Full Judgment Text
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CASE NO.:
Appeal (civil) 2487 of 2000
PETITIONER:
Anjaleem Enterprises Pvt. Ltd.
RESPONDENT:
Commissioner of Central Excise, Ahmedabad.
DATE OF JUDGMENT: 16/01/2006
BENCH:
ASHOK BHAN & S.H. KAPADIA
JUDGMENT:
J U D G M E N T
KAPADIA, J.
The following two questions arise for
determination in this civil appeal filed by the
assessee under Section 35-L(b) of the Central
Excise Act, 1944 (for short ’the Act’):
(1) Whether a programmed or designed
EPROM is an integral part of STD-
PCO Unit; and
(2) Whether the appellant herein was
entitled to exemption under
notification No.84/89 CE dated
1.3.1989 which required the
appellant to show that the
programmed EPROM was a "recorded
medium" under chapter heading
85.24 read with note 6 to Chapter 85
of the 1985 Tariff Act.
During the period October 1992 to March 1993
appellant was the manufacturer of STD-PCO unit.
The said unit was a computer based equipment.
The said unit was used to identify the time of the
day and day of the week, the time when the
telephone calls were made; to recognize whether the
phone was on-hook or off-hook and to record the
duration of a call.
The appellant filed classification list dated
29.5.1992 under which the appellant classified the
above unit as an equipment under CH 85.17. In
the said classification list, the appellant classified
programmed memory chips, EPROM, under CH
85.24 and claimed exemption as a recorded
medium under notification No.84/89 CE dated
1.3.1989.
Vide show-cause notice (for short ’SCN’) dated
2.4.1993 the Assistant Collector (AC) stated that the
programmed memory chip was an integral part of
STD-PCO unit, without which the unit was non-
functional. According to the SCN, the programme
recorded in the memory chip, EPROM, could be
used with STD-PCO unit only in a particular
telecom region and, therefore, the said chip was an
essential component of the STD-PCO unit.
According to the SCN, the appellant was not
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entitled to the benefit of exemption as the said chip
was not covered under CH 85.24 as claimed by the
appellant. According to the department, the said
chip was classifiable as an integral part of STD-PCO
unit under CH 85.17. Accordingly, the department
called upon the appellant to show cause as to why
duty amounting to Rs.21.50 lacs for the above
period should not be recovered under section 11A of
the Act.
At this stage, we may clarify that on the
question of extended limitation the appellant has
succeeded and since the department has not come
in appeal, we are not required to examine that
aspect of the matter.
By reply dated 24.5.1993, the appellant
submitted that it had imported EPROMs from
abroad or it had obtained EPROMs from the open
market. According to the appellant, empty EPROMs
were subjected to programming by the appellant
who had designed a programme which was loaded
into the blank EPROMs. The appellant submitted
that a computer software is a designed programme
recorded on a media commonly called as a
"recorded medium". Such recorded medium can be
played in a computer or in any other system based
on microprocessors. The appellant conceded that
STD-PCO unit was classifiable as an equipment
under CH 85.17, however, it contended that the
programmed EPROM was a "recorded medium"
classifiable under sub-heading 8524.90. According
to the appellant, a programmed EPROM was
classifiable only under sub-heading 8524.90 in view
of note 6 to chapter 85, notwithstanding the fact
that such recorded media was equipped with or
without an apparatus. It claimed exemption under
notification No.84/89-CE dated 1.3.1989 on the
ground that the said exemption notification gave
exemption to softwares falling under heading 85.24
from whole of duty of excise. In the circumstances,
the appellant contended that the department was
not entitled to include the value of the programmed
EPROM in the assessable value of STD-PCO unit
and that the unit was classifiable under heading
85.17 whereas the programmed EPROM was
classifiable under heading 85.24. The appellant
contended, inter alia, that sub-heading 8524.30
covered recorded magnetic disks, such as, a floppy
containing a computer programme whereas all
other types of recorded media stood covered under
sub-heading 8524.90 and, therefore, even if a
recorded EPROM was considered to be an integral
part of STD-PCO unit the recorded EPROM was
required to be separately classified under sub-
heading 8524.90 in view of note 6 to chapter 85.
