2006 (5) TMI 319 - AT - Customs

Summary

Issues Involved:
1. Classification of imported goods (Laptops with pre-loaded software).
2. Applicability of Exemption Notification No. 21/2002-Cus.
3. Interpretation of relevant tariff headings (84.71 vs. 85.24).
4. Precedent cases and their applicability.
5. Valuation and duty assessment under Section 19 of the Customs Act.

Detailed Analysis:

1. Classification of Imported Goods:
The primary issue was whether the imported laptops with pre-loaded operating software should be classified under Heading 84.71 as 'automatic data processing machines' or under Heading 85.24 as 'recorded media for sound or other similarly recorded phenomena.' The appellants argued that the software-loaded hard disks should be classified separately under Heading 85.24, while the rest of the system should fall under Heading 84.71.

2. Applicability of Exemption Notification No. 21/2002-Cus:
The appellants claimed duty exemption for the software-loaded hard disks under Sl. No. 157 of Notification No. 21/2002-Cus. The lower authorities denied this benefit, leading to the demand for customs duty on the entire value of the laptops excluding the software value.

3. Interpretation of Relevant Tariff Headings:
The Tribunal examined the classification in light of previous decisions, including the Barber Ship Management case and the appellants' own case at Delhi. The Tribunal noted that the hard disks, when loaded with software, should be classified under Heading 85.24, even if they are part of a computer system. This interpretation was supported by Note 6 to Chapter 85 of the CTA Schedule.

4. Precedent Cases and Their Applicability:
The Tribunal relied heavily on precedent cases, particularly the Barber Ship Management case, which was upheld by the Supreme Court. It was held that the software-loaded hard disks should be classified under Heading 85.24. The Tribunal also referred to the Supreme Court's decision in the Sprint RPG case, which supported the classification of software-loaded hard disks under Heading 85.24, regardless of whether they were presented separately or as part of a computer system.

5. Valuation and Duty Assessment under Section 19 of the Customs Act:
The Tribunal considered the valuation aspect and the applicability of Section 19 of the Customs Act. It was argued that the provisions of Section 19 were not applicable to the facts of this case, as the imported goods were not a 'set of articles' but rather a single system with separable components. The Tribunal referred to the Supreme Court's decision in the Acer India case, which held that the value of operating software should not be included in the assessable value of the computer.

Conclusion:
The Tribunal set aside the impugned order and allowed the appeal. It held that the software-loaded hard disks should be classified under Heading 85.24, making the appellants eligible for duty exemption under Notification No. 21/2002-Cus. The rest of the machine would remain classified under Heading 84.71. The assessments were to be finalized accordingly.