of Customs, Bangalore Vs. M/S. N.I. Systems India P. Ltd.  INSC 503 (15
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL No.5394/2010
(D 4818/2010) Commissioner of Customs, Bangalore ... Appellant (s) Versus M/s.
N.I. Systems (India) P. Ltd. ... Respondent(s)
M/s. N.I. Systems (India) Private Limited (hereinafter referred to
as "importer") is a 100% subsidiary of N.I. Corporation at Austin,
Assessee imports various products from its Holding Company and
supplies the same to its customers in India.
the relevant assessment year, the assessee imported various products from their
Principal. The products were computer based instrumentation products. The
importer filed 64 bills of entries. The importer claimed the items to be
computers and/ or parts of computers. The importer grouped the items in
accordance with similar/ identical functions broadly under CTH 8471, 8473 and
other headings falling under Chapter 84. Broadly, the importer categorized the
imported items as follows:
Controllers (ii) Input/Output Modules (also known as Modem or Control/Adaptor
Units) (iii) Signal Converters.
Chassis and its parts.
On verification of the technical data (including the catalogue and
the webcast of the importer), the Original Authority ("O.A.") vide
its decision dated 15.11.2006 held that the subject goods were not structurally
designed to function as a computer.
according to the O.A., in the ordinary course of trade no buyer will purchase
the subject goods as computers on account of price differential between the
price of the subject goods and the price of the computer. According to the
O.A., the subject goods stood manufactured for a special purpose and that
purpose was either measurement or control. According to the O.A., the importer,
in this case, had conceded before it that a complete system performs the
function of measurement whereas if one looks at the subject goods item-wise, it
shows that each item performs a sub-function of data acquisition processing. On
the basis of the said concession, the O.A. concluded that each imported item
constituted a part of a complete Measurement System. According to the O.A., if
one applies the test of common parlance then the subject goods are
measuring/controlling instruments and even in trade parlance they are not known
as computers. Lastly, the subject goods are costlier than ordinary computer and
the trader buys them because of their enhanced capabilities for the purposes of
measuring/controlling instruments. According to the O.A., the subject goods are
specially designed for industrial use which is indicated by the catalogue
submitted by the importer. The embedded controllers may perform all functions
of a CPU but, according to the O.A., the embedded controllers are not CPUs.
According to the O.A., one more concession is made by the importer. In its
reply to the show cause, the importer stated that they use real-time operating
systems (software) and not the standard operating systems such as Microsoft
Windows. Accordingly, the O.A. held that controllers are manufactured for a
specific purpose and not as ADP Machines. The specific purpose being
controlling/measurement as enumerated in the catalogue. In the circumstances,
the O.A. has broadly classified embedded Controllers, Programmable Automation
Controllers ("PACs"), Data Acquisition Boards, Digital Input Output
Boards, PXI Chassis etc. under Chapter 90. The O.A. has rejected the
classification sought by the importer under CTH 8471.
Aggrieved by the decision of the Additional Commissioner dated
15.11.2006, the importer preferred Appeal No. 98/07-CUS(B) before Commissioner
of Customs (Appeals). Vide decision dated 31.7.2007, the Commissioner (A)
dismissed the appeal preferred by the importer.
Against decision dated 31.7.2007, the importer preferred Customs
Appeal No. 678/07 before CESTAT. Vide its decision dated 29.6.2009, the
Tribunal held that the main item of import was PXI Controller and other
Controllers. According to the Tribunal, these imported Controllers were nothing
but ADP Machines. According to the Tribunal, the importer had placed before it
the sample of imported items with enormous data including a diagram which read
Controllers = Computers = Data Processing Machines"
10 of presentation of the importer company]
According to the Tribunal, the diagram, on which reliance was
placed by the importer, indicated that both PC and PXI Controller had a
structure/ design which was common to Automatic Data Processing Machines.
According to the Tribunal, PXI controller in itself is not a measuring
instrument; that the input of PXI Controller is only in the digital form as in
the case of a PC; that PXI Controller is in turn connected with the processors,
motherboard, hard drive with Windows XP, Serial Port, USB Port, Video Port,
Ethernet Port, etc. According to the Tribunal, since the PXI Controller is
identical in function to the normal home computer, both the items are
comparable. According to the Tribunal, a PXI Controller acts as a Central
Processing Unit for the entire PXI system. According to the Tribunal, a PXI
Controller processes the data that enters from the external peripherals such as
a mouse and a keyboard as well as from the internal peripherals such as PXI
Signal Converting Modules (Cards). There is no difference between a PXI
Controller and a PC. Thus, according to the Tribunal, a PXI Controller and
other Controllers imported by the assessee are all ADP Machines. According to
the Tribunal, all the imported Controllers carry out the functions of ADP
Machines. According to the Tribunal, each and every imported Controller retains
the characteristics of ADP Machine. According to the Tribunal, a PXI Controller
can be used for a variety of applications ranging from advanced data
acquisition to automatic manufacturing which clearly indicated that the
imported items were not measuring instruments or their parts as claimed by the
Department. According to the Tribunal, the imported items cannot be categorized
as measuring instruments. According to the Tribunal, PXI Controller per se is
not a measuring instrument. It can be used only in conjunction with an
independent measuring instrument with suitable interface, hence, the PXI
Controller/ other Controllers imported by the assessee cannot be classified
under Chapter 90 of the Customs
Tariff Act, 1975. Hence, this Civil Appeal is filed
by the Department against the decision of the Tribunal dated 29.6.2009 in
favour of the importer.
