2025 (6) TMI 1363 - AT - Customs

Classification of imported goods - multimedia speakers with added ancillary features of USB/SD card/ MMC Playback and/ or FM radio - classifiable under CTH 8527/8519 as claimed by the Revenue or under CTH 8518 as claimed by the appellant - headphones with added feature of FM radio is classifiable under CTH 8527 as radio broadcast receivers as claimed by the Revenue or under CTH 8518 as claimed by the appellant? - Invocation of extended period of limitation. Whether multimedia speakers with added ancillary features of USB/SD card/ MMC Playback and/ or FM radio are classifiable under CTH 8527/8519 as claimed by the Revenue or under CTH 8518 as claimed by the appellant? - HELD THAT - An identical issue had come up before this Tribunal in the appellant s own cases. In M/s. Jupiter International Limited vs Commissioner of Customs (Port) Kolkata 2025 (2) TMI 430 - CESTAT KOLKATA under similar facts and circumstances it has been observed the goods should be classified under heading no.85182200 as speakers rather than under heading no.85279100 as broadcast receivers. Thus he appellant has rightly classified the multimedia speakers with added ancillary features of USB/SD card/ MMC Playback and/ or FM radio under CTH 8518. Accordingly the demands confirmed against the appellant by reclassifying the said goods under CTH 8527/CTH 8519 are not sustainable and therefore the same is set aside. Whether the headphones with added feature of FM radio is classifiable under CTH 8527 as radio broadcast receivers as claimed by the Revenue or under CTH 8518 as claimed by the appellant? - HELD THAT - While classifying goods as per the General Rules of Interpretation a specific heading is always to be preferred over a general heading. In the present case the appellant has imported headphones and earphones which are specifically covered under Tariff Item No. 8518 30 00. Thus the goods imported by the appellant are appropriately classifiable under Tariff Item No. 8518 30 00 as claimed by the appellant. Reliance placed in the judgment pronounced in the case of Logic India Trading Company vs. CC 2016 (3) TMI 5 - CESTAT BANGALORE wherein by placing reliance on the Interpretative Rules Section Note 3 to Section XVI and the judgment pronounced by Hon ble Apex Court in the case of Xerox India Ltd. v. Commissioner of Customs Mumbai 2010 (11) TMI 20 - SUPREME COURT it has been held that the criteria for classifying the product under consideration is the principal and the main function it performs which remains to be speakers in spite of the fact that the multimedia speakers under consideration had added features of USB playback and/or FM radio. Admittedly the headphones imported by the appellant in this case are primarily meant to provide audio/sound facility restrictively to the person using it with merely an ancillary feature of in-built FM radio. The headphones imported by the Appellant merit classification under Customs Tariff Item 8518 30 00 as headphones and earphones whether or not combined with a microphone and sets consisting of a microphone and one or more loudspeakers and not as radio broadcast receivers as contended by the Department. Invocation of extended period of limitation - HELD THAT - It is seen that there is no evidence available on record to establish intent on the part of the appellant to evade payment of duty. The issue also pertains to interpretation of statutory provisions under the Customs Tariff Act and hence in such a case the invocation of extended period provisions are not warranted. Thus the invocation of the extended period of limitation in this case is not sustainable and hence the demand confirmed by invoking the extended period of limitation is set aside. Conclusion - i) The demands confirmed against the appellant by reclassifying the said goods namely multimedia speakers with added ancillary features of USB/SD card/ MMC Playback and/ or FM radio under CTH 8527/CTH 8519 are not sustainable. ii) The demands confirmed in the impugned order by reclassification of the said goods namely headphones with built in FM radio under Customs Tariff Item 8527 19 00 as radio broadcast receivers are not sustainable.iii) The classification of goods in respect of models as per Annexure-D to the Show Cause Notice under Tariff Item No. 8518 29 00 has not been contested by the appellant and hence the same is upheld. iv) The invocation of the extended period of limitation in this case is not sustainable and hence the demand confirmed by invoking the extended period of limitation is set aside. Appeal disposed off.

Summary

The core legal questions considered by the Tribunal in this appeal are:

(1) Whether multimedia speakers imported with ancillary features such as USB/SD card/MMC playback and/or FM radio are classifiable under Customs Tariff Headings (CTH) 8527/8519 as claimed by the Revenue, or under CTH 8518 as contended by the appellant.

(2) Whether headphones with an in-built FM radio feature are classifiable under CTH 8527 as 'radio broadcast receivers' as claimed by the Revenue, or under CTH 8518 as claimed by the appellant.

(3) Whether the invocation of the extended period of limitation for demand of differential duty, interest, and penalty is sustainable in the facts of the case.

Issue 1: Classification of Multimedia Speakers with Ancillary Features

The legal framework governing classification is derived from the Customs Tariff Act, 1975, particularly the General Rules of Interpretation (GRI) and Section Notes to the relevant Chapters. Note 3 of Section XVI provides that composite machines capable of performing multiple functions shall be classified according to the principal function. Rule 3(b) of GRI further mandates that composite goods be classified based on the component that imparts the essential character.