According to the appellant, even if a particular
component or a part was most essential for a
machine, it was not always classifiable with the
machine, if otherwise, the said component came
under a specific head for its classification. In this
connection, reliance was placed on note 2 to section
XVI of the schedule to the 1985 Tariff under which
chapter 85 falls. Therefore, according to the
appellant, in the present case, the programmed
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EPROM was a recorded media which fell under a
specific entry, viz., 8524.90 and, therefore, was not
classifiable under heading 85.17. The appellant
also contended that the programmed EPROM was a
computer software under heading 85.24 and,
therefore, the appellant was entitled to exemption
under notification No.84/89 dated 1.3.1989.
By order dated 24.3.1994 the Assistant
Collector held that EPROMs were integrated circuits
(chips); that, the recorded EPROMs were meant for
certain functions to be performed by STD-PCO unit;
that, the recorded EPROMs were integral parts of
STD-PCO unit and, therefore, such recorded
EPROMs came under heading 85.17. In this
connection, reliance was placed on note 2(a) to
section XVI, under which chapter 85 fell. The AC
further held that the appellant was not entitled to
claim the benefit of exemption under notification
dated 1.3.1989 because that notification warranted
two conditions to be satisfied by the appellant,
namely, that the product should be a computer
software and it should fall under heading 85.24.
The AC further held that recorded EPROMs were
integrated circuits (ICs) under heading 85.42; that,
even as a final product, and not as a component of
STD-PCO unit, the said EPROM would fall under
heading 85.42, therefore, in any view of the matter,
the appellant was not entitled to exemption under
notification dated 1.3.1989 read with tariff item
85.24. In the circumstances, it was held that the
value of recorded EPROMs was includible in the
assessable value of STD-PCO unit under heading
85.17.
The order passed by the AC was confirmed in
appeal by the Collector (Appeals) and also by the
tribunal. Hence this civil appeal.
Shri Ramesh Singh, learned counsel appearing
on behalf of the appellant submitted that the STD-
PCO unit was classifiable under CH 85.17 as
electrical apparatus for line telephony; that, the
said equipment has an inbuilt microprocessor
classifiable under CH 84.71; that, in order to
perform various tasks, the microprocessor requires
a software/programme; that, programme in
question was developed by the appellant; that, the
said programme was recorded on EPROM (a
medium) classifiable under CH 85.42 as an
integrated circuit; that, the appellant bought blank
EPROMs from the market @ Rs.149/- each; that,
the appellant encoded the programme developed by
it on the blank EPROM, which programme was
erasable by ultra violet radiation. According to the
appellant, the said software was area specific.
According to the appellant, the recorded EPROM
was sold @ Rs.6450/-; that, the STD-PCO
equipment was sold @ Rs.8453/-. Learned counsel
submitted that the programmed EPROM was
classifiable under CH 85.24; that, the said EPROM
was not classifiable under CH 85.17 and
accordingly, its value was not includible in the total
assessable value of STD-PCO unit, because once a
software stood recorded on the blank EPROM, the
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blank EPROM no longer continued to remain as
electronic integrated circuit; that, the essential
character of the recorded EPROM was that of
computer software classifiable under CH 85.24 as a
recorded media; and that, the only function of
EPROM was that of a recorded media. In this
connection, learned counsel placed reliance on the
judgment of this court in the case of Sprint RPG
India Ltd. v. Commissioner of Customs-I, Delhi
reported in (2000) 2 SCC 486. Learned counsel
further submitted that once the programmed
EPROM stood classified under CH 85.24, then, even
if it was cleared along with STD-PCO unit,
classifiable under CH 85.17, the said EPROM
remained classifiable under CH 85.24. In this
connection, learned counsel placed reliance on note
6 to chapter 85. Reliance was also placed on the
judgments of this court in the case of
Commissioner of Central Excise v. Acer India
Ltd. reported in (2004) 8 SCC 173 and in the case
of PSI Data Systems Ltd. v. Collector of Central
Excise reported in (1997) 2 SCC 78.
