1997 (2) TMI 256 - AT - Customs

Imported video software equipment not considered 'Industrial Plant' for Project Contract benefits. Revenue appeal allowed.

The Tribunal ruled that the imported equipment for video software generation facilities does not qualify as an 'Industrial Plant' under the Project Import ... Project Import Issues Involved:1. Whether the imported items for setting up video software generation facilities qualify as an 'Industrial Plant' under Regulation 3(a) of the Project Import Regulation, 1986.2. Whether the activity of video recording constitutes an industrial activity or a service activity.3. Eligibility of the imported equipment for Project Contract benefits under Heading 9801 of the Customs Tariff Act.Issue-wise Detailed Analysis:1. Classification of Imported Items as 'Industrial Plant':The primary issue revolves around whether the imported equipment for video software generation facilities can be classified as an 'Industrial Plant' under Regulation 3(a) of the Project Import Regulation, 1986. The respondents argued that the equipment, including color monitors and video editing systems, are used in producing video films, which constitutes an industrial activity. The Collector (Appeals) supported this view, stating that converting blank video cassettes into recorded ones involves a series of processes that result in a 'commodity' as per the dictionary definition, thus qualifying as an industrial activity.2. Nature of Video Recording Activity:The Revenue contested the Collector's findings, arguing that the term 'Industrial Plant' excludes establishments designed to offer services, such as photographic studios and film processing laboratories. They asserted that video recording activities, involving editing and dubbing, do not result in a new commodity and hence do not qualify as industrial activities. The Revenue relied on several judgments, including the Supreme Court's decision in Prabhat Sound Studios, which held that recording sound on magnetic tapes does not amount to manufacture as no new substance emerges.3. Eligibility for Project Contract Benefits:The Collector (Appeals) had allowed the registration of the project contract for the imported items under Heading 9801 of the Customs Tariff Act, which provides benefits for industrial plants. However, the Revenue argued that the imported equipment does not fall within the specified projects notified by the Government of India and thus does not qualify for these benefits. They emphasized that the activity of video recording is more akin to services provided by photographic studios, which are explicitly excluded from the definition of 'Industrial Plant.'Judgment Analysis:Upon reviewing the arguments and evidence, the Tribunal concluded that the activity of video recording does not result in a new commodity, akin to the Supreme Court's ruling in Prabhat Sound Studios. The Tribunal noted that the recording on video cassettes can be erased and reused, similar to sound recording on magnetic tapes, which does not constitute manufacturing. Consequently, the Tribunal determined that video recording is a service activity rather than an industrial activity.The Tribunal also referenced prior judgments, including those of the Madras High Court and Bombay High Court, which held that photographic studios and film processing laboratories do not qualify for Project Import benefits. The Tribunal found that the respondents' activities were more akin to these service establishments and did not meet the criteria for an 'Industrial Plant' under the Project Import Regulation.Conclusion:The Tribunal set aside the Collector (Appeals)' order, ruling that the imported equipment for video software generation facilities does not qualify as an 'Industrial Plant' and thus is not eligible for Project Contract benefits under Heading 9801 of the Customs Tariff Act. The appeal by the Revenue was allowed, emphasizing that the activity of video recording falls within the exclusion clause of service establishments and does not constitute an industrial activity.