Supreme Court of India Commissioner Of Customs, Chennai vs M/S Pentamedia Graphics Ltd on 9 May, 2006 CASE NO.: Appeal (civil) 2576 of 2001 PETITIONER: Commissioner of Customs, Chennai RESPONDENT: M/s Pentamedia Graphics Ltd. DATE OF JUDGMENT: 09/05/2006 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. 20/99Cus. 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' 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 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