1996(07)LCX0049

IN THE CEGAT, NORTHERN BENCH, NEW DELHI

S/Shri S.L. Peeran, Member (J) and G.R. Sharma, Member (T)

SEARLE (INDIA) LTD.

Versus

COLLECTOR OF CUSTOMS, BOMBAY

Final Order No. C/526/96-B, dated 18-7-1996 in Appeal No. C/199/88-B

CASE CITED

Chemilab Corporation v. Collector — 1994(03)LCX0019 Eq 1994 (071) ELT 1073 (Tribunal)                          [Paras 4, 7]

Advocated By : Shri S.S. Gupta, Chartered Accountant, for the Appellant.

Shri K.K. Jha, SDR, for the Respondent.

[Order per : S.L. Peeran, Member (J)]. - This appeal arises from the Order-in-Appeal dated 12-11-1987 passed by the Collector of Customs, Bombay. The appellants imported Gas Chromatography Software and claimed assessment under Heading 9027.90 as against sub-heading 8524.90 of the Customs Tariff Act, 1975 assessed by the department. The said plea was rejected by Assistant Collector on the ground that the software has been separately valued in the invoice and is assessable separately on merits under sub-heading 8524.90.

2. Before the Collector (Appeals), the importer stated that `Gas Chromatography cum Spectrometer’ is one of the most complicated analytical tools used in separation and structural elucidation of mixtures of organic compounds. The entire function of the instrument is controlled by Mass Chromatographic Software. It monitors on line analysis of Gas Chromatogram and mass spectrum and it cannot be used for any other purpose in any other instruments. They replied upon the letter dated 5-2-1987 issued by the Department of Electronics, Government of India, New Delhi, which stated that the said software is a computer item forming an integral part of existing Mass Chromatograph. It is also stated that the value of the software had been separately given because the suppliers have a number of softwares for different applications for different types of users and the software differs depending upon the specific application. They have also stated that there were two/three options for softwares and the software imported was chosen being most suitable for their work and it was because of the price factor that separate value was shown, but the instrument cannot function without the software.

3. The ld. Collector did not agree with the contentions raised by the importer. He has held that the appellants have failed to prove that the impugned software is not capable of being used elsewhere and that the software had separately been supplied and separately value. Therefore, he held that it cannot be considered as an “accessory”. On this ground, he rejected their appeal. The appellants contend that the software should be considered as forming an integral part and parcel of the said goods, since it is an essential part of the main instrument, without which the main instrument cannot function. They rely on the certificate issued by the agent of the Foreign Supplier in India, namely Toshniwal Brothers (Bombay) Pvt. Ltd. to the effect that the said software is an integral part of the said goods and is a “MUST” for the operation of the said goods. The said certificate further clarifies that the prices of the possible software to operate the said goods being different, the foreign supplier quoted the prices as per the Customs’ requirement of the software. It is also states that the Department of Electronics had clearly opined that the software is an integral part of the said goods and that the said goods cannot function without the software. It is also stated that the present software is a programme for operating the imported item and such a programme of software cannot be used elsewhere, as it is not capable of being used elsewhere.

