2004(07)LCX0041

IN THE CESTAT, SOUTH ZONAL BENCH, BANGALORE

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

IBM GLOBAL SERVICES INDIA PVT. LTD.

Versus

COMMISSIONER OF CUS., CHENNAI

Final Order No. 1174/2004, dated 2-7-2004 in Appeal No. C/51/2004

CASES CITED

Collector v. Calcutta Steel Industries — 1988(10)LCX0027 Eq 1989 (039) ELT 0175 (S.C.) — Referred............................ [Para 1]

Kirloskar Oil Engines Ltd. v. U.O.I. — 1990(09)LCX0058 Eq 1991 (051) ELT 0334 (Bom.) — Referred............................. [Para 1]

S.S. Enterprises v. Collector — 1988(02)LCX0032 Eq 1988 (036) ELT 0135 (Tribunal) — Referred.................................... [Para 1]

U.O.I. v. Sahney Steel and Press Works Ltd. — 1991(10)LCX0013 Eq 1992 (058) ELT 0038 (Bom.) — Referred............... [Para 1]

REPRESENTED BY :        Shri B.V. Kumar, Advocate, for the Appellant.

Smt. Shobha L. Chary, JCDR, for the Respondent.

[Order per : S.L. Peeran, Member (J)]. - The question that arises for consideration in this appeal, arising from Order-in-Appeal No. C.Cus 546/2003, dated 29-9-2003, is regarding the correct classification of the imported goods “Refurbished Stacker Modules with Accessories”. As per the examination report, it is stated that the goods are Stacker Modules (Storage Bins) for “Cheque Sorting Machine” and the examination section suggested the classification under CTH 8473.40 as parts of machines falling under CTH 8472.90, ibid., since the function of the machine was akin to that of “Letter Sorting Machine”. The importer requested for classification of the goods under CTH 8473.50 as “parts and accessories equally suitable for use with machines of two or more of sub-heading nos. 84.69 to 84.72”. Both the authorities have rejected the importers plea for classification under the heading requested by them. The appellant had submitted that the imported machine is based on the function of machine viz. 3890-XP1 IBM Document Processor and it can be seen that the said machine was a Magnetic Reader which reads MICR characters (coded information) and convert them into electric signals and transcribe/process such coded information and is, therefore, correctly classifiable under 84.71 of the CETA, 1975. They also submitted that as per the Explanatory Notes in Chapter sub-heading 84.71 in HSN at pg. 1407, the imported item is nothing but ‘Magnetic Reader’, falling under Chapter sub-heading 8471.60 of the Customs Tariff Act as an input-output device. They submitted that the ‘reader’ part of the 3890 XP1-IBM Document Processor was an Input device and the stacker was an output device, in which the cheques, after being read, are sorted out and stacked into pockets depending upon the programme. They contended that it was not akin to the functioning of a ‘Letter Sorting Machine’, falling under sub-heading 8472.30 as held by the authorities inasmuch as the said Document Processor functions on the basis of reading the MICR characters printed with special magnetic ink. Therefore, it was their contention that the Document Processor was not a machine for sorting or folding mail or for inserting mail in envelopes or bands or machines for opening, closing or sealing mail and machines for affixing or cancelling postage stamps and is not capable of doing any of these functions. They referred to the letter dated 25-9-2002 from Reserve Bank of India, addressed to the Director-General of Foreign Trade, Ministry of Commerce, New Delhi, which showed that the subject stackers are a part of Document Processor and is required to function along with the reader-sorter system already installed with them. They also contended that the impugned goods viz. stackers module, was a part of the 3890 XP1-IBM Document Processor and can function “solely or principally” with the Document Processor and hence was a part of Document Processor and this was the admitted position. They also stated that the Department had not proved any evidence in support of their claim and their burden of proof has not been discharged. In this regard, they relied on the judgment rendered by the Apex Court in the case of CCE v. Calcutta Steel Industries and Others - 1988(10)LCX0027 Eq 1989 (039) ELT 0175 (S.C.); UOI v. Sahney Steel and Press Works Ltd. - 1991(10)LCX0013 Eq 1992 (058) ELT 0038 (Bom.); Kirloskar Oil Engines Ltd. v. UOI - 1990(09)LCX0058 Eq 1991 (051) ELT 0334 (Bom.); S.S. Enterprises v. CC, Bombay - 1988 (036) ELT 135.

