Anjaleem
Enterprises Pvt. Ltd. Vs. Commissioner of Central Excise, Ahmedabad [2006] Insc
21 (16 January 2006)
Ashok
Bhan & S.H. Kapadia Kapadia, J.
The
following two questions arise for determination in this civil appeal filed by
the assessee under Section 35-L(b) of the Central Excise Act, 1944 (for short
'the Act'):
-
Whether a programmed or designed
EPROM is an integral part of STD- PCO Unit; and
-
Whether the appellant herein was
entitled to exemption under notification No.84/89 CE dated 1.3.1989 which required
the appellant to show that the programmed EPROM was a "recorded
medium" under chapter heading 85.24 read with note 6 to Chapter 85 of the
1985 Tariff Act.
During
the period October 1992 to March 1993 appellant was the manufacturer of STD-PCO
unit. The said unit was a computer based equipment. The said unit was used to
identify the time of the day and day of the week, the time when the telephone
calls were made; to recognize whether the phone was on-hook or off-hook and to
record the duration of a call.
The
appellant filed classification list dated 29.5.1992 under which the appellant
classified the above unit as an equipment under CH 85.17. In the said
classification list, the appellant classified programmed memory chips, EPROM,
under CH 85.24 and claimed exemption as a recorded medium under notification
No.84/89 CE dated 1.3.1989.
Vide
show-cause notice (for short 'SCN') dated 2.4.1993 the Assistant Collector (AC)
stated that the programmed memory chip was an integral part of STD-PCO unit,
without which the unit was non- functional. According to the SCN, the programme
recorded in the memory chip, EPROM, could be used with STD-PCO unit only in a
particular telecom region and, therefore, the said chip was an essential
component of the STD-PCO unit.
According
to the SCN, the appellant was not entitled to the benefit of exemption as the
said chip was not covered under CH 85.24 as claimed by the appellant. According
to the department, the said chip was classifiable as an integral part of
STD-PCO unit under CH 85.17. Accordingly, the department called upon the
appellant to show cause as to why duty amounting to Rs.21.50 lacs for the above
period should not be recovered under section 11A of the Act.
At
this stage, we may clarify that on the question of extended limitation the
appellant has succeeded and since the department has not come in appeal, we are
not required to examine that aspect of the matter.
By
reply dated 24.5.1993, the appellant submitted that it had imported EPROMs from
abroad or it had obtained EPROMs from the open market. According to the
appellant, empty EPROMs were subjected to programming by the appellant who had
designed a programme which was loaded into the blank EPROMs. The appellant
submitted that a computer software is a designed programme recorded on a media
commonly called as a "recorded medium". Such recorded medium can be
played in a computer or in any other system based on microprocessors. The
appellant conceded that STD-PCO unit was classifiable as an equipment under CH
85.17, however, it contended that the programmed EPROM was a "recorded
medium" classifiable under sub-heading 8524.90. According to the
appellant, a programmed EPROM was classifiable only under sub-heading 8524.90
in view of note 6 to chapter 85, notwithstanding the fact that such recorded
media was equipped with or without an apparatus. It claimed exemption under
notification No.84/89-CE dated 1.3.1989 on the ground that the said exemption
notification gave exemption to softwares falling under heading 85.24 from whole
of duty of excise. In the circumstances, the appellant contended that the
department was not entitled to include the value of the programmed EPROM in the
assessable value of STD-PCO unit and that the unit was classifiable under
heading 85.17 whereas the programmed EPROM was classifiable under heading
85.24. The appellant contended, inter alia, that sub-heading 8524.30 covered
recorded magnetic disks, such as, a floppy containing a computer programme
whereas all other types of recorded media stood covered under sub-heading
8524.90 and, therefore, even if a recorded EPROM was considered to be an
integral part of STD-PCO unit the recorded EPROM was required to be separately
classified under sub- heading 8524.90 in view of note 6 to chapter 85.
