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TMI Blog1981 (9) TMI 277X X X X Extracts X X X X X X X X Extracts X X X X ..... lso known as Data Processing Machine. As the computer system machine consisted of a variable number of separately housed units, the same was imported by Air and came by four consignments. The petitioners filed four Bills of Entry for home consumption with the Customs authorities at the Santa Cruz Air-Port and the Customs authorities classified the computer system machine as falling under Tariff Item No. 73 in Section XVI of the First Schedule to the Indian Customs and Central Excise Tariff (Vol. I) (hereinafter referred to as the "Tariff"). The authorities accordingly assessed the computer system machine for overall duty of ₹ 29,50,994 69. 3. The petitioners paid the duty under protest. According to the petitioners, the computer system machine attracts duty under Item No. 72(b) of the Tariff and the duty leviable would aggregate to ₹ 17,77,881.42. The petitioners after clearing the goods filed four refund applications to the Assistant Collector of Customs for refund of the excise duty amounting to ₹ 11,73,112.87. The petitioners claimed that the computer consists of different units like Central Processing Unit, Tape drives, Disk Cartridges, Card Reader, Prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff. The learned Counsel urged that the authorities below have not taken into consideration various salient features of the case and have ignored as to how the computer system is known in the trade but have proceeded to record a finding on the strength of trade notice dated February 22, 1972 issued by the Central Board of Excise. 6. Shri Chinai, the learned Counsel appearing on behalf of the Department, on the other hand, submitted that the conclusion arrived at by the authorities below is in accordance with law and requires no interference. It was urged by the learned Counsel that there is no distinction between 'machinery' and the 'apparatus' and the difference lies in whether it is predominantly an electrical instrument or otherwise. Shri Chinai submits that the expression 'machinery' connotes generation of movement and the Central Processor which is a heart of the computer lacks any movement. The learned Counsel further urged that the computer is only an electrical device and not a mechanical device and, therefore, it was properly assessed under Item No. 73 of the Tariff. It was finally urged by Shri Chinai that even assuming that the two views are possible as to whether t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rehensive expression which includes the Central Processing Unit, Disk File Storage Units, Disk Pack Drives, Disk Cartridge Drives, Magnetic Tape Drive Units, Line Printers, Card Readers, Paper Tape Punch Unit, Console Printers and Display Terminals. The whole combination of these devices constitute an integrated computer system (Data Processing Machine). Individual Units of the system cannot be considered as a computer by itself and none of the units are capable of working except in conjunction with the others and a particular system can be configured after giving due regards to the particular requirements e.g. raw data can be accepted by the system either through punched cards, paper tape, console terminals or can be directly encoded on the magnetic tapes; processed data can either be stored on any of the disk devices, magnetic tapes and/or be outputted on the line printer, paper tape, or can be displayed on the visual display unit. The mode of input or output a user will vary from application to application and, therefore, the computer manufacturers market their systems in this modular fashion. The individual components of the computer system i.e. tape drives, line printers, disk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire system has to be classified as one integrated unit. It was not disputed that the Central Processor Unit, by itself, cannot function and the entire computer system can work only as the integrated unit. 10. The second reason which appealed to the authorities below is that as per the Machinery Committee Report of the year 1922, the computer was not adopted for use in the equipment of industrial concern. The appellate authority felt that the computer is not directly concerned with any industrial operation and it is not used for production of any commodity. This reasoning is also faulty. In the first instance, it was not appropriate to take into consideration a report of the year 1922 which had not in contemplation the use of computer in the day-to-day affairs. Secondly, it is not correct to suggest that the computer is not used in industrial operation. 11. Shri Talyarkhan invited my attention to page 740 of the World Book Encyclopaedia, Volume 4. Under the heading "Computer", the following passage appears : "Computer is a machine that handles information with amazing speed. It works with such information as names and addresses, book titles, lists of items sold i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s machines. In my judgment, both the reasons assigned by the authorities below for holding that the computers are not machines are untenable. 