2. The learned Counsel Shri B.V. Kumar argued the case on the above basis and submitted that in terms of HSN Note, the classification claimed by them in terms of sub-heading 8473.50, which is required to be accepted as the item is a part equally suitable for use with machines of two or more of the Heading 84.69 to 84.72. He also referred to the technical write up which stated that the item 3890 XP is the third generation of Document Processor from IBM and adds even greater processor and speed and more memory to existing 3890 XP features as well as offering new features of its own. It also states that this machine’s capability results in greater productivity and significant savings in time and money for the financial institutions. That the item has substantially increased processing capability and the optional Programmable Endorsing/ Item Number Feature gives the capability to print a unique and changeable endorsement on every document. Information such as the account number, pocket number and statement cycle number can be printed on the back of the document resulting in fewer operator errors and even greater productivity in cheque processing departments focused on research adjustments and returned items. It also stated that the item is a Document Processor which reads magnetically and/or optically inscribed data from card and paper documents into any virtual storage S/370 (except 3115 and 3125) or to a 4300, 30 XX, or 9370 processor via the byte-multiplexer or block-multiplexer channel. He submits that the said machine is a Magnetic Reader, which reads MICR characters (coded information) and convert them into electric signals and transcribe/process such coded information and is, therefore, correctly classifiable under Heading 84.71 and referred to HSN at pg. 1407. He submitted that ‘reader’ part of 3890 XP1-IBM Document Processor is an input device and the stacker is an output device in which the cheques after being read are sorted out and stacked into pockets depending upon the programme. He submitted that the Document Processor functions on the basis of reading the MICR characters printed with special magnetic ink. Therefore, it is not a machine for sorting or folding mail or for inserting mail in envelopes or bands or machines for opening, closing or sealing mail and machines for affixing or cancelling postage stamps. Therefore, he submitted that in terms of the judgment cited, the revenue has not justified the burden of classification and hence his prayer is to be admitted.

3. The learned JCDR relied on the Commissioner’s findings given in the order. She pointed out that as per the catalogue, the item is a Document Processor and is a ‘Sorter’ with additional features for increasing the efficiency in the Banking System. She submitted that as per the HSN Explanatory Notes of Section XV at pg. 1409, Chapter 8472 covers all Office Machines (Hectograph or Stencil, Duplicating Machine, Addressing Machines, Automatic Bank Note Dispensers, Coin Sorting Machines, Coin Counting Machine or Wrapping Machine, etc.). She submitted that the term ‘Office Machines’ is to be taken in a wider general sense to include all machines used in office, shops, factories, workshops, schools, restaurants, railway stations, etc. for doing ‘office work’ i.e. work concerning writing, recording, sorting, filing, etc., of correspondence, documents, forms, records, accounts etc. Therefore, she submitted that Chapter 8472 includes sorting machines of documents, forms, records, etc. She submitted that the impugned items are parts of documentation centres which are nothing but sorter of Bank Cheques and are rightly classifiable only under this Chapter i.e. 8472, more specifically under 8472.30. She submitted that the main function of the documentation centre is to sort the cheque bank-wise or branch-wise and is controlled by automatic data processing machine which is similar in function to that of letter sorting machine and hence, the parts of the same are classifiable under Heading 8473.40. She submitted that the documents processor is programmed in such a way that it has to execute the functions of sorting the cheques bank-wise and branch-wise, which is similar to the letter-sorting machine where the letters are sorted according to their destination. She also submitted that the nomenclature of the equipment viz. Document Processor also establishes the fact that the equipment is used in the office for office automation and hence classifiable under Chapter Heading 8472 only and not under 8471 where Data Processing is involved. Hence, the classification under 8473.40 as parts and accessories of machines of Heading 8472 is justified. She submitted that the claim made under Heading 8473.50 refers to ‘parts and accessories equally suitable for use with machines of two or more of the Heading Numbers 84.69 to 84.72’. She submitted that the item does not function with two or more machines of heading Nos. 84.69 to 84.72 and hence their claim cannot be accepted. She also refers to Note of 5(E), which reads “Machines performing a specific function other than data processing and incorporating or working in conjunction with an automatic data processing machine are to be classified in the headings appropriate to their respective functions or, failing that, in residual headings”. She pointed out that the item does not have a specific function other than Data Processing and incorporating or working in conjunction with an automatic data processing machine and, therefore, it has to be classified in its residual headings.