According
to the appellant, even if a particular component or a part was most essential
for a machine, it was not always classifiable with the machine, if otherwise,
the said component came under a specific head for its classification. In this
connection, reliance was placed on note 2 to section XVI of the schedule to the
1985 Tariff under which chapter 85 falls. Therefore, according to the
appellant, in the present case, the programmed EPROM was a recorded media which
fell under a specific entry, viz., 8524.90 and, therefore, was not classifiable
under heading 85.17. The appellant also contended that the programmed EPROM was
a computer software under heading 85.24 and, therefore, the appellant was
entitled to exemption under notification No.84/89 dated 1.3.1989.
By
order dated 24.3.1994 the Assistant Collector held that EPROMs were integrated
circuits (chips); that, the recorded EPROMs were meant for certain functions to
be performed by STD-PCO unit; that, the recorded EPROMs were integral parts of
STD-PCO unit and, therefore, such recorded EPROMs came under heading 85.17. In
this connection, reliance was placed on note 2(a) to section XVI, under which
chapter 85 fell. The AC further held that the appellant was not entitled to
claim the benefit of exemption under notification dated 1.3.1989 because that
notification warranted two conditions to be satisfied by the appellant, namely,
that the product should be a computer software and it should fall under heading
85.24.
The AC
further held that recorded EPROMs were integrated circuits (ICs) under heading
85.42; that, even as a final product, and not as a component of STD-PCO unit,
the said EPROM would fall under heading 85.42, therefore, in any view of the
matter, the appellant was not entitled to exemption under notification dated
1.3.1989 read with tariff item 85.24. In the circumstances, it was held that
the value of recorded EPROMs was includible in the assessable value of STD-PCO
unit under heading 85.17.
The
order passed by the AC was confirmed in appeal by the Collector (Appeals) and
also by the tribunal. Hence this civil appeal. Shri Ramesh Singh, learned
counsel appearing on behalf of the appellant submitted that the STD- PCO unit
was classifiable under CH 85.17 as electrical apparatus for line telephony;
that, the said equipment has an inbuilt microprocessor classifiable under CH
84.71; that, in order to perform various tasks, the microprocessor requires a
software/programme; that, programme in question was developed by the appellant;
that, the said programme was recorded on EPROM (a medium) classifiable under CH
85.42 as an integrated circuit; that, the appellant bought blank EPROMs from
the market @ Rs.149/- each; that, the appellant encoded the programme developed
by it on the blank EPROM, which programme was erasable by ultra violet
radiation. According to the appellant, the said software was area specific.
According
to the appellant, the recorded EPROM was sold @ Rs.6450/-; that, the STD-PCO
equipment was sold @ Rs.8453/-. Learned counsel submitted that the programmed
EPROM was classifiable under CH 85.24; that, the said EPROM was not
classifiable under CH 85.17 and accordingly, its value was not includible in
the total assessable value of STD-PCO unit, because once a software stood
recorded on the blank EPROM, the blank EPROM no longer continued to remain as
electronic integrated circuit; that, the essential character of the recorded
EPROM was that of computer software classifiable under CH 85.24 as a recorded
media; and that, the only function of EPROM was that of a recorded media. In
this connection, learned counsel placed reliance on the judgment of this court
in the case of Sprint RPG India Ltd. v. Commissioner of Customs-I, Delhi
reported in (2000) 2 SCC 486. Learned counsel further submitted that once the
programmed EPROM stood classified under CH 85.24, then, even if it was cleared
along with STD-PCO unit, classifiable under CH 85.17, the said EPROM remained
classifiable under CH 85.24. In this connection, learned counsel placed
reliance on note 6 to chapter 85. Reliance was also placed on the judgments of
this court in the case of Commissioner of Central Excise v. Acer India Ltd.
reported in (2004) 8 SCC 173 and in the case of PSI Data Systems Ltd. v.
Collector of Central Excise reported in (1997) 2 SCC 78.
Shri
T.M. Mohd. Yusuf, learned senior counsel appearing on behalf of the department,
on the other hand, submitted that note 6 to chapter 85 was not applicable for
the computer-based product, namely STD-PCO unit, as the programmed EPROM
constituted an inbuilt component of the final STD- PCO unit. Learned counsel
submitted that as a programmed EPROM constituted an integral part of the
STD-PCO unit, such EPROMs did not fall under CH 85.24 as they were neither
recorded media falling under CH 85.24 nor could they be cleared along with an
apparatus as they constituted an integral part of the STD-PCO unit. Learned
counsel submitted that what was cleared from the factory gate of the assessee
was STD-PCO unit which contained a component called "the recorded EPROM".
