Customs, Excise and Gold Tribunal - Mumbai
Commissioner Of Customs vs Hewlett Packard India Ltd. on 7 March, 2006
Equivalent citations: 2006(107)ECC49, 2006ECR49(TRI.-MUMBAI), 2006(199)ELT317(TRI-MUMBAI)
ORDER
Jyoti Balasundaram, Vice President
1. The above appeals involve common issues and are hence heard together and disposed of by this common order.
2. The facts giving rise to appeal No. C/391/02 are that on 24.9.2001 M/s. Hewlett Packard India Ltd. (hereinafter referred to as "HP India") imported a consignment of multi-function machine namely, printer-cum-scanner-cum-fax machine - Model HP Officejet V40 Service and also "printer software" recorded on a compact disk, and sought classification of the printer under Customs Tariff Heading 8471.60 attracting basic customs duty @ 15% ad valorem and software under Chapter Heading 85.24 and claimed exemption from duty in terms of serial No. 285 of the table to notification 17/2001-Cus. The invoice under which both the items were imported did not indicate the value of the items separately and a composite price of US$ 150.27 was indicated therein. Hence the importers indicated the following value in the bill of entry filed for assessment of the imported goods:
(1) Value of printer - US$ 147.57 (2) Value of software - US$ 2.70 The department was of the view that both software and printer are classifiable under Chapter Heading 84.71 of the Customs Tariff and after due process of adjudication, the Assistant Commissioner passed order dated 20th October, 2001 classifying the printer and the software under CTH 84.71. However, the value declared for the software was not questioned by the department. On appeal filed by HP India, the Commissioner of Customs vide order dated 6.2.2002, set aside the adjudication order accepting the importers' contention that printer and software are classifiable separately under CTH 84.71 and 85.24 respectively and accepting the value of the software declared by the importers. The Revenue challenged this order before the Tribunal which vide its order dated 11.6.2003 , held that both items are classifiable separately under the headings claimed by the importers, but held that by virtue of Section 19 of the Customs Act, 1962, the value of software is includible in the value of the printer. This order was challenged by the importers before the Hon'ble Bombay High Court which by its order dated 26.4.2005, set aside the Tribunals order and remanded the case to the Tribunal for deciding the appeal afresh in the light of the apex court's decision in CCE v. Acer India Ltd. .
3. In appeal No. C/110/05, the goods imported are various models of laser printer and Inkjet printer along with software wherein classification of printers was claimed under Customs Tariff Heading 84.71 and software under CTH 85.24 read with exemption in terms of serial No. 231 of the table to notification 20/99-Cus/similar exemptions under successor notifications. As the invoice produced for assessment of the goods did not indicate the value of software separately, the value of software was arrived at by the importers as under:
(1) Cost of blank CD - US$ 1.20 (2) Cost of software - US$ 1.00 (3) Cost of recording and packing - US$ 0.50 The value of printer software was arrived at as US$ 2.70 in the above manner, irrespective of the printer model. Initially the assessments were made provisional and were finalised by the Deputy Commissioner's order dated 19.9.2002 holding that -
(a) printer is classifiable separately under CTH 84.71 by virtue of Note 5(D) to Chapter 84;
(b) software imported along with the printer is classifiable under CTH 85.24 by virtue of Note 6 to Chapter 85;
(c) declared value of software is acceptable by virtue of Rule 7A of the Customs Valuation Rules, 1988; and
(d) software is exempt from payment of customs duty.
The adjudicating authority also relied upon the order dated 6.2.2002 of the Commissioner (Appeals) to arrive at the above conclusion. As that order was set aside by the Tribunal, the Revenue filed an appeal before the Commissioner (Appeals) under Section 129D(2); the importers filed cross-objections specifically contending inter alia that the value of software declared was reasonable in accordance with Rule 7A and that this value was accepted by other Customs Houses, and produced evidence in this regard. The department's appeal was allowed by the Commissioner (Appeals) in view of the Tribunal's decision dated 11.6.2003; the importers have thus filed appeal No. C/110/05 against the Commissioner (Appeals)'s order dated 25.11.2004.
4. We have heard both sides.
5. We find that the software is imported in the form of CD which contained driver software and other utility/application software such as optical character recognition software in order to enable the scanned text to be converted to word file, photo-print software so as to enable the printer to take colour print out of photographs. The printer is an output device for the computer and the tuning/configuration of the computer is done by installing the software imported in the present case, on to the hard disk inside the computer. From the user manual/operation manual of the printer, it is seen that software loaded/installed on the computer in its hard disk is easily erasable. The software imported is specific to the model of the printer and not to its specific serial number. If the computer crashes or is infected with a virus and therefore requires to be re-formatted, the printer software is also required to be installed again to enable the user to take print outs from it. The printer can function without loading the software on the computer, if the computer is already pre-loaded with the printer software. For e.g. in a computer loaded with operating system software like Windows-XP etc., the user need not install the printer software which comes with the printer on to the computer, for the reason that the Windows-XP etc. has inbuilt software for various printers.