Provisions of CTA:
Before proceeding further, we need to quote hereinbelow the
relevant entries referred to in the Customs Tariff (2004-2005). At the outset,
it may be mentioned that Chapter 84 finds place in Section XVI which deals with
machinery and electrical equipments. The Section Note to Section XVI states
that Section XVI does not cover articles falling in Chapter 90.
and 4 to Section XVI read as under:
Unless the context otherwise requires, composite machines consisting of two or
more machines fitted together to form a whole and other machines designed for
the purpose of performing two or more complementary or alternative functions
are to be classified as if consisting only of that component or as being that
machine which performs the principal function."
Where a machine (including a combination of machines) consists of individual
components (whether separate or interconnected by piping, by transmission
devices, by electric cables or by other devices) intended to contribute
together to a clearly defined function covered by one of the headings in
Chapter 84 or Chapter 85, then the whole falls to be classified in the heading
appropriate to that function."
Note 5(A) to Chapter 84 defines the expression "automatic
data processing machines". Note 5(B) to Chapter 84 clarifies that an ADP
may be in the form of systems consisting of variable number of separate units.
hereinbelow, Notes 5(A) and 5(B) to Chapter 84, which read as follows:
For the purposes of heading 8471, the expression "automatic data
processing machines" means:
digital machines, capable of (1) storing the processing programme or programmes
and at least the data immediately necessary for the execution of the programme;
(2) being freely programmed in accordance with the requirements of the user;
(3) performing arithmetical computations specified by the user; and (4)
executing, without human intervention, a processing programme which requires
them to modify their execution, by logical decision during the processing run;
analogue machines capable of simulating mathematical models and comprising at
least: analogue elements, control elements and programming elements;
hybrid machines consisting of either a digital machine with analogue elements
or an analogue machine with digital elements.
Automatic data processing machines may be in the form of systems consisting of
a variable number of separate units.
to paragraph (E) below, a unit is to be regarded as being a part of a complete
system if it meets all of the following conditions:
(a) it is
of a kind solely or principally used in an automatic data processing system;
(b) it is
connectable to the central processing unit either directly or through one or
more other units; and (c) it is able to accept or deliver data in a form (codes
or signals) which can be used by the system."
We quote hereinbelow Note 5(E) to Chapter 84, which reads as
Machines performing a specific function other than data processing and
incorporating or working in conjunction with an automatic data processing
machine are to be classified in the headings appropriate to their respective
functions or, failing that, in residual headings."
Similarly, Note 7 to Chapter 84 is also relevant and it reads as
A machine which is used for more than one purpose is, for the purposes of
classification, to be treated as if its principal purpose were its sole
to Note 2 to this Chapter and Note 3 to Section XVI, a machine, the principal
purpose of which is not described in any heading or for which no one purpose is
the principal purpose is, unless the context otherwise requires, to be
classified in heading 8479. Heading 8479 also covers machines for making rope
or cable (for example, stranding, twisting or cabling machines) from metal
wire, textile yarn or any other material or from a combination of such
We also quote hereinbelow for the sake of clarity Chapter Heading
8471, which reads as follows:
data processing machines and units thereof; magnetic or optical readers,
machines for transcribing data on to data media in coded form and machines for
processing such data, not elsewhere specified or included"
Sub-Heading 8471 50 00 reads as follows:
processing units other than those of sub-headings 8471 41 or 8471 49, whether
or not containing in the same housing one or two of the following types of
unit: storage units, input units, output units"
Chapter 90 falls in Section XVIII which refers to "measuring
and checking instruments/apparatus as also parts and accessories thereof."
Notes 1(h), 2 and 3 of Chapter 90 read as under:
This Chapter does not cover:
searchlights or spotlights of a kind used for cycles or motor vehicles (heading
8512); portable electric lamps of heading 8513;
sound recording, reproducing or re-recording apparatus (heading 8519 or 8520);
sound-heads (heading 8522); still image video cameras, other video camera
recorders and digital cameras (heading 8525);
apparatus, radio navigational aid apparatus or radio remote control apparatus
(heading 8526); numerical control apparatus of heading 8537;
beam lamp units of heading 8539; optical fibre cables of heading 8544;"
Subject to Note 1 above, parts and accessories for machines, apparatus,
instruments or articles of this Chapter are to be classified according to the
and accessories which are goods included in any of the headings of this Chapter
or of Chapter 84, 85 or 91 (other than heading 8485, 8548 or 9033) are in all
cases to be classified in their respective headings;
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 (including a machine,
instrument or apparatus of heading 9010, 9013 or 9031) are to be classified
with the machines, instruments or apparatus of that kind;
other parts and accessories are to be classified in heading 9033."
We quote herein below CTH 9031 which refers to measuring or checking
instruments, appliances and machines, not specified or included elsewhere in
Department seeks to place reliance on Chapter Sub-Heading 9031 80 00, which
reads as under:
instruments, appliances and machines"
The Department also places reliance on Chapter Sub- Heading 9031
90 00, which refers to "parts and accessories".
For some of the items, the Department places reliance on Chapter
Sub-Headings 9032 89 10 and 9032 90 00 which read as follows:
89 10 Electronic automatic regulators 9032 90 00 Parts and accessories"
At this stage, we may deal herein below the Explanatory Notes from
HSN. Our customs tariff is basically based on HSN. Even the HSN makes it clear
vide Section Note 1(m) that Section XVI which refers to Chapter 84 will not
cover articles mentioned in Chapter 90.
