2006 (3) TMI 366 - AT - Customs

Classification of printer driver software - Valuation - Software - Printer driver software recorded on a compact disk - Whether printer software is the firmware of the printer or not ? - Applicability of Section 19 - HELD THAT - As firmware resides in the chip itself and is generally etched while the chip is being manufactured and it is non-erasable. On the other hand the printer driver software imported by HP India in the present case gets installed on the hard disk of the computer and does not reside in the Random Access Memory (RAM) or Read Only Memory (ROM). We therefore agree with the importers that the printer driver software imported in the present case is not a firmware. In the case of Acer India Ltd. 2004 (9) TMI 106 - SUPREME COURT the assessee claimed deduction from the invoice value of the computer and the value of software loaded thereon and cleared from the factory. The apex court held that by virtue of Note 6 to Chapter 85 software is liable to be classified under Heading 85.24 and the value of software cannot be included in the value of hardware i.e. computer. The apex court also held that computer and software are two distinct commodities classifiable separately. Thus duty of customs cannot be levied on software which is exempt from duty merely on the ground that the value of the software is not separately available or separately indicated in the invoice. Applicability of Section 19 - From the language of the Section 19 it is clear that if there is any other law in force under which the rate of duty on imported goods is determined then Section 19 will not apply. The imported goods are liable to duty at rates specified in the Customs Tariff Act 1985 as per Section 12 of the Customs Act and the schedule to the Customs Tariff Act 1975 provides for classification of goods and also rate of duty and since Note 6 to Chapter 85 of the C.T.A. 1975 is the statutory note on classification and rate of duty is j therefore to be determined by application of Note 6 the importers are correct in their contention that Section 19 will not be applicable in the present case. Our view is supported by Tribunal s order in the case of R. Maganlal 1990 (3) TMI 208 - CEGAT NEW DELHI wherein the Tribunal has held that Section 19 will come into play only if any law for the time being in force does not provide otherwise for determination of duty in such circumstances that the Customs Tariff has its own rules for interpretation and if those rules provide guidelines for classification of goods then the rules will prevail and Section 19 of the Customs Act would not be applicable. This decision was affirmed by the Supreme Court in 1990 (11) TMI 424 - SC ORDER and the same view has been taken by the Tribunal in Monito Enterprises v. CC 1999 (3) TMI 198 - CEGAT MUMBAI and CC v. Monito Enterprises 2001 (7) TMI 219 - CEGAT MUMBAI . In the light of the above we hold that the provisions of Section 19 have no application to the facts of this case. In the result applying the ratio of the apex court s decision in Acer India Ltd. supra we hold that printers imported by HP India are classifiable under Chapter Heading 84.71 of the Customs Tariff and software under Chapter Heading 85.24 and that the software is exempt by notification 17/2001-Cus as per serial No.285 of the table thereto/Notification 20/99-Cus as per serial No.231 of the table thereto and that the value of software is not includible in the value of the printer set aside the order impugned in appeal No. C/110/05 and allow the appeal of the importers and uphold the order challenged by the Revenue in appeal No. C/391/02 and dismiss the appeal of the Revenue.

Summary

Issues Involved:
1. Classification of imported multi-function machines and software.
2. Valuation of imported software.
3. Applicability of Section 19 of the Customs Act, 1962.
4. Exemption from customs duty for software.

Issue-wise Detailed Analysis:

1. Classification of Imported Multi-function Machines and Software:
The appeals involved the classification of multi-function machines (printer-cum-scanner-cum-fax) and accompanying software. The importers sought classification of the printer under Customs Tariff Heading (CTH) 8471.60 and the software under CTH 85.24, claiming exemption from duty. The department initially classified both items under CTH 84.71. However, the Tribunal and the Hon'ble Bombay High Court, referencing the Supreme Court decision in CCE v. Acer India Ltd., held that the printer and software should be classified separately under CTH 84.71 and CTH 85.24 respectively.

2. Valuation of Imported Software:
The importers declared the value of the software separately, which was initially accepted by the department. The Tribunal, however, included the software value in the printer's value based on Section 19 of the Customs Act. The importers contended that the software value was reasonable and consistent with practices at other customs houses. The Tribunal accepted the importers' valuation method under Rule 7A of the Customs Valuation Rules, 1988, and noted that the software value was not disputed by the department.

3. Applicability of Section 19 of the Customs Act, 1962:
The importers argued that Section 19, which deals with the determination of duty for goods consisting of articles liable to different rates, was not applicable. The Tribunal agreed, stating that the Customs Tariff Act's classification rules prevail over Section 19. The Tribunal cited previous decisions affirming that Section 19 applies only when no other law provides for duty determination, and since the Customs Tariff Act does, Section 19 was inapplicable.

4. Exemption from Customs Duty for Software:
The software was classified under CTH 85.24, which was exempt from duty under notifications 17/2001-Cus and 20/99-Cus. The Tribunal upheld that the software, even when imported with hardware, retains its classification and exemption status. The Tribunal referenced the Supreme Court's decision in Acer India Ltd., which held that software does not lose its character or exemption when loaded onto hardware.

Conclusion:
The Tribunal concluded that printers are classifiable under CTH 84.71 and software under CTH 85.24. The software is exempt from duty, and its value is not includible in the printer's value. The Tribunal set aside the impugned order in appeal No. C/110/05, allowing the importers' appeal, and dismissed the Revenue's appeal in No. C/391/02.