Shri T.M. Mohd. Yusuf, learned senior counsel
appearing on behalf of the department, on the other
hand, submitted that note 6 to chapter 85 was not
applicable for the computer-based product, namely
STD-PCO unit, as the programmed EPROM
constituted an inbuilt component of the final STD-
PCO unit. Learned counsel submitted that as a
programmed EPROM constituted an integral part of
the STD-PCO unit, such EPROMs did not fall under
CH 85.24 as they were neither recorded media
falling under CH 85.24 nor could they be cleared
along with an apparatus as they constituted an
integral part of the STD-PCO unit. Learned counsel
submitted that what was cleared from the factory
gate of the assessee was STD-PCO unit which
contained a component called "the recorded
EPROM". In this connection, reliance was placed on
note 2(b) to section XVI in which chapter 85 falls.
Learned counsel submitted that the programmed
ICs were integral parts of the STD-PCO units
without which the units were non-functionable.
Hence, the appellant was not entitled to claim
exemption under notification no.84/89 and the
value of the programmed EPROM was includible in
the value of the STD-PCO unit.
Before dealing with the arguments, it is
necessary for us to set out the relevant entries from
the Tariff Act, 1985 as under: -
SECTION XVI:
MACHINERY AND MECHANICAL APPLIANCES;
ELECTRICAL EQUIPMENT; PARTS THEREOF;
SOUND RECORDERS AND REPRODUCERS,
TELEVISION IMAGE AND SOUND RECORDERS
AND REPRODUCERS, AND PARTS AND
ACCESSORIES OF SUCH ARTICLES.
Notes:
2. Subject to Note 1 to this Section, Note 1
to Chapter 84 and to Note 1 to Chapter 85,
parts of machines (not being parts of the
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articles of heading No.84.84, 85.44, 85.45,
85.46 or 85.47) are to be classified according
to the following rules:-
(b) Other parts, if suitable for use solely or
principally with a particular kind of machine,
or with a number of machines of the same
heading (including a machine of heading
No.84.79 or heading No.85.43) are to be
classified with the machines of that kind.
However, parts which are equally suitable for
use principally with the goods of heading
Nos.85.17 and 85.25 to 85.28 are to be
classified in heading No.85.17.
CHAPTER 85: ELECTRICAL MACHINERY AND
EQUIPMENT AND PARTS THEREOF; SOUND
RECORDERS AND REPRODUCERS,
TELEVISION IMAGE AND SOUND RECORDERS
AND REPRODUCERS, AND PARTS AND
ACCESSORIES OF SUCH ARTICLES.
Notes:
5. For the purposes of heading Nos.85.41
and 85.42:
(a) "Diodes, transistors and similar semi-
conductor devices" are semi-conductor
devices the operation of which depends on
variations in resistivity on the application of
an electric field;
(b) "Electronic integrated circuits and
microassemblies" are:
(i) Monolithic integrated circuits in
which the circuit elements
(diodes, transistors, resistors,
capacitors, interconnections, etc.)
are created in the mass
(essentially) and on the surface of
a semi-conductor material (doped
silicon, for example) and are
inseparably associated;
(ii) Hybrid integrated circuits in
which passive elements (resistors,
capacitors, interconnections, etc.),
obtained by thin-or thick-film
technology, and active elements
(diodes, transistors, monolithic
integrated circuits, etc.), obtained
by semi-conductor technology, are
combined to all intents and
purposes indivisibly, on a single
insulating substrate (glass,
ceramic, etc.). These circuits may
also include discrete components;
(iii) Microassemblies of the moulded
module, micromodule or similar
types, consisting of discrete,
active or both active and passive,
components which are combined
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and interconnected.
For the classification of the articles
defined in this Note, heading Nos.85.41 and
85.42 shall take precedence over any other
heading in the Schedule which might cover
them by reference to, in particular, their
function.
6. Records, tapes and other media of
heading No.85.23 or 85.24 remain classified
in those headings, whether or not they are
cleared with the apparatus for which they are
intended.
Heading No.
Sub-
heading No.
Description of goods
Rate of
duty
(1)
(2)
(3)
(4)
85.17
8517.00
Electrical apparatus for line
telephony or line telegraphy,
including such apparatus for
carrier-current line systems.
20%
85.24
Records, tapes and other
recorded media for sound or
other similarly recorded
phenomena, including matrices
and masters for the production of
records, but excluding products
of Chapter 37.
8524.10
Gramophone records.
30%
Magnetic tapes:
8524.21
Audio tapes in any form.
30% plus
Rs.8 per
square
metre.
8524.22
Audio cassettes.