Section Note 3 to Section XVI states that multi-function machines are to be
classified according to the principal function of the machine. According to the
Explanatory Notes, a printing machine with a subsidiary machine for holding the
paper or an industrial furnace combined with lifting or handling machinery is a
composite machine in terms of Section Note 3. Further, referring to Functional
Units, the Explanatory Note, referring to Section Note 4, inter alia states
that when a machine including a combination of machines consists of separate
components which are intended to contribute together to a clearly defined
function covered by one of the headings in Chapter 84 then the whole shall fall
for classification in the heading appropriate to that function, whether the
various components remain separate or are inter-connected by devices used to
transmit power, either by electrical cables or by other devices. At this stage,
we quote hereinbelow Chapter Sub-Heading 8471 49 00, which reads as follows:
presented in the form of systems"
According to HSN, the word "systems" in Chapter Sub-
Heading 8471.49 means ADP machines whose units satisfy the conditions of Note
5(B) to Chapter 84 and which comprises of a CPU, one input unit (for example, a
keyboard or a scanner), and one output unit (for example, a visual display unit
or a printer).
According to HSN, the following classification principles have to
be applied in accordance with Note 5(E) to Chapter 84 in the case of machine
incorporating or working in conjunction with ADPM and performing a specific
function. These principles are as follows:
A machine incorporating an automatic data processing machine and performing a specific
function other than data processing is classifiable in the heading
corresponding to the function of that machine or, in the absence of a specific
heading, in a residual heading, and not in heading 84.71.
Machines presented with an automatic data processing machine and intended to
work in conjunction therewith to perform a specific function other than data
processing, are to be classified as follows:
automatic data processing machine must be classified separately in heading
84.71 and the other machines in the heading corresponding to the function which
they perform unless, by application of Note 4 to Section XVI or Note 3 to
Chapter 90, the whole is classified in another heading of Chapter 84, Chapter
85 or of Chapter 90."
The most important aspect which needs to be emphasized in this
case is that, according to HSN, data processing consists of handling
information of all kinds, in pre-established logical sequences and for a
specific purpose(s). According to HSN, ADP machines are machines which, by
logically interrelated operations performed in accordance with pre-established
instructions (program), furnish data which can be used as such or, in some
cases, serve in turn as data for other data processing operations. The
important thing to be noted is that there is a wide difference between handling
information, referred to at page 1575 of HSN in the context of CTH 8471 and
automatically controlling the flow, level, pressure or other variables of
liquids or gases, referred to at page 1856 of HSN in the context of CTH 90.32.
To complete the chronology of the paragraphs used in the
Explanatory Notes, the HSN has stated in the context of CTH 84.71 that a CPU
incorporates storage, arithmetical and logical elements and control elements,
an input unit which receives input data and converts them into signals which
can be processed by machines and an output unit which converts the signals
provided by the machine into an intelligible form (printed text, displays,
etc.) or into a coded data for further use (processing, controlling, etc.).
[See page 1577 of HSN] In this connection, we quote hereinbelow the conditions
laid down by the HSN for classifying a unit as a part of digital data
processing system. These conditions are laid down at page 1577 of HSN, which
read as follows:
unit is to be regarded as being a part of a complete digital data processing
system, if it satisfies the following conditions:
(a) It is
of a kind solely or principally used in an automatic data processing system;
(b) It is
connectable to the central processing unit either directly or through one or
more other units;
It is able to accept or deliver data in a form (codes or signals) which can be
used by the system.
interconnections may be made by material means (e.g. cables) or by non-
material means (e.g., radio or optical links).
accordance with Note 5(D) to this Chapter, printers, keyboards, X-Y co-ordinate
input devices and disc storage units which satisfy the conditions of items (b)
and (c) above, are in all cases to be classified as constituent units of data
foregoing provision is, however, to be considered in the overall context of
Note 5 to Chapter 84 and is therefore applicable subject to the provisions of
paragraph (E) of that Note, by virtue of the introductory part of paragraph (B)
thereof. Thus, ink-jet printers working in conjunction with an automatic data
processing machine but having, particularly in terms of their size, technical
capabilities and particular applications, the characteristics of a printing
machine designed to perform a specific function in the printing or graphics
industry (production of pre-press colour proofs, for example) are to be
regarded as machines having a specific function classifiable in heading 84.43.
appliances such as measuring or checking instruments adapted by the addition of
devices (signal converters, for example), which enable them to be connected
directly to a data processing machine, are, in particular, not to be regarded as
of a kind solely or principally used in automatic data processing systems. Such
appliances fall to be classified in their own appropriate heading.
data processing machines are put to many uses, for example, in industry, in
trade, in scientific research and in public or private administrations."
Further, at page 1578 of HSN, it is stipulated that Chapter
Heading 84.71 also covers constituent units of data processing systems. These
may be in the form of units having a separate housing and designed to be
connected, for example, by cables or in the form of units not having a separate
housing and designed to be inserted into a machine. Display units of ADP
machines provide a graphical presentation of the data processed. (See page 1579
Coming to Section XVIII, in which Chapter 90 falls, the
Explanatory Notes in HSN amongst other things indicate that instruments and
apparatus for automatically controlling the flow, level, pressure or other
variables of liquids or gases, or for automatically controlling temperature
fall in CTH 90.32. (See Note 7 to Chapter 90 at pages 1766 and 1856) Case of
Based on the technological write-ups given by the importer read
with the description provided in the catalogue and the website it was argued on
behalf of the Department that a complete system performs the work of
measurement whereas the item imported by the assessee forms a sub-function of
data acquisition and processing.
