2000(04)LCX0270

IN THE CEGAT, WEST ZONAL BENCH, MUMBAI

S/Shri Gowri Shankar, Member (T) and J.N. Srinivasa Murthy, Member (J)

BPL MOBILE COMMUNICATIONS LTD.

Versus

COMMR. OF CUS. ACC, MUMBAI

Order Nos. 1948 to 1951/2000-WZB/C-I, dated 11-4-2000 in Appeal Nos. C/1197 to 1199 & 1067/99-Bom.

“Sub: Computer Software - Scope of exemption Under S. No. 173 of Notification No. 11/97-Cus, dated 1-3-1997 - Reg.

I am directed to state that reference have been received from the assessees and the field formations regarding the scope of ‘Computer Software’ for the purpose of exemption under S. No. 173 of Notification No. 11/97-Cus dated 1-3-1997. References have also been received from the field formations whether the benefit of exemption is applicable to software used in telecom equipment or medical equipment.

2.  The matter has been carefully examined. The Notification uses the expression ‘Computer Software’. For Customs purposes, the word ‘Computer’ has to be interpreted as an automatic data processing machine falling under heading No. 84.71 of the First Schedule to the Customs Tariff Act.

3.  ‘Software’ means any representation of instruction data. Sound or Image including source code and object code recorded in a machine-readable form and capable of being manipulated as provided interactivity to a user by means of an automatic data processing machine. However, it is to be appreciated the exemption under S. No. 173 of Notification No. 11/97-Customs is to ‘Computer Software’ and not to ‘Software’ in general and is to be interpreted strictly on its own terms.

4.  Having regards to the discussion above, it is clarified that for the purpose of exemption under S. No. 173 of Notification No. 11/97-Cus dated 1-3-1997 computer Software is to be taken to mean any representation of instructions data, sound or image including source code and object code recorded in a machine readable form and capable of being manipulated or providing interactivity to a user by means of an automatic data processing machine falling under heading 84.71. Thus, the said exemption will be (not) (sic) cover software required for operation of any machine performing a special function other than processing and incorporating or working in conjunction with an automatic data processing machine. More specifically, software for telecom medical or other applications is not eligible for exemption from duty. However, software-containing encyclopedia, games, books, etc., will be eligible for the exemption whether they satisfy the interactivity criterion.

5.  The pending assessment may be finalised in the light of the above clarification.

6.  Notification No. 11/97-Customs is being amended suitably to put the matter beyond any doubt. Copy of the amending Notification follows.”

2.  It will be evident that the circular proceeds on an assumption that the term ‘computer’ occurring in the exemption is to be limited to such computer as can be considered to be automatic data processing machines classifiable under heading 84.71 of the tariff. Paragraph 4 of the circular makes this further clearer by saying that exemption will cover software required for operation of any machine performing of special functions other than the processing and incorporating or in conjunction with an automatic data processing machine, more specifically software for telecom, medical and other applications is not eligible for exemption from duty.

3.  The contention of the advocate for the appellant that the term ‘computer’ would include a number of different varieties of data processing machines other than those specified in 84.71 has to be accepted. The Tribunal in appeals E/1130/95 and 1186/96 had occasion to consider whether those integrated circuits which performs the functions of microprocessors are computers. After considering the literature it concluded that such microprocessors, which are data processing machines, are themselves computers. This is in fact evident from the reading of the Explanatory Notes to the Harmonized System for Nomenclature. The notes under heading 84.71 exclude electronic integrated circuits and microprocessor assemblies used as central processing unit from classification under that heading and classify them under heading 84.42. Notes to chapter 84 in turn confirm classification under this heading of integrated circuits which is used as processing unit which themselves has application as micro processing. Such microprocessor would therefore be computers and generally understood, even if they are classified under heading 84.71. They confirm to the definition of the term. The McGraw-Hill Dictionary on Scientific and Technical Terms defines a computer as “a device that receives, processes and presents data” Literature produced by the appellant also confirms this view. The book ‘An Introduction to Computer Studies’ by Noel Kalicharan of the Cambridge University Press includes such microprocessors, special processor computers which are within the term computer. It is the same view taken in ‘Mini and Microcomputer Systems’ by M.G. Hartley and others published by English Language Book Society/Macmillan which makes a distinction between micro processor and mini computers and main frame computers.

4.  The circular of the Ministry itself accepts this distinction when it says ‘for customs purpose’ the computer must be considered one classified under heading 84.71. That is in our view an arbitrary discrimination, which is not supported by the wording of the notification. Its effect is to read the notification as software intended for use in or by computers classifiable under heading 84.71. The words in a notification have to be construed strictly, and according to their plain ordinary meaning. By doing so we understand that the exemption will be available to such software as is used by any computers, as they are generally understood. This would include computers other than those classifiable under heading 84.71. This view, in fact, is confirmed by the reference, which the department itself made to the Department of Electronics. There was correspondence between the Additional Commissioner of Customs and the Department of Electronics as to the scope of the term ‘computer software’ occurring in the notification. In reply to a specific query by the Additional Commissioner of Customs as to a mobile switch center software, one of the types imported by the appellant before us, is computer software. The Department of Electronics had said, on further clarification in the letter dated 25-3-1997 of Mrs. Harsh Prabha, Senior Scientific Officer that a computer is a general purposes devices that could be deployed for various end applications depending on software used. Flexibility of the intended application list 26 for the software must therefore in a proper term, other than audio video software is to be treated as computer software for the purpose of grant of exemption under notification 3/98 dated 11-2-1998 telecom software is software and hence the MSC (mobile switching centre) is a computer software.

5.  Even on the assumption which the department’s circular seeks to make that computer software would be available only to those computers which are classifiable under 84.71, it would be difficult to agree with the view as spelt out in the 4th paragraph of the circular, seeking to deny exemption to software required for operation of any machine performing a specific function other than data processing and incorporating or working in conjunction with an automatic data processing machine. (There is clearly an error in the second sentence of that paragraph. The word ‘not’, which should be present between the terms ‘machines’ and ‘performs’ is absent). This is in line with the provisions of Note 5(E) to chapter 84 of the tariff. The object of this note is to ensure that machines which are intended for purposes other than data processing, but which incorporate, or work in conjunction with data processing machines are to be classified, not as such data processing machines but in terms of their functions. Thus for example a machine tool and which incorporates a computer would be classifiable as a machine tool, not as a computer. Similarly a navigational apparatus for an aircraft which is computer controlled would be classified as such apparatus and not as a computer.

6.  However, that does not detract from the very fact that the data processing machines which are incorporated, in or used with such machines, are by themselves data processing machines. If they were separately imported, for example, such data processing machines would be classifiable as data processing machines and not with reference to the machines in which they may be incorporated on in conjunction with they may work. The software for such machines would be in any case be software for data processing machines. We must also note that the tariff nowhere provides for classification of ‘computers’. The terms it uses are data processing machines and equipment therefor. In construing the meaning of the term in notification which is not found in the tariff, we must apply its meaning as generally understood. That is what we have done. This is made clearer by the fact that the notification was amended by notification 103/98. After the amendment software required for operation of any machine performing a specific function of data process by incorporating or working in conjunction with an automatic data processing machine is specifically excluded by the explanation. However, this explanation was not present when the software in question was imported. The software in question was entitled to exemption under notification.

7.  Appeals are allowed, impugned order set aside.

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Equivalent 2000 (126) ELT 986 (Tribunal)

Equivalent 2000 (040) RLT 0249