TMI Blog2006 (1) TMI 271X X X X Extracts X X X X X X X X Extracts X X X X ..... e Barooah, Ms. Bina Gupta and Ms. Indrani Mukherjee, Advocates, for the Appellant. S/Shri T.M. Mohd. Yusuf, Sr. Advocate, P. Sureshan, P. Parmeswaran Ms. Binu Tamta, Advocates, for the Respondent. [Judgment per : S.H. Kapadia, J.]. The following two questions arise for determination in this civil appeal filed by the assessee under Section 35L(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-C.E., 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. 2. 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. 3. The appellant filed classification list da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .E., 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 Sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ading (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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment, 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. 13. 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 operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ROM 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. 15. 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 basicall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hips 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 - 2002 Edition]. According to the Illustrated Dictionary of Computing by Jonar C. Nader - 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 Encyclopaedia 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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 -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. 27. 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 embedded. Therefore, the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 30. 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 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. 31. For the aforestated reasons, we do not find any merit in this civil appeal which is accordingly dismissed with no order as to costs. - - TaxTMI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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