Customs, Excise and Gold Tribunal - Tamil Nadu
Vxl Instruments Ltd. vs Commissioner Of C. Ex. on 29 May, 1998
Equivalent citations: 1999(63)ECC400, 1998(104)ELT362(TRI-CHENNAI)
ORDER
U.L. Bhat, President
1. This appeal is directed against Order-in-Appeal No. 18/96, dated 8-8-1996 passed by the Commissioner of Central Excise (Appeals), Bangalore, confirming Order-in-Original dated 23-8-1994 passed by the Assistant Collector, Bangalore, confirming the classification of the product 'Unix Terminal Server or Terminal Server' manufactured by the appellant under Chapter sub-heading No. 8473.00 of Central Excise Tariff Act, 1985.
2. The impugned orders were passed on the revised classification List No. 2/93-94 filed by the appellant seeking to classify Terminal Server under Chapter Heading No. 84.71. The Assistant Collector rejected this claim of classification under Heading 84.71 on the ground that the product did not satisfy the condition laid down under Chapter Note 5(b)(ii) of Chapter 84 ar classified the same under Heading 84.73 as an accessory part of the compute The Commissioner (Appeals) confirmed this order on the ground that tl product is not an independent machine/automatic data processing machii since it cannot function independently to transmit the information to varioi devices and terminals without being connected to the main computer/da processing machine and its only function is to receive signals from the ma computer and transmit them to certain specific computer terminals to which is connected according to the command. He held that Terminal Server by itsc is not capable of performing any functions of data processing machine/corputer and it can function only in conjunction with the automatic data procesing machine.
3. The learned Counsel for the appellant explained the functions whic can be served by terminal server manufactured by the appellant and coi tended that the same satisfy the condition in Chapter Note 5(b) of Chapter 8 Sri Victor Thyagaraj, SDR, supported the conclusion of the lower authorial and specifically contended that the product is incapable of performing ar function by itself and can perform some functions only when connected to computer or Data Processing System and that being so, it cannot be regarde as a unit of Data Processing Machine.
4. Chapter Heading 84.71 reads as follows :-
"AUTOMATIC DATA PROCESSING MACHINES AND UNITS THEREOF; MAGNETIC OR OPTICAL READERS MACHINES FOR TRANSCRIBING DATA ONTO DATA MEDIA IN CODED FORM AND MACHINES FOR PROCESSING SUCH DATA, NOT ELSEWHERE SPECIFIED OR INCLUDED."
5. Chapter Note 5 reads as follows :-
"(a) For the purposes of Heading No. 84.71, the expression 'automatic data processing machines' means :-
(i) Digital machines, capable of (1) storing the processing programme or programmes and atleast the data immediately necessary for the execution of the programme; (2) being freely programmed in accordance with the requirements of the user; (3) performing aritmetical computations specified by the user; and (4) executing, without human intervention, a processing programme which requires them to modify their execution, by logical decision during the processing run;
(ii) Analogue machines capable of simulating mathematical models and comprising at least : analogue elements, control elements and programming elements;
(iii) Hybrid machines consisting of either a digital machine with analogue elements or an analogue machine with digital elements.
(b) Automatic data processing machines may be in the form of systems consisting of a variable number of separately-housed units. A unit is to be regarded as being a part of the complete system if it meets all the following conditions :-
(i) It is connectable to the central processing unit either directly or through one or more other units;
(ii) it is specifically designed as part of such a system it must, in particular, unless it is a power supply unit, be able to accept or deliver data in a form (code or signals) which can be used by the system.
Such units presented separately are also to be classified in Heading No. 84.71.
Heading No. 84.71 does not cover machines incorporating or working in conjunction with an automatic data processing machine and performing a specific function. Such machines are classified in the headings appropriate to their respective functions or failing that, in residual headings."
6. Chapter Note 5(a) explains the meaning of the expression 'automatic data processing machine'. According to Sri Victor Thyagaraj, SDR, the product Terminal Server does not satisfy the various clauses of Chapter Note 5(a) and therefore, it is not an automatic data processing machine'. It is unnecessary to refer to all the paras of Chapter Note 5(a) since appellant has no contention that terminal server is an automatic data processing machine. On the other hand, his contention is that it is a unit of automatic data processing machine; that being so, the relevant para of Chapter Note 5 is para (b) and not (a). According to (b) automatic data processing machines may be in the form of systems consisting of a variable number of separately-housed units. Para (b) has the following conditions for regarding a unit as being part of the complete system :-
(1) It must be connectable to the central processing unit either directly or through one or more other units.
(2) It must be specifically designed as a part of such system and be able to accept or deliver data in a form (code or signals) which can be used by the system.
7. It is unfortunate that neither the original authority nor the appellate authority considered whether the product of the appellant is a unit as explained in Chapter Note 5(b). The orders did refer to Chapter Note 5(b) but did not advert to the conditions in the particular situation. Nowhere in the impugned orders are we able to find any discussion whether the product of the appellant is specifically designed as a part of the system or whether it is able to accept or deliver data in the form specified. We are mentioning this because there can be no doubt that it is connectable to central processing unit directly.
8. To say that the appellant's product is not a unit covered by Chapter Heading 84.71 because it is not an independent machine/automatic data processing machine is to fly in the face of Chapter Note 5(b). All that we need say is that the lower authorities did not apply their mind to the conditions prescribed in Chapter Note 5(b). The question is whether the appellant's product is a unit of a system of automatic data processing machine within the meaning of Chapter Note 5(b). If it is such a unit, it has to be regarded as a unit which falls under Chapter Heading 84.71, if it is not such a unit, it goes out of Chapter Heading 84.71.
9. Sri Victor Thyagaraj, SDR, referred to Chapter Note to sub-heading 84.71 in HSN. We find the Chapter heading is identical to the heading CETA. The SDR was very particular that we should advert in detail to his contention. He read the following passage :-
"Automatic data processing machines are machines which, by logically interrelated operations performed in accordance with pre-established instructions (programme), furnish data which can be used as such or, in some cases, serve in turn as data for other data processing operations." He insisted that the above passage would show that the appellant's product is not a data processing machine. We find at page 1298 of the Chapter Notes, further explanation identical in terms of Chapter Note 5(b) of Central Excise Tariff Act. The above quoted passage explains what machines are to be regarded as automatic data processing machines."
10. The controversy in this appeal is not whether the appellant's product is automatic data processing machine or not; the controversy is whether the product is a unit and has to be regarded as a unit of a system of automatic data processing machine. There is no factual contention that the appellant's product is meant to be connected to a system other than automatic data processing machine. It is, therefore, unnecessary for us to consider the meaning of automatic data processing machine, as it has no relevance.
11. Since the lower authorities have not considered the matter from the correct perspective and since the necessary data to find whether all the conditions mentioned in Chapter Note 5(b) are satisfied or not is not before us, we are constrained to set aside the impugned order and remand the case to the jurisdictional adjudicating authority for de novo consideration and we do so.
12. The appeal is allowed.