30% plus
Rs.2 per
cassette.
8524.23
Video tapes in any form.
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30% plus
Rs.18 per
square
metre.
8524.24
Video cassettes.
30% plus
Rs.40 per
cassette.
8524.29
Other
30%
8524.30
Magnetic discs.
30%
8524.90
Other.
30%
85.42
8542.00
Electronic integrated circuits and
microassemblies.
15%
We also set out exemption notification
no.84/89-CE dated 1.3.1989 hereinbelow:-
"Exemption to computer software. \026 In
exercise of the powers conferred by sub-
section (1) of section 5A of the Central
Excises and Salt Act, 1944 (1 of 1944), the
Central Government, being satisfied that it is
necessary in the public interest so to do,
hereby exempts computer software, falling
under Heading No.85.24 of the Schedule to
the Central Excise Tariff Act, 1985 (5 of
1986), from the whole of the duty of excise
leviable thereon which is specified in the said
schedule."
At the outset, we may point out that the
dispute involved in the present case concerns
valuation. In the matter of valuation, one of the
important aspects to be taken into account is the
condition of the goods/product at the time the
goods leave the factory. In the present case one has
to see at the "condition" of STD-PCO unit at the
time of clearance and, therefore, the issue which
arises for consideration, in the first instance, is
whether the recorded EPROM was an essential
component of the said STD-PCO unit for making it
operational. The authorities below have
concurrently found that the programmed EPROM
was an integral part of the unit; that, it served the
purpose of transmitting electronic instructions for
the performance of the unit; that, the recorded
EPROM was a part of the unit and that the said
EPROM was an essential component of the unit for
making it operational after plugging in with
telephone line and, therefore, the said EPROM
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constituted an integral part of the STD-PCO unit.
Conceptually, one has to keep in mind the subject-
matter of the levy. In the present case, the subject-
matter of the levy is STD-PCO unit, as a final
product. The subject-matter of the levy in the
present case is not the recorded EPROM. The
question before us is whether the appellant was
entitled to claim deduction of the value of the
programmed EPROM from the assessable value of
STD-PCO unit. It was the case of the appellant
before the department that the value of the recorded
EPROM was not includible in the assessable value
of STD-PCO unit on the ground that blank EPROM
was a medium in which the programme was
encoded; that, it was similar to a programme being
put in a floppy; that, the recorded media came
under tariff item 85.24 and, therefore, the appellant
was entitled to the benefit of exemption under
notification dated 1.3.1989. Admittedly, in the
present case, the appellant had classified the said
unit under CH 85.17. There can hardly be any
doubt that the price of a component will form part
of the final cost of the unit and hence includible in
its assessable value. The manufacturer takes into
account, in deciding the cost of the said unit, the
cost incurred for its manufacture and, therefore,
unless the sale price of the said unit is arrived at on
a basis independent of the cost of manufacture (if
law so permits) the cost of the recorded EPROM has
got to be included in the assessable value of the
unit. Under note 2 to section XVI, parts or
components of a machine are required to be
classified with the machine which, in the present
case, was STD-PCO unit classifiable under heading
85.17. Accordingly, each of the units cleared from
the factory by the appellant in its completed form
which included the programmed EPROM was
classifiable under tariff item 85.17. The line
telephone device (unit) was not complete without
the programmed EPROM for its functioning.
Therefore, the department was right in classifying
the unit under tariff item 85.17 and further it was
right in including the value of the
programmed/recorded EPROM in the assessable
value of the unit.
In the present case, the appellant submitted
that it was entitled to claim the benefit of exemption
under the above notification dated 1.3.1989; that, it
had bought blank EPROM from the market which
was programmed/designed by the appellant; that,
the recorded EPROM constituted a "recorded
medium" under tariff item 85.24; that, under note 6
to chapter 85, recorded media would remain
classifiable under tariff item 85.24, whether or not
such recorded media was cleared with or without
the apparatus and, therefore, its value was not
includible in the assessable value of the unit
(apparatus). It was vehemently urged on behalf of
the appellant that the general principle of valuation
supported by note 2(b) to section XVI was not
applicable particularly in view of note 6 to chapter
85 and, therefore, the value of the "recorded
medium" was not includible in the assessable value
of the unit.
