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CASE NO.: Appeal (civil)  2576 of 2001

PETITIONER: Commissioner of Customs, Chennai

RESPONDENT: M/s Pentamedia Graphics Ltd.

DATE OF JUDGMENT: 09/05/2006

BENCH: ASHOK BHAN & MARKANDEY KATJU

JUDGMENT: J U D G M E N T

BHAN, J.

       The issue involved in the present case is:  Whether the imported goods, i.e. ’Motion Capture  Animation Files’ will come under the purview of  Customs Notification No. 29/99 as ’information  technology software’ for claiming exemption from  payment of duty?

Respondent/assessee (for short "the  Respondent")  imported ’Motion Capture Animation  Files’ valued at Rs. 7,02,58,125/- and classified  them under heading 85.24 and claimed exemption from  payment of customs duty under Notification No.  20/99-Cus.  It will be convenient to refer to the  relevant portion of the notification:

"85.24 - (i) Information technology  software, and (ii) Document of title conveying the  right to use Information Technology  software.

Explanation:- "information technology  Software ’ means any representation of  instructions, data, sound or image  including source code and object code,  recorded in a machine readable form,  and capable of being manipulated or  providing interactivity to a user, by  means of an automatic data processing  machine.  

[Hereinafter referred to  as the  ’amended notification’]

It may be noted that this explanation  substituted the explanation in the earlier  notification no. 23/98 which read as:                    

"Explanation. - ’Computer software’

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means any representation of  instructions, data, sound or image,  including source code or object code,  recorded in a machine readable form,  and capable of being manipulated or  providing interactivity to a user, by  means of an automatic data processing  machine falling under heading No.  84.71, but does not include software  required for operation of any machine  performing a specific function other  than data processing, and  incorporating or working in  conjunction with an automatic data  processing machine.  

[Hereinafter referred to  as the ’original  notification]

The assessing authority vide his order dated  25.11.1999 denied the benefit of the notification  although he did not dispute the classification of  the goods under heading 85.24 as software.  Against  the order of the Assessing Authority, Respondent  filed an appeal before the Commissioner of Customs  (Appeals) who vide his order dated 14.3.2000  dismissed the appeal although it was accepted by  him that the files contain data in a machine  readable form.  It would be useful to refer to the  conclusion arrived at by the Commissioner of  Customs (Appeals), the same reads:  

"As seen from the records the goods  are in the nature of files containing  positional information i.e certain  actors are asked to perform with  sensors attached to their bodies and  these motions are shot with the help  of infrared cameras and recorded in  the tapes. This positional information  is transferred on the created objects  so that they perform in a similar  manner. The transfer of this data on  to the object is done with the help of  a software known as ’soft image’. In  other words, the goods imported are in  the nature of data recorded in the  tapes which can only be transferred to  other objects using software which is  not part of the imported consignment.  It is significant that the goods  imported do not consist of a programme  which would enable the manipulation of  the files. In that sense, in the  condition in which they have been  imported, they are not capable of  being manipulated but remain mere  information. Thus, even though the  files contain data in a machine  readable form, they are not capable of  manipulation. They also do not provide  interactivity to the user, as it is  only a data and no programme or set of

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instructions are contained in the  cartridges. For the above reasons, I  find no infirmity in the order of the  lower authority holding that the goods  are not eligible for the benefit of  exemption under Sl.No. 231 of the  Table to the notification 20/99 cus."

Respondent being aggrieved filed an appeal  before the Customs Excise and Gold (Control)  Appellate Tribunal (hereinafter referred to as "the  Tribunal").  The Tribunal by the impugned order has  accepted the appeal; set aside the orders impugned  before it and held the assessee to be entitled to  the exemption under the amended notification.  It  has been held by the Tribunal that the deletion of  the words "but does not include software required  for operation of any machine performing a specific  function other than data processing, and  incorporating or working in conjunction with an  automatic data processing machine" from the earlier  notification are very relevant and has increased  the scope of the kind of softwares which can now be  imported duty free under the amended notification.   That under the amended notification, any kind of  data which is capable of being manipulated by means  of automatic data processing machine would be  covered by the term ’information technology  software’.

       Shri B.B. Singh, learned counsel appearing for  the Revenue contended that the imported goods are  only data and not programme or set of instructions  and therefore not covered under the notification.  He further contended that the imported files were  mere information and not capable of being  manipulated by automatic data processing machine.    That the amended notification though has expanded  the width and scope of the exemption notification  but the same was not enough for the software in  question to be included.             As against this, Shri V. Sridharan, learned  counsel appearing for the Respondent contended that  the scope of the amended notification is much wider  then the earlier exemption notification.  As per  amended notification any kind of data which is  capable of being manipulated by automatic data  processing, would be covered by the term  ’information technology software’.   It was further  contended by him that the goods under import are  computer software recorded in a machine readable  form and capable of being manipulated by means of  an automatic data processing machine. For this he  has placed reliance upon the letter written by  Prof. S. Raman, Associate Professor, Department of  Computer Science and Engineering, at IIT, Madras,  in response to the query raised by the Department.   He also referred to certain dictionaries explaining  the meaning of the word "software".  

