Deciding Authority : Supreme Court
Date of Judgement : 20/01/2000
Bench : M.B.Shah, B.N.Kirpal
Facts : Goods imported by the appellant were examined on 9th August,1995 and were found to be seven pieces of hard disk drive loaded with software. As per the department, custom duty on hard disk drive is leviable under Chapter Heading 84.71 at the rate of 25% and on a computer software it is at the rate of 10% as per the tariff Heading 85.24 read with notification No.59/95 dated 16.3.1995. It is admitted fact that total value of the consignment was Rs.67,75,119/- for seven hard disk drives having software loaded thereon. Value of the hard disk simplicitor would be roughly at the most Rs.60000/-. The Tribunal arrived at the conclusion that as the software was loaded on a hard disk, it would remain to be a hard disk drive on which software was loaded.
Judgement : For understanding of computer software and the hard disk, learned counsel for the Customs has produced on record some extracts from Modern All About Hard Disk Drive of BPB Publications. He further submits that he has received information from the Deputy Commissioner (Customs), Air Cargo, New Delhi, as per the letter which is produced on record which points out that in nutshell, a hard disk is one of the devices used in the Computer Systems. Its function is to store the data,instructions, sound images etc. including source code and object code. The moot difference between the hard disk and the software is that a hard disk is hardware whereas software is a representation of any type of data and which is stored in the hard disk. Similarly, as per the Internet information received by Customs, a hard disk is really a set of stacked disks, each of which, like phonograph records, has data recorded electromagnetically in concentric circles or tracks on the disk. A head (something like a phonograph arm but in a relatively fixed position) records (writes) or reads the information on the tracks. In the present case, what is imported by the drive loaded with software material. Heading 84.71 apparently covers automatic data processing machines and units thereof and magnetic or optical readers not elsewhere specified or included. It is to be stated that heading 85.23 deals with prepared unrecorded media for sound recording or similar recording of other phenomena, which includes magnetic tapes. As against this, heading 85.24 covers records, tapes and other recorded media for sound or other similarly recorded phenomena which covers gramophone records or magnetic tapes for reproducing phenomena. That software material is admittedly classifiable under Tariff Heading No.85.24 which provides for taxing records, tapes and other recorded media for sound or other similarly recorded phenomena.
Further, the Central Government by its Notification No.59/95-Cus. dated 16th March, 1995 provided exemption to the computer equipments Mr. Swami, learned counsel for the respondent relied upon the Rules of Interpretation mentioned in the First Schedule appended to the Customs Tariff Act which lay down general Rules for the interpretation and classification of goods for import tariff. Testing it from the aforesaid Rules of Interpretation, it would be clear that the disk or a floppy on which computer data is recorded,would be covered by heading 85.24. Rule 3(a), interalia, provides that when two or more headings each refer to part only of the materials or composite goods, those headings are to be regarded as equally specific in relation to those goods, even if one of item gives a more complete or precise description of the goods. Further, considering imported goods to be a mixture of two substances namely hard disk drive and software as per Rule 3(b) they can be classified under the heading which gives them their essential character. In the present case, considering its price factor it would be computer software. The price of the imported consignment was approximately Rs.68 lakhs. As against this,value of the seven hard disk drives would be roughly Rs.60000/-that is to say, value of the computer software is hundred times more than its containers hard disk. Hence, the essential character of the imported goods is computer software.
Mr. Swami, learned counsel for the respondent further referred to Chapter Note 5 of Chapter 84 and submitted that for the purposes of Heading No.84.71, the expression automatic data processing machine means automatic data processing machines or a unit as being a part of a complete system if it meets 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.
He referred to clauses (b) and (c) and contended that this hard disk drive can be used either directly or through one or more other units for processing the data and, therefore, it would be automatic data processing machine falling under Heading No.84.71. This submission cannot be accepted for the consignment in question is essentially a computer software covered by specific Heading No.85.24 which is for levying duty on records, tapes and other recorded media for sound or other similarly recorded phenomena. As mentioned in the Notification dated 16th March,1995, computer software is covered by Heading No.85.24. The said notification also covers computer software imported in the form of printed books, pictures, manuscripts and typed scripts covered by Chapter 49. Computer software can be brought either on a floppy or magnetic tape or on a hard disk or in a printed form and hence,what is imported is software on a container which is a hard disk drive.The value of the containers (hard disks) approximately in the present case is Rs.60000/- or Rs.65000/-. As against this, the cost of the computer software is roughly Rs.67 lakhs. Therefore, it can be said that what is imported by the appellant is essentially a computer software.
In this view of the matter, the order dated 25th March,1996 of the Commissioner of Customs and the order dated 14th May, 1999 of the Tribunal confirming the said order in Appeal No.161/96-B2 are quashed and set aside.It is held that computer software imported by the appellant on a hard disk drive is assessable at the rate of 10% as per Heading 85.24 with the Exemption Notification stated above because what was imported by the appellant was software on a hard disk and it was not hard disk in the garb of software.
Held : Appeal Allowed .
Tejasv Anand , IV th Year , AMITY LAW SCHOOL,DELHI.
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