4. We have heard ld. Chartered Accountant, Shri S.S. Gupta for the appellant and Shri K.K. Jha, ld. SDR for the Revenue. Ld. Representative submitted that the item is not “records, tapes and other recorded media for sound or other similarly recorded phenomena” and therefore, it does not fit with the description of Chapter Heading 85.24 of the Tariff. He submits that the Chapter sub-heading 8524.90 is a residuary entry “other” for “magnetic tapes under Chapter Heading 85.24". It is his contention that even the HSN Noting under Chapter Heading 85.24 at page 1373 in S. No. 8 refers only to ”Media on which phenomena other than sound of image had been recorded (e.g. magnetic tapes, dics packs, diskettes and cassettes for machines of Heading 84.69 to 84.72)’’. It is his submission that diskettes and cassettes for machine falling under Heading 84.69 to 84.72 will be considered for classification under Heading 85.24 only, as per HSN Noting. The imported item was Chromatographs and electrophoresis which are specifically mentioned under sub-heading 9027.20 and the said Chromatographs function through inbuilt software. Therefore, the software being burnt and inbuilt has to be considered as integral part of the Chromatographs. The software is specifically designed and it has no other function but to act as integral part of Chromatographs. It is a programme designed to function with the Chromatographs. Therefore, its classification under Heading 85.24 is not sustainable and that the claim for classification under sub-heading 9027.20 should be upheld. It is his further plea that even as per Chapter Note 2 to Chapter 90, “other parts and accessories, if suitable for use solely or principally with a particular kind of machine, instrument of apparatus, or with a number of machine, instruments or apparatus of the same heading (including a machine, instrument of apparatus of Heading No. 90.10, 90.13 or 90.31)” are to be classified with the machines, instruments or apparatus of that kind as per Note 2(b) of Chapter 90. He further submits that in the case of Chemilab Corporation v. Collector of Customs, New Delhi as reported in 1994(03)LCX0019 Eq 1994 (071) ELT 1073 (Tri.), the bench has taken a view that Densitometer TLC Aluminium sheets Silica Gel imported for use as a part of Chromatograph was held to be classifiable under sub-heading 9027.20 by virtue of Note 2(b) of Chapter 90, as the said imported item had assumed an essential character of a part of Chromatograph. It is his submission that the ratio of the same judgment clearly applied to the facts of the case, as the Tribunal has dealt with a `parts’ which were used solely or principally alongwith Chromatograph. In his contention that software which was inbuilt inside the Chromatograph was required to be considered as a part, being suitable for use solely or principally alongwith Chromatograph in terms of 2(b) of Chapter 90 for classification alongwith Chromatograph falling under sub-heading 9027.20. Ld. Representative further submitted that as the Customs Rules required the software to be separately assessed, therefore, value was so declared for the purpose of customs valuation. The software was not supplied as a separate item but is a integral part of Chromatograph.

5. Ld. DR attempted to show that the item can be used elsewhere. However, he could not support his plea with any evidence.

6. We have carefully considered the submissions made by both sides and have perused the material placed before us. We have gone through the rival chapter headings. The department has classified the inbuilt software supplied alongwith the Chromatograph under sub-heading 8524.90. As has been rightly argued by the ld. Representative, Chapter 85.24 refers to “Records, tapes and other recorded media for sound or other similarly recorded phenomena, including matrices and masters for the production of records. But excluding products of Chapter 37. The sub-heading 8524.90 is a residuary item. As can be seen from the chapter heading, the item which are required to be classified only for ”records, tapes and other recorded media for sound or other similarly recorded phenomena". The item which has been imported is not a “records, tapes or other recorded media for sound”. Therefore, the department has committed a serious error in classifying the imported software, which is inbuilt in Chromatograph under sub-heading 8524.90, under a mistaken belief that software falls under this sub-heading. It has been pointed out by ld. Representative that HSN Noting at page 1373 at S. No. 8 refers to those items which are falling under this sub-heading only if the machines are covered under Heading 84.69 to 84.72. Therefore, there is no possibility of applying even this Explanatory Note for classifying the imported item under sub-heading 8524.90.

The other entry which is required to be considered is a chapter sub-heading 9027.20, wherein “Chromatographs and electrophoresis instruments” are classified. There is no doubt in the present case that the appellants imported Chromatographs and filed bill of entry and showing the description of the items imported by them as including “Chromatographs Software.” It was explained in the worksheet filed with the Assistant Commissioner of Customs, that the software is inbuilt and has come alongwith the machine in inbuilt con- dition. Therefore, for the purpose of valuation, they had shown separate value for software as per the Customs Rules. The department did not appreciate this point and has proceeded to classify separately software without considering the evidence on record. The letter issued by Senior Systems Analyst, Dr. Kashi Nath of Department of Electronics, Government of India clarified that the software is a computer item forming an integral part of existing Mass Chromatograph. This letter was issued to the Director of the appellant company, when they approached the department for issue of “No Objection Certificate” for import of the sub-item. It was clarified that according to the Import & Export Policy 1985-88 Volume T" Ministry of Commerce, Chapter-III, Para 58 (06), clearance of Department of Electronics will not be required where computer is a built-in integral part of the equipment’. Therefore, Dr. Kashi Nath clarified that the proposed software for which the clearance had been sought, is a computer item forming an integral part of the existing Mass Chromotograph. The Asstt. Manager Import & Export of the appellant company has also clarified this point to the Asstt. Collector of Customs by his letter dated 27-2-1987 that Chromatography Software is an item forming an integral part of Mass Chromatography. However, the department has not considered this material on record nor they have got these certificates verified to the effect that the imported Mass Chromatography is not inbuilt software and not a programmed to function as an internal part.