       Random House Compact Unabridged Dictionary  defines software to mean:   "anything that is not

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hardware but is used with hardware esp. audiovisual  material such as film, tape records etc,".   According to Mc Graw Hill Encyclopedia of Science  and Technology, "software" means the totality of  programme usable on a particular kind of computer,  together with the documentation associated with a  computer program".   Encyclopedia Britannica  defines "software" to mean, "Software is an entire  set of programs procedure, and routines associated  with the operation of a computer system, including  the operating system. The term differentiates these  features from hardware, the physical components of  a computer system, including the operating system.  The term differentiates these features from  hardware, the physical components of a computer  system. Two main types of software are systems  software, which controls a computer’s internal  functioning, and application software, which  directs the computer to execute commands that solve  practical problems. \005. Software is written by  programmers in any number of programming languages.  This information, the source code, must then be  translated by means of a compiler into machine  language, which the computer can understand and act  on."  

A. C. Downton, Computer and Microprocessors  postulates that if a software is required to load a  programme on the computer then the programme which  has to be loaded on the computer does not cease to  be a software and the same continues to be a  software.   

       Prof. S. Raman, Associate Professor, Department  of Computer Science and Engineering, at IIT,  Madras,  responded to the query raised by the  Revenue as under:

"The motion capture animation files,  normally referred to as software in  the industry which could only be  manipulated and modified by 3D  animation software to apply the motion  to computer Graphics models in the  computer. These manipulations are  using interactive tools within the  software to control various parameters  to make the computer graphics director  achieve his imagination seen on the  computer screen. These motion files  are captured from live actors  performing, using special suits to  transfer their motion information to  the computer. These are then processed  for compatibility with animation  software, and the processed files at  various stages of capture are sent to  us. One is a positional capture file,  the other is rotational capture file  and the last is texture file of  natural effects like water animated  for various camera and wind velocity.  These files can be interactively  modified and used for various domestic

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requirements of the advertising  broadcast and film industry.

We further bring to your kind  attention that the Motion Capture  Animation files or data are computer  software recorded in a machine  readable (Exabyte cartridge tapes)  form and capable of being manipulated,  but, by themselves, the files cannot  be used as independent entities."   

       Thus according to Prof. S. Raman, who is an  expert on the subject, Motion Capture Animation  files on data are computer software recorded in a  machine readable form and capable of being  manipulated, though by themselves the files cannot  be used as independent entities.

       Submission of the learned counsel appearing for  the Revenue that the ’Capture Animation Files’ are  not software since another software is required to  load the same is without any substance.  It is  evident from the book of Computers and  Microprocessors by A.C. Downton, that a loader  programme is required to load software on the disk  of the computer.  This concept is called as boot  strapping.  In other words, if software is required  to load a programme on the computer then the  programme which has to be loaded on the computer  continues to be software. Simply because the  ’Motion Capture Animation Files’ requires another  software known as ’soft image’  to get the final  result does not detract the goods under import   from being software.  The same continues to be a  software and entitled to exemption under  notification No. 20/90-Cus.  

       Prof. S. Raman, Associate Professor, of IIT,  Madras, who is an expert on the subject has opined  that the ’Motion Capture Animation Files’ are  normally referred to as software in the industry  and the same can be manipulated and modified by 3D  animation software.  These files can be  interactively modified and used for various  domestic requirements of the advertising, broadcast  and film industry.  According to him ’Motion  Capture Animation Files’ on data are computer  software recorded in a machine readable form and  capable of being manipulated and the same are  software.   

       Random House Compact Unabridged Dictionary  refers to "software" as anything that is not  hardware and is used with hardware.  Encyclopedia  Britannica refers to "software" to designate non- hardware items, namely internal programmes or  routines and programming aids.   Thus the  programming aids are also known as software and  thus the goods in question would fall within the  meaning of the word "software".  The goods under  import are admittedly data recorded on tapes.   Under the existing Notification No. 20/99 any kind  of data  in a machine readable form and capable of

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being manipulated by means of an automatic data  processing machine would be covered by the term  "Information Technology Software".   

       For the reasons stated above, the goods under  import are computer software recorded in a machine  readable form and capable of being manipulated by  means of an automatic data processing machine.  We  do not find any infirmity in the impugned order of  the Tribunal.

       For the reasons stated above, we do not find  any merit in this appeal and dismiss the same.   Parties shall bear their own costs.