In this connection, reliance was placed on note 2(b) to section XVI in which
chapter 85 falls.
Learned
counsel submitted that the programmed ICs were integral parts of the STD-PCO
units without which the units were non-functionable.
Hence,
the appellant was not entitled to claim exemption under notification no.84/89
and the value of the programmed EPROM was includible in the value of the
STD-PCO unit.
Before
dealing with the arguments, it is necessary for us to set out the relevant
entries from the Tariff Act, 1985 as under: - SECTION XVI:
MACHINERY
AND MECHANICAL APPLIANCES;
ELECTRICAL
EQUIPMENT; PARTS THEREOF;
SOUND
RECORDERS AND REPRODUCERS, TELEVISION IMAGE AND SOUND RECORDERS AND
REPRODUCERS, AND PARTS AND ACCESSORIES OF SUCH ARTICLES.
Notes:
-
Subject to Note 1 to this Section, Note 1 to Chapter 84 and
to Note 1 to Chapter 85, parts of machines (not being parts of the articles of
heading No.84.84, 85.44, 85.45, 85.46 or 85.47) are to be classified according
to the following rules:-
-
Other parts, if
suitable for use solely or principally with a particular kind of machine, or
with a number of machines of the same heading (including a machine of heading
No.84.79 or heading No.85.43) are to be classified with the machines of that
kind.
However,
parts which are equally suitable for use principally with the goods of heading
Nos.85.17 and 85.25 to 85.28 are to be classified in heading No.85.17.
CHAPTER
85:
ELECTRICAL
MACHINERY AND EQUIPMENT AND PARTS THEREOF; SOUND RECORDERS AND REPRODUCERS,
TELEVISION IMAGE AND SOUND RECORDERS AND REPRODUCERS, AND PARTS AND ACCESSORIES
OF SUCH ARTICLES.
Notes:
-
For the purposes of heading Nos.85.41 and 85.42:
-
"Diodes,
transistors and similar semi- conductor devices" are semi-conductor
devices the operation of which depends on variations in resistivity on the
application of an electric field;
-
"Electronic
integrated circuits and microassemblies" are:
-
Monolithic
integrated circuits in which the circuit elements (diodes, transistors,
resistors, capacitors, interconnections, etc.) are created in the mass
(essentially) and on the surface of a semi-conductor material (doped silicon,
for example) and are inseparably associated;
-
Hybrid
integrated circuits in which passive elements (resistors, capacitors,
interconnections, etc.), obtained by thin-or thick-film technology, and active
elements (diodes, transistors, monolithic integrated circuits, etc.), obtained
by semi-conductor technology, are combined to all intents and purposes
indivisibly, on a single insulating substrate (glass, ceramic, etc.). These
circuits may also include discrete components;
-
Microassemblies
of the moulded module, micromodule or similar types, consisting of discrete,
active or both active and passive, components which are combined and interconnected.
For
the classification of the articles defined in this Note, heading Nos.85.41 and
85.42 shall take precedence over any other heading in the Schedule which might
cover them by reference to, in particular, their function.
-
Records, tapes and other media of heading No.85.23 or 85.24
remain classified in those headings, whether or not they are cleared with the
apparatus for which they are intended.
Heading
No.
Sub-
heading No.
Description
of goods Rate of duty (1) (2) (3) (4) 85.17 8517.00 Electrical apparatus for
line telephony or line telegraphy, including such apparatus for carrier-current
line systems.
20%
85.24 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.
8524.10
Gramophone records.
30%
Magnetic tapes:
8524.21
Audio tapes in any form.
30%
plus Rs.8 per square metre.
8524.22
Audio cassettes.
30%
plus Rs.2 per cassette.
8524.23
Video tapes in any form.
30%
plus Rs.18 per square metre.
8524.24
Video cassettes.
30%
plus Rs.40 per cassette.
