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TMI Blog2010 (7) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 - JUDGMENT S. H. KAPADIA, CJI Delay condoned. Facts: 2. M/s. N.I. Systems (India) Private Limited (hereinafter referred to as importer ) is a 100% subsidiary of N.I. Corporation at Austin, Texas, USA. 3. Assessee imports various products from its Holding Company and supplies the same to its customers in India. During the relevant assessment year, the assessee imported various products from their Principal. The products were computer based instrumentation products. The importer filed 64 bills of entries. The importer claimed the items to be computers and/ or parts of computers. The importer grouped the items in accordance with similar/ identical functions broadly under CTH 8471, 8473 and other headings falling under Chapter 84. Broadly, the importer categorized the imported items as follows: (i) PXI Controllers (ii) Input/Output Modules (also known as Modem or Control/Adaptor Units) (iii) Sig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mporter under CTH 8471. 5. Aggrieved by the decision of the Additional Commissioner dated 15.11.2006, the importer preferred Appeal No. 98/07-CUS(B) before Commissioner of Customs (Appeals). Vide decision dated 31.7.2007, the Commissioner (A) dismissed the appeal preferred by the importer. 6. Against decision dated 31.7.2007, the importer preferred Customs Appeal No. 678/07 before CESTAT. Vide its decision dated 29.6.2009, the Tribunal held that the main item of import was PXI Controller and other Controllers. According to the Tribunal, these imported Controllers were nothing but ADP Machines. According to the Tribunal, the importer had placed before it the sample of imported items with enormous data including a diagram which read as follows: PXI Controllers = Computers = Data Processing Machines [See page 10 of presentation of the importer company] 7. According to the Tribunal, the diagram, on which reliance was placed by the importer, indicated that both PC and PXI Controller had a structure/ design which was common to Automatic Data Processing Machines. According to the Tribunal, PXI controller in itself is not a measuring instrument; that the input of PXI Controll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of two or more machines fitted together to form a whole and other machines designed for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function. 4. Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function. 9. Note 5(A) to Chapter 84 defines the expression automatic data processing machines . Note 5(B) to Chapter 84 clarifies that an ADP may be in the form of systems consisting of variable number of separate units. We quote hereinbelow, Notes 5(A) and 5(B) to Chapter 84, which read as follows: 5.(A) For the purposes of heading 8471, the expression automatic data processing machines means: (a) digital machines, capable of (1) storing the processing programme or programmes and at le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sake of clarity Chapter Heading 8471, which reads as follows: Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data on to data media in coded form and machines for processing such data, not elsewhere specified or included Chapter Sub-Heading 8471 50 00 reads as follows: Digital processing units other than those of sub-headings 8471 41 or 8471 49, whether or not containing in the same housing one or two of the following types of unit: storage units, input units, output units 13. Chapter 90 falls in Section XVIII which refers to measuring and checking instruments/apparatus as also parts and accessories thereof. Chapter Notes 1(h), 2 and 3 of Chapter 90 read as under: 1 This Chapter does not cover: (h) searchlights or spotlights of a kind used for cycles or motor vehicles (heading 8512); portable electric lamps of heading 8513; cinematographic sound recording, reproducing or re-recording apparatus (heading 8519 or 8520); sound-heads (heading 8522); still image video cameras, other video camera recorders and digital cameras (heading 8525); radar apparatus, radio navigational aid apparatus or radio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tates that when a machine including a combination of machines consists of separate components which are intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 then the whole shall fall for classification in the heading appropriate to that function, whether the various components remain separate or are inter-connected by devices used to transmit power, either by electrical cables or by other devices. At this stage, we quote hereinbelow Chapter Sub-Heading 8471 49 00, which reads as follows: Other, presented in the form of systems 18. According to HSN, the word systems in Chapter Sub-Heading 8471.49 means ADP machines whose units satisfy the conditions of Note 5(B) to Chapter 84 and which comprises of a CPU, one input unit (for example, a keyboard or a scanner), and one output unit (for example, a visual display unit or a printer). 19. According to HSN, the following classification principles have to be applied in accordance with Note 5(E) to Chapter 84 in the case of machine incorporating or working in conjunction with ADPM and performing a specific function. These principles are as follows: (1) A machine incorpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A unit is to be regarded as being a part of a complete digital data processing system, if it satisfies the following conditions: (a) It is of a kind solely or principally used in an automatic data processing system; (b) It is connectable to the central processing unit either directly or through one or more other units; and (c) It is able to accept or deliver data in a form (codes or signals) which can be used by the system. The interconnections may be made by material means (e.g. cables) or by non-material means (e.g., radio or optical links). In accordance with Note 5(D) to this Chapter, printers, keyboards, X-Y co-ordinate input devices and disc storage units which satisfy the conditions of items (b) and (c) above, are in all cases to be classified as constituent units of data processing systems. The foregoing provision is, however, to be considered in the overall context of Note 5 to Chapter 84 and is therefore