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of <h1>Imported Philips Multimedia Speaker Systems Classified Under CTH 8519, Not 8518; Penalties Under Sections 112A and 114AA Set Aside</h1> <h3>M/s. TPV Technology India Pvt. Ltd. Versus The Commissioner of Customs (Preventive), The Commissioner of Customs II and The Commissioner of GST and Central Excise (Appeals), Tiruchirappalli</h3> The CESTAT Chennai held that the imported Philips 2.1/5.1 channel Multimedia Speaker Systems are correctly classifiable under CTH 8519 and not under CTH ... Classification of imported various models of Multimedia Speaker Systems of Philips Brand - to be classified under under CTI 85279900/ 85279990 of the Customs Tariff Act, 1975 as claimed by the appellants or under CTI 85182100/ 85182200/ 85182900 as proposed by the Revenue? - confiscation - levy of a penalty under Section 114AA of Customs Act, 1962 as well as Section 112(a) of the Customs Act, 1962. HELD THAT:- In LOGIC INDIA TRADING CO VERSUS COMMISSIONER OF CUSTOMS [2016 (3) TMI 5 - CESTAT BANGALORE] the Tribunal had an occasion to examine as to whether the added functions like FM radio and USB playback inbuilt in an enclosure would change the essential character of the speaker and thus decided that the classification of the said goods to be under CTH 85182200. Whereas in the instant case, admittedly, the goods are 'not mere speakers' but 2.1/5.1 channel Multimedia Speaker Systems, with not only transformer, digital to analog converter but incorporate a decoder which splits and amplifies the digital / analog signals to the respective audio tracks and then amplifies and transmits to the loudspeakers which are connected to the main system through cables. The imported goods described as Multimedia Speaker Systems have in-built amplifier and sub-woofer which receive audio signals through Bluetooth, HDMI Cable, USB, etc. In addition, they have F.M. Radio with digital display and interactive remote control. These systems are connectable to T.V. through an optical cable and have the capability for CD playback, USB playback, etc. The main function of this sound producing apparatus is to retrieve, read and reproduce audio files of MP3 / WMA audio formats stored in memory devices such as USBs / Flash Drives / SD cards and these are easily connectable to various audio sources such as CD players, DVD players and Blu-ray players. Thus MSS are designed to give a complete hi-fi stereo audio experience. Multimedia Speakers / Loudspeakers are typically designed for providing decent sound quality of music on a single device, whereas Multimedia Speaker Systems are built for a more immersive surround sound experience with multiple speakers including sub-woofer and amplifier to enhance Movie watching or for its stereo sound effects having dedicated audio channels i.e, 2.1 / 5.1 surround sound, as in this case. Multimedia Speakers referred to as Multiple Speakers in the tariff, usually consists of just two speakers, sometimes with a sub-woofer while MSS includes multiple speakers for different channels (Front Left, Front Right, Surround Left, Surround Right, Centre & Sub-woofer as in 5.1 system). Multimedia Speaker may come as standalone unit or as a set of two speakers, offering basic audio enhancement, whereas MSS are more complex and more versatile and adaptable, and they are designed to be compatible with a range of electronic devices such as Computers, Mobile Phones, T.V.s, etc. - MSS of the kind imported in the present appeal too can be properly described as Multimedia Speaker Systems (MSS). However, we note, once again, that it is nobody’s-neither the Appellant’s nor the Department’s case that the MSS imported in this appeal are classifiable under heading 8519. The imported goods, namely 'Philips' brand 2.1/5.1 channel multimedia speaker systems, imported and sold by the appellants shall merit classification under CTH 8519 and not under CTH 8518 as contended by the Revenue. As the issue of classification is held against the Department, the question of confiscation and consequent redemption fine as well as penalties under Section 112A of Customs Act, 1962 as well as under Section 114AA of the Customs Act, 1962 shall not arise and the same are set aside. The impugned orders are set aside. The appeals are allowed. ISSUES: Whether imported Multimedia Speaker Systems (MSS) of 2.1/5.1 channel configurations are classifiable under Customs Tariff Heading (CTH) 8527 (Reception apparatus for radio-broadcasting) or under CTH 8518 (Loudspeakers and sound amplifiers).Whether the imported MSS are