The Hindu Business Line : <I>Pyjama </I>logic for PlayStation

IN A Midsummer Night's Dream Philostrate talks about a play `some ten words long', and frets, "But by ten words, my lord, it is too long, which makes it tedious".

The case for this week is about play, or Sony's Playstation2, to be exact, and it is some 18,000 words long, which may make it tedious.

But lengthier and more tedious than the judgment were the arguments in Sony Computer Entertainment Europe Ltd vs The Commissioners of Customs and Excise before the High Court of Justice Chancery Division in the UK: "with more than 150 pages of written arguments and the citation of more than 60 decisions of the European Court or the Court of First Instance (CFI)."

And the dispute that Justice Lawrence Collins decided on July 27 was about the customs classification of the company's product PS2.

Here's the story in short, as one learns from the text of the ruling available on www.bailii.org: Till the end of 2003, customs duty on goods imported into the European Community (EC) under Heading 8471 (automatic data processing machines) was zero, while the duty on goods under subheading 9504 10 00 (video games of a kind used with a television receiver) was 1.7 per cent.

Sony was attempting to recover as overpaid duty some 50 million euros, which it had paid as a result of the many PS2s imported and wrongly classified under 9504. "Since January 1, 2004, the duty under both headings has been zero," informs the introduction.

When the customs officials had classified PS2 under 9504, because "it was not freely programmable for the purposes of Heading 8471", Sony challenged the decision, only to meet with unfavourable decisions at different levels.

There were other developments, too, such as the European Commission expressing a view that PS2 should be classified under 9504, and the World Customs Organisation adopting a Classification Opinion that PS2 is to go under 9504.

"It is for the national court (even in a case which has been referred to the European Court for guidance on the applicable principles) to determine the objective characteristics of a given product, having regard to a number of factors, including their physical appearance, composition and presentation," asserted the court, citing an earlier decision.

Among other cases that Justice Collins referred to, in explaining interpretation, were BioforceGmbH vs Oberfinanzdirektion München, where the product (extract of hawthorn with added alcohol, taken as a heart tonic) "was capable of being classified both as a medicament and as a spirituous beverage"; and Wiener SI GmbH vs Hauptzollamt Emmerich, where the product in question "was capable of being worn both as a `nightdress' and as a `dress'".

The intended use of a product may constitute an objective criterion in relation to tariff classification if it is inherent in the product, and such inherent character must be capable of being assessed on the basis of the product's objective characteristics and properties, said the judge citing yet another case, Ikegami Electronics (Europe) GmbH vs Oberfinanzdirektion Nürnberg.

The two headings

Let us now look at the two headings, 8471 and 9504. Chapter 84 titled, `Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof' has 8471 that includes `automatic data processing machines'.

From the chapter notes, one gathers the definition of `automatic data processing machines' as: "(a) digital machines capable of (1) storing the processing program or programs and at least the data immediately necessary for the execution of the program; (2) being freely programmed in accordance with the requirements of the user; (3) performing arithmetical computations specified by the user; and (4) executing, without human intervention, a processing program which requires them to modify their execution, by logical decision during the processing run; (b) analogue machines capable of simulating mathematical models and comprising at least: analogue elements, control elements and programming elements; (c) hybrid machines consisting of either a digital machine with analogue elements or an analogue machine with digital elements."

Chapter 95, titled `Toys, games and sports requisites; parts and accessories thereof' has 9504 10 00 that reads, `Video games of a kind used with a television receiver'.

The notes explain that the heading includes "video games (used with a television receiver or having a self-contained screen) and other games of skill or chance with an electronic display", and that 9504 excludes `machines and apparatus fulfilling the conditions' laid down for automatic data processing machines in Chapter 84, "whether or not capable of being programmed for video games".

You rise to play

Sony argued that its product has "the capability of being programmed in BASIC, Linux and other software programs". Another argument was that its product should be classified as if it consisted of the material or component which gives it the essential character.

But the Department's view was that the essential character of PS2 is given by its function of playing video games. Even if it were considered that "the essential character of PS2 could not be determined and that it functioned equally as a CD and DVD player and as a games console", the appropriate heading would be 9504, the Department postulated.

For PS2, it was all work and no play, because at the 243rd meeting of the Customs Code Committee, Tariff and Nomenclature Section, Mechanical/Miscellaneous Sector (a.k.a. the `Nomenclature Committee'), it was unanimously concluded that PS2 should be classified under 9504 "after witnessing a demonstration of the product by Sony".

The reasoning was given thus: "Of the various functions (including playing video games, playback of CD audio, DVD video, automatic data processing etc) playing video games gives the apparatus its essential character and determines classification under heading 9504 as a games console."

When the matter was before the Court of First Instance (CFI), a few interesting observations were made. For instance, the court noted that there was no definition of `video games', and, in the absence of such definition, "it was appropriate to look for the objective characteristic of those goods which tended to distinguish them from others in the use for which those goods were intended".

A case cited in this connection was Wiener SI GmbH vs Hauptzollamt Emmerich, again, "in which it had been held that the pyjamas, according to their objective characteristic, were to be worn in bed and that, if that objective characteristic could be established at the time of customs clearance, the fact that it might also be possible to envisage another use for the garments did not preclude them from being classified for legal purposes as pyjamas."

CFI applied the same logic to Sony's case and said: "Both by the manner in which the PlayStation2 is imported, sold and presented to the public and by the way it is configured, it is intended to be used mainly for playing video games, even though, as is apparent from the contested regulation, it may also be used for other purposes, such as playing video DVDs and audio CDs, in addition to automatic data processing."

That may remind you of Iago's line in Othello: "You rise to play and go to bed to work." But legal-beavers have enough in this case about tax administration, let me assure. Were you, instead, to fast-forward to the conclusion, as I do now, you'd find Justice Collins concurring with the reasoning of the CFI and dismissing Sony's appeal.

"Good plays prove the better by the help of good epilogues," says Rosalind in As You Like It, and so here's a quote of Oscar Wilde to wrap: "One should always play fairly when one has the winning cards."

Cases@TheHindu.co.in

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