to evade payment of duty by suppression, etc., it is submitted that the larger period of limitation cannot be invoked in the present case. In this regard he relied upon the judgement of the Hon’ble Supreme Court in the case of M/s. Padmini Products Vs. Collector of Customs – 1989 (43) E.L.T. 196 (S.C.) which has been subsequently followed by the Hon’ble Supreme Court, the Hon’ble High Courts and the Tribunal on the proposition found at paragraph 8 of the said judgement.

(ii) Admittedly, in the instant case, most of the imports were earlier to 08.04.2011, when the era of self-assessment was introduced into the Customs Act, 1962. Therefore, power of assessment for those Bills-of-Entry was the sole prerogative of the assessing officer. It is submitted that on satisfaction of the proper officer of Customs, after verification of import documents, assessment was done and the goods were allowed to be cleared on an out-of-charge order passed by the proper officer of Customs. Further, in terms of Self-Assessment Manual in CBEC website, it is only delinquent and habitually non-compliant importers who face action and any bona fide error does not attract penal action. The Bills-of-Entry were assessed by the proper officer of Customs earlier to 08.04.2011 and for the period subsequent to 08.04.2011 with respect to each of their imports, the Bills-of-Entry were put up to the group for assessment and thereafter cleared and therefore, even assuming without admitting that the assessments were wrong, it is submitted that the larger period of limitation cannot be invoked. In this connection, it is submitted that even wrong assessment at the hands of the officers cannot justify invocation of larger period of limitation. Thus, a substantial part of the demand is hit by limitation.

(iii) The importer, during appearance before the Commissioner for personal hearing on 07.05.2014, submitted the certificate given by M/s. Value Guru Engineers and Valuers Pvt. Ltd., who undertake inspections on behalf of the Customs Department and who clarified that the products in question were primarily ‘amplifiers’. The lower authority has not rendered any finding with respect to such a submission and to that extent, the lower authority’s order is a non-speaking one.

(iv) In responding to the point raised by the importer, vide their reply to the Show Cause Notice dated 11.07.2013 and subsequent submission of the same in the personal hearing of 07.05.2014 that the Department of Electronics had clarified the product to be treated as amplifier, the lower authority shockingly rejected the submission by stating that the clarification was given in the context of applicability of Electronic and Information Technology Goods (Requirements for Compulsory Registration) Order, 2012 and alleged that the clarification was based purely on the information provided by the importer and not based on physical testing and that the importer did not provide any model number. The importer had emailed all relevant catalogues containing the technical specifications and features to the Department of Electronics on this point and it is an established fact that the Department of Electronics is the competent technical authority on this matter. In any case, the lower authority, being given the powers and responsibility of adjudication, could have independently sought the views of the Department of Electronics before rushing to a conclusion. Furthermore, the lower authority’s contention that the Department of Electronics refers to a different statute of laws is untenable and as already stated in the appeal grounds, the lower authority has failed to explain how an item considered as ‘amplifier’ will be different for the Customs Tariff.

(v) Additionally, the importer, in the course of its submissions before the lower authority on 07.05.2014, also submitted that the product in question was being imported by other competing brands in other ports and no such issues were raised on classification and import data available showed all such imports being classified under Chapter 8518. There is no considered finding on such a plea made before the lower authority.

(vi) The issue seems to be concluded on the strength of the Tribunal judgement in the case of M/s. Logic India Trading Co. Vs. C.C., Cochin – 2016 (337) E.L.T. 65 (Tri. – Bang.) = 2016-TIOL-1800-CESTAT-BANG which has been affirmed by the dismissal of the civil appeal by the Hon’ble Supreme Court reported in 2016 (342) E.L.T. A34 (S.C.) which has also been subsequently followed by the Tribunal in the case of M/s. Global Enterprises Vs. C.C.E., Delhi-II reported in 2017 (354) E.L.T. 548 (Tri. – Del.) = 2017-TIOL-2791-CESTAT-DEL The appellants also seek to rely upon the judgement of this Tribunal in the case of M/s. Aveco Technologies Pvt. Ltd. Vs. C.C., Hyderabad reported in 2018 (362) E.LT. 624 (Tri. – Hyd.) 2018-TIOL-1150-CESTAT-HYD which has been affirmed by the Hon’ble Supreme Court in the judgement reported in 2018 (362) E.L.T. A164 (S.C.) as also the unreported judgement of this Tribunal in the case of M/s. Epson India Pvt. Ltd. Vs. C.C., Chennai in Appeal No. C/40963 and 40964/2015 vide Final Order Nos. 40448 & 40449/2018 = 2018-TIOL-2693-CESTAT-MAD dated 19.02.2018 to substantiate their plea on merits.

