Union Of India & Anr Vs Amazon Seller Services Pvt. Ltd. (Delhi High Court)
27. In the present case, the exemption notification was to allow import of ―electrical machines with translation or dictionary functions” at nil rate of duty. In whatever manner we interpret the said words the interpretation should not be irrational and arbitrary. Chapter 85 deals with the electrical machinery and equipment and parts thereof. The ―electrical machine apparatus” are classified under tariff item heading 8543. These include electronic equipments like video special effect equipment, video typewriter, audio-visual stereo encoders, radio frequency power transformers, etc. It is undisputed and unchallenged, as stated above, that Kindle devices would fall under the basket or residuary heading 8543 89/8543 7099. Thus, the only issue is whether the said device is ―with translation or dictionary functions”. The words “with translation or dictionary functions” have been used to restrict and keep the benefit of the exemption notification within bounds and not expand scope of exemption. Kindle device is an electronic device designed for use as an electronic book reader. As an electronic book reader, it has several e-books pre-installed in the device and other e-books can be downloaded. The product is developed and designed to function as an e-book reader and is sold and bought as a e-book reader and not as a translator or as a dictionary. The e-book reader has an inbuilt dictionary feature, which is a secondary or additional feature, useful for the reader. This secondary or additional feature would not make it and qualify the e-reading machine as an “electrical machine with translation or dictionary function”. The word ‘with’ can have diverse and varied meaning depending upon the context in which it is used. A restricted meaning to the word “with” is in consonance with the judgments of the Supreme Court on strict construction of exemption notification. In the context of the present notification, we observe and hold that the words ‘translation‘ and ‘dictionary‘ functions qualifies the words ‘electrical machines‘ with the mandate that translation or dictionary function should be the primary and relevant function of the said machine for which they are purchased and used. The exemption is restricted to machines which translate or perform dictionary functions and not to other machines that primarily perform some other function.
28. This is not a case where the exemption notification creates a dichotomy so as to attract a challenge under Article 14 of the Constitution. For legal purposes, classification of goods in the sub-heading of the heading is determined according to the items of those sub-headings and any related sub-heading notes. Exemption granted is in terms of the international obligation on signing ITA-1, which obligation is duly fulfilled when exemption was granted to devices with primary and relevant function to act as translator or dictionary. The electronic dictionary provided is pre-installed in the Kindle device. Downloading of additional dictionaries though not stated in the application before the AAR could be optional, as in case of several electronic devices. E-reading devices are designed, purchased and used for reading text and not as a dictionary or translator.
29. Considerable emphasis was laid by the respondent on the difference between the language and the use of the word “with” in the exemption Notification No. 25/2005-Cus at Serial No. 26 “electrical machines with translation or dictionary functions” and with reference to other items wherein the word “for” and not “with” has been used. According to us, this would not make any difference when we apply the principles of law as expounded by the Constitution Bench of the Supreme Court in the case of M/s Dilip Kumar and Company (supra). As noticed above, the word “with” is equally capable of referring to the dominant or the main purpose and not the ancillary or the secondary function. For reasons stated in paragraphs 27 and 28 above, the restrictive interpretation would be appropriate and inconsonance with principles of interpretation applicable to tariff items. Broad and wide ambit propounded by the respondent unintelligibly articulates a rather far-fetched interpretation.
30. In other words, our conclusion is that the exemption notification would apply where the device is an electrical machine covered under tariff item No.8543 89/8543 7099, and its primary and basic function should be to translate or perform dictionary function. Primary function of kindle device is to enable the user to read e-books. It is an e-book reading device and not a translator, and is not procured or purchased to perform dictionary function. No one purchases a kindle device because it is a translator or device “with” a dictionary function. E-book readers are purchased because a person wants to read e-books which are pre-loaded or can be downloaded from internet. Dictionary in a Kindle device enables the reader to make use of the dictionary while reading the e-book. E-book reader as such is not a dictionary or translator device. E-book readers would be appropriately classified in “others” as distinct from “electrical machines with translation and dictionary function”.
FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT
The Principal Commissioner of Customs, Air Cargo Complex (Import) and the Union of India, through Ministry of Finance, have filed the present writ petition for setting aside and quashing the Order No. AAR/CUS/01/2015 dated 15th May, 2015 passed by the Authority for Advance Rulings (the AAR, for short).
2. he impugned order holds that Kindle e-reading devices imported by M/s Amazon Seller Services Private Limited, the respondent before us and the applicant before the AAR, being “electrical machines with translation or dictionary functions” were exempt from basic customs duty vide serial No. 26 of the Exemption Notification No. 25/2005-CUS dated 1stMarch, 2005 as amended by notification No. 133/2006-CUSTOMS dated 30th December, 2006 (hereinafter collectively referred to as ‘the exemption notification’).
3. Counsel for petitioner-Revenue has confined and restricted his challenge to the interpretation given to the expression “electrical machines with translation or dictionary functions” in Serial No. 26 of the exemption notification i.e. whether Kindle e-reading devices were “electrical machines with translation and dictionary function”. Revenue does not dispute the finding that Kindle devices are electrical machines under the residuary clause, i.e., “others” under the residuary Custom Tariff Heading (CTH, for short) 8543 89/8543 7099.
4. Revenue submits that the primary function of Kindle e-reading devices was not to translate or perform dictionary functions and hence, they would not be covered under the expression “electrical machine with translation or dictionary function”. Reliance is placed on the Constitution Bench decision of the Supreme Court in Commissioner of Central Excise, New Delhi versus Hari Chand Shri Gopal And Others, (2011) 1 SCC 236 and Commissioner of Customs (Import), Mumbai versus Dilip Kumar, in Civil Appeal No. 3327/2007 decided on 30th July,2018, to urge that exemption notifications should be construed and interpreted strictly and in case of ambiguity and doubt interpretation in favour of the Revenue, rather than the assessee is mandated and required.
5. Counsel for respondent, on the other hand, submits that the Serial No. 26 of the exemption notification has been rightly interpreted by the AAR, for the expression used in the notification was, ‘electrical machines with translation or dictionary functions’ and the word “with‖, indicates that translation or dictionary function need not be the dominant or the primary purpose of the electrical machines. It would be sufficient if the electrical machines could perform and have translation or dictionary function, a feature admittedly present in the Kindle e-reading devices. Distinction and difference in use of the word “for” in the exemption notification with reference to other exempted items was highlighted. This was the core reasoning given by the AAR in paragraphs 2 and 3 of the impugned order.
6. Respondent has highlighted that a number of other contentions and arguments were raised by the Revenue before the AAR, including question of classification under the CHA 8543 89/8543 7099, which were examined and dealt with in the impugned order. Contentions now raised are somewhat different from the primary and core submission before the AAR.
7. At the outset, we may record that the Revenue has not contested and questioned classification of Kindle e-reading devices under the CHA 8543 89/8543 7099. Thus, two sides are ad idem that Kindle e-reading devices would be covered under the residuary tariff item CHA 8543 89/8543 7099, i.e., “others”, under the Chapter 85 heading “electrical and electronic machinery and equipment”.
8. In order to appreciate and understand the contention raised on interpretation of exemption notification, we would like to quote relevant portion from the notification dated 30th December, 2006 which reads :-
“G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts following the goods of the description specified in column (3) of the Table below and falling within the heading, sub-heading or tariff item of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) as are specified in the corresponding entry in column (2) of the said Table, when imported into India, form the whole of the duty of customs leviable thereon under the said First Schedule, namely:-
