Document Fragment View

Matching Fragments

Shah,J.

Leave granted. Appeal admitted.

The short question involved in this appeal is whether custom duty on imported computer software loaded on a hard disk drive is to be levied on the basis of hard disk simplicitor or computer software. Goods imported by the appellant were examined on 9th August, 1995 and were found to be seven pieces of hard disk drive loaded with software. As per the department, custom duty on hard disk drive is leviable under Chapter Heading 84.71 at the rate of 25% and on a computer software it is at the rate of 10% as per the tariff Heading 85.24 read with notification No.59/95 dated 16.3.1995. It is admitted fact that total value of the consignment was Rs.67,75,119/- for seven hard disk drives having software loaded thereon. Value of the hard disk simplicitor would be roughly at the most Rs.60000/-. The relevant headings of the Chapter are as under:-

appellant is hard disk In the present case, what is imported by the drive loaded with software material. Heading 84.71 apparently covers automatic data processing machines and units thereof and magnetic or optical readers not elsewhere specified or included. It is to be stated that heading 85.23 deals with prepared unrecorded media for sound recording or similar recording of other phenomena, which includes magnetic tapes. As against this, heading 85.24 covers records, tapes and other recorded media for sound or other similarly recorded phenomena which covers gramophone records or magnetic tapes for reproducing phenomena. That software material is admittedly classifiable under Tariff Heading No.85.24 which provides for taxing records, tapes and other recorded media for sound or other similarly recorded phenomena. The difference between the hard disk drives and magnetic storage devices or floppy disks is only with regard to the use of rigid, hard, aluminium or glass as the base for recording medium. What is covered by the said heading is recorded tapes, magnetic tapes or other similar recorded phenomena. As per the literature supplied by the department, hard disk drive is used to store data and programs permanently inside the computer. The difference between hard disk drive and common magnetic storage device or floppy disk is the base for recording medium. It also provides faster access and larger storage capacity; its function is to store the data instructions, sound images etc. and it is like phonograph records. Floppy disk uses flexible plastic like carrier for magnetic recording medium. Information is stored in the hard disk drive using the same magnetic recording method which is used to store songs on an audio tape or movies on a video tape. Therefore, hard disk is a refined form of floppy and serves the same purpose of recording material in more efficient way. The moot difference between the hard disk and the software is that a hard disk is a hardware whereas software is a representation of any type of data and which can be stored in the hard disk. There is no dispute that floppy on which software is stored would be taxable under Tariff Heading 85.24. Instead of storing the software on the floppy if it is stored on a hard disk drive, it would not ceased to be a software. As stated above, it is an information stored in the hard disk drive using magnetic recording method.

25% ad valorem 2. 84.71 Hard disk drive or Floppy disk drive.

3. 8473.30 All goods. 35% ad valorem

4. 49 or Computer software 10% ad valorem 85.24

-----------------------------------------------------------------------------

As per Item 2 of the above notification rate of duty is 25% for hard disk drive or floppy disk drive covered by heading or sub-heading 84.71. As against this, for computer software, if it falls under Chapter 49 or under Heading No.85.24, the rate of duty would be 10%. If simplicitor hard disk drive is imported, it may be taxable under the Heading 84.71. However, in a case where essentially a software is imported which is loaded on a hard disk drive, it would be computer software material and in that set of circumstances, it would be taxable under Heading 85.24. This is also made clear in Chapter Note 6 of Chapter 85 by providing as under:-

(c) It is able to accept or deliver data in a form (codes or signals) which can be used by the system.

He referred to clauses (b) and (c) and contended that this hard disk drive can be used either directly or through one or more other units for processing the data and, therefore, it would be automatic data processing machine falling under Heading No.84.71. This submission cannot be accepted for the consignment in question is essentially a computer software covered by specific Heading No.85.24 which is for levying duty on records, tapes and other recorded media for sound or other similarly recorded phenomena. As mentioned in the Notification dated 16th March, 1995, computer software is covered by Heading No.85.24. The said notification also covers computer software imported in the form of printed books, pictures, manuscripts and typed scripts covered by Chapter 49. Computer software can be brought either on a floppy or magnetic tape or on a hard disk or in a printed form and hence, what is imported is software on a container which is a hard disk drive. The value of the containers (hard disks) approximately in the present case is Rs.60000/- or Rs.65000/-. As against this, the cost of the computer software is roughly Rs.67 lakhs. Therefore, it can be said that what is imported by the appellant is essentially a computer software.