(vii) Imposition of penalty in terms of Section 114AA is also not warranted as the same can be imposed only in a situation where there are fraudulent/paper exports and the same cannot be attracted to the case of importation. Further, as to what prompted the lower authority to confirm such proposal for penalty, more so, when what was declared in the Bills-of-Entry as amplifiers which had been approved in the assessment by the proper officer of the Customs, cannot mean that the declarations made were allegedly false and it is an undisputed fact that product catalogue/literature, which is also submitted, only indicated the imported goods to be ‘amplifiers’ per se. In this connection, the appellant relies upon the order of this Tribunal in the case of C.C.,Chennai Vs. M/s. Sri Krishna Sounds & Lightings vide Final Order No. 41937/2018 = 2018-TIOL-3505-CESTAT-MAD dated 03.07.2018.

4. On the other hand, on behalf of the Department, Ld. AR Shri. K. Veerabhadra Reddy appearing on behalf of the respondent made a number of submissions which can be broadly summarized as under :

(i) Chapter Heading 8527 covers reception apparatus for radio broadcasting, whether or not combined in the same Heading with sound recording or reproducing apparatus;

(ii) The adjudicating authority has found, from the website of M/s. Onkyo (www.onkyo.ca), that the subject goods are having a number of functions which gives the product its value and saleability;

(iii) That in fact the appellants themselves have classified the products under “receiver” and not “amplifier”. Hence, it is obvious that the principal function of the subject goods is definitely not amplifying audio signals. Therefore, the subject goods are rightly classifiable under Heading 8527 and not under Heading 8518.

(iv) The primary function of the said items is basically as a reception apparatus for radio broadcasting and is therefore, only a radio receiver.

(v) Ld. AR drew our attention to paragraph 14 of the impugned Order where the adjudicating authority has found that AVR imported by the appellants is not just an amplifier, but is having more features which are technically superior than the function of amplifying sound/audio. That it is having the function and hardware & software for processing video and reading the storage unit with USB connection. That it is also having the facility and functionality to receive radio signals of both FM and AM. Therefore it cannot be just considered as an amplifier.

(vi) US Advance Ruling as classified similar items manufactured by M/s. Onkyo, USA and other companies in USA as falling under HTSUS 8527. Since the same Heading is there for Customs Tariff, the Advance Ruling will be applicable even for the impugned goods.

(vii) The adjudicating authority has gone into the technical aspects of video processing technology and has also taken inputs from Wikipedia and the website of the appellant.

(viii) In any case, the item which imparts the essential character to this item is that of AM/FM radio receiver with multiple audio and video players and audio/video transmission capabilities. Neither the function of audio entertainment nor the function of visual entertainment is the principal function of AVR/HTS. The user can access radio broadcasting stations on the AM or FM band and can use the device for audio visual entertainment by playing audio/video inputs. Hence, in accordance with Rule 3(c) of the General Rules of Interpretation of Import Tariff, the goods merit classification under CTH 8527 9100

(ix) AVR and HTS can play video only by detecting input signals provided by external CD/DVD or auxiliary input signals through AV sockets from other Audio Video devices. Hence, without external input, the video play/usage as a sound amplifier is not possible. However, with the built-in tuner for the radio signals viz. AM/FM, the AVR or HTS can function and give due output via speakers. Thus, the equipment squarely performs function as a reception apparatus for radio broadcasting, whether or not combined with sound recording or reproducing apparatus or clock. Therefore, the impugned item requires to be classified only under CTH 8527.

(x) The appellants have mis-classified AVR and HTS with an intention to evade payment of appropriate Customs Duty and have suppressed the fact of the Advance Ruling given for M/s. Onkyo, USA. Hence, the invocation of extended period is very much justified.

5. Heard both sides and have gone through the facts of the case.

6. We find that the dispute is in a very narrow compass and limited to the classification of the imported items viz. Audio Visual Receivers (AVR) and Home Theatre Systems (HTS) imported by the appellant, whether required to be classified under Heading 8527 of the Customs Tariff as held in the impugned Order or under Heading 8518 ibid as claimed by the appellants.

7. From the facts on record, it is evident that the appellants had made a number of imports of AVR and HTS. As per the worksheet attached to the Show Cause Notice, these imports are from 22.05.2008 to 05.03.2013. Appellants have pointed out that most of the imports were made earlier to 08.04.2011 before self-assessment was introduced into the Customs Act, 1962. The assessments were therefore finalized by the proper officer of the Customs prior to 08.04.2011. Subsequent o 08.04.2011, the relevant Bills-of-Entry were put up to the group for assessment and thereafter cleared.

