The tribunal ruling in the Barber Ship Management case was based on the similarity established at Sl. No. 3 of the table. The benefit was claimed only in respect of one of six computers imported which was loaded with specialized training software valued at Rs. 99 lakhs, the value of all six computers was Rs. 14 lakhs. The benefit of separating the software for assessment was, therefore, justifiable. However, in the appellants case, the analogy has to go further down to points 6 and 7.
The transaction in Sprint RPG is that of seven such bulk specialized containers filled with the lubricant without any other machine accompanying.
In the appellant's case the 200 litre specialized container contaning a mere 12 litres of lubricant which is fitted into a composite machine is sought to be assessed separately as a lubricant which is contained it.
The above analysis was preceded by an endeavour to enlighten us on computer language, with the aid of extracts from Microsoft Computer Dictionary, which introduced terms such as storage device, storage media, hard disc drive, floppy disk drive, firmware, operating system, application etc. Turning back to case law, ld. SDR pointed out that, in the case of Sprint RPG (supra) considered by the Supreme Court, the goods imported by the party was only software-recorded Hard Disc which was not accompanied by computer or other apparatus and, therefore, it was classified under Heading 85.24. The decision in Sprint RPG was followed by the court for upholding the Tribunal's decision in Barber Ship Management case (supra), overlooking the fact that the goods which fell for classification in the latter case was software-loaded Hard Disc drive assembled with Computer. Ld. SDR argued that, as the facts of Sprint RPG were not similar to those of the instant case, it was not correct to follow, in the instant case, the Apex Court's decision (in Barber Ship Management) based on its decision in Sprint RPG case. With regard to valuation, ld. SDR relied heavily on the Supreme Court's decision in Acer India (supra),), wherein the value of operating software was held not includible in the assessable value of the computer in which the software was loaded. An endeavour was also made to invoke Section 19 of the Customs Act for assessment of the subject goods to duty. In this connection, the imported goods consisting of laptop computer, hard disc and software was considered to be a "set of articles" and it was argued that, as the separate values of the components of the "set" were not furnished by the importer to the proper officer of Customs at the stage of learance, the goods could be assessed to duty in terms of Section 19(b).
7. In his rejoinder, learned Counsel, touching the valuation aspect, submitted that the provisions of Section 19 of the Customs Act had no application to the facts of this case. In this connection, he relied on final order No. A/199 & 200/WZB/2006/C-I/CSTB dt. 7th March, 2006 of the West Zonal Bench of the tribunal in appeal Nos. C/391/2002 and C/110/2995-Mum.
8. We have given careful consideration to the submissions. The goods imported by the appellants are Laptop Computers (Notebooks) with software- loaded Hard Disc drives assembled therein. The importer, in their Bills of Entry, furnished separately the value of software-loaded Hard Disc Drive [classified under Heading 85.24] and the value of the rest of the system (Computer without such Hard Disc) [classified under Heading 84.71] and, in respect of the former, they claimed duty exemption under notification No. 21/2002-Cus (as amended). The lower authorities have classified the system under Heading 84.71. and have demanded duty on the assessable value determined by deducting software value from the total value of the system. In this exercise, the assessee's claim to have the software-loaded Hard Disc drives classified under Heading 85.24 and to get the benefit of the above notification stands disallowed. Both sides have imparted to us adequate information on the identity of the goods in question with reference to computer-related terms and expressions used in commercial parlance. It appears from the literature placed before us by ld. SDR that "Hard Disc" is a synonym for "Hard Disc Drive" and is a secondary (auxiliary) storage device/storage media for recording computer data. The term "operating system" stands for software that controls the allocation and usage of hardware resources such as memory, central processing unit time, disc space and peripheral devices and is said to be the foundation software on which "applications" depend. The term "application" refers to a programme designed to assist in the performance of a specific task, such as word processing, accounting or inventory management. Thus, it appears, software can be broadly categorized as "operating software" and "application software". Popular operating software includes Windows 98, Windows NT, Mac OS and UNIX vide Microsoft Computer Dictionary. With this minimal information, we observe that the goods imported by the appellants were Laptop Computers assembled with Hard Discs preloaded with operating software. The Revenue wants to classify the system under Heading 84.71 and charge it to Customs duty after excluding the value of software from the total value. According to the assessee, Hard Disc with software loaded therein has to be separately classified under Heading 85.24 leaving the rest of the system to be classified under Heading 84.71.
