2010 (9) TMI 12 - SC - Customs

Software versus hardware - Classification of CD-ROM - liability of duty - exemption - The classification of CD ROM containing images of drawing and designs of engineering goods is the issue of dispute in the present Appeal. - Held that - Assessee contended that classification should be done under the Tariff Heading 49.06 of the First Schedule to the Customs Tariff Act 1975 or 1975 (hereinafter referred to as the Tariff Act') as drawings for engineering purposes or under heading 49.11 as other printed matter. - Assessee contended that alternatively the same may be classified under Sub-Heading Nos. 8524.39 or 8524.90 of the Tariff with Nil rate of duty - department classified the same under the Tariff Heading 8524.90 and not eligible for NIL rate of duty - Held that - products fall under Heading 49.06 only if consisting of originals drawn or written by hand or of photographic reproductions on sensitized paper and carbon copies of such originals. The use of the word only in the HSN Explanatory Notes goes to show that the said Heading was meant exclusively for that purpose alone and not otherwise. Software is the set of instructions that allows physical hardware to function and perform computations in a particular manner, be it a word processor, web browser or the computer's operating system. These expressions are in contrast with the concept of hardware which are the physical components of a computer system, and data, which is information that performs no computation and gives no enabling instructions to computer hardware but is ready for processing by the computer software. Therefore, such engineering drawings or designs data in a CD cannot be placed in the category of the term software . It is therefore held that the engineering drawings and designs contained in a CD ROM will not be covered Heading 85.24 of the Tariff. The classification of CD ROM containing images of drawing and designs of engineering goods - such engineering drawings and designs do not provide instructions for the computer hardware to perform. At best, the said drawings and designs can be said to be are by-products and outputs of the computer software, which generate the designs and drawings. Therefore, such engineering drawings or designs data in a CD cannot be placed in the category of the term software . It is therefore held that the engineering drawings and designs contained in a CD ROM will not be covered Heading 85.24 of the Tariff. - Since the classification sought by the assessee rejected, no interference made to the decision of tribunal

Issues Involved:
1. Role of Airport Authority of India in the dispute.
2. Classification of "CD ROM" containing images of drawings and designs of engineering goods.
3. Entitlement to Nil rate of duty under Notification No. 17/2001.

Issue-wise Detailed Analysis:

1. Role of Airport Authority of India in the Dispute:
The Court clarified that the Airport Authority of India has no role in the dispute between the customs authority and the assessee regarding the liability to pay duty. The application by the intervener was dismissed as it had no relevance to the dispute being resolved in the appeal. The Court emphasized that the contentions raised by the intervener could be a separate cause of action and no adverse order was passed against the intervener.

2. Classification of "CD ROM" Containing Images of Drawings and Designs of Engineering Goods:
The core issue in the appeal was the classification of CD-ROMs containing images of drawings and designs of engineering goods. The appellant argued for classification under Tariff Heading 49.06 or 49.11, which would entail a Nil rate of duty. The Tribunal and the Commissioner (Appeals) had previously rejected these classifications.

Analysis of Heading 49.06:
The Court examined Heading 49.06, which covers plans and drawings for architectural, engineering, industrial, commercial, topographical, or similar purposes, being originals drawn by hand. The Court concluded that the CD-ROMs did not meet this criterion as they were not originals drawn by hand or photographic reproductions on sensitized paper. The Harmonized Commodity Description and Coding System (HSN) Explanatory Notes supported this view, emphasizing that Heading 49.06 was meant exclusively for originals drawn by hand.

Analysis of Heading 49.11:
The appellant also argued that the CD-ROMs could fall under Heading 49.11, which covers "other printed matter, including printed pictures and photographs." The Court rejected this argument, stating that Chapter 49 is generally intended for goods executed in paper and that including images of drawings and designs recorded on a CD-ROM under Heading 49.11 would be incongruous. The Court concluded that the images of drawings and designs recorded on the CD-ROM would not be covered under any sub-heading of 49.11.

Alternative Classification under Chapter 85:
The appellant alternatively argued for classification under Chapter 85, specifically Heading 85.24, which includes recorded media for sound or other similarly recorded phenomena. The Court rejected this argument, stating that the exemption under Notification 17/2001 was for Compact Disk Read Only Memory (CD-ROM) as it is, not for a disc containing specific drawings and designs. The Court further clarified that engineering drawings and designs do not fall within the definition of "software" as per the Notification.

3. Entitlement to Nil Rate of Duty under Notification No. 17/2001:
The appellant claimed entitlement to Nil rate of duty under Notification No. 17/2001, which exempts certain goods, including Information Technology software and documents of title conveying the right to use Information Technology software. The Court examined the definitions of "software" and concluded that the engineering drawings and designs contained in the CD-ROM do not provide instructions for computer hardware to perform and are not software. Therefore, they do not qualify for Nil rate of duty under the said Notification.

Final Judgment:
The Court upheld the decisions of the Adjudicating Authority, Commissioner (Appeals), and the Tribunal, rejecting the classification sought by the appellant. The appeal was dismissed, and the Court emphasized that classification of goods involves technical and scientific evaluation, and unless something patently wrong is demonstrated, the Court should not interfere. The appeal was dismissed with no order as to costs.

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