applicable subject to the provisions of paragraph (E) of that Note, by virtue of the introductory part of paragraph (B) thereof. Thus, ink-jet printers working in conjunction with an automatic data processing machine but having, particularly in term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artment, in several control systems, digital data processing monitors a device, process or system and automatically adjusts its operational parameters. In other control systems, such an apparatus only monitors the device, process or system and displays alarm leaving responsibility for adjustment to the operator. Thus, process control is typically employed in the manufacturing sector for process and discrete manufactures. According to the Department, field devices include temperature, flow and other sensors that measure characteristics of the device, process or system being controlled. On the other hand, control devices include valves, actuators which control the devise, process or system itself. According to the Department, controllers generate settings for the control devices based on measurements from the field devices. Controller operation is typically based on control algorithm that maintains a control system at a desired level by minimizing differences between the values measure by the sensors. According to the Department, controllers may be connected to other computing apparatus that facilitates monitoring or administration. According to the Department, the principal function ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above aspects have been duly considered by the Tribunal. The entire case of the Department before us was that the Programmable Process Controllers when imported were suitable for use principally with industrial process control equipment, i.e., sensors which measure temperature, pressure, flow etc. and therefore such programmable process controllers were classifiable as a part of the said equipment, instrument or apparatus. The programmable process controller, though separate from sensors, is necessarily an individual component intended to contribute to a clearly defined function. According to the Department, the programmable process controllers being parts and accessories of a regulating or controlling apparatus have been classified rightly by the adjudicating authorities under CTH 9032 89 10. According to the Department, PACs whether embedded or otherwise are in essence Programmable Process Controllers. In support thereof, the Department has placed reliance on two circulars issued by Central Board dated 2.9.1996 and 9.5.1997. 25. As regards Input-Output ( I.O. ) Modules and Chassis, the Department contended that I.O. modules and chassis have been rightly classified by the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apparatus under CTH 9032 90 00. Case of the Importer: 26. Briefly, the case of the importer before us was that imported items cannot perform any specific function unless the end-users have an appropriate programming software. According to the importer, the input for the above items is digital signals captured by sensors. According to the importer, just because the imported items were to be used with measuring instruments, it cannot be said that such items are to be classified under Chapter 90. According to the importer, PXI controller, I.O. modules and signal converters are all varieties of ADP Machines. They all run on operating systems like linux, windows etc. According to the importer, no ADP Machine can capture an electrical signal such as temperature, voltage, pressure etc. on its own as a stand-alone item. According to the importer, an ADP Machine requires various types of interface boards/units which are required to be installed in it and connected to sensors so that temperature, voltage and pressure can be received by the interface boards/units and converted into digital signals and then sent to ADPM processing. Therefore, according to the importer, it is the sen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apter 90 is because according to the Department, in addition to Chapter Note 5(A), Chapter Note 5(E) also applies. The same test is applied by the Department to I.O. Modules. According to the importer, even the Department accepts that these modules satisfy the definition of ADP given in Chapter Note 5(B). However, the Department has classified the said modules under Chapter 9031 by virtue of Chapter Note 5(E). The same test is also applied by the Department in the context of signal convertors. According to the importer, even the signal convertors satisfy the definition of units of ADP as provided in Chapter Note 5(B). However, the Department has classified the said items under Chapter 9031 only by virtue of Chapter Note 5(E) of Chapter 84. In short, the Department has classified the Controllers under heading 9031 or 9032 as measuring, checking or controlling instruments. They have classified signal converter units and I.O. modules under heading 9031 as parts of measuring and checking instruments which is objected to by the importer. The basis for the Department case has always been that the imported goods, though ADPM, are meant for use with checking or controlling instruments a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Control equipment like sensors which measures temperature, pressure etc. The programmable process controller, though distinct from sensors, is an individual component intended to perform a specific function. The programmable process controller is a part and accessory of a controlling apparatus. 