8524.29
Other 30% 8524.30 Magnetic discs.
30%
8524.90 Other.
30%
85.42 8542.00 Electronic integrated circuits and microassemblies. 15% We also
set out exemption notification no.84/89-CE dated 1.3.1989 hereinbelow:-
"Exemption to computer software. In exercise of the powers conferred by
sub- section (1) of section 5A of the Central Excises and Salt Act, 1944 (1 of
1944), the Central Government, being satisfied that it is necessary in the
public interest so to do, hereby exempts computer software, falling under
Heading No.85.24 of the Schedule to the Central Excise Tariff Act, 1985 (5 of
1986), from the whole of the duty of excise leviable thereon which is specified
in the said schedule." At the outset, we may point out that the dispute
involved in the present case concerns valuation. In the matter of valuation,
one of the important aspects to be taken into account is the condition of the
goods/product at the time the goods leave the factory. In the present case one
has to see at the "condition" of STD-PCO unit at the time of
clearance and, therefore, the issue which arises for consideration, in the
first instance, is whether the recorded EPROM was an essential component of the
said STD-PCO unit for making it operational. The authorities below have
concurrently found that the programmed EPROM was an integral part of the unit;
that, it served the purpose of transmitting electronic instructions for the
performance of the unit; that, the recorded EPROM was a part of the unit and
that the said EPROM was an essential component of the unit for making it
operational after plugging in with telephone line and, therefore, the said
EPROM constituted an integral part of the STD-PCO unit.
Conceptually,
one has to keep in mind the subject- matter of the levy. In the present case,
the subject- matter of the levy is STD-PCO unit, as a final product. The
subject-matter of the levy in the present case is not the recorded EPROM. The
question before us is whether the appellant was entitled to claim deduction of
the value of the programmed EPROM from the assessable value of STD-PCO unit. It
was the case of the appellant before the department that the value of the
recorded EPROM was not includible in the assessable value of STD-PCO unit on
the ground that blank EPROM was a medium in which the programme was encoded;
that, it was similar to a programme being put in a floppy; that, the recorded
media came under tariff item 85.24 and, therefore, the appellant was entitled
to the benefit of exemption under notification dated 1.3.1989. Admittedly, in
the present case, the appellant had classified the said unit under CH 85.17.
There can hardly be any doubt that the price of a component will form part of
the final cost of the unit and hence includible in its assessable value. The
manufacturer takes into account, in deciding the cost of the said unit, the
cost incurred for its manufacture and, therefore, unless the sale price of the
said unit is arrived at on a basis independent of the cost of manufacture (if
law so permits) the cost of the recorded EPROM has got to be included in the
assessable value of the unit. Under note 2 to section XVI, parts or components
of a machine are required to be classified with the machine which, in the
present case, was STD-PCO unit classifiable under heading 85.17. Accordingly,
each of the units cleared from the factory by the appellant in its completed
form which included the programmed EPROM was classifiable under tariff item
85.17. The line telephone device (unit) was not complete without the programmed
EPROM for its functioning.
Therefore,
the department was right in classifying the unit under tariff item 85.17 and
further it was right in including the value of the programmed/recorded EPROM in
the assessable value of the unit.
In the
present case, the appellant submitted that it was entitled to claim the benefit
of exemption under the above notification dated 1.3.1989; that, it had bought
blank EPROM from the market which was programmed/designed by the appellant;
that, the recorded EPROM constituted a "recorded medium" under tariff
item 85.24; that, under note 6 to chapter 85, recorded media would remain
classifiable under tariff item 85.24, whether or not such recorded media was
cleared with or without the apparatus and, therefore, its value was not
includible in the assessable value of the unit (apparatus). It was vehemently
urged on behalf of the appellant that the general principle of valuation
supported by note 2(b) to section XVI was not applicable particularly in view
of note 6 to chapter 85 and, therefore, the value of the "recorded
medium" was not includible in the assessable value of the unit.
