2004(09)LCX0210

IN THE CESTAT, SOUTH ZONAL BENCH, BANGALORE

Dr. S.L. Peeran, Member (J) and Shri K.C. Mamgain, Member (T)

HI-TECH COMPUTERS

Versus

COMMISSIONER OF CUSTOMS, BANGALORE

Final Order Nos. 1462-1464/2004, dated 3-9-2004 in Appeal Nos. C/26, 62/2003 and 188/2001

CASE CITED

Karamchand Thapar & Bros. (C.S.) Ltd. v. Collector — 1994(04)LCX0056 Eq 1994 (071) ELT 0619 (Tribunal) — Followed             [Paras 5, 6, 7, 8]

Advocated By :        Shri V.M. Doiphode, Advocate, for the Appellant.

Smt. Shoba L. Charry, JCDR, for the Respondent.

[Order per : S.L. Peeran, Member (J)]. - The Appeal Nos. C/26/03 & C/62/03 are party’s appeal while C/118/2001 is Revenue’s appeal. As the issue is common in all the three appeals, they were taken up together for the disposal as per the law.

2. The party’s Appeal No. C/26/2003 arises in Order-in-Appeal No. 9/2003-Cus., dated 14-1-2003 and the Appeal No. C/62/2003 arises in Order-in-Appeal No. 81/2003-Cus., dated 24-3-2003 while the Revenue’s Appeal No. C/188/2001 arises from Order-in-Appeal No. 18/2001-Cus., dated 25-7-2001.

C/26/2003 :

3. In Order-in-Appeal No. 9/2003-Cus. dated 14-1-2003, the issue pertaining to classification of item, viz. “Typhoon Easy Cam 110K complete set” (commonly known as Web Camera). The assessee in this appeal has claimed the classification of the item as Computer parts and accessories under sub-heading 8471.60 as input or output units, whether or not containing storage units in the same housing. The Department has classified the item under sub-heading 8525.40. Alternatively they pleaded for classification under Heading 8473.30 as parts and accessories of the machines under Chapter Heading 8471. The Chapter heading 8473 reads parts and accessories (other than covers, carrying cases and the like) suitable for use solely or principally with machines of Heading Nos. 84.69 to 84.72. The Department has considered the item to be “Digital Camera” under sub-heading 8525.40 after amendment of tariff which reads “Still image video cameras and other video camera recorders; Digital cameras”.

C/62/2003 :

4. This appeal arises in Order-in-Appeal No. 81/2003-Cus., dated 24-2-2003 which relates to refund of duty paid under protest on PC Camera as the appellants have claimed the classification of the item under sub-heading 8473.30 as parts and accessories for machines of Heading 84.71, i.e. parts and accessories for Computer suitable for use solely or principally with machines of Headings 84.69 to 84.72. However, the Department has rejected the plea and has classified the item under heading 8525.40 as “Still image video cameras and other video camera recorders, Digital cameras.” In the finding recorded by the Commissioner (Appeals) in Orders-in-Appeal No. 9/2003-Cus., dated 14-1-2003 and No. 81/2003-Cus., dated 24-2-2003, he has considered both the items to be falling under sub-heading 8525.40 on the reasoning that the item is a “Digital Camera” and in terms of deliberations of WCO, Note 1(e) to Chapter 84 which was amended to specifically exclude Digital Camera under Heading 8525 from the purview of Chapter 84 and in view of the Chapter Note 1(h) to Chapter 90 to exclude all the items falling under heading 8525 (viz. still images, video cameras and other video cameras from the scope of Chapter 90). Therefore, the Commissioner (Appeals) held that the item can be classifiable as Digital Camera and falls under Heading 8525.30 prior to 1-1-2002 and same would be classifiable under Heading 8525.40 after 1-1-2002.

