2008 (1) TMI 200 - AT - Customs

Server is also a computer which is used in conjunction with other computers in managing a network - server performs various functions - it receives the inputs from the other computers in the networks and it also sends its output to the other computers - server cannot be considered as networking equipment - server itself is an Automatic Data Processing Machine (ADP) Chapter Note 5 (E) of Chapter 84 is not applicable, hence it is Classifiable under CTH No. 8471 only, not under CH 8517.50

Summary

Issues:
Classification of imported servers under Customs Tariff Act.

Analysis:
The appeal was filed by Revenue against the Order-in-Appeal passed by the Commissioner of Customs and Central Excise, Hyderabad-II Commissionerate. The issue revolved around the correct classification of Dell Power Edge servers imported from Malaysia. The respondent classified the servers under CTH 84715000, while the Deputy Commissioner assessed them under CTH 85175099. The Commissioner (A) set aside the Order-in-Original and held that the servers should be classified under CTH 84715000. Revenue contended that servers should be classified under Chapter Heading 8517.50 based on a draft Circular and Chapter Note 5 (E) of Chapter 84. The main argument was that servers, performing network management functions, should be classified along with networking equipment under Chapter 85.

During the proceedings, the departmental representative reiterated the grounds of appeal, while the advocate for the respondent referred to Circulars and case laws to support their classification under CTH 8471. The advocate argued that the draft Circular relied on by the department primarily dealt with networking equipment and did not provide a detailed discussion on servers' nature as equipment. It was pointed out that a server, as per Chapter Note 5 (E), should be a machine not performing data processing functions and working with an Automatic Data Processing (ADP) machine.

Upon careful consideration, it was found that a server is a computer used in managing a network, receiving inputs from other computers, and sending outputs. The Tribunal agreed with the respondent's argument that servers are classified under CTH No. 8471 based on relevant case laws and Circulars. The Board's Circular No.497/63/99-CX dated 30.11.1999 defined a computer network as multiple computers connected together, with a server coordinating communication and facilitating simultaneous work. Therefore, the Commissioner (A) order was upheld, and the Revenue's appeal was dismissed.

In conclusion, the Tribunal found that servers are appropriately classified under CTH 84715000 of the Customs Tariff Act, based on their functions in managing computer networks and in line with relevant Circulars and case laws.