8. As narrated in the Show Cause Notice, the investigations commenced with the statement of Shri. M. Barani Kumar, Director of the appellant on 09.11.2012. This was followed up by a statement of Shri. M.A. Dhandapani, Managing Director of the appellant on 02.01.2013, another statement of Shri. M. Barani Kumar on 25.04.2013 and the statement of Shri. Sukanto Mukherjee, Senior Manager, (Supply Chain – Lifestyle Division) of M/s. Harman International (India) Pvt. Ltd., Bangalore on 30.04.2013. In between, there have been a number of letters from the appellants forwarding copies of Bills-of-Entry, invoices, etc., that may have been required by the investigating officers.

9.1 The basic allegation by the Department that has culminated in these proceedings is that AVR and HTS are primarily in the nature of reception apparatus for radio broadcasting. Since they have the facility of AM/FM radio receiver with multiple Audio/Video players and Audio/Video transmission capabilities, therefore, it would come only under CTH 8527. The adjudicating authority has taken inputs from Wikipedia too and has found that “amplifier” is “an electronic device that increases the power of a signal to controlling the output to match the input signal shape but with larger amplitude”. We observe that even from this online reference, it is evident that an amplifier requires an input signal, the power of which is increased by the device.

9.2 The adjudicating authority has gone on to peruse the website of M/s. Onkyo (www.onkyo.ca) for the specifications and features of the impugned products available in the said website. She has found items that, in general, are having the following features : Digital audio up conversion, in-built FM and AM tuner, Dolby Decoder, DTS decoder, Audyssey Dynamic Volume, HDMI, video up-conversion, analog to HDMI up-conversion, S-Video, iPod adaptability, 720p/1080p upscaling, multiple audio or vide input to connect various audio/video equipment like CD player, DVD, Set Top Box, etc., converts low quality audio/video input signal to high quality output signal, USB input, THX processing, Bluetooth, Qdeo Video Processing, HQV video processing, MultiEQ, etc. From this finding itself, it is discernible that the impugned product has a host of Audio/Video conversion facilities, like audio/video upconversion, Dolby & DTS decoder, MultiEQ, etc.

9.3 The adjudicating authority has, in paragraph 13 of the Order, done research on Qdeo Video Processing and MultiEQ and has found that these are specialized processes for improving and enhancing the quality of video, which deliver “accurate, enveloping and distortion-free sound” or “high-fidelity audio/visual reproduction standard”. We are unable to fathom how the adjudicating authority, having taken pains to do all this research, has nonetheless concluded that all these devices are not at all connected with amplification of sound.

9.4 She has further gone on to conclude that the AVRs are not just amplifier, but is having more features which are “technically superior than the function of amplifying sound/audio” since they have the function, hardware and software for processing video, reading the storage unit with USB connection and also have the facility and functionality to receive radio signals of both FM and AM. In our view, the entire exercise done by the Department has proceeded on a wrong premise that the word “receiver” in Audio Visual Receiver (AVR) imported by the appellant relates to AM/FM receiver or reception apparatus, which would require to be classified under CTH 8527.

10.1 All the same, even from the findings of the adjudicating authority discussed supra, what comes forth is that the said equipment is designed to “receive” various types of signals from the equipment or sources of such signals with features like Dolby decoder, DTS decoder, S-Video, THX Processing, Qdeo Video Processing, HQV Video Processing, MultiEQ, etc., and amplify/enhance the quality and output of such signals to be further played on by the speakers. It is in this sense that the AVR is a “receiver” for such signals for further amplification/enhancement.

10.2 The adjudicating authority has also conceded in paragraph 14 that the AVR has function and has the “hardware and software for processing the video, reading the storage unit …”. Even by common sense, it would be evident that the M/s. Onkyo (appellants herein) would not be packing so many functions into one device like the AVR and loaded hardware and software only to receive broadcasting signals with the AM/FM receiver mode. Obviously, the AVR is designed to have the facility and functionality to receive signals from other audio devices of the types discussed supra and amplify/enhance them for better fidelity.