mere loudspeakers or integrated stereo systems with multifunctional capabilities affecting classification.Whether the principal function of the MSS is that of a speaker or a radio receiver/sound reproducing apparatus for tariff classification purposes.Whether the Board's Circular No. 27/2013-CUS dated 01.08.2013, which provides classification guidance on multifunction speaker systems, is binding on the Revenue and applicable.Whether penalty under Section 114AA of the Customs Act, 1962 for misclassification and related confiscation and redemption fine under Sections 112(a) and 125 of the Customs Act, 1962 are justified in the facts of the case.Whether the 'common parlance' test applies to classification where technical and functional specifications are determinative.Whether the Revenue can reopen assessments and impose penalties when all material facts were known and no suppression or misstatement is alleged. RULINGS / HOLDINGS: Imported MSS are not mere loudspeakers but integrated hi-fi stereo systems with multiple speakers, amplifiers, sub-woofers, digital-to-analog converters, decoders, and radio receivers; thus, they are classifiable under CTH 8527 or CTH 8519 rather than under CTH 8518.The principal function of the imported MSS is sound reproduction via a multifunctional system, not merely amplification by speakers; hence, classification under CTH 8518 is inappropriate.The Board's Circular No. 27/2013-CUS dated 01.08.2013 is binding on the Revenue and correctly classifies multifunction speaker systems with radio and USB playback under CTH 8527 or 8519, excluding classification under 8518.Penalties under Section 114AA of the Customs Act, 1962 and confiscation/redemption fines under Sections 112(a) and 125 are not warranted as there was no suppression, misstatement, or false declaration; classification dispute alone does not justify such penalties.The 'common parlance' test is a residual principle and is not applicable where classification depends on technical and functional characteristics; here, MSS are known and marketed as multimedia speaker systems, not mere speakers.The Revenue cannot challenge assessments or impose penalties based solely on a change in interpretation when all material facts were known and no concealment occurred.Where the Revenue's classification is found incorrect, the importer's declared classification prevails as per settled legal principles. RATIONALE: The Court applied the General Rules for the Interpretation (GRIs) of the First Schedule to the Customs Tariff Act, 1975, particularly Rule 1 (classification according to the terms of the headings and notes) and Rule 3 (classification of composite goods according to principal function and numerical order).Note 3 to Section XVI of the Customs Tariff Act was pivotal, providing that composite machines are to be classified according to the component which imparts the principal function.HSN Explanatory Notes clarify that stereo systems (hi-fi systems) containing a radio receiver and modular units (amplifier, equalizer, loudspeakers) are classifiable under CTH 8527 if the radio receiver gives the system its essential character.The Court distinguished the instant MSS from the 'multimedia speakers' in the Logic India Trading Co. case, noting that the latter involved multiple speakers with add-on features, whereas the instant MSS are integrated systems with advanced decoding and amplification functions.The Court relied on authoritative precedents including the Supreme Court's rulings emphasizing that classification must reflect technological advancement and the principal function of goods, not static or outdated interpretations.Board Circular No. 27/2013-CUS was upheld as binding on the Revenue, consistent with Supreme Court precedent that Revenue cannot argue against its own circulars.Penalties under Section 114AA require proof of knowingly or intentionally making false or incorrect declarations; mere classification disputes without suppression or misstatement do not attract penalty.Decisions on analogous products (e.g., multifunctional printing machines, mobile phones, tablet computers) were cited to support classification based on principal function despite multifunctionality.Revenue's reliance on 'common parlance' was rejected as inappropriate where technical specifications and market marketing evidence demonstrate the nature of the goods.The Court emphasized that classification must consider the entire system's functionality and not isolate components (speakers) from the integrated system.
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