2025 (5) TMI 2 - AT - Customs

Classification of imported Multimedia Speakers/Computer Speakers - to be classified under CTH 851822/851829 or under CTH 8519/8527? - HELD THAT - The subject issue is no more res integra. There are a catena of decisions holding the classification of the impugned goods under heading under CTH 8518. In the case of Logic India Trading Company vs Commissioner of Customs Cochin 2016 (3) TMI 5 - CESTAT BANGALORE as maintained by the Hon ble Apex Court in 2017 (1) TMI 477 - SC ORDER while dealing with similar set of facts the courts have held the classification of the said goods under CTH 8518. The detailed analysis of the classification of all such Audio-Visual Receivers was also undertaken independently by this Tribunal in the case of ONKYO SIGHT SOUND INDIA PVT.LTD. vs Commissioner of Customs Chennai 2019 (4) TMI 37 - CESTAT CHENNAI wherein too the Southern Regional Bench of the Tribunal did not agree with the department s stance for classification of the said products under CTH 8527 and had retained the CTH 8518 claiming the goods as Audio Frequency Amplifier along with Home Theatre Systems as multiple loudspeakers mounted in the same enclosure. Conclusion - The imported multimedia speakers with USB playback and FM radio features are classifiable under CTH 8518 22 00 as multiple loudspeakers mounted in the same enclosure. Appeal allowed.

Summary

The core legal issue considered in this judgment is the proper classification of imported multimedia speaker systems under the Customs Tariff Act, 1975, specifically whether such goods should be classified under Chapter Tariff Heading (CTH) 8518 (loudspeakers) or under competing headings 8519 (sound recording or reproducing apparatus) or 8527 (reception apparatus for radio-broadcasting). This classification determines the applicable customs duty and whether duty short payment has occurred.

Additional legal questions include the interpretation and application of the General Rules for Interpretation (GRIs) of the Customs Tariff Act, particularly GRI 1 and GRI 3(c), and Section Note 3 to Section XVI, which governs classification of composite machines or multifunctional goods by their principal function. The validity and binding nature of Circulars issued by the Board of Customs on tariff classification, especially Circular No. 27/2013-Cus. dated 1-8-2013, and their consistency with statutory provisions and judicial precedents were also considered.

Another related issue was the treatment of goods with multifunctional features (e.g., USB playback, FM radio) and whether such additional features alter the principal function and thus the classification of the goods. The judgment also examined the relevance of trade parlance, commercial usage, and documentary evidence such as invoices and brochures in determining the principal function of the goods.

Regarding the classification issue, the Court extensively analyzed the competing tariff headings: CTH 8518 covers loudspeakers and audio-frequency electric amplifiers; CTH 8519 covers sound recording or reproducing apparatus such as CD players and MP3 players; and CTH 8527 covers reception apparatus for radio-broadcasting, including radios with or without additional sound recording functions.

The Court relied heavily on the authoritative Supreme Court decision in Logic India Trading Company vs Commissioner of Customs, which held that multimedia speakers with additional features such as USB ports or FM radio remain classifiable under CTH 8518, as their principal function is amplification of sound. The Court emphasized that additional features do not convert a speaker into a sound reproducing apparatus or a radio receiver if the primary function remains that of a speaker.

The Court gave detailed consideration to Circular No. 27/2013-Cus., which suggested that multifunction speaker systems with USB playback or FM radio should be classified under headings 8519 or 8527 respectively, based on the principal function being imparted by these features. However, the Court found this circular inconsistent with other Board circulars (Circular No. 17/2007-Cus. on mobile phones and Circular No. 20/2013-Cus. on tablet computers) and with judicial precedents. The Court noted that the circular's interpretation conflicted with the settled principle under Section Note 3 to Section XVI that classification of composite machines depends on the principal function.

In analyzing the legal framework, the Court reiterated that classification must be determined by the terms of the headings and relevant notes, applying the General Rules for Interpretation. GRI 1 requires classification according to the terms of the headings and any relative Section or Chapter Notes. Section Note 3 to Section XVI mandates that composite machines or multifunctional goods be classified according to the principal function they perform.

The Court applied these rules to the facts, observing that the goods in question were described as "multimedia speakers" in invoices and trade brochures, and that the additional features like USB playback and FM radio were ancillary. The Court found that the principal function of the goods was sound amplification, not sound reproduction or radio reception. This was supported by evidence including dealer affidavits, invoices, and product brochures, which showed the goods are marketed and sold primarily as speakers.

The Court also discussed the treatment of multifunctional goods in other contexts, notably mobile/cellular phones with advanced features. It cited Circular No. 17/2007-Cus., where the Board clarified that despite additional functions (email, internet, GPS, camera), cellular phones remain classifiable under the heading for telephones because their principal function is communication. Similarly, Circular No. 20/2013-Cus. held that a tablet computer with cellular voice call capability remains classifiable as a tablet computer. These circulars reinforce the principle that additional features do not change the principal function for classification purposes.

The Court rejected the department's reliance on Circular No. 27/2013-Cus. as legally binding, noting that circulars are not binding on courts or tribunals and cannot override statutory provisions or settled legal principles. The Court cited Supreme Court and Tribunal precedents affirming that circulars inconsistent with law cannot be followed.

The Court also addressed competing arguments that the presence of USB playback or FM radio features imparted a principal function of sound reproduction or radio reception to the goods. It found these arguments unpersuasive because the goods' primary commercial identity and functional use remain as speakers. The Court emphasized the importance of trade parlance and commercial reality in classification, observing that no reasonable consumer would purchase a large multimedia speaker system primarily as a radio receiver or sound reproducing apparatus.

Subsequent Tribunal decisions were cited that followed the Logic India precedent, consistently holding that multimedia speakers with additional features are classifiable under CTH 8518. The Court also referenced its own earlier decisions in the appellant's case and similar cases, which confirmed the classification under 8518 and rejected the department's contention for classification under 8527.

In conclusion, the Court held that the goods in question are properly classifiable under Chapter Heading 8518 22 00 as multiple loudspeakers mounted in the same enclosure. The principal function is sound amplification, and additional features such as USB playback and FM radio do not alter this classification. The department's order demanding differential duty under headings 8519 or 8527 was set aside, and the appeal was allowed with consequential relief.

Significant holdings include the following verbatim excerpt from the Logic India decision, affirmed by the Supreme Court and relied upon by the Tribunal:

"The speaker is primarily a speaker and some additional feature or facility for use of USB playback will not convert the same into a product equivalent to the products covered by Heading 8519. Similarly, Heading 8527 takes into its ambit the 'Reception apparatus for radio-broadcasting, whether or not combined, in the same housing'. The additional feature of FM radio in the speaker, in our opinion, would again not convert the huge speaker into a FM radio. Even going by the common parlance test, nobody would buy a huge speaker for the purpose of FM radio."

Core principles established:

• Classification of multifunctional goods must be determined by their principal function as per Section Note 3 to Section XVI and the General Rules for Interpretation.
• Additional features do not change the principal function if they are ancillary and do not constitute the primary use or commercial identity of the goods.
• Circulars issued by the Board are not binding on courts or tribunals and cannot override statutory provisions or settled judicial precedents.
• Trade parlance, commercial usage, and documentary evidence are relevant in determining the principal function for classification.

Final determinations:

• The imported multimedia speakers with USB playback and FM radio features are classifiable under CTH 8518 22 00 as multiple loudspeakers mounted in the same enclosure.
• The department's reclassification under headings 8519 or 8527 and consequent demand for differential duty was set aside.
• The appeal was allowed, confirming the classification as speakers and the correctness of the appellant's declared classification and duty payment.