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In the light of these arguments, the question
which arises for determination is the meaning of the
word "recorded medium" in tariff item 85.24. At
this stage, we may reiterate that the appellant has
claimed exemption, therefore, the burden was on
the appellant to show that the programmed EPROM
constituted a "recorded media" under tariff item
85.24. It is in this context that the matter was
examined by the department which came to the
conclusion that EPROM was basically a chip or an
IC classifiable under tariff item 85.42 and,
therefore, on facts the authorities found that tariff
item 85.24 had no application to the facts of this
case.
The controversy on classification, therefore, is :
whether the essential character of the programmed
EPROM, in the present case, as an IC changed to
become a "recorded media" or a software under CH
85.24.
The main components of a computer system
are central processing unit, memory and disk store
[See: Oxford Illustrated Encyclopedia of Invention
and Technology \026 1992 Edition, page 183]. A floppy
is a dumb storage box. It is different from a chip or
an integrated circuit which performs intelligent
functions. An integrated circuit (IC) is often
referred to as a micro-chip or a chip. It is a
miniaturized electronic circuit consisting of semi-
conductor devices. A ’memory’ is the most regular
type of integrated circuit [See:
www.en.wikipedia.org]. According to
www.whatis.com, an ’IC’, sometimes called a chip
or micro-chip, is a semi-conductor wafer on which
thousands of capacitors and transistors are
fabricated. Unlike a floppy or a disk (which is
removable from the system) an ’IC’ can function as
an amplifier, timer, counter, computer memory and
as a microprocessor. It is not easily removable.
Therefore, an ’IC’ or a chip cannot be compared to
a floppy which is merely a storage device similar to
an empty box or a suitcase.
In the entire controversy before us, the
appellant has tried to compare a floppy containing a
programme with an IC in which the programme is
electronically embodied. The functions which an IC
performs, as enumerated above, are intelligent
functions which are not performed by a floppy. A
floppy cannot be used as a timer or amplifier. An
IC is more than a storage device.
"EPROM" stands for Erasable Programmable
ROM. The word ’ROM’ is an acronym for ’Read
Only Memory’, a type of unchangeable memory
residing in chips or the ICs on the mother board.
ROM contains bare minimum of instructions
needed to start a computer. It is used for critical
functions. It is similar to municipal utilities such
as gas and electricity. If a different configuration is
required, one has to move to a different computer.
ROM is sometimes wrongly compared to a storage
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media such as CD-ROMs [See:
utut.essortment.com]. ROM chips have
programmes built into them at the factory. ROM
chips are not volatile. The expression, "Read Only"
means that CPU can read or retrieve the
programmes written on the ROM chips. ROM chips
contain special instructions for detailed computer
operations. For example, ROM instructions may
start the computer, give keyboard keys their special
control capabilities, and put characters on the
screen. ROMs are generally called as Firmware
[See: "Computing Essentials" by Timothy J.
O’Leary & Linda I. O’Leary \026 2002 Edition].
According to the Illustrated Dictionary of
Computing by Jonar C. Nader \026 3rd Edition, "ROM"
is a hardware which is used to store permanent
instructions for the computer’s general
housekeeping operations. A user can read and use
the data stored in ROM, but cannot change them.
When a computer is turned on, ROM supplies a
series of instructions to CPU which in turn
performs a series of tests. EPROM, on the other
hand, according to the same dictionary, is an
erasable programmable ROM. Initially, users had
to supply ROM vendor with an inter-connected
program so that the vendor could build the ROM.
To avoid this high set-up charge, manufacturers
developed a user-programmable ROM (PROM). A
’PROM’ is just like a ROM. Similarly, as an
alternative, with the development of technology, in
the year 1973 Intel Corporation came out with
EPROM. When the chip was exposed to ultra-violet
radiation the memory could be erased and replaced
by a new memory. Therefore, EPROM is a re-
writable memory chip. The only difference between
ROM and EPROM is that EPROM holds its content
without power. EPROM chips are written on an
external programming device before being placed on
the circuit board [See: www.answers.com]. The
word "programmable" means that EPROM can be
programmed with data, program or both whereas
’ROM" means that the computer which is connected
to the EPROM can only get information from the
chip or IC. It cannot put information into the chip.
In short, EPROM is a memory part which will not
forget its program or data when power is removed.