32. A word about PXI, PAC, Sensor and FPGA. (i) PXI: PXI is designed for measurement and automation applications which require high performance and a rugged industrial form. In the Chassis of PXI, there are about 8 slots. PXI is a system. It consists of three components, namely, chassis, system controller and peripheral modules. One can select the modules to be installed in the PXI System. PXI uses PCI-based technology. There are PXI Modules, including those which are imported herein, available for almost every conceivable measurement and automation application. (ii) PAC: PAC stands for Programmable Automation Controller. PAC is a Controller. PAC is an improvement on PLC. Various characteristics of PAC includes multi-domain functionality - ability of handling logic, motion and process control - all on a single control platform. Every computational algorithm cannot be solved wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olts, which is then converted into digital signals, which the personal computer can understand. Similarly, Analog Output Boards are meant for converting signals from external units such as PXI controller. Similarly, Network Interface Module ( NIM ) is used to connect measuring instruments to a PC by sending and receiving messages, two ways. The Chassis of PXI provides connectivity and housing for embedded controllers and data acquisition modules, allowing them to communicate with each other. To sum up, the I.O. Module is tailored to a specific function. Each of the abovementioned Boards (cards) is inserted into the slots of PXI. Each of the I.O. Modules is tailored to a specific function and is, therefore, a part of a regulating and controlling apparatus like a sensor, thermostat etc. Therefore, one has to look at the machine (PXI Machine) holistically. (B) Application of above technical material to the relevant Tariff Entries: 34. At the outset, it needs to be stated that PACs, whether embedded or otherwise, are in essence Programmable Process Controllers. 35. In the matter of classification, we need to discuss PACs and Input/Output (I.O.) Modules and Chassis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f that PACs/Programmable Process Controllers by themselves are not measuring, regulating or control instruments and hence CTH 9032 classification relied upon by the Department was unsustainable. It was further argued on behalf of the importer that physical variables such as temperature and voltage are measured by sensors which could be classified under Chapter 90, but this does not extend to PACs/Programmable Process Controllers. It had been further argued on behalf of the importer that automatic control apparatus referred to in Chapter 90 must consist of a device for measuring a control device and a starting-stopping/operating device, all of which should form a single entity and since a PAC does not fulfil the said test, CTH 9032 is not attracted in the case of PAC/Programmable Process Controllers. 39. In our view, the above argument of the importer is unsustainable for the following reasons. Firstly, it is nobody's case that a PAC/Programmable Process Controller by itself is an automatic regulating, controlling instrument or apparatus in terms of Chapter 90. On the contrary, in view of Chapter Note 2(b) to Chapter 90 read with Note 3 of the same Chapter, PACs/Programmabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... important to note that in the chassis of the PXI there are slots in which Analog Output Boards (Cards); Digital Input-Output Boards, Image Acquisition Boards, Distributed Input-Output Boards, NIM etc. are inserted. Each I.O. Module imported by the assessee is tailored to a specific function and therefore such I.O. Module is a part of a regulating or controlling apparatus. Take the case of NIM. It is a hardware device. It may be in the form of a network interface card or a network adapter or in the form of Network Interface Controller ( NIC ). NIM is a computer hardware component designed to allow computers to communicate over a computer network. It provides connectivity between the industrial network and the I.O. Module. A network interface module works as a connector and adapter unit in order to provide a two way interconnection between external sensor unit and the ADP. Thus, I.O. Module is a hardware. It is also known as I.O. device or I.O. Point. It may be in the form of I.O. Cards or I.O. Boards. When I.O. Module is used to accept data (input) from sensors, transducers, Programmable Logic Controllers ( PLC ), computers etc. and then distributes the data (output) to other de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stem i.e. sensors. 41. We also do not find any merit in the submission of the importer that in view of the Explanatory Notes, the Measuring Device, the Control Device and the Operating Device has to form a single entity . There is no dispute that if all the above three devices are found in one single entity then classification will fall under Chapter 90. However, the test of single entity containing three devices is not a pre-condition for classification under CTH 9032. On the contrary, the test is not that of single entity, but of the device being capable of working as a functional unit. In this connection, Note 3 of Chapter 90 is to be read. Note 3 incorporates Note 4 to Section XVI. Note 4 inter alia provides for a machine consisting of individual components which may be separate as long as they are intended to contribute to a clear defined function. The PACs/Programmable Process Controller, though separate from sensors, is an individual component intended to contribute to a clearly defined function. Note 3 of Chapter 90 has to be read with Note 2(b) of Chapter 90 and if so read then it becomes clear that PAC/Programmable Process Controllers, being parts and accessories ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uisition modules, allowing them to communicate with each other. A network interface module is used to connect to a network for distributed control applications. It interconnects measuring instruments to a PC by sending and receiving messages from the two units. Thus, each I.O. Module is tailored to a specific function and is therefore a part of regulating and controlling apparatus. Handling of information under the HSN Notes is separate and distinct from regulating and measuring temperature, pressure etc. 44. Lastly, we need to analyse Chapter Note 5(E) to Chapter 84. In our view, once a machine incorporating an ADPM performs a specific function other than data processing then that machine is classifiable in the heading corresponding to the function of that machine (see Note 4 of Section XVI and Note 3 to Chapter 90, the scope whereof has already been explained hereinabove). Further, HSN clearly indicates that Heading 8478 is excluded where the case is of a clearly defined function to which separate components contribute. 45. 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 funct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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