to the Department, the terms "control" and "control
systems" generally refer to the control of a device, processor system by
monitoring one or more of its characteristics. This is used to ensure that
output, processing, quality and/or efficiency remain within the parameters over
the duration of time. According to the Department, in several control systems,
digital data processing monitors a device, processor system and automatically
adjusts its operational parameters. In other control systems, such an apparatus
only monitors the device, processor system and displays alarm leaving
responsibility for adjustment to the operator. Thus, process control is
typically employed in the manufacturing sector for process and discrete
manufactures. According to the Department, field devices include temperature,
flow and other sensors that measure characteristics of the device, processor
system being controlled. On the other hand, control devices include valves,
actuators which control the devise, processor system itself. According to the
Department, controllers generate settings for the control devices based on
measurements from the field devices. Controller operation is typically based on
control algorithm that maintains a control system at a desired level by
minimizing differences between the values measure by the sensors. According to
the Department, controllers may be connected to other computing apparatus that
facilitates monitoring or administration. According to the Department, the
principal function of controllers is to execute control algorithms for the real
time monitoring and to control devices, processes or systems.
neither the computing power nor user interfaces required to facilitate the
design of a control algorithm.
the process control industry has used manual operations, such as manually
reading level and pressure gauges, turning valve wheels, etc. in order to
operate the measurement and control field devices within a process.
with the emergence of the microprocessor-based Distributed Control System
("DCS"), the distributed electronic process control came into
existence in the process control industry. A DCS includes an analog or a
digital computer, such as a Programmable Logic Controller ("PLC"),
connected to numerous electronic monitoring and control devices like electronic
sensors, transmitters, transducers etc. located throughout a process. The DCS
computer stores and implements a centralized and complex control scheme in
order to effect measurement and control of devices within the process so as to
control process parameters according to the overall control scheme.
to the Department, PACs are not meant to be used as personal computers. The
purpose of controllers is to control industrial processes. Thus, according to
the Department, a controller by its very name performs functions distinct from
data processing. Moreover, according to the Department, there are differences
in the structure and the function of a controller and the function of a PAC
vis-a-vis the PC. According to the Department, PAC cannot be equated to a PC as
is sought to be done by the Tribunal. A PAC combines a PLC and a PC.
Department also placed reliance on the webcast to show that a processor is
separated from FPGA by a high-speed bus. According to the Department, the
webcast further shows that a processor is separate and distinct from the main
controller wherein the hardware is dedicated to perform measurement and control
applications. According to the Department, the software used in order to
programme the processor is designed using a proprietary software known as Lab
View. The catalogue is relied upon by the Department to show that the
controller, in the present case, has been designed and made for a specific
function and regulating and controlling industrial processes.
to the Department, none of the above aspects have been duly considered by the
Tribunal. The entire case of the Department before us was that the Programmable
Process Controllers when imported were suitable for use principally with
industrial process control equipment, i.e., sensors which measure temperature,
pressure, flow etc. and therefore such programmable process controllers were
classifiable as a part of the said equipment, instrument or apparatus. The
programmable process controller, though separate from sensors, is necessarily
an individual component intended to contribute to a clearly defined function.
According to the Department, the programmable process controllers being parts
and accessories of a regulating or controlling apparatus have been classified
rightly by the adjudicating authorities under CTH 9032 89 10. According to the
Department, PACs whether embedded or otherwise are in essence Programmable
Process Controllers. In support thereof, the Department has placed reliance on
two circulars issued by Central Board dated 2.9.1996 and 9.5.1997.
As regards Input-Output ("I.O.") Modules and Chassis,
the Department contended that I.O. modules and chassis have been rightly
classified by the adjudicating authorities as parts and accessories of regulating
and controlling apparatus classifiable under CTH 9031 90 00/9032 90 00. In this
connection, the Department submitted on the basis of the catalogue and
technical write-ups that each and every imported I.O. Modules is configured
primarily to match with a sensor. In this connection, the Department has
demonstrated by way of an illustration that one of the items imported by the
assessee is Instrument Control Boards (Cards). Instrument Control Board (Card)
is a stand-alone instrument. It acquires data from external sensors, but it is
unable to send the data directly to a computer. Therefore, a suitable board
like instrument control board is required to be placed inside the computer to
allow the data to be sent directly to the computer. Similarly, another example
given by the Department is concerning Data Acquisition Board. The purpose of a
Data Acquisition Board is to acquire data from external sensor and convert it
to digital sensors which the PC can understand. Thus I.O.
tailored to a specific function and is therefore a part of regulating a
controlling apparatus. According to the Department, a signal converting device
or I.O. unit has got to be properly aligned with the measuring or checking
instrument. According to the Department, industrial process controllers and
I.O. modules are parts of a functional unit, the function of which is to be
judged as a whole and is therefore classifiable in Chapter
According to the Department, for the abovestated reasons Controllers imported
by the assessee including embedded controllers are not merely PCs. They have a
specialized structure. They have a specialized function to perform. Moreover,
I.O. modules and chassis, which are the subject matter of import are also
specialized to operate with specific sensors and devices. The data available
from sensors is transmitted to the controller for the execution of control
functions. Therefore, the package as a whole - both hardware and software -
must be seen as one functional unit. Hence, the imported goods, according to
the Department, have been rightly classified by the adjudicating authorities
under Chapter 90. According to the Department, I.O. modules and chassis have
been rightly classified by the adjudicating authorities as parts and
accessories of Automatic Regulating or Controlling Instruments and apparatus
under CTH 9032 90 00.
