2006(08)LCX0183

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH AT BANGALORE

Dr. S.L. Peeran, Member (Judicial), T.K, Jayaraman, Member (Technical)

Wipro Ltd.

Versus

Commissioner of Customs, Bangalore

Final Order No. 1374/2006 decided on 23.08.2006 in Appeal No. C/119/2004

Advocated By -

Rajesh Chander Kumar, Adv. for the Appellant
R.K. Singla, Authorised Representative (JCDR) for the Respondent

ORDER

T.K. Jayaraman, Member (Technical)


1. This appeal has been filed against OLA No. 445/2003-Cus dated 29th December, 2003, passed by the Commissioner of Customs (Appeals), Bangalore.


2. The issue relates to the classification of imported Pentium-II/Celeron Microprocessors. The imports were made under Bill of Entry dated 21st November, 1998. The Appellants classified the goods under Integrated Circuits falling under CTH 8542.19. However, the Department proposed to classify the goods under CTH 8473.30 as parts of Computers. In the case of the classification claimed by the Appellant, the Duty was 5 per cent+0 per cent+18 per cent CVD+0 per cent SAD. The rate of Duty, if the goods are assessed as parts of computer, would be 20 per cent+2 per cent SCD+13 per cent CVD+Nil SAD. The Original Authority relied on the amendment vide Notification 97/98-Cus dated 27th November, 1998, to Customs Notification No. 23/1998 dated 2nd June, 1998, wherein a new SI. No. 187 A had been inserted after SI. No. 187 in the original Notification No. 23/98. This entry indicates the classification of Microprocessors under 8473.30. The Original Authority held that, for the period prior to issue of Notification 97/98 dated 27th November, 1998, the Microprocessors imported by the Appellant are rightly classifiable under CTH 8473.30 as parts of computers. Hence, he confirmed the differential Duty demanded. However, after 27th November, 1998, the rate of Duty would be only 5 per cent vide Notification 97/98 dated 27th November, 1998. The Appellants approached the Commissioner (Appeals) for relief. The Commissioner (Appeals) took the help of Note 5B to Chapter 84 and the exclusion Clause 5(E) and came to the conclusion that the impugned goods would be classifiable as Parts of Computer under Heading 8473.30. Hence, he upheld the Order of the Original Authority. The Appellants have strongly challenged the impugned Order.


3. Shri Rajesh Chander Kumar, the learned Advocate, appeared for the Appellants and Shri R.K. Singla, the learned JCDR for the Revenue.


4. The learned Advocate urged the following points:

(i) The Appellant referred to the affidavit of Shri Muralidhar, Engineer, and said that the impugned goods are hybrid integrated circuits rightly classifiable under CH 8542 and not under CSH 8473.30.

(ii) The Commissioner (Appeals) has overlooked the Chapter Note 5B of Chapter 85 wherein it is specifically mentioned that for classification of articles defined in this Note, heading 8542 shall take precedence over any other heading in this schedule which might cover them by reference to, in particular, their function.

(iii) The finding that the impugned goods are classifiable under CH 8473.30 is improper, wholly based on the Chapter Notes of Chapter 84 and no evidence or technical literature is provided in support of such findings.

(iv) The Commissioner (Appeals) has not correctly applied the exclusion Clause provided in the HSN Notes to the Heading 8542 to come to the conclusion that the impugned goods do not fall under CH 8542.

(v) The Adjudicating Authority failed to appreciate that the impugned goods are Hybrid Integrated Circuits and not PPCB (Populated Printed Circuit Boards). The Integrated Circuits cannot be used in a CPU/ Computer unlike a PPCB. They need to be mounted or embedded on a PCB to make it functional and even after mounting; they retain the character and identity as an hybrid integrated circuit.

(vi) The Commissioner (Appeals) failed to consider the technical evidence furnished by the Appellants in support of the contention that the said goods are Hybrid Integrated Circuits rightly classifiable under CH 8542.


5. The learned JCDR brought to our attention that the issue of classification has been decided in this bench's Final Order No. 693/2006 dated 27th March, 2006, in the case of M/s. Cascade Systems. It has been decided that Pentium-II/Celeron Microprocessors are classifiable under CSH 8473.30.