EPROM has to be programmed by a special
programming product called an EPROM or a device
programmer. The computer cannot store data in an
EPROM because the EPROM is a READ ONLY
memory part [See: www.arlabs.com].
Lastly, even under the scheme of the 1985
Tariff and the HSN, ICs (85.42), data processors
(84.71) and recorded media (85.24) are all
separately classifiable. Under the explanatory note
to HSN (2nd Edition, 1996), at page 1234, separate
electrical parts have been classified under one or
other of the headings of chapter 85, for example,
transistors, diodes and similar semiconductor
devices, stand classified under heading 85.41 while
electronic integrated circuits are classified under
heading 85.42.
The above discussion, therefore, shows that
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EPROM cannot be compared to a floppy. As stated
above, floppy is a dumb box. That is not the case
with EPROM. EPROM is basically an integrated
circuit or a chip. We agree with the department.
EPROM is, therefore, classifiable as an integrated
circuit under tariff item 85.42.
The question which remains to be answered is
whether a programmed EPROM is a recorded media
under CH 85.24. It was argued before us that like
CD-ROM or a floppy which has a programme in it,
EPROM is also a programmed device. It was argued
that blank EPROMs were purchased in which the
appellant embodied its programme and, therefore,
the recorded EPROM constituted a recorded media
under tariff item 85.24.
We do not find any merit in this argument. In
a disk operating system, the basic input is stored in
a ROM which is transferred to RAM when the
system gets started. The input/output routines are
written into the IC at the factory. The point to be
noted is that the ICs which contain semiconductor
components like diodes etc. have got to be
embedded in the mother board. The ROM chip is
fixed at the factory. The chip is fixed in the
computer and only then the programme works.
Hence, this is basic difference between a mere
floppy which is a recorded media under CH 85.24
and the IC under CH 85.42. In the former case, the
program is a software because a floppy is a storage
in which software plays the dominant role whereas
in the case of IC the programme is embodied in the
IC which can perform various functions only when
fixed to the mother board and is not removable like
a floppy from VCR. According to Encyclopedia of
Technology Terms by Whatis.com, an IC can
function as an amplifier, oscillator, timer,
microprocessor etc. On the other hand, a floppy
disk is only a storage. Moreover the essential
character of IC does not change with the
programme being embedded in the IC and hence
the IC remains classifiable under CH 85.42. This
distinction is also brought out by tariff items
referred to above (See: Dictionary of Computing
by Prentice Hall).
An embedded system is a programmed
hardware device. Software written for embedded
systems, especially those without a disk drive is
called Firmware, the name for software embedded
in hardware devices e.g. in ROM IC chips. Many
embedded systems avoid mechanical moving parts,
such as, disk drives, switches or buttons because
they are unreliable as compared to ROM or Fast
Memory IC chips. It is kept outside the reach of
humans. In embedded systems, the software
resides in ROM IC chips. Embedded systems are
combination of hardware and software like ATMs,
Cellular telephones etc. In embedded systems, the
software resides in ROM IC Chip (See:
www.answers.com). These chips are more than
mere carriers. Example of embedded system:
microwave ovens, cell phones, calculators etc.
In the case of Office of Patent v. Gale
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reported in 1991 RPC 305 the Court of Appeal held
that if a programme is embodied in a floppy disk it
becomes a software but where the chip with its
electronic circuit embodies a programme it becomes
a hardware. It has been further held that electronic
circuitry in the form known as ROM is an integrated
circuit or a chip. In the said case it has been
observed by the Court of Appeal that ROM is an
article which can be manufactured. It is an article
because its structure can be altered during the
manufacture so as to perform mathematical
functions. It has been further observed that there
is a difference between a disk containing a
programme and a ROM with a particular circuitry
embodying a programme. In the former case, the
disk carries the programme whereas in the latter
case, a programme is used as the basis for altering
the structure of ROM. ROM is more than a carrier
and, therefore, it cannot be compared to a floppy or
a disk. We may clarify that Gale’s case was on two
aspects, viz., patent and difference between ROM
and the floppy disk. What is stated herein is on the
second aspect which the Court of Appeal decided.
To the same effect is the ratio of the judgment of the
US Supreme Court in the case of Robert
Gottschalk, Acting Commissioner of Patents v.
Gary R. Benson 409 US 63.