Briefly, the case of the importer before us was that imported
items cannot perform any specific function unless the end-users have an
appropriate programming software.
to the importer, the input for the above items is digital signals captured by
sensors. According to the importer, just because the imported items were to be
used with measuring instruments, it cannot be said that such items are to be
classified under Chapter 90. According to the importer, PXI controller, I.O.
modules and signal converters are all varieties of ADP Machines. They all run
on operating systems like linux, windows etc. According to the importer, no ADP
Machine can capture an electrical signal such as temperature, voltage, pressure
etc. on its own as a stand-alone item. According to the importer, an ADP
Machine requires various types of interface boards/units which are required to
be installed in it and connected to sensors so that temperature, voltage and
pressure can be received by the interface boards/units and converted into
digital signals and then sent to ADPM processing. Therefore, according to the
importer, it is the sensor which measures the real world phenomena as ADPM
cannot interface by itself directly with the sensors.
assessee imports a variety of such interface boards/units which are then
installed into ADPM. According to the importer, these boards/units meet the
criteria mentioned in Chapter Note 5(B) as well as Explanatory Notes (I)(D)(4)
& (5) which inter alia state that such boards/units when imported should be
classified under CTH 8471 as units of ADPM. According to the importer, an ADPM
when imported has only an operating software which cannot perform any specific
function without application of software. For example, a PXI Controller is
incapable of processing the digital data fed to its CPU unless a specific
software is written for such processing. At the time of import no software is
written or provided. It is the end-user who uses a programming language or an
appropriate tool such as Lab View software to write a specific software for its
own stand-alone instrument or application like thermostat, spectrum analyzer,
oscilloscopes etc.. According to the importer, at the time of import, the
assessee is not aware of what application the end-user may put the PXI
controller to use. Moreover, a PXI controller is not dedicated to a single type
of machine or operator. It is capable of being connected to multiple
apparatuses simultaneously which apparatuses can be changed continuously. As
such, the PXI controller is freely programmable as per the requirements of the
end-user developed software or programme is stored in the memory and is executed
by PXI controller. It is according to the software and the data fed to the CPU
that the PXI controller processes the data and provides the required processed
output. According to the importer, as the PXI controller satisfies the
requirement of free programmability, storing and processing of programmes,
performance and arithmetical computation and execution of programmes, the PXI
controller qualifies as ADP Machine in terms of Chapter Note 5(A) to Chapter 84
of Customs Tariff.
According to the importer, the above position has not been
disputed by the Department. That, the Department has not disputed that the
Controllers imported by the assessee satisfy all the requirements of Chapter
Note 5(A). According to the importer, the only reason why the Department was to
classify the imported items under Chapter 90 is because according to the
Department, in addition to Chapter Note 5(A), Chapter Note 5(E) also applies.
The same test is applied by the Department to I.O. Modules. According to the
importer, even the Department accepts that these modules satisfy the definition
of ADP given in Chapter Note 5(B). However, the Department has classified the
said modules under Chapter 9031 by virtue of Chapter Note 5(E). The same test
is also applied by the Department in the context of signal convertors.
According to the importer, even the signal convertors satisfy the definition of
units of ADP as provided in Chapter Note 5(B). However, the Department has
classified the said items under Chapter 9031 only by virtue of Chapter Note
5(E) of Chapter 84. In short, the Department has classified the Controllers
under heading 9031 or 9032 as measuring, checking or controlling instruments.
They have classified signal converter units and I.O. modules under heading 9031
as parts of measuring and checking instruments which is objected to by the
importer. The basis for the Department case has always been that the imported
goods, though ADPM, are meant for use with checking or controlling instruments
are therefore classifiable under heading 9031 and 9032.
For the reasons given hereinafter, we hold on the basis of
technical material (including the importer's own catalogue and webcast) that
Controllers (including embedded controllers) are not merely PCs/ADPMs, but have
a specialized structure and specific functions to perform and are therefore
classifiable under Chapter 90.
Similarly, I.O. Modules and Chassis, which are the subject matter
of import in this civil appeal are meant to operate as parts of Industrial
Process Control equipments like sensors. These I.O. Modules come with software
tailored to their specific pre-defined functions.
one has to see the package in the holistic manner. The package as a whole -
both hardware and software - constitutes one single functional unit.
we hold that I.O. Modules and Chassis are classifiable as parts and accessories
of Automatic Regulating or Controlling Instruments/Apparatus under CTH
on Technical Material:
Whether a PXI Controller = PC Controller = ADPM? This is the basic
issue which we need to answer in this civil appeal.
On examination of the technical write-up, before going into the
analysis of the classification principles, we are of the view that the purpose
of Controllers whether embedded or not, is to control industrial processes.
Automation Controller is the combination of PLC and PC technology and this
means the ruggedness of PLCs, software stability of a PC and the independence
to incorporate modular and diverse I/O. PAC is an improvement over PLC. PAC is
capable of being controlled by a PC/Laptop but it is not a PC/Laptop. The
principal function of Controllers is executing Control Algorithms for the
Real-time monitoring and control of devices, processes or systems whereas the
principal function of a PC by itself is acquisition, analysis and display of
controller performs functions in addition to data processing. The webcast
presentation also shows the difference in the structure and functions of a
Controller vis-`-vis a PC (simpliciter). The hardware in the Controller is
dedicated to perform Measurement and Control Applications. Basically, PACs are
Programmable Process Controllers which are suitable for use principally in
conjunction with Industrial Process Control equipment like sensors which
measures temperature, pressure etc. The programmable process controller, though
distinct from sensors, is an individual component intended to perform a
specific function. The programmable process controller is a part and accessory
of a controlling apparatus.
