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The order passed by the AC was confirmed in appeal by the Collector (Appeals) and also by the tribunal. Hence this civil appeal.

Shri Ramesh Singh, learned counsel appearing on behalf of the appellant submitted that the STD- PCO unit was classifiable under CH 85.17 as electrical apparatus for line telephony; that, the said equipment has an inbuilt microprocessor classifiable under CH 84.71; that, in order to perform various tasks, the microprocessor requires a software/programme; that, programme in question was developed by the appellant; that, the said programme was recorded on EPROM (a medium) classifiable under CH 85.42 as an integrated circuit; that, the appellant bought blank EPROMs from the market @ Rs.149/- each; that, the appellant encoded the programme developed by it on the blank EPROM, which programme was erasable by ultra violet radiation. According to the appellant, the said software was area specific. According to the appellant, the recorded EPROM was sold @ Rs.6450/-; that, the STD-PCO equipment was sold @ Rs.8453/-. Learned counsel submitted that the programmed EPROM was classifiable under CH 85.24; that, the said EPROM was not classifiable under CH 85.17 and accordingly, its value was not includible in the total assessable value of STD-PCO unit, because once a software stood recorded on the blank EPROM, the blank EPROM no longer continued to remain as electronic integrated circuit; that, the essential character of the recorded EPROM was that of computer software classifiable under CH 85.24 as a recorded media; and that, the only function of EPROM was that of a recorded media. In this connection, learned counsel placed reliance on the judgment of this court in the case of Sprint RPG India Ltd. v. Commissioner of Customs-I, Delhi reported in (2000) 2 SCC 486. Learned counsel further submitted that once the programmed EPROM stood classified under CH 85.24, then, even if it was cleared along with STD-PCO unit, classifiable under CH 85.17, the said EPROM remained classifiable under CH 85.24. In this connection, learned counsel placed reliance on note 6 to chapter 85. Reliance was also placed on the judgments of this court in the case of Commissioner of Central Excise v. Acer India Ltd. reported in (2004) 8 SCC 173 and in the case of PSI Data Systems Ltd. v. Collector of Central Excise reported in (1997) 2 SCC 78.

An embedded system is a programmed hardware device. Software written for embedded systems, especially those without a disk drive is called Firmware, the name for software embedded in hardware devices e.g. in ROM IC chips. Many embedded systems avoid mechanical moving parts, such as, disk drives, switches or buttons because they are unreliable as compared to ROM or Fast Memory IC chips. It is kept outside the reach of humans. In embedded systems, the software resides in ROM IC chips. Embedded systems are combination of hardware and software like ATMs, Cellular telephones etc. In embedded systems, the software resides in ROM IC Chip (See: www.answers.com). These chips are more than mere carriers. Example of embedded system:

In the case of PSI Data Systems Ltd. (supra) the department had conceded that the item in question was a software. Further, in that matter the subject-matter of the levy was a software, as a final product, sold with the computer. On the other hand, in the present case, the subject-matter of the levy is STD-PCO unit. The question before us in the present case is whether the programmed EPROM constituted an integral part of the STD-PCO unit classifiable under CH 85.17. As stated hereinabove, the programmed EPROM was a ROM with a circuit in which the programme was embodied. Therefore, the judgment of this Court in the case of PSI Data Systems Ltd. (supra) is not applicable to the facts of the present case. In fact, in para 2 of the judgment of this Court in PSI Data Systems, this Court has made a clear distinction between softwares, such as, disks, floppies, CD- ROMs etc. on the one hand vis-`-vis softwares which are etched into the computer. Therefore, the judgment in the case of PSI Data Systems has no application. On the contrary, it supports our interpretation in the present case.

In the case of Sprint RPG India Ltd. (supra) this Court observed that hard disk is a refined form of floppy which records material in an efficient manner. In that case, the question was classification, namely, whether duty was leviable on software loaded on a hard disk drive under heading 84.71 or under 85.24. This Court held that a hard disk was a form of floppy on which the programme was stored and, therefore, the character of such a programme did not change and, therefore, the imported item was a software which was stored in the hard disk and, therefore, it was classifiable under CH 85.24. In that matter the question of a software being an integral part of a machine like STD-PCO unit was not there. In that matter there was no duty imposed on the unit or machine. The question in that matter was regarding levy of duty on a floppy with the software. In that matter the question of the integrated circuit did not arise. In that matter the interpretation of entry 85.42 was not at all considered. Hence, the judgment of this Court in Sprint RPG India Ltd. (supra) has no application to the facts of the present case.