- (1.) Challenge in this appeal is to the order passed by the Customs Excise and Service Tax Appellate Tribunal, South Zonal Bench, Chennai (in short 'CESTAT') allowing the appeal filed by the respondent. By the impugned judgment CESTAT held that the Software-loaded Hard Discs are classifiable under Heading 85.24 of the First Schedule to Customs Tariff Act, 1985 (in short 'Tariff Act'). It was further held that respondent will be eligible for duty exemption under Notification No.21/2002-Cus as amended. It was held that rest of the machine would be classified under Heading 84.71.
(2.) Background facts in a nutshell are as follows: The Department had demanded customs duty of about Rs.5.9 crores from the respondent by classifying goods imported by them under Heading 84.71 of the First Schedule of the Act and denying them benefit of exemption Notification No.21/2000-Cus. dated 1.3.2002 (as amended). Demand was questioned before CESTAT. An application seeking waiver of pre-deposit and stay of recovery in respect of this amount of duty was filed. After examining the records and hearing both sides, CESTAT found prima facie case for the assessee in view of the Tribunal's decision in the case of Barber Ship Management (I) Pvt. Ltd. Vs. Commissioner, 2000 (117) ELT 456 (Tri.) as well as the decision in the assessee's own case reported in 2005 (126) ECR 124 (Tri-Del) and, accordingly, CESTAT have dispensed with pre-deposit of the duty amount. Further, having heard both sides at length and having regard to the high stake involved in the case, the appeal was taken up for final disposal. The respondents are engaged in the manufacture of, and trading in, computers including Laptops (otherwise called 'Notebooks') falling under Heading 84.71 of the CTA Schedule. They imported Notebooks (Laptops) with Hard Disc Drivers (Hard Discs, for short) preloaded with Operating Software like Windows XP, XP Home etc. These computers were also accompanied by separate Compact Discs (CDs) containing the same software, which were intended to be used in the event of Hard Disc failure. The Bills of Entry filed by the importer declared the value of Laptop and the value of Software separately, the software value including the Hard Disc value also. The Bills of Entry classified the Software-loaded Hard Discs under Heading 85.24 of the CTA Schedule and claimed exemption in terms of Sl. No.157 of Notification No.21/2002- Cus ibid. These Bills of Entry were filed with the Chennai Air Customs Authorities in July 2005. Long before this, by a letter dated 7.10.2003 the respondents had informed the Addl. Commissioner of Customs, Chennai that they would be filing Bills of Entry for separate assessment of Computers and Software-loaded Hard Discs in view of the Tribunal's decision in Barber Ship Management's case (supra). It was also informed that they would claim duty exemption under Sl. No.157 of Notification No.21/2002-Cus. ibid. Subsequently, under cover of letter dated 11.10.2003, the respondents had also supplied to the Addl. Commissioner the OEM pricelist for the various models of 'Notebooks' imported by them. They had also provided a worksheet indicating separately the value of Hard Disc, value of Operating Software and the CD & replicating charges. In the meantime, at Delhi, they had imported Laptop computers with Hard Discs preloaded with Software and claimed classification of the Software-loaded Hard Disc Drives under Heading 85.24. The department issued a show-cause notice for demanding duty on these goods in terms of Heading 84.71. This demand was confirmed by the original authority, against which appeal before the Commissioner (Appeals) was preferred, who sustained the decision of the lower authority. But the appeal preferred to the Tribunal was allowed and it was held that the Hard Disc Drives preloaded with software required to be assessed separately in terms of 85.248 of the CTA Schedule by virtue of Note 6 to Chapter 85 of the said Schedule vide Final order No.380/2005-NB-A dated 18.3.05 reported in 2005 (126) ECR 124 (Tri-Del). However, the Appraising Officer at Chennai Air Customs, dealing with the goods in question, queried the respondents as to why the value of the Hard Discs should not be included in the value of the 'Notebooks' for the purpose of assessment under Heading 84.71. The respondents replied by pointing out that, in terms of the Tribunal's decision in Barber Ship Management's case (supra) which had been upheld by this Court as reported in 2002 (144) ELT A293, the Software- loaded Hard Discs could only be classified under Heading 85.24. They also cited, in support of their stand, Final Order No.380/2005-NB-A dated 18.3.05 (supra) passed by the Tribunal in their own case. Their arguments, however, did not weigh with the assessing authority, which proceeded to assess the Bills of Entry on a provisional basis. The jurisdictional Asst. Commissioner of Customs, after hearing the party and considering their submissions, found Hard Disc as integral part of Notebook-computer and accordingly passed Order-in- Original dated 31.10.2005 classifying the Notebooks together with the Hard Discs assembled therein, under Heading 84.71 as 'automatic data processing machines'. This order was upheld by the Commissioner (Appeals) as per Order-in-Appeal dated 25.11.2005. It is on the basis of the appellate Commissioner's order that the assessments were finalized. Hence the demand of duty which is on the assessable value comprising the value of the Notebook computers with Hard Discs excluding the value of Software. Appeals were preferred against the appellate Commissioner's order.
(3.) Stand of respondent before the Tribunal revolved round decision in Barber Ship Management's case (supra) which was affirmed by this Court in [202 (144) ELT A 293]. It was pointed out that, in their own case involving import of similar goods at Delhi, the Tribunal had classified Software-loaded Hard Disc Drives under Heading 85.24. It was argued that the issue arising in this case had already been conclusively decided by this Court in the case of Barber Ship Management's case (supra) and, therefore, there was nothing further to be examined in this case. It was submitted that Software-loaded Hard Disc, being "recorded media for sound or other similarly recorded phenomena excluding products of Chapter 37" was to be classified under Heading 85.24. The department had no objection to classifying Software-recorded Hard Disc Drive, if imported without any other apparatus, under Heading 85.24. Hence the lower authorities should have been taken the aid of Note 6 to Chapter 85 for classifying the Software-loaded Hard Disc Drives under heading 85.24. Reference was also made to the HSN Notes under Heading 85.24. It was submitted that the authorities below had failed to note the clear distinction between Computer and Software despite decisions of this Court on the point. In this connection, reference was made to this Court's judgment in CCE Vs. PSI Data Systems [1989 (39) ELT 692] and Commissioner Vs. Acer India Ltd. [2004 (172) ELT 289]. The ratio of the Supreme Court's decision in the case of Sprint RPG India Ltd. Vs. Commissioner, [2000 (116) ELT 6 (SC)] was wrongly applied to the facts of the case by the lower appellate authority.;