2010 (7) TMI 20 - SC - Customs

Classification - Import of (i) PXI Controllers, (ii) Input/Output Modules (also known as Modem or Control/Adaptor Units) (iii) Signal Converters (iv) Chassis and its parts - The importer claimed the items to be computers and/ or parts of computers. - In the circumstances, the Original Authority (O.A.) has broadly classified embedded Controllers, Programmable Automation Controllers ( PACs ), Data Acquisition Boards, Digital Input Output Boards, PXI Chassis etc. under Chapter 90. The O.A. has rejected the classification sought by the importer under CTH 8471. - Held that - . In our view, in order to attract Note 5(E) the real test is whether or not the machine imported is performing a specific function relatable to the functional unit as a whole. The said machine should be seen as a System. As a functional unit, the imported machine should perform a function other than data processing or it should perform a function in addition to data processing. In our view, Industrial Process Controllers and I.O. Modules, which are part of a functional unit, the function of which is to be judged as a whole are therefore classifiable in Chapter 90. - order of tribunal set aside - decided in favor of revenue

Summary

Issues Involved:
1. Classification of imported items (PXI Controllers, I/O Modules, Signal Converters, and Chassis) under the correct Customs Tariff Heading (CTH).
2. Determination of whether the imported items qualify as Automatic Data Processing Machines (ADPM) under Chapter 84 or as parts and accessories of measuring and controlling instruments under Chapter 90.

Detailed Analysis:

Classification of PXI Controllers, I/O Modules, Signal Converters, and Chassis:
Facts and Initial Decisions:
- The importer, a subsidiary of a US-based company, imported various computer-based instrumentation products and filed 64 bills of entries, classifying the items under CTH 8471 as computers or parts of computers.
- The Original Authority (O.A.) held that the items were not designed to function as computers but were specialized for measurement and control, classifying them under Chapter 90.
- The Commissioner of Customs (Appeals) and the Tribunal (CESTAT) had conflicting views, with the Tribunal classifying the items as ADP Machines under Chapter 84.

Relevant Provisions and Notes:
- Chapter 84 pertains to machinery and electrical equipment, while Chapter 90 covers measuring and checking instruments.
- Notes 3 and 4 to Section XVI of Chapter 84 provide guidance on classifying composite machines and systems.
- Note 5(A) to Chapter 84 defines "automatic data processing machines," and Note 5(B) clarifies that ADP machines may consist of separate units.
- Note 5(E) to Chapter 84 states that machines performing specific functions other than data processing should be classified according to their respective functions.

Technical Analysis and Findings:
- PXI Controllers: The primary issue was whether PXI Controllers qualify as ADPMs. The court found that PXI Controllers are designed for measurement and automation, consisting of a chassis, system controller, and peripheral modules, tailored for specific industrial applications.
- PACs (Programmable Automation Controllers): PACs are an improvement over PLCs (Programmable Logic Controllers) and are used for real-time monitoring and control in industrial processes. They perform functions beyond mere data processing, such as executing control algorithms.
- I/O Modules and Chassis: These are parts of industrial process control systems, tailored to specific functions and working in conjunction with sensors and other control devices.

Application to Tariff Entries:
- Chapter 90 Classification: The court concluded that PACs and I/O Modules are parts and accessories of industrial process control equipment, classifiable under Chapter 90. This classification is supported by Chapter Note 2(b) and Note 3 to Chapter 90, which state that parts and accessories suitable for use with a particular kind of machine should be classified with that machine.
- Holistic Approach: The court emphasized viewing the package (hardware and software) as a single functional unit. The specific functions performed by the imported items, such as measurement and control, align with the scope of Chapter 90.

Final Judgment:
- The Supreme Court upheld the Department's classification of the imported items under Chapter 90, specifically under CTH 9032.90.00 for I/O Modules and Chassis as parts and accessories of Automatic Regulating or Controlling Instruments and Apparatus.
- The Tribunal's order was set aside, and the Department's appeal was allowed.

Conclusion:
- The imported items (PXI Controllers, I/O Modules, Signal Converters, and Chassis) are not merely ADPMs but have specialized structures and functions for industrial measurement and control.
- They are correctly classifiable under Chapter 90 as parts and accessories of measuring and controlling instruments, not under Chapter 84 as ADPMs.