Customs, Excise and Gold Tribunal - Mumbai
Commissioner Of Customs vs Hewlett Packard (I) Ltd. on 6 June, 2003
ORDER Shri C. Satapathy, Member (T)
1. We have heard both sides. The appellants have imported C8416A H P Office Jet V40 print-tax-copy-scanner invoice value of US $ 150.27 per piece which was also he price indicated in the official price list effective from 03/09/2001. However, the appellants filed Bill of Entry splitting the value as under:-
a) Value for printer - US $ 147.57
b) Value for driver installation software on CD - US $ 2.70.
2. The appellants claimed classification of printers under sub-heading 8471.60 with a basic duty competent of 15% whereas for the Driver software they claimed classification under sub-heading 8524.39 chargeable to nil rate of duty under Sr. No. 285(i) of Notification No. 17/2001-cus dtd. 01/03/2001.
3. The Assistant Commissioner has ordered the printer and Driver software to be assessed together under sub-heading 8471.60. The Commissioner (Appeals) has, however, reversed the order of the Assistant Commissioner. The present appeal has been filed by the department seeking restoration of the order-in-original on the following grounds:-
1) Printers are sold alongwith software and the price of the driver software is included in that of the printer. No split value for driver software is either in the invoice or in the price list.
2) The driver software is universally and compulsorily supplied alongwith the printer without it a printer cannot function.
3) Commissioner (Appeals) incorrectly relied upon the Apex Court decision in the case of M/s. PSI Data System Ltd. - 1997 (89) E.L.T. 3 (SC), as the said decision dealt with assessable value of computer for the purpose of excise duty in the context of what was subject to excise duty under the relevant tariff entry was computer and not computer system.
4) The Customs Tariff differs from Central Excise Tariff to the extent that heading 8471 also covers computer system and more over, under Section 19(b) of the Custom Act, 1962 and the Accessories (Conditions) Rules, 1963, there are provisions for clubbing of articles for the purpose of assessment.
4. We have heard Shri Virag Gupta, learned J.D.R. for the Department, who reiterated the aforesaid grounds urged by the Department in the appeal memorandum. He also emphasizes the fact that the invoice from the supplier has only one value and he relies on the decision in the case of Sprint R.P.G. India Ltd. v. C.C. Delhi - 2000 (116) E.L.T. 268 (Tribunal). The said decision of the Tribunal distinguishes the decision of the Apex Court in the case of PSI Data System and rejects the claim for classifying Hard-disk and software separately.
5. Shri T. Vishwanathan, learned Advocate for the Respondent argues that Section 19 of the Customs Act, 1962 is not applicable after introduction of new customs tariff. In support of his submissions he cites decision of the Tribunal in the case of Commissioner of Customs, Mumbai v. Monito Enterprises - 2002 (139) E.L.T. 595 and subsequently, he has also submitted a copy of the decision of Tribunal in the case of R. Manganlal & Co. v. C.C. - 1990 (50) E.L.T. 580 (Tribunal). He has also filed a copy of the classification decision taken by the HS Committee of the World Custom Organization at Sr.No. 408. It shows that CD-ROM (special software) presented together wit an atomic absorption spectrometer has to be classified separately under heading 85.24 by application of Note 6 to Chapter 85. He supports the impugned order passed by the Commissioner (Appeals).
6. After hearing rival submissions and perusal of case records, we find that the issue involved is two fold. Firstly, it has to be decided how the Driver software on CD imported alongwith the printers is to be classified and secondly whether Section 19 of the Customs Act, 1962 and the Accessories (Conditions) Rules, 1963 can be applied for the purpose of assessment of the imported printer and the Driver software.
7. We find that in the case of PSI Data System Ltd., the Apex Court has decided that even though a computer is not capable of effective functioning unless loaded with software such as Disk, Floppies and CD-ROM, such software cannot be treated as parts of the computer and their value cannot be part of the assessable value of the computer for the purpose of excise duty.
8. In the case of Sprint R.P.G. India Ltd., the Tribunal has held that the Hard disk driver loaded with software has to be classified as a storage unit of Data processing system under heading 84.79 and not as software under heading 85.24, since such software installed on the hard disk driver becomes integral part of the Hard disk driver.