We have found that the imported system is, physically, an assemblage of computer and hard disc, which are physically separable. The Hard Disc in this assemblage is preloaded with operating software. If the appellants had presented software-loaded Hard Disc alone before the Customs Authorities, the latter would have classified it under Heading 85.24 of the CTA Schedule and the assessee would have obtained the benefit of the exemption notification. This position has been fairly conceded by ld. SDR. But, according to her, when software-loaded Hard Disc is presented in a form assembled with a computer, it becomes integral part of the computer and the system would get classified as an "automatic data processing machine" under Heading 84.71, where the software is operating software as in this case. We have to disagree with this proposition (and, for that matter, with the analogy sought to be drawn between OS-loaded Hard Disc and lubricant-containing barrel of 200 litre capacity) for the reason that the Tariff does not distinguish between "operating software" and "application software" for the purpose of classification. In the case of Barber Ship Management (supra), the party had imported six sets of "data processing systems" each consisting of computer, monitor, key board and printer. One of the systems contained training software recorded on a Hard Disc assembled as part of the system. Classification of this particular system was claimed under Heading 85.24 and duty free clearance was sought in terms of Sl. No. 206 of exemption notification No. 23/98-Cus. The jurisdictional Commissioner of Customs rejected the claim and ordered classification of the said system under Heading 84.71. In the appeal preferred by the assessee against the Commissioner's order, the issue which arose before the tribunal was e whether the software-recorded Hard Disc forming part of the computer system was classifiable under Heading 84.71 as part of "data processing machine" or whether it would merit classification under Heading 85.24 as "software recorded on a media". In view of Note 6 to Chapter 85 and the corresponding HSN Note, the tribunal held that, though a Hard Disc was a part of the system falling under Heading 84.71, it would get classified under Heading 85.24 with the recording of software therein. It was categorically, held that the Hard Disc on which the software was recorded merited classification under Heading 85.24 even when it was a part of the computer system. This decision of the tribunal was upheld by the Supreme Court vide 2002 (144) ELT A 293 (SC). We do not see any reason to hold that the decision in Barber Ship Management (supra) is not applicable to the facts of the instant case. The facts of the present case, which we have already stated, are quite similar to those of Barber Ship Management (supra). The question is whether the software-loaded Hard Disc presented as part of computer system by the appellants is classifiable under Heading 85.24. The correct answer to this question is readily available in Barber Ship Management.
9. In the appellants' own case, the tribunal's North Regional Bench has already classified identical goods under Heading 85.24 vide 2005 (126) ECR 0124 (Tri. Del). No material has been brought on record to show that the said decision is not acceptable to the Revenue, nor has any attempt been made to distinguish those goods from the goods in question.
10. Ld. SDR sought to distinguish the case of Sprint RPG (supra). Dealing with the appeal preferred by the Revenue against the tribunal's decision in Barber Ship Management (supra), the Supreme Court ordered as under:
The issue in this appeal by the Revenue, in the first place, is an issue of classification with which this Court does not ordinarily deal. In the second place, it is squarely covered against the Revenue by the judgment of this Court in Sprint RPG India Ltd v. Commissioner of Customs-I Delhi (116 ELT 6), We see no reason to take any contrary view, as suggested on behalf of the Revenue. The appeal is dismissed with costs. In the case of Sprint RPG India Ltd., as rightly pointed out by ld. SDR, the goods considered for classification was software-loaded Hard Disc presented as such. In the case of Barber Ship Management, software-loaded Hard Disc presented in a form assembled with computer had come up for classification. Reading the above order of the Apex Court against this backdrop, we find that, in terms of their lordships ruling, a software-loaded Hard Disc, whether or not presented in assemblage with computer, is classifiable under Heading 85.24.
11. Ld. SDR referred, at length, to the Hon'ble Supreme Court's judgment in Commissioner v. Acer India Ltd. (supra). Her endeavour was to show that as hardware (computer) and operating software were different marketable commodities, the value of the software was not includible in the value of the computer. It is true that, in the said case, computer and operating software were held to be different marketable commodities. It was further held that a computer was complete without operating software and hence, the cost of the latter was not to be included in the assessable value of the former. What was held not so includible was the cost of operating software in terms of Heading 85.24 of the Schedule to the Central Excise Tariff Act, i.e., the cost of the media (hard Disc) loaded with the software in as much as the said Tariff entry, like the corresponding Customs Tariff entry, stood for "recorded media for sound or other similarly recorded phenomena". This position is amply clear from the court's ruling (vide Para (60) of the judgment in Acer India) that "once a particular subject-matter falls within the specified classification, the determination of valuation for the purpose of imposition of duty must be done according to the terms of the heading and any relative Section or Chapter Notes...." Accordingly it was held vide para (80) of the judgment: "When an exemption has been granted from levy of any Excise duty on software whether it is operating software or application software in terms of Heading 85.24, no Excise duty can be levied thereupon indirectly as it is impermissible to levy a tax indirectly." Thus, exemption which was admissible to software classifiable under Heading 85.24 was allowed to M/s Acer India Ltd. Thus, the decision in Acer India (supra) only supports the appellants' case as observed by the tribunal in final order No. 380/2005 [2005 (126) ECR 124]. As learned SDR herself has sought to draw analogy between the above Central Excise case and the present Customs case, it is effortless for us to hold that the ruling in the former is squarely applicable to the latter. Further applying the principle of valuation stated by the Apex Court in Acer India case (vide supra), we must consider that Section 19 of the Customs Act is not applicable to cases like the present one as held by WZB in the appellants' own case vide order No. A/199 & 200/WZB/2006 ibid.
12. For the reasons noted by us, the impugned order is set aside and this appeal is allowed. Accordingly, the software-loaded Hard Discs are held to be classifiable under Heading 85.24 of the CTA Schedule and, in respect thereof, the appellants will be eligible for duty exemption under notification No. 21/2002-Cus. (as amended). The rest of the machine will remain classified under Heading 84.71. The assessments shall be finalized accordingly.
Pronounced in open court on 26th May, 2006.