The appellant argued that the principal function of the multimedia speakers is to act as loudspeakers, reproducing a wide range of audible frequencies. Ancillary features such as USB/SD card/MMC playback and FM radio are incidental add-ons, not altering the essential character of the goods. The appellant supported this with commercial evidence including brochures, invoices, and dealer opinions demonstrating that the products are marketed and sold primarily as multimedia speakers. Additionally, the cost contribution of the ancillary features is minuscule, as shown in the Bill of Material submitted.

The appellant relied on a series of judicial precedents, including its own prior decisions before this Tribunal, where similar issues were adjudicated. Notably, the Tribunal in the appellant's previous cases held that multimedia speakers with added features remain classifiable under CTH 8518. The Tribunal also cited the Logic India Trading Company case, where the Supreme Court upheld classification under CTH 8518 for similar products, emphasizing the principal function criterion. Other cited cases such as Santosh Radio Products and Onkyo Sight and Sound India Pvt. Ltd. further reinforced this principle.

The Revenue contended for classification under CTH 8519 or 8527, which attract duty on the basis of retail sale price rather than transaction value, and sought to invoke extended limitation for recovery of differential duty. However, the Tribunal found that the classification issue is no longer res integra, as it has been extensively examined and settled in favour of the appellant's position. Applying the cited case laws and the statutory interpretative framework, the Tribunal held that the multimedia speakers with ancillary features are rightly classifiable under CTH 8518, as their principal function remains that of loudspeakers.

Accordingly, the demands confirmed on the basis of reclassification under CTH 8519/8527 were set aside.

Issue 2: Classification of Headphones with In-Built FM Radio

The headphones imported by the appellant are cordless/wireless devices primarily designed to provide audio to the user, with an ancillary feature of in-built FM radio. The Revenue reclassified these under CTH 8527 19 00 as 'radio broadcast receivers capable of operating without an external source of power'. The appellant contended that the headphones fall squarely within CTH 8518 30 00, which specifically covers 'headphones and earphones, whether or not combined with a microphone, and sets consisting of a microphone and one or more loudspeakers'.

Applying the same interpretative principles under Rule 3(b) of GRI and Note 3 to Section XVI, the Tribunal emphasized that classification must be based on the principal function. The headphones' main function is to provide sound to the user, with the FM radio feature being ancillary. The Tribunal noted that a specific tariff heading (8518 30 00) exists for headphones and earphones, which must be preferred over a more general heading (8527 19 00) under the principle that specific headings prevail over general ones.

The Tribunal relied on the Logic India Trading Company judgment and the Supreme Court's ruling in Xerox India Ltd. v. Commissioner of Customs, which underscored the primacy of principal function in classification. Given that the FM radio feature is ancillary, the headphones are correctly classifiable under CTH 8518 30 00. Consequently, the demand confirmed on reclassification under CTH 8527 19 00 was held unsustainable and set aside.

Issue 3: Invocation of Extended Period of Limitation

The Revenue invoked extended limitation provisions to recover differential duty, interest, and penalty for imports dating back several years. The appellant contended that there was no suppression of facts or wilful misstatement with intent to evade duty. The classification dispute was technical and bona fide, with full disclosure in the bills of entry and no concealment. The appellant argued that such bona fide classification claims cannot attract extended limitation.

The Tribunal examined the evidence and found no material establishing intent to evade duty. It noted that the issue involved interpretation of tariff classification, a technical matter. The Tribunal referred to precedents where extended limitation was not invoked in similar circumstances. It held that invocation of the extended period was not justified and set aside the demand confirmed on that ground.

Additional Findings

The Tribunal noted that the adjudicating authority had redetermined classification of certain models under CTH 8518 29 00 as per Annexure-D to the Show Cause Notice, which was not contested by the appellant. Therefore, that finding was upheld.

Regarding interest and penalty, since the demands were set aside except for the uncontested classification, and no suppression or evasion was established, the Tribunal held that no interest or penalty was imposable.

Significant Holdings and Legal Reasoning

"The principal function of multimedia speakers is to perform the function of loudspeakers by reproducing a very wide range of audible frequencies... the features of USB/SD card/MMC playback/radio are merely ancillary functions/add-ons. Hence, by virtue of Rule 3(b) of GRI read with Section Note 3 of Section XVI of the Customs Tariff Act, the classification of the imported multimedia speakers shall be under Heading 8518."

"A specific tariff heading is always to be preferred over a general heading. The appellant has imported 'headphones and earphones', which are specifically covered under Tariff Item No. 8518 30 00. Thus, the goods imported by the appellant are appropriately classifiable under Tariff Item No. 8518 30 00."

"There is no evidence available on record to establish intent on the part of the appellant to evade payment of duty... the invocation of extended period provisions are not warranted."

The Tribunal conclusively held that classification must be guided by principal function and essential character under the General Rules of Interpretation and Customs Tariff Act. Ancillary features do not alter the classification if the principal function remains unchanged. Specific tariff headings prevail over general ones. Bona fide classification disputes do not attract extended limitation absent evidence of suppression or evasion.

Accordingly, the Tribunal set aside the demands confirmed on reclassification of multimedia speakers and headphones under higher duty tariff items, upheld the uncontested classification under CTH 8518 29 00 for certain models, disallowed invocation of extended limitation, and held that no penalty or interest was payable.