5. The issue that is required to be determined is as to whether the item which is a web camera which works as a part suitable for use solely and principally along with Computer falling under Heading 8471 or it can be considered as a Digital Camera for classification under Heading 8525.30 before 1-1-2002 and under heading 8525.40 after the tariff changed on 1-1-2002 as can be seen from the definition prior to 1-1-2002 sub-heading 8525.30 referred to “Television Cameras” and sub-heading 8525.40 referred to “Still image video camera and other video camera recorders”. After tariff changed on 1-1-2002, sub-heading 8525.30 is referred to “Television Cameras” while sub-heading 8525.40 referred to “Still image video cameras and other video camera recorders” and “Digital Cameras”. It is the contention of the appellants that there is a vast difference between the Digital Camera and Web Camera and difference between the two has been brought out in the following manner -

It is their contention that the Tribunal in case of Karamchand Thapar & Bros. (C.S.) Ltd. v. Collector of Customs, Bombay - 1994(04)LCX0056 Eq 1994 (071) ELT 0619 (Tribunal) has noted that Camera and other spares/accessories are classifiable under heading 84.71 in terms of Note 4 of Section XVI. It is their contention that the reliance placed on WCO is incorrect and cannot be sustained for the reason that HSN Explanatory Notes alone have a persuasive value. The deliberation before the Committee cannot be relied on and several countries have not accepted this Minutes of Meeting as can be seen from the very meeting itself. It is further submitted that Note 2 to Section XVI read with Notes 4 & 5 to Section XVI clearly stipulates that parts which are used solely or principally in machines should be classified along with the machines. It is submitted that Note 5(A) to Chapter 84 also clearly supports their arguments. It is also pointed out that the Commissioner (Appeals) has relied on Note 5(E) to Chapter 84 which has been wrongly relied on. Note 5(E) reads -

“(E) Machines performing a specific function other than data processing and incorporating or working in conjunction with an automatic data processing machine are to classified in the headings appropriate to their respective functions or, falling that, in residual headings.”

It is submitted that admittedly video camera does not have all functions of the Digital camera. In terms of HSN Note, at Page 1669 under Heading 85.25, it is to be treated as parts suitable for use solely or principally with the Computer. Therefore it is stated that the machines which working in conjunction with an automatic data processing machines are excluded from Note 5(E) of Chapter 84. It is pointed out that in terms of Explanatory Notes at page 1669 under Chapter 8525, the Digital Cameras record images in digital form. These cameras are generally equipped with an optical view finder, a liquid crystal (LCD) , or both. The LCD may be used as a view finder when taking pictures or as a screen for viewing pictures which have been recorded or downloaded. There is no LCD display or view finder in a web camera. Therefore web camera is solely and exclusively used with computers and as such classifiable under heading 8473.30 as parts and accessories and machines of heading 8471. The learned Counsel therefore also relied on HSN Notes at page 1575 under heading 8471 and page 1576-1577. At page 1577, HSN Notes read as follows -

“A unit is to be regarded as being a part of a complete digital data processing system, if it satisfies the following conditions :

(a)     It is of a kind solely or principally used in an automatic data processing system;

(b)     It is connectable to the central processing unit either directly or through one or more other units; and

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

The interconnections may be made by material means (e.g., cables) or by non-material means (e.g., radio or optical links).

In accordance with Note 5(D) to this Chapter, printers, keyboards, X-Y co-ordinate input devices and disc storage units which satisfy the conditions of items (b) and (c) above, are in all cases to be classified as constituent units of data processing systems”.

He submitted that it specifies the criteria (a), (b) & (c) extracted above. Therefore it has to be classified under heading 8475.30 as parts and accessories of the machines under sub-heading 8471. He also relied on Note 5(B) of Chapter 84 which reads as follows-

“(B) Automatic data processing machines may be in the form of systems consisting of a variable number of separate units. Subject to paragraph (E) below, a unit is to be regarded as being a part of complete system if it meets all of the following conditions :

(a)     It is of a kind solely or principally used in an automatic data processing system;

(b)     It is connectable to the central processing unit either directly or through one or more other units; and

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

He submits that the above criteria has also been fulfilled in the case of Web Camera and not on the case of Digital Camera. He also produced a copy of the Notification No. 76/04-Cus. dated 26-7-2004 issued by the Ministry to grant benefit of exemption to Web Camera treating it as parts and accessories of Central Processing Unit (CPU).