6. We may now look at various definitions of driver and printer driver.
(a) In, http://www.webopedia.com/, driver is defined as under:
A program that controls a device. Every device, whether it be a printer, disk drive, or keyboard, must have a driver program. Many drivers, such as the keyboard driver, come with the operating system. For other devices, you may need to load a new driver when you connect the device to your computer. In DOS systems, drivers are files with a .SYS extension. In Windows environments, drivers often have a .DRV extension.
A driver acts like a translator between the device and programs that use the device. Each device has its own set of specialized commands that only its driver knows. In contrast, most programs access devices by using generic commands. The driver, therefore, accepts generic commands from a program and then translates them into specialized commands for the device.
(b) Definition of device from the website "Webopedia" enclosed as, is also relevant and reproduced below:
Any machine or component that attached to a computer. Examples of devices Include disk drives, printers, mice and modems. These particular devices fall into the category of peripheral devices because they are separate from the main computer.
Most devices, whether peripheral or not, require a program called a device driver that acts as a translator, converting general commands from an application into specific commands that the device understands.
(c) In Wikipedia, ( http://en.wikipedia.org), printer driver is defined as under:
A piece of software that converts the data to the printed to the form specific to a printer.
The purpose of printer drivers is to allow applications to do printing without being aware of the technical details of each printer model.
(d) In The Little PC Book by Lawrence J. Magid, driver is defined as under:
A small program that runs peripheral hardware. Drivers are usually loaded into the memory via the Config.sys file.
(e) In the same book, Config.sys is defined as under:
A file stored in the root directory of your hard disk that DOS reads each time you start up your computer. It includes instructions for DOS about how to set up memory and other system configurations.
7. The plea of the importers is that the printer software is not the firmware of the printer while the case of the department is that it is a firmware. We note that this contention has been made for the first time by the learned DR. In order to appreciate the correctness of the above submissions, it is necessary to consider what is firmware. In the Dictionary of Modern Electronics Technology by Andrew Singmin, firmware is defined as "a computer system software resident in read only memory (ROM)". ROM is defined in the same book as "a semiconductor device for storing data in permanent non-erasable form usually accomplished through the configuration of the metal mask pattern during the fabrication process." In the book titled Computing Terminology, published by the unaltered Institute of Management Accountants, London, firmware is defined as "the term used to describe software which is permanently resident in the memory of a computer i.e. that which is stored in ROM, or the control logic that is electronically mapped in chip devices, such as disk controllers." In the Microcomputer Dictionary, firmware is defined as "A term usually related to microprogramming and those specific software instructions that have been more or less permanently burned into a ROM control block, 2. An extension to a computer's basic command (instruction) repertoire to create micro programs for a user-oriented instruction set. This extension to the basic instruction set is done in read-only memory and not in software. The read only memory converts the extended instructions to the basic instructions of the computer. 3. Firmware is a machine component of a computer system, similar to a computer circuit component or a terminal component, or a disk component. This software machine component can be in two forms - in source form (the source program) or in machine form (the object program). Firmware generally is limited to moving data through the data paths and functional units already present; it is able to process effectively only the instruction formats, data types, and arithmetic modes that are defined for the hardware. Attempting to use firmware for new formats, types, types, and modes is inherently awkward and might result in poor performance.
Firmware, ROM- Refers generally to non-erasable permanently programmed memory that is usually used to store monitors and I/O driers, These monitors and drivers are needed whenever the computer is used. Programs stored in ROM are called 'firmware'."
From the above, it is clear that firmware resides in the chip itself and is generally etched while the chip is being manufactured, and it is non-erasable. On the other hand, the printer driver software imported by HP India in the present case gets installed on the hard disk of the computer and does not reside in the Random Access Memory (RAM) or Read Only Memory (ROM). We, therefore, agree with the importers that the printer driver software imported in the present case is not a firmware.
8. The next issue to be addressed is the correct classification of printer driver software. Section 12 of the Customs Act provides for levy of duty of customs on goods imported into India at the rates specified under the Customs Tariff Act, 1975, Section 2 of which provides that the rates at which duties of customs shall be levied under the Customs Act are specified in the first and second schedules thereto. The schedule to the Customs Tariff consists of -
(a) General Rules for Interpretation of the Customs Schedule
(b) Section Notes
(c) Chapter Notes.
