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TMI Blog2007 (8) TMI 347X X X X Extracts X X X X X X X X Extracts X X X X ..... 84.71. 2. Background facts in a nutshell are as follows : The Department had demanded customs duty of about Rs.5.9 crores from the respondent by classifying goods imported by them under Heading 84.71 of the First Schedule of the Act and denying them benefit of exemption Notification No. 21/2000-Cus., dated 1-3-2002 (as amended). Demand was questioned before CESTAT. An application seeking waiver of pre-deposit and stay of recovery in respect of this amount of duty was filed. After examining the records and hearing both sides, CESTAT found prima facie case for the assessee in view of the Tribunal's decision in the case of Barber Ship Management (I) Pvt. Ltd. v. Commissioner, 2000 (117) E.L.T. 456 (Tri.) as well as the decision in the assessee's own case reported in 2005 (126) ECR 124 (Tri-Del.) and, accordingly, CESTAT have dispensed with pre-deposit of the duty amount. Further, having heard both sides at length and having regard to the high stake involved in the case, the appeal was taken up for final disposal. The respondents are engaged in the manufacture of, and trading in, computers including Laptops (otherwise called 'Notebooks') falling under Heading 84.71 of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods in question, queried the respondents as to why the value of the Hard Discs should not be included in the value of the 'Notebooks' for the purpose of assessment under Heading 84.71. The respondents replied by pointing out that, in terms of the Tribunal's decision in Barber Ship Management's case (supra) which had been upheld by this Court as reported in 2002 (144) E.L.T. A293, the Software-loaded Hard Discs could only be classified under Heading 85.24. They also cited, in support of their stand, Final Order No. 380/2005-NB(A), dated 11-10-2004 (supra) passed by the Tribunal in their own case. Their arguments, however, did not weigh with the assessing authority, which proceeded to assess the Bills of Entry on a provisional basis. The jurisdictional Asstt. Commissioner of Customs, after hearing the party and considering their submissions, found Hard Disc as integral part of Notebook-computer and accordingly passed Order-in-Original dated 31-10-2005 classifying the Notebooks together with the Hard Discs assembled therein, under Heading 84.71 as 'automatic data processing machines'. This order was upheld by the Commissioner (Appeals) as per Order-in-Appeal dated 25-11-2005. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was issued and the matter was listed for final hearing. 5. A short question which arises for determination in this civil appeal is : Whether operating systems (software) which controls the working of the computer and which is preloaded in the laptop (notebook) is classifiable as a separate entity under CTH 85.24 at 'nil' rate of duty or as an integral part of the laptop under CTH 84.71 at the appropriate rate of duty. 6. To answer the above question CTH 85.24 and CTH 84.71 need to be quoted : CTH 85.24 : "Media recorded with sound or similar recording, whether or not presented together with the apparatus for which they are intended or assembled with constituent parts of machines of Headings 84.69 to 84.72 (e.g. disc packs) are in all cases to be classified in this heading." CTH 84.71 : "Automatic data processing machines and units thereof; magnetic or optical reader, machines for transcribing data on to data media in coded form and machines for processing such data, not elsewhere specified or included." 7. The Department has classified the laptop as a machine in CTH 84.71 and has demanded duty on the assessable value determined by deducting the software value fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver makes it to market or is very late. See also application, canned software, freeware, network software, operating system, shareware, system software, vaporware, Compare firmware, hardware, liveware." 9. On the basis of the above dictionary meanings it becomes clear that a software is a computer programme. It consists of instructions that make hardware work. There are two types of softwares, namely, system software which controls the working of the computer and application software such as word processing programmes, databases etc., which perform the tasks for which we use computers. In addition, we now have network software which enables groups of computers to communicate, and language software which provides programmers with the tools with which they write programmes. We also have what is called as packaged softwares which are sold through retail outlets. In the present case, the respondent imported laptops containing preloaded HDD. The said drives were preloaded with operating systems (software) which, as stated above, controls the working of the computer. The value of the laptop depends on the operating system, which is preloaded. The computer cannot open without the operat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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