A word about PXI, PAC, Sensor and FPGA.
PXI is designed for measurement and automation applications which require high
performance and a rugged industrial form. In the Chassis of PXI, there are
about 8 slots. PXI is a system. It consists of three components, namely,
chassis, system controller and peripheral modules. One can select the modules
to be installed in the PXI System. PXI uses PCI-based technology. There are PXI
Modules, including those which are imported herein, available for almost every
conceivable measurement and automation application.
PAC stands for Programmable Automation Controller. PAC is a Controller. PAC is
an improvement on PLC. Various characteristics of PAC includes multi- domain
functionality - ability of handling logic, motion and process control - all on
a single control platform.
computational algorithm cannot be solved with a PC.
meant for a wide variety of applications. PAC incorporates multiple disciplines
such as logic control, process control and motion control all on a single open
platform with a single data base.
example of the uses of a PAC would be in a large bakery with multiple ovens.
The ovens must stay within a specific temperature range in order to properly
bake the products; this can be accomplished by someone physically inspecting
thermometers on each oven, then manually adjusting the burners on each as
needed. A PAC could automate these tasks by monitoring temperature remotely,
then sending instructions to the burners to either increase or decrease the
heat until the temperature returns to the acceptable range. A person in an
office overlooking the ovens can view all of the temperature data in real-time
from their Personal Computer, which can be connected to the PAC's by serial cable,
Ethernet or a wireless modem.
Sensor: In the field of measurement and instrumentation, the parameter to be
measured (motion, pressure, temperature, etc.) is first detected with the help
of a sensor. The sensor converts the detected information into a suitable form
(measurable currents and voltages) for acceptance in the later stages for
decision- making. There are many types of sensors. Example: Photo electric
sensor, motion detector, pressure sensors etc..
FPGA: FPGA stands for a Field-programmable Gate Array. FPGAs are integrated
circuits which are used in electronic equipments. It is a special kind of chip
on which there is embedded software. FPGA receives signals (information) from
devices like sensors or any other input device. Such information is processed
by FPGA. After processing, the processed data/command is sent to the required
destination like a computer, actuator, thermostat, motor etc. to perform a
specific function like Controlling. For example, on receiving the command the motor
can start or stop. Similarly, on receipt of the command the thermostat can
regulate the temperature.
At this stage, it is required to examine each of the imported
items, including I.O. Modules, to see whether the hardware coupled with
pre-installed software gives a definite identity and function. For example, the
purpose of Data Acquisition Boards ("DAQ") is to acquire data from
external sensors, usually in the form of Analog Voltage of +/- 10 volts, which
is then converted into digital signals, which the personal computer can
Analog Output Boards are meant for converting signals from external units such
as PXI controller.
Network Interface Module ("NIM") is used to connect measuring
instruments to a PC by sending and receiving messages, two ways. The Chassis of
PXI provides connectivity and housing for embedded controllers and data
acquisition modules, allowing them to communicate with each other. To sum up,
the I.O. Module is tailored to a specific function. Each of the abovementioned
Boards (cards) is inserted into the slots of PXI. Each of the I.O. Modules is
tailored to a specific function and is, therefore, a part of a regulating and
controlling apparatus like a sensor, thermostat etc. Therefore, one has to look
at the machine (PXI Machine) holistically.
Application of above technical material to the relevant Tariff Entries:
At the outset, it needs to be stated that PACs, whether embedded
or otherwise, are in essence Programmable Process Controllers.
In the matter of classification, we need to discuss
"PACs" and "Input/Output (I.O.) Modules and Chassis" in two
Chapter 84 is located in Section XVI. Note 1(m) shows that if an
article falls in Chapter 90, regardless of whether or not it may otherwise fall
within Chapter 84, that Chapter (No. 84) stands excluded. There are eight
Chapter Notes to Chapter 84. The key Chapter Notes for deciding the present
Civil Appeal are Notes 5(E), and 7, which are quoted hereinabove. Chapter Note 5(E)
inter alia refers to machines performing specific functions other than data
processing and incorporating in it a data processing machine or it may be
working in conjunction with ADPM in which event the said machines performing
specific functions are to be classified in the heading appropriate to their
respective functions. Under Note 7, a machine which is used for more than one
purpose is, for the purpose of classification, to be treated as if its
principal purpose is its sole purpose.
Chapter 90 includes measuring and checking instruments and
apparatus; parts and accessories thereof.
of Section Note 1(m) of Chapter 84, quoted above, it is first to be seen
whether or not PACs fall within Chapter 90. Keeping in mind the scheme of
Chapter 84 and Chapter 90, we are of the view that, in the present case, the
correct approach would be to examine the scope of Chapter 90 first and foremost
and only then we need to examine the scope of Chapter 84. At this stage, we
need to state that Chapter Note 1(h) of Chapter 90 does not exclude CTH 8471.
Hence, even if an item falls under CTH 8471, it could still come under Chapter
90, however, in view of Section Note 1(m) Chapter 84 would stand excluded.
because the application of Chapter 84 is subject to the applicability of
At this stage, we may refer to Chapter Note 2 to Chapter 90 which
is in two parts. Note 2(a) inter alia states that what is otherwise parts or
accessories, but is classifiable as goods under Chapter 84, shall be classified
in their respective headings. The effect of Note 2(a) is that if it can be
shown that Programmable Process Controllers/PACs are classifiable as
"goods" under Chapter 84 then such a classification would include the
same for being considered as parts or accessories of goods under Chapter 90.