9. We note that according to Rule 1 of the General Interpretative Rules (GIR), classification has to be determined according to the terms of the headings and any relative chapter note. Chapter Note 6 under Chapter 85 states that records, tapes and other media under heading 85.23 or 85.24 remain classified in those headings, when they are presented with the apparatus for which they are intended. In view of this Chapter Note, there can be no doubt about classification of the Driver software on CD imported alongwith printers - the printers are classifiable under 8471.60 whereas the driver software on CD remains classified under heading 85.24. The case law cited by the learned J.D.R. is of no avail as this is not a case where the software is either embedded or integrated with the apparatus but is imported alongwith it separately.
10. As regards the second question, it has been contended by the learned Advocate for the Respondent that after amendment of the Customs Tariff Act in 1986, Section 19(b) of the Custom Act, 1962 can have no application. In this context, we find that the Tribunal in the case of R. Manganlal and Co. held that goods consisting of mixture of LDPE and Surlyn can be classified applying GIR 3(b) under the Customs Tariff Act and therefore, Section 19 of the Custom Act, would not be applicable. We observe that in the case of Monito Enterprises v. Commissioner of Customs, Mumbai - 1999 (111) E.L.T. 918, the Tribunal dealt with classification of a set of articles and held as follows:-
"In our view the Assistant Commissioner has erred in applying the provision of Section 19 of the Customs Act. This provision lays down criteria for assessment of goods consisting of set of articles "except as otherwise provided in any law for the time being in force", classification of the goods is to be made in accordance with the import tariff, not of the Customs Tariff Act and such classification is governed by the general rules for the interpretation of that tariff. The classification of the goods therefore would have to be done by reference of these rules, particularly Rules 3(a), (b) & (c). This is clear from Rule 2B which provides for application of rule or in determining classification of goods consisting of more than one materials of substance. We do not have the details of the goods of which all kits are composed and are unable to give any conclusion. The classification of goods will have to be made by the Assistant Commissioner with reference to the goods of which these kits are made by reference to these rules. A speaking order will have to be passed in respect of these goods as well as the other goods."
11. In a subsequent order, in the case of Commissioner of Customs, Mumbai v. Monito Enterprises - 2002 (139) E.L.T. 595, the Tribunal has referred to its earlier decision in the Monito Enterprises case and states that the provision of Section 19(b) of the Act can not be resorted to after the Custom Tariff Act was enacted in 1986. (The Customs Tariff Act was enacted in 1975 but was amended in 1986). We extract the relevant portion of the said order below:-
"From the facts, we are of the view that even assuming that the essential character cannot be determined, what will apply is Rule 3(c). This provides that possible heading which appears in the numerical order should apply. That is heading 84.84.
Although neither the Commissioner (Appeal)'s order of his department's appeal refers to this aspect. We must overrule the Dy. Commissioner's order that the Section 19 (b) of the Customs Act, 1962 can be resorted to. In our order of Monito Enterprise -1999 (111) E.L.T. 918 we had said specifically that the provision of Section 19(b) of the Act could not be resorted to after the Customs Tariff Act was enacted in 1986." (Paragraphs 6 and 7).
Although neither the Commissioner (Appeals)'s order or the department's appeal refers to this aspect. We must overrule the Dy. Commissioner's order that the Section 19(b) of the Customs Act, 1962 can be resorted to. In our order of Monito Enterprise - 1999 (111) E.L.T. 918 we had said specifically that the provision of Section 19(b) of the Act could not be resorted to after the Customs Tariff Act was enacted in 1986." (Paragraphs 6 and 7).
12. It is the contention of the learned Advocate for the Respondent that in view of these decision of the Tribunal, after amendment of the Customs Tariff Act in 1986, the provision of Section 19(b) has become totally redundant.
13. With great respect, we are unable to agree with the suggestion that either Sub-section (b) of Section 19 or Section 19 of the Customs Act, 1962 in its entirety has become redundant, after amendment of the Custom Tariff Act in 1986. We observe that Section 19 is an important provision of Customs law which provides for determination of duty where goods consist of articles liable to different rates of duty. We extract the said section below:-
"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 chargeable 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 articles liable to different rates of duty, such article shall be chargeable to duty separately at the rate applicable to it."
14. It is clear from the above that Section 19 comes into play where imported goods consist of articles liable to different rates of duty. A combined reading of Sub-section (b) and Sub-section (c) makes it clear that when a consignment comprises of articles chargeable to different rates of duty including articles not liable to duty, the highest rate of duty applicable to any of the articles would apply to the entire consignment. The proviso (a) allows accessories, spare parts etc. of an article to be assessed to the same rate of duty as applicable to the article. Proviso (b) allows separate assessment for any article if the importer produces evidence to the satisfaction of proper officer regarding its separate value. In essence, Section 19 allows assessment for a set of articles at the highest rate applicable in case separate value is not available with provision for separate assessment when evidence of separate values can be given by the importers to the satisfaction of the proper officer. It also allows assessment of accessories at the same rate as applicable to the main article.
