In the constantly evolving world of technology, clear categorization of products becomes indispensable, especially when it has far-reaching implications on taxation. A seminal case that underscores this was recently adjudicated by CESTAT, Chennai, which ventured into the nuanced difference between gaming laptops and video game consoles in terms of their classification.
In M/s. Asus India Private Limited v. Commissioner of Customs [Customs Appeal No. 42563 of 2018 dated August 03, 2023], CESTAT, Chennai ruled that gaming laptops, despite their marketing for high-end gaming capabilities, are to be classified under Customs Tariff Heading 8471 as “Automatic data processing machines
Facts:
- M/s. Asus India’s Initial Classification: M/s. Asus India Private Limited, referred to as “the Appellant”, submitted four Bills-of-Entry in April 2017. They labelled the goods as ‘Computer System Desktop’ and sorted them under CTH 8471 3090, indicating them as “automatic data processing machines”.
- Product Details and Components: The imported items belong to the ‘ROG’ series. Key components of this product include a 7th Generation Intel Core i7 processor and Nvidia GeForce GTX 1080 graphics.
- Revenue Department’s Examination Findings: Upon assessment, “the Respondent” or the Revenue Department ascertained that the imported items are personal computers. These PCs come with various accessories like a mouse, power adapter, and gaming console. However, a critical observation was made based on the supplier’s website: the goods were primarily crafted for gaming activities.
- Revenue Department’s Re-classification: The Revenue Department took a step to re-categorize the imported goods under CTH 9504 5000. This classification typically encompasses “Video game consoles and machines”.
- Appellant’s Standpoint During Adjudication: During the adjudication phase, the Appellant posited that the imported goods weren’t merely Electronic Games. Instead, they function as a personal computer with multi-dimensional capabilities. These range from computing, internet usage, multimedia processing, to regular word processing.
- Distinguishing Gaming Consoles from PCs: Highlighting the difference, the Appellant made a clear distinction between “Electronic Games (Console)” like the PS4 and XBOX, which are exclusively designed for gaming, and the imported products. The latter, they stated, doesn’t merely reproduce images on screens like TVs or monitors nor operates as video game machines with their screens. Consequently, they emphasized that these products should be identified as personal computers and shouldn’t fall under CTH 9504.
- The Appellate Authority’s Perspective: On March 28, 2018, the Appellate Authority, through “the Impugned Order”, made some crucial observations. They noted that while CTH 8471 pertains to the classification of products like automatic data processing machines used across various sectors, CTH 9504 specifically targets video game consoles, with entertainment as their core function. Given that the imported goods were designed predominantly for gaming, they believed the classification under CTH 9504 was apt. Additionally, even though the products were consistent with CTH 8471’s Notes and had multi-tasking abilities, the HSN Explanatory Note 2 to Chapter 9504 and Rule 3(a) of the General Rules for Interpretation suggested prioritizing specific descriptions over general ones, leading to the categorization under CTH 9504.
- Appeal to the CESTAT, Chennai: Discontented with the Appellate Authority’s decision, the Appellant moved forward by filing an appeal before the CESTAT, Chennai.
Issue:
Whether the gaming laptops will be classified as ‘automatic data processing machines’ or ‘video game consoles’?
Held:
The CESTAT, Chennai in Customs Appeal No. 42563 of 2018 held as under:
- Observed that, the imported products are automatic data processing machines, but the objective and characteristics indicate that they are intended for entertainment purposes (game-playing). As per the product literature the imported goods are designed for the purpose of playing games and reportedly, even has gaming software.
- Noted that, an automatic data processing machine or personal computer are capable of storing the processing programmes and is also freely programmable in accordance with the requirements of the user and capable of computing and executing without human intervention. Whereas video game consoles are simply plug and play devices, which are more user friendly, and meant purely for gaming or entertainment purposes and are not capable of computing, internet surfing, word processing, etc.
- Further noted that, any computer system which has additional features for playing games, continues to be a computer system and can also be used for general purposes other than as an entertainment device.
- Stated that, the imported goods are freely programmable whereas video game consoles only operate on fixed programmes. Thus, they are more appropriately classifiable under CTH 8471 as automatic data processing machines.
- Set aside the Impugned Order and allowed the appeal.
Conclusion: While CESTAT recognized the gaming capabilities of the laptops, they opined that the machines bore all trademarks of automatic data processing devices. The tribunal accentuated the difference between the malleable programmability of these laptops versus the stringent, unchangeable programme functionality seen in dedicated gaming consoles. Given this pivotal difference, CESTAT made the landmark decision to categorize the laptops under CTH 8471.
CESTAT’s ruling is emblematic of the broader perspective needed when classifying modern tech products. By going beyond surface-level functionalities and understanding the intrinsic nature of these devices, the tribunal has set a precedent that will serve as a touchstone for similar debates in the future.
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(Author can be reached at info@a2ztaxcorp.com)
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