Even under HSN, entry 84.71 covers Data
Processors, however, under the explanatory note it
is clarified, at page 1403, that devices working in
conjunction with such processors have to be
classified not under 84.71 but with reference to
their specific function. Therefore, devices like ICs,
as in the present case, which help the processor to
function can only fall under 85.42 (in cases where
such ICs are the final products) and where they
form an integral part of a machine like STD-PCO
unit, they have to be classified under heading
85.17, hence, it will not fall under heading 85.24 as
claimed by the appellant (See: page 1408 of HSN \026
2nd Edition, 1996). As stated above, a disk with a
programme is a software. However, a ROM with a
particular circuit in which a programme is
structured remains an IC.
In the case of PSI Data Systems Ltd. (supra)
the department had conceded that the item in
question was a software. Further, in that matter
the subject-matter of the levy was a software, as a
final product, sold with the computer. On the other
hand, in the present case, the subject-matter of the
levy is STD-PCO unit. The question before us in the
present case is whether the programmed EPROM
constituted an integral part of the STD-PCO unit
classifiable under CH 85.17. As stated
hereinabove, the programmed EPROM was a ROM
with a circuit in which the programme was
embodied. Therefore, the judgment of this Court in
the case of PSI Data Systems Ltd. (supra) is not
applicable to the facts of the present case. In fact,
in para 2 of the judgment of this Court in PSI Data
Systems, this Court has made a clear distinction
between softwares, such as, disks, floppies, CD-
ROMs etc. on the one hand vis-‘-vis softwares
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which are etched into the computer. Therefore, the
judgment in the case of PSI Data Systems has no
application. On the contrary, it supports our
interpretation in the present case.
In the case of Sprint RPG India Ltd. (supra)
this Court observed that hard disk is a refined form
of floppy which records material in an efficient
manner. In that case, the question was
classification, namely, whether duty was leviable on
software loaded on a hard disk drive under heading
84.71 or under 85.24. This Court held that a hard
disk was a form of floppy on which the programme
was stored and, therefore, the character of such a
programme did not change and, therefore, the
imported item was a software which was stored in
the hard disk and, therefore, it was classifiable
under CH 85.24. In that matter the question of a
software being an integral part of a machine like
STD-PCO unit was not there. In that matter there
was no duty imposed on the unit or machine. The
question in that matter was regarding levy of duty
on a floppy with the software. In that matter the
question of the integrated circuit did not arise. In
that matter the interpretation of entry 85.42 was
not at all considered. Hence, the judgment of this
Court in Sprint RPG India Ltd. (supra) has no
application to the facts of the present case.
In the case of ACER India Ltd. (supra) the
demand raised by the department was for the
period July 2001 to May 2002. In the year 2000
the Excise Act was amended and the concept of
"transaction value" came to be introduced for the
first time. Further, the argument on behalf of the
department was that the loading of operational
software was includible in the value of the computer
manufacture by the assessee after 1.4.2000 when
the concept of transaction value came to be
introduced. In the circumstances, the judgment of
this Court in ACER India Ltd. (supra) has no
application to the facts of the present case.
Further, in the case of ACER India Ltd. (supra), the
subject-matter of the levy was a computer whereas
the subject-matter of the levy in the present case is
STD-PCO unit. The concurrent finding of all the
courts below indicate that, in the present case, the
programme was etched in a particular form of
circuit known as ROM which is required to be fixed
to the mother board and only on such fitment the
STD-PCO unit became operational. Therefore, the
judgment of this Court in ACER India Ltd. (supra)
has no application to the facts of the present case.
In fact, in the judgment of this Court in ACER
India Ltd. (supra) the Court was not required to
examine the scope of CH 85.42.
Before concluding, we reiterate that in the
present case, the levy is on a computer based
embedded system. The software embedded in the
programmed EPROM, which is an IC chip,
constitutes the "brain" of the system. The
programmed EPROM is an integral part of the
system. The levy is on the unit. The levy is not on
the programmed EPROM. The programme
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embedded is not an easily removable. Hence, it will
not fall in the category of recorded media under
tariff item 85.24 and remains an IC under tariff
item 85.42.
For the aforestated reasons, we do not find any
merit in this civil appeal which is accordingly
dismissed with no order as to costs.