10.3 Viewed in this light, the device having an AM/FM receiver built-in is only by way of an added functionality, and is definitely not the main function of the item. The facility for receiving AM/FM radio signals is verily present in a number of audio/video devices as an add-on feature, such as in mobiles, watches, speakers and even devices with USB connection. This is not just because the cost of such radio receptors has come down, but also that the size of such receivers has shrunk from the large size transistor era receivers of long ago. To allege that the Audio Visual Receiver (AVR) or, for that matter, the Home Theatre System (HTS), has a predominant usage as an AM/FM receiver is surely ludicrous. We are reminded of the time-old story of three vision impaired men identifying an elephant depending on what part they held. In the present case, the allegation that the AVR or HTS is an AM/FM receiver is akin to identifying the elephant not from its entire body, but by its tail.

11. It is seen that the Show Cause Notice has demanded differential duty in respect of both AVR and HTS imported by the appellants. However, we find that most of the discussions, if not all, in the Show Cause Notice have focussed on AVR and there is no separate ground or reasoning as to why the HTS should also be brought into CTH 8527 other than the common allegation that they too are predominantly AM/FM receivers.

12. Be that as it may, we find that the downloaded copies of technical details in respect of different models of AVR and HTS imported by the appellant form part of Sl. Nos. 24 and 25 of the list of relied upon documents in Annexure-A to the Show Cause Notice. That the specifications of the AVRs are all geared for Dynamic Power, Total Harmonic Distortion Plus Noise, Damping Factor, Input Sensitivity and Impedance, Rated RCA Output and Impedance, Frequency Response, Signal-to-Noise ratio, Speaker Impedance and similar features for video amplification. The tuner section, featuring the built-in FM and AM, is only a small add-on functionality to the AVR. The AVRs also have advanced features like HDMI conversion video formats, Deep Colour, Lip Sync, Dolby TrueHD, Multichannel PCM through HD, Dolby Digital Plus, H.C.P.S. (High Current Power Supply), Massive High Power Transformer, Optimum Gain Volume Circuitry and a host of other processing and connection features. So also, the surround Home Theatre Systems (HTS) is nothing but a channel receiver and speaker packaged with front/centre, surround, surround back and sub-woofer speakers with an Amplifier Section and a Video Section. As in the case of AVR, there is also an add-on Tuner Section for AM and FM with forty stations. “One swallow”, as the old adage goes, “does not a summer make”. So also, one add-on AM/FM tuner cannot re-classify an AVR or HTS into a mere AM/FM receiving apparatus.

13.1 Considerable reliance has been placed on the ruling of the USA Advance Ruling Authorities under the HTSUS for similar products manufactured by M/s. Onkyo, USA. The said ruling is, in any case, in the form of an Advance Ruling that too of a foreign country. Hence, the same will not be binding or have any persuasive effect on this forum.

13.2 In any case, it cannot be dispute that even the built-in AM/FM receiver cannot play on its own on the AVR. It definitely will require connected speakers for that purpose. In the radio reception apparatus envisaged in the classification under CTH 8527, one important aspect is that such receivers will not only be able to receive signals, but also make playback without the requirement of any additional add-on speakers or other equipment. In the circumstances, we have no doubt in our minds that the premises on which the Department has homed in to bring in the classification of AVR and HTS under Chapter Heading 8527 cannot be sustained.

14.1 It is also interesting to note that the appellants had produced the opinion of the Director, Department of Electronics, Information Technology, who had advised that the AVR should be treated as an amplifier. The adjudicating authority has not accepted the said opinion. However, there seems to be no such objection in accepting the opinion given by the Senior Manager in charge of the Supply Chain, who is not even a technical person of a competitor company. If there was doubt on the technical functionality of the imported items, they could very well have taken samples and got them tested from reputed institutions under the Government of India. This was certainly not done and the entire allegation has been based on assumptions and presumptions.

14.2 The investigations have definitely commenced four years after the first import vide Bill-of-Entry dated 22.05.2008. As correctly mentioned by the appellant, most of these assessments were completed by the proper officer of Customs and there was nothing untoward found by the Department. We are unable to appreciate the charge of mis-declaration or mis-classification with intention to evade payment of Customs Duty.

14.3 Even after the investigations commenced, the appellants have been reiterating the correctness of their declaration. The investigations not having been done proximate to the import, but after a prolonged period without any palpable evidence of intention to suppress, mis-state or defraud, we are unable to agree with the invocation of extended period in the Show Cause Notice. This being so, the demand, at least for the predominant period covered in the Show Cause Notice, cannot be sustained.

15. In the event, on both merits and limitation, we find that the impugned Order cannot be sustained and will require to be set aside, which we hereby do.

16. The appeals are therefore allowed with consequential benefits, if any, as per law.

(Operative part of the order was pronounced in open court)

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