Emotionally Intelligent Companion Device For Children Is Classifiable As 'Automatic Data Processing Machines' And Not 'Plastic Toys': CESTAT

The Mumbai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that MIKO II, an “emotionally intelligent companion device” that is a 'human-like' companion for children, is classifiable as an automatic data processing machine and not 'a plastic toy'.

The bench of Ajay Sharma (Judicial Member) and C. J. Mathew (Technical Member) has observed that the description of the imported goods is not just 'toys' made of plastic. It has capabilities endowed by technological development that set it apart from a toy, and, even if it does conform to a toy, it was necessary to show that the goods do not contain the essentials enumerated in tariff item 8471 4190 of the First Schedule to Customs Tariff Act, 1975. Such a finding is glaringly deficient in the order. The classification adopted in other countries may not be a guide for assessment in India when the dispute has its genesis in the perceived evaporation of duty. It is inevitable that identical duty rates marginalize declaration relevance. Reliance thereto will not suffice for the purpose.

MIKO is the organism created by, and the brainchild of, three young entrepreneurs who, having trained in engineering at a prestigious institution, conceptualized an artificial companion, MIKO, for children, which is currently in its third version.

MIKO was manufactured in China at Guangdong by M/s Pacific Industries (Zhongshan) Ltd. to conform to the evocative 'emotionally intelligent companion device'. It is sold directly to various importers outside India or is shipped to the appellant or assessee for sale in India or for further export out of India.

'Automatic data processing (ADP) machines' are required to be registered with the Bureau of Indian Standards (BIS) to ensure conformity with IS 13252, and their application, in relation to the goods, was rejected on advice from the Ministry of Electronics and Information Technology (MeitY) that the product was not covered by the Electronics and Information Technology (Requirements of Compulsory Registration) Order and, hence, not required to be compliant with that standard. The next version, for which application was preferred, did obtain registration with the Bureau of Indian Standards (BIS), and it is the claim of the appellant that the rejection of the earlier version, which was then under import, did not exclude it from the 'automatic data processing (ADP) machine' or include it as a 'toy' for

The dispute covers eight bills of entry for the import of goods that were confiscated under Sections 111(m) and 111(d) of the Customs Act, 1962, though they are permitted for redemption on payment of a fine. The differential duty stemming from the adoption of the classification proposed in the show cause notice was ordered to be recovered under Section 28(4) of the Customs Act, 1962, along with applicable interest under Section 28AA of the Customs Act, 1962, in the order of the Commissioner of Customs (Import), Air Cargo Complex (ACC), Mumbai, which is under challenge. As the goods had been cleared on'self-assessment' and subject to 'post clearance audit', wide-ranging scrutiny enabled reference to earlier imports from the same source and, in particular, to the bill of entry, which was declared to be 'plastic toys with motors' corresponding to tariff item 9503 0030 of the First Schedule to Customs Tariff Act, 1975, that, upon loading of software, would become functional.

The appellant contended that the goods are akin to the next version of the product, which is far removed from the description corresponding to that favored by the adjudicating authority. The Central Government had had a fresh look at the product and that, consequent to the recommendation of the Principal Scientific Advisor, the Ministry of Electronics and Information Technology (MeitY) and Bureau of Indian Standards had granted approval for registration as 'automatic data processing (ADP) machines', and not just for MIKO III but for MIKO II too. It traces its origins to communication initiated by the Chief Commissioner of Customs with the Principal Scientific Advisory.

The respondent contended that without any distinguishable difference from goods imported earlier, viz., MIKO I, the appellant sought to place their imports under a heading that would obtain for them substantial exemption from customs duties. He submitted that, in the context of the response of the Ministry of Electronics and Information Technology (MeitY) as well as the technical literature furnished, it could not be held that the goods would fit within 'automatic data processing (ADP) machines' and, relying on the description of the goods in the trade channels as 'electronic toy' intended for children between the ages of 5 and 10, it was contended that, in effect and notwithstanding its redeeming features, it continued to entertain and educate in the same manner that any toy would. In imports affected in other countries, these are declared as 'toys' and, by resort to heading 9503 in the tariff of those countries, the supplier is also nothing but a toy manufacturer. Even if both tariff items are found to be equally applicable, the latter of the two would prevail in terms of Rule 3 of the General Rules for Interpretation of the Import Tariff in the Customs Tariff Act, 1975.

The CESTAT held that there is no finding that the impugned goods, by incorporating or working in conjunction with 'automatic data processing (ADP) machines', perform the function of 'toys' which should be the consummation of resort to note 5(E) in chapter 84 of the First Schedule to Customs Tariff Act, 1975, and such a finding is well nigh impossible in the absence of any authoritative guidance on 'toys' and their intended functions. A thought process conditioned by one's own childhood or parenting experience is not a tenable substitute. Even if this note comes into play insofar as the impugned goods are concerned, the impossibility of appending 'toys' renders the claimed classification to be the only one remaining in the ring. Consequently, the classification claimed must remain. The order is set aside to allow the appeal.

Counsel For Appellant: Prakash Shah

Counsel For Respondent: S K Hatangadi

Case Title: R N Chidakashi Technologies Pvt. Ltd. Versus Commissioner of Customs (Import)

Case No.: Customs Appeal No: 86776 Of 2023

Click Here To Read The Order