Rule 1 of the General Rules for Interpretation stipulates that "Classification of goods in this Schedule shall be governed by the following principles:
1. The titles of Sections, Chapters and Sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings, and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions:
By virtue of Note 6 to Chapter 85 which provides that "Records, tapes and other media of heading No. 85.23 and 85.24 remain classified in those headings, whether or not they are presented with the apparatus for which they are intended", the software recorded in a media will fall under CTH 85.24 which covers "Records, tapes and other media for sound or other similarly recorded phenomena, including matrices and masters for the production of records, but excluding products of Chapter 37." The HSN Explanatory Notes to Heading 85.24 provide that "Media recorded with sound or similar recording, whether or not presented together with the apparatus for which they are intended or assembled with constituent parts of machines of Heading 84.69 to 84.72 (e.g. disc packs) are in all cases to be classified in this heading." Therefore, even going by the HSN Explanatory Notes, the imported printer driver software is classifiable under CTH 85.24 and during the period in dispute, software falling under this heading was exempt by virtue of notification 17/2001-Cus dated 1.3.2001 as per serial No. 285 of the table to this notification. In the case of Sprint RPG , the apex court held that hard disk containing software is classifiable under CTH 85.24 by virtue of Note 6 to Chapter 85, and not a part of computer under Heading 84.73. The same view was expressed by the apex court in Barber Ship Management 2002 (144) ELT A293 while affirming the Tribunal's decision , relating to software residing in the hard disk of the imported computer.
9. In the case of Acer India Ltd. cited supra, the assessee claimed deduction from the invoice value of the computer, and the value of software loaded thereon and cleared from the factory. The apex court held that by virtue of Note 6 to Chapter 85, software is liable to be classified under Heading 85.24 and the value of software cannot be included in the value of hardware, i.e. computer. The apex court also held that computer and software are two distinct commodities classifiable separately. The relevant extracts from the Supreme Court's decision are reproduced hereunder:
55. It must be borne in mind that central excise duty cannot be equated with sales tax. They have different connotations and apply in different situations. Central excise duty is chargeable on the excisable goods and not on the goods which are not excisable. Thus, a 'goods' which is not excisable if transplanted into a goods which is excisable would not together make the same excisable goods so as to make the assessee liable to pay excise duty on the combined value of both. Excise duty, in other words, would be leviable only on the goods which answer the definition of "excisable goods" and satisfy the requirement of Section 3. A machinery provision contained in Section 4 and that too the explanation contained therein by way of definition of 'transaction value' can neither override the charging provision nor by reason thereof a 'goods' which is not excisable would become an excisable one only because one is fitted into the other, unless the context otherwise requires.
56. ... In the invoice, the composite price of the computer and software is being shown, as noticed hereinbefore and therefrom, the price of the software is only being deducted. The invoice price, thus, also shows the actual price of the computer as also the price of the software together with the licence to use the same....
64. The softwares, thus, whether they are cleared with the apparatus for which they are intended, viz., with the computer or not they remain classified under the same heading. By reason of the provisions of the Tariff Act the rate of duties specified becomes part of a Parliamentary Act. Chapter Note 6 of Chapter 85 being the legal text must be taken aid of for the purpose of interpretation of the different headings in preference to the interpretation rules. Suffice it to point out that once 'no duty' is payable on softwares being classified under 8524.20 being a magnetic tape, the recorders whereof is classified under 8520.00, a duty would not be payable only because the informations contained therein are loaded in the hardware.
66. In terms of Chapter Note 6 of Chapter 85, as noticed hereinbefore, a software retains its character irrespective of the fact as to whether it is sold with the apparatus, viz., the computer. Once it is held that the essential characteristic of a software is not lost by reason of its being loaded in the hardware; having regard to the different sub-headings contained in different chapters of the Tariff Act the intent and purport of the legislature, in our opinion, cannot be permitted to be withered away only because the informations contained in a software are loaded in a hardware. In other words, as the central excise duty is not leviable on a software in terms of the Act only because it is implanted in a hardware which can be subjected to the assessment of central excise under different head, the same would not attract central excise duty.
79. Computer and operative softwares are different marketable commodities. They are available in the market separately. They are classified differently. The rate of excise duty for computer is 16% whereas that of a software is nil. Accessories of a machine promote the convenience and better utilization of the machine but nevertheless they are not machine itself. The computer and software are distinct and separate, both as a matter of commercial parlance as also under the statute. Although a computer may not be capable of effective functioning unless loaded with softwares, the same would not tantamount to bringing them within the purview of the part of the computer so as to hold that if they are sold along with the computer their value must form part of the assessable value thereof for the purpose of excise duty. Both computer and software must be classified having fallen under 84.71 and 85.24 and must be subject to corresponding rates of duties separately. The informations contained in a software although are loaded in the hard disc, the operational software does not lose its value and is still marketable as a separate commodity. It does not lose its character as a tangible goods being of the nature of CD-ROM.