6. We have gone through the records of the case carefully. The Appellants have produced a five-page affidavit of Shri M.R. Muralidhar, Head of the Product Engineering Group of the Appellant company. In the affidavit, Shri Muralidhar has given a history of the development of Integrated Circuits/Microprocessors. According to him, a Microprocessor is an Integrated Circuit. An Integrated Circuit can never be employed directly in a CPU/Computer. It needs a medium called PCB and once the Integrated Circuits are embedded, they become PPCB. The Microprocessors retain their original character and identity even after being embedded on a PCB or a PPCB. From the above opinion, the Appellant wants to make the point that the impugned items would be more appropriately classifiable as Integrated Circuits falling under CH 8542 and not as Parts of Computer falling under CH 8473.30. The learned Advocate pointed out that the impugned goods are actually Hybrid Integrated Circuits falling under CH 85.42 and further referred to our notice, the Chapter Note in Chapter 85 below 5(B) after (c), wherein it is mentioned that "For the classification of the articles defined in this Note, Headings 8541 and 8542 shall take precedence over any other heading in this schedule which might cover them by reference to, in particular, their function." The Appellant pointed out that the Commissioner (Appeals) has not properly applied the exclusion Clause below Heading 85.42 in the HSN to arrive at the conclusion that the impugned goods cannot be classified under CH 85.42. After going through certain technical literature, by "Integrated Circuit", we mean that it is a small Microchip that contains a large number of electrical connections which performs the same function as larger circuits made from separate parts. Miniaturisation is a distinguishing hallmark of an Integrated Circuit. Thus, an Integrated Circuit is a very general term for a complicated electronic Circuit etched in a single piece of semiconductor. Coming to the impugned goods, they are Pentium/Celeron Microprocessors. Any person who has some familiarity with computers is aware that these terms are always associated with computers. We have series of Pentium Processors with different features. The first Pentium Processor was developed in 1993. It contained 3,100,000 transistors. Due to continuous research and development, more powerful processors were made in course of time. Pentium-II was developed in 1997. Pentium-III in 1999 and Pentium-IV in 2000. Further Pentium-IV (Prescott) was developed in 2004. This processor contains 125,000,000 transistors. A microprocessor is the heart of any normal computer whether it is a desktop machine, a server or a laptop.

(Reference http://computer.howstuffworks.com/microprocessor.htm)

A microprocessor executes a collection of machine instructions that tell the processor what to do. Based on the instructions, a microprocessor does three basic things:

Using its ALU (Arithmetic/Logic Unit), a microprocessor can perform mathematical operations like addition, subtraction, multiplication and division. Modern microprocessors contain complete floating point processors that can perform extremely sophisticated operations on large floating point numbers.

A microprocessor can move data from one memory location to another.
A microprocessor can make decisions and jump to a new set of
instructions based on those decisions.
(Reference: How Microprocessors Work by Marshall Brain).

We have already seen that a Microprocessor chip contains millions of transistors on a piece of silicon. Hence, a Microprocessor is also an Integrated Circuit. However, a Microprocessor is meant to perform the processing of arithmetical and logical functions of a computer. In other words, it is the heart of the CPU of a computer. That is one of the reasons that the Microprocessor is classified under 8473.30 in the Notification 97/98. Even though, Microprocessors are actually Integrated Circuits, they are having specific applications in Computers in the CPU and in our understanding; they are actually parts of computers. The fact that they are first embedded in a PCB and used in computers is no reason why they should not be considered as parts of computers. In any case, the Government has also thought it fit to include Microprocessors as parts of computers in the Customs Tariff. Hence, we cannot go by the Chapter Notes of HSN relied on by the learned Advocate of the Appellant. Further, presently, in the Customs Tariff also, Microprocessor is indicated as Part of the Computer in CH 8473.30 and also in view of our decision in the case cited by the learned JCDR, we feel that the classification of the impugned items under CSH 8473.30 is more appropriate than under CH 85.42. In view of this, we reject the appeal of the Appellant.

Equivalent 2006 (113) ECC 0275

Equivalent 2006 (139) ECR 0275 (Tri. -Bangalore)

Equivalent 2006 (204) ELT 0502 (Tri.- Bang.)

Equivalent 2007 (079) RLT 0597 (CESTAT-Ban)