4. We have carefully considered the submissions and have perused the entire material on record including the technical literature, the HSN Notes and the letter of the Reserve Bank. The item in question, as noted, sorts cheques after reading the information therein. The department has classified the item under sub-heading 8473.40 which reads as ‘Parts and accessories of the machines of Heading No. 84.72. The appellants are contesting that the item cannot be considered as part of 8472, which refers only to ‘Other Office Machines’. The examination report stated that they are parts of machines falling under Heading 8472.90, which is a residual heading ‘Other’. Therefore, the item is not being considered under 8472.30 which refers to Machines for sorting or folding mail or for inserting mail in envelopes or bands, machines for opening, closing or sealing mail and machines for affixing or cancelling postage stamps. The argument of the appellant’s Counsel has been that the department has taken the machine to be falling under 8472.30 and the item is not akin to the item prescribed therein. This argument is not correct for the reason that the department has considered the sub-heading 8472.90 which is a residual heading ‘Other’ and, therefore, they have adopted the parts and accessories of the machines of 8472.90 to be covered by 8473.40, while the appellants are claiming the item to be under 8473.50 which are ‘Parts and accessories equally suitable for use with machines of two or more of the Heading Nos. 84.69 to 84.72’. For items to fall under the Heading 8473.50 they have to be suitable for machines of two or more of Heading Nos. 84.69 to 84.72. The appellant’s claim the main machine to be falling under sub-heading 8471.60 which reads “input or output units, whether or not containing storage units in the same housing”. So, on a careful consideration the item cannot be considered as part of input or output units whether or not containing storage units in the same housing. We further find that in terms of Note 5(E) of Chapter 84, Machines performing a specific function other than data processing and incorporating or working in conjunction with an automatic data processing machine are to be classified in the headings appropriate to their respective functions or, failing that, in residual headings ‘Other’. Going by this note, the main item has been considered by the Department as Other Office Machine under 8472.90, which is on a residual heading ‘Other’. The machine has been considered as Automatic Banknote Dispenser, which falls under Other Office Machines under Heading 8472. On a careful consideration of the HSN Notes and the function of the item it is very clear that it is an Automatic Banknote Dispenser and it is not a machine for sorting or folding mail as has been understood by the appellant. The department has not placed it under 8472.30 but under 8472.90 as ‘Other’. There is a clear confusion in the mind of the importer in understanding that the department has considered this as a machine for sorting or folding mail under 8472.30. The main item, as per the examination report, has been considered as ‘Other’ falling under 8472.90. The main description under 8472 is Other Office Machines and the example given is that of Automatic Banknote Dispenser, Coin-Sorting Machines, Coin-Counting Machines, etc. Therefore, there is no merit in the appellant’s claim. Furthermore, the sub-heading 8473.50 can be considered only if the parts are equally suitable for use with machines of two or more of the heading nos. 84.69 to 84.72. The appellant’s claim that it is suitable for 8471.60 as input and output units whether or not containing storage units in the same housing. The main item cannot be considered as falling under sub-heading 8471.60 as input or output units under the sub-heading “Other Digital Automatic Data Processing Machines”. The item is complete by itself and has got a specific function other than data processing and, therefore, in terms of Note 5E, it has to fall under residual Heading and, therefore, the department having considered under residual Heading 8472.90 under Other machine is a correct one and its parts fall under 8473.40. Therefore, the reasoning adopted by the Commissioner is required to be accepted. There is no merit in this appeal and the same is rejected.

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Equivalent 2004 (173) ELT 149 (Tri. - Bang.)