However, in this case, Note 2(a) is not attracted as PACs are not classifiable
as "goods" under Chapter 84. It has been argued on behalf of the
importer itself that PACs/Programmable Process Controllers by themselves are
not measuring, regulating or control instruments and hence CTH 9032
classification relied upon by the Department was unsustainable. It was further
argued on behalf of the importer that physical variables such as temperature
and voltage are measured by sensors which could be classified under Chapter 90,
but this does not extend to PACs/Programmable Process Controllers. It had been
further argued on behalf of the importer that automatic control apparatus
referred to in Chapter 90 must consist of a device for measuring a control
device and a starting-stopping/operating device, all of which should form a
"single entity" and since a PAC does not fulfil the said test, CTH
9032 is not attracted in the case of PAC/Programmable Process Controllers.
In our view, the above argument of the importer is unsustainable
for the following reasons. Firstly, it is nobody's case that a PAC/Programmable
Process Controller by itself is an automatic regulating, controlling instrument
or apparatus in terms of Chapter 90. On the contrary, in view of Chapter Note
2(b) to Chapter 90 read with Note 3 of the same Chapter, PACs/Programmable
Process Controllers are parts and accessories of a system/instrument which are
suitable for use solely or mainly with a number of machines, instruments,
apparatus of the same Heading, i.e., 9032 like sensors, thermostats etc. In our
view, PACs/Programmable Process Controllers imported by the assessee herein are
suitable for use principally with Industrial Process Control Equipment like sensors,
thermostats etc. which measures temperature, process etc. Therefore, they are
correctly classifiable as a part of the said machine, instrument or apparatus.
a "control system" generally refers to the control of a device,
process or system by monitoring one or more of its characteristics. It ensures
that output processing remains within the desired parameters over a period of
time. Controllers are generally connected to other computing apparatus. The
principle function of controllers is to execute control algorithm for real time
monitoring and for controlling devices, processes or systems. In this
connection, it may be noted that, a PAC/Programmable Process Controller
("PPC") is not by itself an automatic regulating, controlling instrument
or apparatus. A PAC/PPC when imported is suitable for use mainly with an
industrial process control equipment like sensors, which measures temperature,
pressure etc. As such, a PAC/PPC is a part of an industrial process control
equipment/system and accordingly such controllers are classifiable as a part of
instrument or apparatus (see Chapter Note 2(b) read with Note 3 of Chapter 90).
in this case, we are concerned with not only classification of PXI Controller
and other controllers, we are also concerned with classification of
Input-Output Modules and Chassis. The key aspect, therefore, concerns the
nature and function of I.O. Modules and Chassis along with controllers. One has
therefore to take into account all the imported items as constituting a complete
System which performs the work of measurement. PXI is a system.
composed of three basic components - chassis, system controller and peripheral
modules. These modules are also imported by the importer in this case. One such
module is Network Interface Module. This module is used to connect to a network
for distributed control applications. It interconnects a PC to a measuring
instrument by sending and receiving messages from the two units. It is
important to note that in the chassis of the PXI there are slots in which
Analog Output Boards (Cards); Digital Input-Output Boards, Image Acquisition
Boards, Distributed Input-Output Boards, NIM etc. are inserted. Each I.O.
Module imported by the assessee is tailored to a specific function and therefore
such I.O. Module is a part of a regulating or controlling apparatus. Take the
case of NIM. It is a hardware device. It may be in the form of a network
interface card or a network adapter or in the form of Network Interface
Controller ("NIC"). NIM is a computer hardware component designed to
allow computers to communicate over a computer network. It provides
connectivity between the industrial network and the I.O. Module. A network
interface module works as a connector and adapter unit in order to provide a
two way interconnection between external sensor unit and the ADP.
I.O. Module is a hardware. It is also known as I.O. device or I.O. Point. It
may be in the form of I.O. Cards or I.O. Boards. When I.O. Module is used to
accept data (input) from sensors, transducers, Programmable Logic Controllers
("PLC"), computers etc. and then distributes the data (output) to
other devices in the system, then I.O. Module is called as Distributed I.O.
Module. Such system is also called as Distributed Control System
("DCS"), which is a control system used normally in a manufacturing
plant or in any other kind of dynamic system. DCS, therefore, is used in a
variety of industries to monitor and control distributed equipments. An I.O.
important from another angle also. It converts readings from sensors and
provides output signals which are used for operating actuators (which make a
device move or start working) via Network Interface Module. A Modular
Distributed I.O. System which is also known as a Field Point provides for
industrial monitoring and control applications. Thus, the Field Point System
includes Analog and Digital I.O. Modules, terminal bases and network modules
which connect I.O. Modules to industrial networks and software tools. Field
Point Systems are ideal for use in industrial environment. Fourthly,
Programmable Logic Controller ("PLC") is a control device. It is
normally used in industrial control applications. It is a Programmable
Microprocessor based device which is used to control assembly lines and
machinery on the shop floor as well as to control many other types of
mechanical, electrical and electronic equipment in a plant. A PLC is designed
for real-time use in rugged industrial environments, connected to sensors and
actuators. PLCs are characterized by the number of I.O. Ports which they
provide. PLCs are also categorized by their I.O. scan rates. As stated, PACs,
which expands the role of PLCs and, at the same time, combines the capabilities
of several traditional controls and monitoring systems, offers several benefits
in the form of enhanced functionalities. Thus, a PAC does not replace the
traditional PLCs but it expands the role of a PLC. A PAC has features found in
Programmable Logic Controllers, Distributed Control Systems, Remote Terminal
Units and PCs.