In the
light of these arguments, the question which arises for determination is the
meaning of the word "recorded medium" in tariff item 85.24. At this
stage, we may reiterate that the appellant has claimed exemption, therefore,
the burden was on the appellant to show that the programmed EPROM constituted a
"recorded media" under tariff item 85.24. It is in this context that
the matter was examined by the department which came to the conclusion that
EPROM was basically a chip or an IC classifiable under tariff item 85.42 and,
therefore, on facts the authorities found that tariff item 85.24 had no
application to the facts of this case.
The
controversy on classification, therefore, is : whether the essential character
of the programmed EPROM, in the present case, as an IC changed to become a
"recorded media" or a software under CH 85.24.
The
main components of a computer system are central processing unit, memory and
disk store [See: Oxford Illustrated Encyclopedia of Invention and Technology 1992
Edition, page 183]. A floppy is a dumb storage box. It is different from a chip
or an integrated circuit which performs intelligent functions. An integrated
circuit (IC) is often referred to as a micro-chip or a chip. It is a
miniaturized electronic circuit consisting of semi- conductor devices. A
'memory' is the most regular type of integrated circuit [See:
www.en.wikipedia.org]. According to www.whatis.com, an 'IC', sometimes called a
chip or micro-chip, is a semi-conductor wafer on which thousands of capacitors
and transistors are fabricated. Unlike a floppy or a disk (which is removable
from the system) an 'IC' can function as an amplifier, timer, counter, computer
memory and as a microprocessor. It is not easily removable.
Therefore,
an 'IC' or a chip cannot be compared to a floppy which is merely a storage
device similar to an empty box or a suitcase.
In the
entire controversy before us, the appellant has tried to compare a floppy
containing a programme with an IC in which the programme is electronically
embodied. The functions which an IC performs, as enumerated above, are
intelligent functions which are not performed by a floppy. A floppy cannot be
used as a timer or amplifier. An IC is more than a storage device.
"EPROM"
stands for Erasable Programmable ROM.
The word 'ROM' is an acronym for 'Read Only Memory', a type of unchangeable
memory residing in chips or the ICs on the mother board.
ROM
contains bare minimum of instructions needed to start a computer. It is used
for critical functions. It is similar to municipal utilities such as gas and
electricity. If a different configuration is required, one has to move to a
different computer.
ROM is
sometimes wrongly compared to a storage media such as CD-ROMs [See:
utut.essortment.com]. ROM chips have programmes built into them at the factory.
ROM chips are not volatile. The expression, "Read Only" means that
CPU can read or retrieve the programmes written on the ROM chips. ROM chips
contain special instructions for detailed computer operations. For example, ROM
instructions may start the computer, give keyboard keys their special control
capabilities, and put characters on the screen. ROMs are generally called as
Firmware [See: "Computing Essentials" by Timothy J. O'Leary &
Linda I. O'Leary 2002 Edition].
According
to the Illustrated Dictionary of Computing by Jonar C. Nader 3rd Edition,
"ROM" is a hardware which is used to store permanent instructions for
the computer's general housekeeping operations. A user can read and use the
data stored in ROM, but cannot change them.
When a
computer is turned on, ROM supplies a series of instructions to CPU which in
turn performs a series of tests. EPROM, on the other hand, according to the
same dictionary, is an erasable programmable ROM. Initially, users had to supply ROM vendor with an
inter-connected program so that the vendor could build the ROM.
To
avoid this high set-up charge, manufacturers developed a user-programmable ROM
(PROM). A 'PROM' is just like a ROM.
Similarly, as an alternative, with the development of technology, in the year
1973 Intel Corporation came out with EPROM. When the chip was exposed to
ultra-violet radiation the memory could be erased and replaced by a new memory.
Therefore, EPROM is a re- writable memory chip. The only difference between ROM
and EPROM is that EPROM holds its content without power. EPROM chips are
written on an external programming device before being placed on the circuit
board [See: www.answers.com]. The word "programmable" means that
EPROM can be programmed with data, program or both whereas 'ROM" means
that the computer which is connected to the EPROM can only get information from
the chip or IC. It cannot put information into the chip.
In
short, EPROM is a memory part which will not forget its program or data when
power is removed. EPROM has to be programmed by a special programming product
called an EPROM or a device programmer. The computer cannot store data in an
EPROM because the EPROM is a READ ONLY memory part [See: www.arlabs.com].