15. The Custom Tariff Act on the other hand provides for classification of goods including set of articles in certain cases. There are entries in the Customs Tariff which are specifically meant to cover sets, e.g. heading 63.08 covers sets consisting of Woven fabric & yarn, whether or not with accessories, for making up into rugs, tapestries, embroidered table cloths or serviettes, or similar textile articles, put u in packings for retail sale. There are examples of other articles put up in sets for retail sale, which are not specifically covered under any particular heading but by application of G.I.R. 3(b), such sets can be uniquely classified as if they consisted of the material or component which gives them their essential character, in so far as this criterion is applicable. But there can be sets of goods which are mere collection of articles which cannot be classified either under a specific heading per se or under a unique heading by application of G.I.R. 3(b). Such collection would have separate classification for each of its constituent article. G.I.R. 3(b) can be applied only when a set consists of a material or component which gives the whole set its essential character. In the instant case neither the printer nor the software can be said to give the set its essential character. IN fact, the chapter note 6 to chapter 85 as noted earlier requires the apparatus and the software to be classified separately. Therefore, in view of the specific wording of GIR 1, in such a case, GIR 2 and 3 can not apply when the terms of headings and chapter notes otherwise require a different classification.
16. In the case of C.C. v. Monito Enterprises, the Tribunal has observed that even in a case where the essential character cannot be determined, GIR 3(c) will apply. With great respect, we must point out that Rule 3(c) states that when goods equally merit classification under more than one heading, then the heading appearing last in numerical order will apply. Obviously this can be invoked only when the whole set of articles can be equally classified under more than one heading. This cannot be applied in a case of sets consisting of printer and software, each meriting separate classification under different headings. It is precisely such situations when combination of articles are imported which cannot be classified under a single heading by application of section and chapter notes read with GIR 1 through 6 that Section 19 would apply.
17. An absurd conclusion of applying the ratio of Monito Enterprises decisions would be that the set of printer and the software meriting classification separately under 8471.60 and 8524.39 would be classified under a single heading 8524.39 appearing later in the numerical order and the whole set would then be assessed duty free as software is chargeable to nil rate of duty. We note that even the respondents have not claimed such a benefit nor we think such an interpretation flowing from Monito Enterprises decisions is legally tenable. Moreover, the Monito Enterprises decisions also give the impression that GIR 3(c) will have an answer to all classification disputes. With great respect we must point out that this is not so, otherwise there would have been no need to have further rules including GIR 4.
18. In the instant case, each article merits classification under separate heading and since the value is not split in the invoice, the assessment has been rightly done by the original adjudicating authority applying Section 19 of the Customs Act, 1962 and the Accessories (Conditions) Rules, 1963. We note that the printer is chargeable to 15% of basic customs duty whereas the software is chargeable to nil rate of duty. Application of Section 19(b) would require both items to be charged to 15% of duty on the combined value. Even application of proviso (a) to Section 19 which requires accessories to be assessed at the rate applicable to the article would result in charging of 15% on the driver software which is an accessory for the printer in question in view of the fact that such software is compulsorily supplied alongwith the printers and no separate charge is made for its supply, price being included in the price of the printer.
19. As noted earlier in terms of proviso (b) to Section 19, it is possible to separately assess the driver software provided the importer produces evidence to the satisfaction of the proper officer regarding separate value of the same. Apart from the fact that the price for the software has not been indicated separately either in the invoice or in the price list, the appeal memorandum filed by the Department indicates that the split of the value is not reasonable and is artificially done. Therefore, we hold that the satisfaction of the proper officer required under the said proviso (b) to Section 19 does not exist.
20. Accordingly, we hold that the printer merits classification under sub-heading 8471.60 and the Driver software on CD is classifiable under sub-heading 8524.39. However, both together are liable for assessment under sub-heading 8471.60 on a combined value of US $ 150.27 per piece, since no separate value is indicated for the software either in the invoice or in the price list. We also hold that the provisions of Section 19 of Custom Act, 1962 and Accessories (Conditions) Rules, 1963, have been applied correctly in the instant case by the original adjudicating authority. Consequently, we set aside the impugned order-in-appeal and restore the order-in-original.
21. Department's appeal is allowed.