The summary of what we have stated above is that PACs/Programmable
Process Controllers and I.O. Modules by themselves are not measuring,
regulating or controlling instrument (system). Physical variables such as
temperature and voltage are measured by device, like sensors which constitute
measuring and control systems. In other words, controllers and I.O. Modules
each have a specific function to perform being parts of a measuring and control
system i.e. sensors.
We also do not find any merit in the submission of the importer
that in view of the Explanatory Notes, the Measuring Device, the Control Device
and the Operating Device has to form a "single entity". There is no
dispute that if all the above three devices are found in one "single
entity" then classification will fall under Chapter 90. However, the test
of "single entity"
three devices is not a pre-condition for classification under CTH 9032. On the
contrary, the test is not that of single entity, but of the device being
capable of working as a functional unit. In this connection, Note 3 of Chapter
90 is to be read. Note 3 incorporates Note 4 to Section XVI. Note 4 inter alia
provides for a machine consisting of individual components which may be
separate as long as they are intended to contribute to a clear defined
function. The PACs/Programmable Process Controller, though separate from
sensors, is an individual component intended to contribute to a clearly defined
function. Note 3 of Chapter 90 has to be read with Note 2(b) of Chapter 90 and
if so read then it becomes clear that PAC/Programmable Process Controllers,
being parts and accessories and a regulating or controlling apparatus like
sensors have got to be classified under CTH 9032.89.10.
For the above reasons, we hold that PACs (including embedded
Controllers/Programmable Process Controllers) have been rightly classified by
the Department under CTH 9032.
On the question of Input-Output (I.O.) Modules and Chassis, the
Tribunal has not given any finding whatsoever thereon. However, on going
through the technical material and the demonstration given to us in Court, we
are of the view that I.O. Modules and Chassis have also been rightly classified
by the Department as parts and accessories of regulating and controlling
apparatus classifiable under Chapter 90. In this connection, one needs to
examine the nature and function of I.O. Modules and Chassis which we have
already discussed hereinabove. To put it briefly, at the cost of repetition we
may say that the primary function of I.O. Modules (Boards) is to function as a
part of measuring and control System. It is for this reason that such Modules
are required to be classified as parts and accessories of regulating and measuring
System. For this purpose, it is necessary to examine each of the imported items
apart from Controllers in order to see whether the hardware coupled with the
pre-installed software gives it a definite identity and function. From the
catalogue and technological write-ups we find that each and every I.O. Module
imported by the assessee is configured with a sensor at one end. This aspect is
very important. Take the example of Data Acquisition Boards (DAQ). The purpose
of DAQ Boards is to acquire data from external sensor, usually in the form of
analog voltage of +/- 10 volts. This data is converted by DAQ Boards into
digital signals which the personal computer can understand. On the other hand,
Instrument Control Boards which are placed inside the computer allow data
required from external sensors to be communicated directly to the computer.
This is called as handling of information (see Explanatory Notes of HSN at page
1575) which is different from controlling temperature, pressure etc. (see
Explanatory Notes of HSN at page 1856). On the other hand, we have what is
called as Analog Output Boards which are meant for converting signals from
external units such as PXI. Similarly, the Chassis provides connectivity and
housing for embedded controller and the data acquisition modules, allowing them
to communicate with each other. A network interface module is used to connect
to a network for distributed control applications. It interconnects measuring
instruments to a PC by sending and receiving messages from the two units. Thus,
each I.O. Module is tailored to a specific function and is therefore a part of
regulating and controlling apparatus. Handling of information under the HSN
Notes is separate and distinct from regulating and measuring temperature, pressure
Lastly, we need to analyse Chapter Note 5(E) to Chapter 84. In our
view, once a machine incorporating an ADPM performs a specific function other
than data processing then that machine is classifiable in the heading
corresponding to the function of that machine (see Note 4 of Section XVI and
Note 3 to Chapter 90, the scope whereof has already been explained
hereinabove). Further, HSN clearly indicates that Heading 8478 is excluded
where the case is of a clearly defined function to which separate components
In our view, in order to attract Note 5(E) the real test is
whether or not the machine imported is performing a specific function relatable
to the functional unit as a whole. The said machine should be seen as a System.
As a functional unit, the imported machine should perform a function other than
data processing or it should perform a function in addition to data processing.
In our view, Industrial Process Controllers and I.O. Modules, which are part of
a functional unit, the function of which is to be judged as a whole are
therefore classifiable in Chapter
sentence in Chapter Note 5(E) "incorporating or working in conjunction
with an ADPM" merely indicates that the overall package, which is
presented before the Department, had an ADP Machine in it. In other words, what
is imported is a System containing an ADPM. Our above interpretation stands to
reason because if the contention of the importer herein is accepted, it would
mean that every machine that contains an element of ADP would be classifiable
as an ADP Machine under Chapter 84. This would completely obliterate the
specific function test and the concept of functional unit.
For the aforestated reasons, we are of the view that the imported
goods were rightly classified by the Department under Chapter 90. We are also
of the view that the Department was right in classifying the I.O. Modules and
Chassis as parts and accessories of Automatic Regulating or Controlling
Instruments and Apparatus in terms of CTH 9032.90.00.
For the aforestated reasons, the impugned order of CESTAT is
hereby set aside and the Civil Appeal filed by the Department stands allowed
with no order as to costs.
..................CJI (S. H. Kapadia)
...................J. (K.S. Radhakrishnan)
...................J. (Swatanter Kumar)
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