6. Ld. JCDR appearing for the Revenue argued the case and pointed out that the Order-in-Original has extracted the WCO Committees Proceedings held at 25th Session on 25-1-2000. Therefore, the same should be relied on for classification purpose. In Para 3.5.1 of Digital camera technology and in Para 27 of the impugned order which extracts as under -

“In many ways a web camera is a bare bone version of a full version digital camera. It is not meant for mobile use. This explains the lack of an inbuilt power supply and storage. The web camera depends on the PC for both these requirements i.e., of power and storage. In addition, as it is meant for use in a static position, a viewfinder is not a design feature. A web camera is usually positions statically over a monitor of the ADP machine, directly facing the user, so that it can be used for Video and audio application, like video conferencing. In all other features of principle of working and constituent elements the web camera is identical to a digital camera.....”.

The reliance on this Para along with the findings in the Order-in-Original and reliance on the deliberations of the Committee should be given weightage and should be treated as a web camera which is specified in the said heading of Digital Camera. The web camera is specifically to be considered as Digital Camera included under heading 8425.40 along with still image video camera and other video camera recorders. She pointed out that the judgment referred in case of Karamchand Thapar & Bros.(C.S.) Ltd. v. Collector of Customs, Bombay - 1994(04)LCX0056 Eq 1994 (071) ELT 0619 (Tribunal) is pertaining to earlier period and not the period when web camera classified under heading 8485.70.

7. On a careful consideration of the submissions made by both the sides, we notice from the extracted portion of the difference between Web Camera and Digital Camera that the web camera is different from the Digital camera even in terms of description in HSN Explanatory Notes at Page 1669 under Section XVI 85.25. The specific entry of the Digital Camera was brought out after amendment dated 1-3-2002 under heading 8525.40 under various descriptions like “Still image video cameras and other video camera recorders”. Admittedly, the item cannot be considered as video camera as video camera recorder has been placed along with the Digital camera. The Digital camera should be generally equipped with an optical viewfinder, a liquid crystal display (LCD), or both. In the present case, admittedly, the web camera is functioning as a part with the Computer. It cannot function independently. It does not have a viewfinder nor does it have memory which is a feature in Digital camera. In HSN Explanatory Notes at page 1669, states that the Digital camera is akin to Video camera and has all its features. Although the WCO Committee has made various observations pertaining to the web camera having the features of Digital camera, it also clearly describes that in many ways web camera is a bare bone version of a full version digital camera. It is not meant for mobile use. This explains the lack of an inbuilt power supply and storage. The web camera depends on the PC for both these requirements i.e. of power and storage. Therefore the findings of WCO Committee does not support the revenue at all for specific classification purpose. Web Camera may have features of Digital Camera in some aspects but it is not Digital Camera per se.

8. In terms of Chapter Note 5, a unit is to be regarded as being a part of a complete system if it meets all of the following conditions :

(a)     It is of a kind solely or principally used in an automatic data processing system;

(b)     It is connectable to the central processing unit either directly or through one or more other units; and

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

The web camera has all the conditions in terms of Note 5(B). In terms of 5(E), only machines performing a specific function and do not function in conjunction with an automatic data processing machine are required to be classified in the headings appropriate to their respective functions or, failing that, in residual headings. Even as per Note 5(E), the Commissioner has noted that the item does not have a specific function as it works in conjunction with an automatic data processing machine. Therefore both the authorities have fallen in error in considering the item as Digital Camera. The Notification No. 76/04-Cus. dated 26-7-2004 has exempted CPU and CPU with monitor, mouse and keyboard and web camera imported separately. Although the WCO Committee have noticed certain features of Digital camera and Web camera and according to their Minutes of Meeting mentioned in Para 27 of the Order-in-Original, admittedly, web camera functions along with PC. Therefore the earlier judgment of the Tribunal in case of Karamchand Thapar & Bros. (C.S.) Ltd. v. Collector of Customs, Bombay, holding that camera and other spares/accessories also fall under Heading 84.71 in terms of Note 4 of Section XVI is a correct order which is required to be followed to a situation prior to and subsequent to the amendment. We are of the considered opinion that only the Digital camera which keeps in company into Video Camera would be classifiable under heading 8525.40 whereas the web camera would be classifiable under chapter 8473.30 or 84.71. The appellants succeed in their appeals No. C/26/2003 and C/62/2003 and the same is allowed.