As per the definition of the terms “Software” appearing in Modern Dictionary of Electronics, 6th Edition of Rudolf F. Graf appeared by ARNOLD-HWINWMNN at page 940, the definition of software is given as follows :

“Software - 1. Programs, routines, codes and other written information for use with digital computers, as distinguished from the equipment itself, which is referred to as hardware. 2. A set of computer programs, procedures, rules and associated documentation concerned with the operation of a data processing system e.g. compilers, monitors, editors, utility programs. 3. Codes instructions which direct the operation of a computer. A set of such instructions for accomplishing a particular task is called a program. 4. The set or package of programs which instruct a computer to perform certain predefined functions. 5. The user program which controls the operation of a programmable controller. 6. Totality of programs and routines used to extend the capabilities of computers, such as compilers, assemblers, narrators, routines, and subroutines. 7. A stored set of instructions which govern the operation of a computer system and make the hardware run. 8. A set of instructions that programs a specific set of actions to be performed in sequence for the accomplishment of a computational tasks, thus allowing a general purpose machine to perform a very specific set of tasks. 9. Also called computer program. The instructions selling the computer what information to expect to receive and what to do with it. 10. The computer programs, procedures and documentation concerned with the operation of a computer system, e.g. assemblers, compilers, operating systems, diagnostic routines, program, loaders, manuals, library routines, and circuit diagrams. Software is the name given to the programs that cause a computer to carry out particular operations. Contrasted with hardware. 11. The modifiable (to some extent) binary bit patterns in the memory of a computer that control the operation of the processing portion of the computer. Software programs are usually written in one of three general classes of language machine, assembler, or higher level. 12. A computer’s programs. If a particular bit of data manipulation is done through a program rather than by special circuitry, it is said to be ”in software". Doing things in software is cheap and flexible since a program can be easily changed. 13. An expression for programs and also tapes or disks with recorded or punched data. There are various kinds of software, including applications and executive. The executive is the “heart” of the system and is responsible for scheduling and controlling activity in the system. Applications or task programs perform specific functions whose activity is controlled by the executive. 14. Programs executed by a computer system to perform a required function. 15. Programs which control the operation of computer hardware. Operating systems, executives, monitors, compilers, editors, utility routines and user programs are considered software. 16. Set of programs, procedures, rules and associated documentation which directs the operation of a computer."

As can be seen from the above definition, a software is for use with digital computers. It is also a set of computer programs which is concerned with the operation of a data processing system. It is also a user program which controls the operation of a programmable controller. Therefore, it follows that the software which is inbuilt in “Chromatograph Mass” is not a separate item. Even otherwise Note 2(b) of the Chapter 90 clearly states that other “parts and accessories if suitable for use solely or principally with a particular kind of machine, instrument or apparatus, or with a number of machines, instruments or apparatus of the same heading are to be classified with the machines, instruments or apparatus of that kind”. It follows that by applying Note 2(b) of Chapter 90, the part of the “Mass Chromatograph” imported by the appellant is required to be classified. The importers have shown in such Heading 9027.90 the value of the software separately as required by the Customs Valuation Rules for the purpose of valuation only. Merely because they have shown the value separate it does not mean that the software is an independent item requiring classification under sub-heading 85.24.

7. In the cited ruling, the item was `Densitometer TLC aluminium sheets Silica Gel’ which had assumed as an essential character of a part of a Chromatograph. The Bench after a detailed examination of the technical literature held that the said imported item being a part of Chromatograph was required to be classified under sub-heading 9027.20 which covers `Chromatograph’. The ratio of the cited ruling is fully applicable to the facts of the case. In the result, we set aside the impugned order and allow the appeal.

Equivalent 1996 (87) ELT 640 (Tribunal)

Equivalent 1996 (016) RLT 0152 (CEGAT-B)