12. Shri Talyarkhan submits that computers or Data Processing Machines are regarded as machines in all Tariffs and in support of his submission relied upon Entry 84.53 in Brussels Nomenclature. Volume 3 at page 1346. The heading of the entry reads as under : "Automatic Data Processing Machines and Units thereof; Magnetic or Optical Readers, Machines for Transcribing Data onto Data Media in Coded Form and Machines for processing such Data, not elsewhere specified or included." Paragraph I of Entry 84.53 sets out that Data Processing Machines are described as digital, analogue or hybrid according to the method of processing the data. It further recites that these machines mostly use electronic signals but may also use other technologies (e.g., pneumatic, fluidic or optical). On page 1346b, it is recited that the Data Processing Systems include peripheral units, apart from the input and output units, designed to increase the capacity of the system and the unit is to be regarded as being a part of the complete digital data processing syst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imported into Greater Bombay, Data Processing machinery and components and spares thereof. In respect of the goods imported, the Corporation levied duty under Item No. 52 of the Octroi Schedule at 2% ad valorem, while according to the petitioners, the duty could have been validly levied only under Item 50 of the Schedule. Item 50 deals with machinery and their components and spares, while Item No. 52 covered instruments, apparatus, appliances and parts thereof. The controversy arose between I.B.M. and the Corporation as to whether the Data Processing Machines are to be treated as machinery or as apparatus attracting duty under Item 52. The learned Judge took the view that possibly all machineries can be described as 'apparatus' but the expression 'apparatus' cannot be held to have been used in Item 52 in respect of articles which were classifiable as 'machinery' under Item No. 50. The learned Judge held that looking to the components of the computer and its use, it is difficult to hold that it is not a machinery. Shri Talyarkhan submits that the learned Single Judge has very rightly come to the conclusion that the computers are machineries and that conclusion squarely applies to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r a particular temperature. The purposes for which such machines which can be described as computers are used are well known and in highly scientifically developed systems, they have their own roles to play and they cannot be equated, therefore, with office appliances which would be of a much simpler nature. They are really substitutes for human labour not in the sense of manual labour but in the sense they perform intellectual functions which would normally be performed by highly qualified engineers. One machine by itself serves no purpose, but what has to be used is a group of machines which make up a "system". The basic functions of a computer are : (i) input; (ii) storage; (iii) control; (iv) processing; and (v) output. The processor has to translate the language of the programmer into the computer-code form which is used internally by the computer. A computer system or an electronic data processing system is physically a collection of electromechanical and electronic components and devices assembled in metal cases (modules) and cabinets. These contain switching and communication components such as transistors, diodes, capacitors, resistors and integrated circuits, all com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artment has stated that the "computer" is nothing but a specie of genus which is machine and the computer is nothing but a specialised form of machine which is appropriately classified under Item 73 of the Tariff. Shri Talyarkhan submits that from what has been stated by the Department, it is obvious that even the Department does not dispute that the computers are machines. The learned Counsel further submitted that it is impossible to consider "computers ' as electric appliances because electric appliance has reference to domestic use only and in support of the submission placed reliance upon the decision in the case of Viswa & Co. v. The State of Gujarat reported in 17, Sales Tax Cases 581. The Division Bench consisting of Chief Justice J.M. Shelat and Justice Bhagwati of the Gujarat High Court, as they were then, were considering the question whether penalty could be imposed for failure to pay tax due according to the return before furnishing the guarantee and while considering that question they were required to consider whether an electrical fan is an electrical appliance. The Division Bench has quoted the observation from the Encyclopaedia Americana which read as under :- ". ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that time it was possible to treat them as machines. As the technology advanced, the computers' function becomes purely electronic and mechanical processes are deleted. The learned Counsel submitted that in the present days, the computers are worked purely on electrical or electronic devices and, therefore, it should not be considered as electrical apparatus liable for duty under Item No. 73 of the Tariff. The submission of Shri Chinai that the mechanical devices are ruled out and the present computers worked purely as an electrical or electronic device is correct. The history of the development of the computers given in Encyclopaedia of Britannica and in the book "The Computer from Pascal to Von Neumann" by Herman H. Goldstine leaves no manner of doubt that in view of the development in the technology, the modern computers are fully automatic electronic or electrical equipments. The mere fact that the computer imported by the petitioners is a fully automatic electrical equipment would not necessarily attract the duty under Item No. 73 of the Tariff because even if it is an electrical device based on electricity and electronics, it would not cease to be a machine. 22. Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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