Lastly,
even under the scheme of the 1985 Tariff and the HSN, ICs (85.42), data
processors (84.71) and recorded media (85.24) are all separately classifiable.
Under the explanatory note to HSN (2nd Edition, 1996), at page 1234, separate
electrical parts have been classified under one or other of the headings of
chapter 85, for example, transistors, diodes and similar semiconductor devices,
stand classified under heading 85.41 while electronic integrated circuits are
classified under heading 85.42.
The
above discussion, therefore, shows that EPROM cannot be compared to a floppy.
As stated above, floppy is a dumb box. That is not the case with EPROM. EPROM
is basically an integrated circuit or a chip. We agree with the department.
EPROM
is, therefore, classifiable as an integrated circuit under tariff item 85.42.
The
question which remains to be answered is whether a programmed EPROM is a
recorded media under CH 85.24. It was argued before us that like CD-ROM or a
floppy which has a programme in it, EPROM is also a programmed device. It was
argued that blank EPROMs were purchased in which the appellant embodied its programme
and, therefore, the recorded EPROM constituted a recorded media under tariff
item 85.24.
We do
not find any merit in this argument. In a disk operating system, the basic
input is stored in a ROM which is transferred to RAM when the system gets
started. The input/output routines are written into the IC at the factory. The
point to be noted is that the ICs which contain semiconductor components like
diodes etc. have got to be embedded in the mother board. The ROM chip is fixed at
the factory. The chip is fixed in the computer and only then the programme
works.
Hence,
this is basic difference between a mere floppy which is a recorded media under
CH 85.24 and the IC under CH 85.42. In the former case, the program is a
software because a floppy is a storage in which software plays the dominant
role whereas in the case of IC the programme is embodied in the IC which can
perform various functions only when fixed to the mother board and is not
removable like a floppy from VCR. According to Encyclopedia of Technology Terms
by Whatis.com, an IC can function as an amplifier, oscillator, timer,
microprocessor etc. On the other hand, a floppy disk is only a storage.
Moreover the essential character of IC does not change with the programme being
embedded in the IC and hence the IC remains classifiable under CH 85.42. This
distinction is also brought out by tariff items referred to above (See:
Dictionary of Computing by Prentice Hall).
An
embedded system is a programmed hardware device. Software written for embedded
systems, especially those without a disk drive is called Firmware, the name for
software embedded in hardware devices e.g. in ROM IC chips. Many embedded
systems avoid mechanical moving parts, such as, disk drives, switches or buttons
because they are unreliable as compared to ROM or Fast Memory IC chips. It is
kept outside the reach of humans. In embedded systems, the software resides in
ROM IC chips. Embedded systems are combination of hardware and software like
ATMs, Cellular telephones etc. In embedded systems, the software resides in ROM
IC Chip (See: www.answers.com). These chips are more than mere carriers.
Example of embedded system: microwave ovens, cell phones, calculators etc.
In the
case of Office of Patent v. Gale reported in 1991 RPC 305 the Court of Appeal
held that if a programme is embodied in a floppy disk it becomes a software but
where the chip with its electronic circuit embodies a programme it becomes a
hardware. It has been further held that electronic circuitry in the form known
as ROM is an integrated circuit or a chip. In the said case it has been
observed by the Court of Appeal that ROM is an article which can be
manufactured. It is an article because its structure can be altered during the
manufacture so as to perform mathematical functions. It has been further
observed that there is a difference between a disk containing a programme and a
ROM with a particular circuitry embodying a programme. In the former case, the
disk carries the programme whereas in the latter case, a programme is used as
the basis for altering the structure of ROM. ROM is more than a carrier and,
therefore, it cannot be compared to a floppy or a disk. We may clarify that
Gale's case was on two aspects, viz., patent and difference between ROM and the
floppy disk. What is stated herein is on the second aspect which the Court of
Appeal decided.
To the
same effect is the ratio of the judgment of the US Supreme Court in the case of
Robert Gottschalk, Acting Commissioner of Patents v. Gary R. Benson 409 US 63.
