2000 (1) TMI 194 - SC - Customs

Whether custom duty on imported computer software loaded on a hard disk drive is to be levied on the basis of hard disk simplicitor or computer software ? Held that - For the consignment in question it is essentially a computer software covered by specific Heading No. 85.24 which is for levying duty on records, tapes and other recorded media for sound or other similarly recorded phenomena. As mentioned in the Notification dated 16th March 1995, computer software is covered by Heading No. 85.24. The said notification also covers computer software imported in the form of printed books, pictures, manuscripts and typed scripts covered by Chapter 49. Computer software can be brought either on a floppy or magnetic tape or on a hard disk or in a printed form and hence, what is imported is software on a container which is a hard disk drive. The value of the containers (hard disks) approximately in the present case is Rs. 60,000/- or Rs. 65,000/-. As against this, the cost of the computer software is roughly Rs. 67 lakhs. Therefore, it can be said that what is imported by the appellant is essentially a computer software. It is thus held that computer software imported by the appellant on a hard disk drive is assessable at the rate of 10% as per Heading 85.24 with the Exemption Notification dated 16th March 1995, because what was imported by the appellant was software on a hard disk and it was not hard disk in the garb of software. Appeal allowed.

Summary

Issues Involved:
1. Classification of imported goods for customs duty purposes.
2. Determination of applicable customs duty rate for hard disk drives loaded with software.
3. Interpretation of relevant tariff headings and exemption notifications.

Issue-wise Detailed Analysis:

1. Classification of Imported Goods for Customs Duty Purposes:
The primary issue in this case was whether the imported goods, which were hard disk drives loaded with software, should be classified as "hard disk drives" or "computer software" for the purpose of levying customs duty. The Tribunal initially concluded that since the software was loaded on a hard disk, it should be classified under Chapter Heading 84.71 as "hard disk drives" and not under Heading 85.24 as "computer software."

2. Determination of Applicable Customs Duty Rate:
The customs duty rates differed significantly between the two classifications. Under Chapter Heading 84.71, the duty rate for hard disk drives was 25%, while under Tariff Heading 85.24, the duty rate for computer software was 10%, as per Notification No. 59/95 dated 16-3-1995. The appellant argued that the goods should be classified as computer software, which would attract a lower duty rate.

3. Interpretation of Relevant Tariff Headings and Exemption Notifications:
The court examined the relevant tariff headings and exemption notifications to determine the correct classification. Chapter Heading 84.71 covers "automatic data processing machines and units thereof," while Heading 85.24 pertains to "records, tapes, and other recorded media for sound or other similarly recorded phenomena." The court noted that the software material was classifiable under Tariff Heading 85.24, which includes recorded media.

The court also considered various definitions and descriptions of hard disk drives and computer software. It was noted that a hard disk drive is a storage device used to store data and programs permanently inside a computer, while software is a representation of data stored on such devices.

The court referred to the Central Government's Notification No. 59/95-Cus., which provided an exemption for computer software under Heading 85.24, reducing the duty rate to 10%. The court emphasized that the essential character of the imported goods was computer software, as the value of the software was significantly higher than the value of the hard disk drives.

Judgment:
The court concluded that the imported goods should be classified as computer software under Tariff Heading 85.24, attracting a customs duty rate of 10%. The court quashed the orders of the Commissioner of Customs and the Tribunal, which had classified the goods under Chapter Heading 84.71. The court held that the goods imported by the appellant were essentially computer software, not hard disk drives in the garb of software.

Conclusion:
In conclusion, the appeal was allowed, and it was determined that the customs duty on the imported hard disk drives loaded with software should be levied at the rate applicable to computer software (10%) under Heading 85.24, as per the relevant exemption notification. The court's decision was based on the essential character of the imported goods being computer software.