C/188/2001 :

8. The Revenue is aggrieved with the Order-in-Appeal No. 18/2001-Cus. dated 25-7-2001 wherein the Commissioner (Appeals) has recorded his finding in Para 4 which reads as under -

“4. I have carefully gone through the submissions made by the appellants in the grounds of appeal as well as at the time of personal hearing. It is observed that the lower authority has held in his order that the proper classification of the product viz., web camera imported by the appellants would fall under chapter heading 9006.59 of the Customs Tariff Act, 1975. The appellants, in their appeal have submitted that the lower authority has grossly erred in classifying the product under Chapter 90 and the proper classification of the product would be under chapter heading 84.71 or under 8473.30.

The appellants at the time of personal hearing have submitted some copies of the bill of entries pertaining to Mumbai Custom House where the impugned product has been cleared by classifying the same under chapter heading 84.71. The appellants have also submitted at the time of personal hearing that the case is squarely covered by the judgment of the Hon’ble Tribunal in the case of M/s. Karamchand Thapar & Brothers v. CC, Bombay reported in 1994(04)LCX0056 Eq 1994 (071) ELT 0619 (Tribunal) = 1994 (002) RLT 0055 (CEGAT-B) where it is held that the item being a computer, the camera and the accessories and spares, go to perform the main defined function. The same are connected by transmission piping, devices and cables. Therefore, the Collector’s order that the camera and other spares/accessories are required to be classified on merits is not sustainable. The classification under heading 84.71 adopted by the department is upheld and it is ordered that the camera and spares/accessories are also to be classified under the same heading in terms of Note 4 of Chapter XVI.

It is observed that the impugned product imported by the appellants is a web camera. From the technical literature submitted at the time of personal hearing, it is observed that the camera is not an ordinary camera and functions only with the computer and this camera has got very specific functions and it works basically as a part of the computer and cannot function independently on its own. This camera is used for video conferencing through internet and the main functions of the camera are -

Pentium 133 MHZ or Higher processor

PC System equipped with USB part

Windows 95 (DSR 2.1 or later) and Windows 98 operating system.

32 MB memory or more

Floppy drive for camera drives installation

CD-Rom drives for application software installation.

Sound Card, Micro-Phone, 28.8 bps or faster modem for video conferencing applications

Microsoft exchange or windows messaging for video mail applications

Thus, it is observed that the web camera imported by the appellant is not an ordinary camera and does not function independently. The image can be captured only when it is connected with the computer. Thus from the above, it can be seen that the product imported by the appellants is not an ordinary camera and therefore will not fall under chapter 90 as held by the lower authority. The proper classification will be under chapter 84.73 or 84.71. Besides, a perusal of the aforesaid judgment of the Hon'ble Tribunal also clearly indicates that all those items which come along with the computer are to be treated as spares and accessories. Thus, in view of the submissions made by the appellants and in view of the case law referred to by the applicants at the time of personal hearing, it is observed that the proper classification of the product under classification would be under chapter 8473.30 or 84.71 and not under chapter 90 as held by the lower authority. I set aside the order passed by the lower authority and allow the appeal filed by the appellants.”

9. On a careful consideration of the submissions made by both the sides and on perusal of the impugned order, we notice that the finding of the Commissioner (Appeals) is in keeping with the findings already recorded in the assessee’s appeal. There is no merit in the Department’s appeal and the same is rejected.

Equivalent 2005 (180) ELT 0356 (Tri. - Bang.)

Equivalent 2005 (099) ECC 0294 (Tri.-Bang)