Even
under HSN, entry 84.71 covers Data Processors, however, under the explanatory
note it is clarified, at page 1403, that devices working in conjunction with
such processors have to be classified not under 84.71 but with reference to their
specific function. Therefore, devices like ICs, as in the present case, which
help the processor to function can only fall under 85.42 (in cases where such
ICs are the final products) and where they form an integral part of a machine
like STD-PCO unit, they have to be classified under heading 85.17, hence, it
will not fall under heading 85.24 as claimed by the appellant (See: page 1408
of HSN 2nd Edition, 1996). As stated above, a disk with a programme is a
software. However, a ROM with a particular circuit in which a programme is
structured remains an IC.
In the
case of PSI Data Systems Ltd. (supra) the department had conceded that the item
in question was a software. Further, in that matter the subject-matter of the
levy was a software, as a final product, sold with the computer. On the other
hand, in the present case, the subject-matter of the levy is STD-PCO unit. The
question before us in the present case is whether the programmed EPROM
constituted an integral part of the STD-PCO unit classifiable under CH 85.17.
As stated hereinabove, the programmed EPROM was a ROM with a circuit in which
the programme was embodied. Therefore, the judgment of this Court in the case
of PSI Data Systems Ltd. (supra) is not applicable to the facts of the present
case. In fact, in para 2 of the judgment of this Court in PSI Data Systems,
this Court has made a clear distinction between softwares, such as, disks,
floppies, CD- ROMs etc. on the one hand vis-`-vis softwares which are etched
into the computer. Therefore, the judgment in the case of PSI Data Systems has
no application. On the contrary, it supports our interpretation in the present
case.
In the
case of Sprint RPG India Ltd. (supra) this Court observed that hard disk is a
refined form of floppy which records material in an efficient manner. In that
case, the question was classification, namely, whether duty was leviable on
software loaded on a hard disk drive under heading 84.71 or under 85.24. This
Court held that a hard disk was a form of floppy on which the programme was
stored and, therefore, the character of such a programme did not change and,
therefore, the imported item was a software which was stored in the hard disk
and, therefore, it was classifiable under CH 85.24. In that matter the question
of a software being an integral part of a machine like STD-PCO unit was not
there. In that matter there was no duty imposed on the unit or machine. The
question in that matter was regarding levy of duty on a floppy with the
software. In that matter the question of the integrated circuit did not arise.
In that matter the interpretation of entry 85.42 was not at all considered.
Hence, the judgment of this Court in Sprint RPG India Ltd. (supra) has no
application to the facts of the present case.
In the
case of ACER India Ltd. (supra) the demand raised by the department was for the
period July 2001 to May 2002. In the year 2000 the Excise Act was amended and
the concept of "transaction value" came to be introduced for the
first time. Further, the argument on behalf of the department was that the
loading of operational software was includible in the value of the computer
manufacture by the assessee after 1.4.2000 when the concept of transaction
value came to be introduced. In the circumstances, the judgment of this Court
in ACER India Ltd. (supra) has no application to the facts of the present case.
Further,
in the case of ACER India Ltd. (supra), the subject-matter of the levy was a
computer whereas the subject-matter of the levy in the present case is STD-PCO
unit. The concurrent finding of all the courts below indicate that, in the
present case, the programme was etched in a particular form of circuit known as
ROM which is required to be fixed to the mother board and only on such fitment
the STD-PCO unit became operational. Therefore, the judgment of this Court in
ACER India Ltd. (supra) has no application to the facts of the present case.
In
fact, in the judgment of this Court in ACER India Ltd. (supra) the Court was
not required to examine the scope of CH 85.42.
Before
concluding, we reiterate that in the present case, the levy is on a computer
based embedded system. The software embedded in the programmed EPROM, which is
an IC chip, constitutes the "brain" of the system. The programmed
EPROM is an integral part of the system. The levy is on the unit. The levy is
not on the programmed EPROM. The programme embedded is not an easily removable.
Hence, it will not fall in the category of recorded media under tariff item
85.24 and remains an IC under tariff item 85.42.
For
the aforestated reasons, we do not find any merit in this civil appeal which is
accordingly dismissed with no order as to costs.
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