80. ... The legal text contained in Chapter 84, as explained in Chapter Note 6, clearly states that a software, even if contained in a hardware, does not lose its character as such. When an exemption has been granted from levy of any excise duty on software whether it is operating software or application software in terms of heading 85.24, no excise duty can be levied thereupon indirectly as it was impermissible to levy a tax indirectly....
10. In view of the above decision, duty of customs cannot be levied on software which is exempt from duty merely on the ground that the value of the software is not separately available or separately indicated in the invoice.
11. We also note that in final order No. 693/05-Cus dated 4.7.2005 in HP India's own case, the Tribunal has held that printer driver software imported along with printer was classifiable under CTH 85.24 and the invoice value of US$ 2.70 for the software was accepted. Some other decisions taking the same view as above are in the case of PSI Data Systems v. CCE , ORG Systems v. CCE, Vadodara , Digital Equipment (I) Ltd v. CCE, Bangalore 1997 (70) ECR 326 (LB-Tri) and the Tribunal's order in the case of the same importers. This would show that the value indicated by the importers for software in the present case is correct.
12. As regards the applicability of Section 19 of the Customs Act, the importers contend that the provisions thereof do not apply to the present case as that Section relates to determination of rate of duty and is subject to the provisions of the Customs Tariff Act, 1975. Section 19 reads as under:
Section 19. Determination of duty where goods consist of articles liable to different rates of duty.- Except as otherwise provided in any law for the time being in force, where goods consist of a set of articles, duty shall be calculated as follows:
(a) articles liable to duty with reference to quantity shall be to that duty;
(b) articles liable to duty with reference to value shall, if they are liable to duty at the same rate, be chargeable to duty at that rate, and if they are liable to duty at different rates, be chargeable to duty at the highest of such rates;
(c) articles not liable to duty shall be chargeable to duty at the rate at which articles liable to duty with reference to value are liable under Clause (b):
Provided that, -
(a) accessories of, and spare parts or maintenance and repairing implements for, any article which satisfy the conditions specified in the rules made in this behalf shall be chargeable at the same rate of duty as that article;
(b) if the importer produces evidence to the satisfaction of the proper officer regarding the value of any of the article liable to different rates of duty, such article shall be chargeable to duty separately at the rate applicable to it.
From the language of the Section, it is clear that if there is any other law in force under which the rate of duty on imported goods is determined, then Section 19 will not apply. The imported goods are liable to duty at rates specified in the Customs Tariff Act, 1985 as per Section 12 of the Customs Act and the schedule to the Customs Tariff Act, 1975 provides for classification of goods and also rate of duty and since Note 6 to Chapter 85 of the CTA, 1975 is the statutory note on classification, and rate of duty is therefore to be determined by application of Note 6, the importers are correct in their contention that Section 19 will not be applicable in the present case. Our view is supported by Tribunal's order in the case of R. Maganlal wherein the Tribunal has held that Section 19 will come into play only if any law for the time being in force does not provide otherwise for determination of duty in such circumstances, that the Customs Tariff has its own rules for interpretation and if those rules provide guidelines for classification of goods, then the rules will prevail and Section 19 of the Customs Act would not be applicable. This decision was affirmed by the Supreme Court in 1991 (51) ELT A65 (SC) and the same view has been taken by the Tribunal in Monito Enterprises v. CC and CC v. Monito Enterprises . In the light of the above, we hold that the provisions of Section 19 have no application to the facts of this case.
13. The alternate argument of the importers is that even if Section 19 can be invoked against them, the value of software is not taxable by virtue of proviso (b) to the Section which states that if the importer produces evidence to the satisfaction of the proper officer regarding the value of any of the articles liable to different rates of duty, then such article shall be chargeable to duty separately at the rate applicable thereto. The value of software was arrived at by HP India under Rule 7A of the Customs Valuation Rules, 1988. The department never disputed the cost of the software. The importers clearly explained to the Deputy Commissioner as to how they arrived at the value of software and also submitted before the Commissioner (Appeals) that this was the practice followed in other Customs Houses also. The cost of US$ 2.70 for the software declared by the importers in the past for imports through various ports in India including the airport at Mumbai, was never objected to and although the invoice in this case did not indicate separate values for hardware and software, the invoice raised by the foreign supplier shows separate value for hardware and software imported through other ports such as Bangalore, Chennai and New Delhi. We agree with the submission of the importers that since they had produced satisfactory evidence before the proper officer about the value of the software, the software is chargeable to duty separately at the rate applicable under CTH 85.24 which is nil by virtue of the exemption under notifications 20/99-Cus and 17/01-Cus.