# COMMISSIONER OF CUSTOMS, BANAGALORE v. MIS, N.I. SYSTEMS (INDIA) P. LTD

- **Citation:** [2010] 8 S.C.R. 435
- **Court:** Supreme Court of India
- **Decided:** 2010-07-15
- **Case number:** Civil Appeal No. 5394 of 2010
- **Bench:** S.H. Kapadia, K.S. Radhakrishnan, Swatanter Kumar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-customs-banagalore-v-mis-n-i-systems-india-p-ltd-27046
- **Pages:** 40

## Headnote

B
Customs Tariff Act, 1975 - Chapter 90, CTH 9032 - PX/
Controllers, Input/Output Modules, Signal Convertors and C
Chassis and its parts -
Classification of -
Held: Are
classifiable under chapter 90 -
On the basis of technical
material including importer's own catalogue and webcast,
Controllers (including embedded controllers) are not merely
PCs/Automatic Data Processing Machines, but have a
D
specialized structure and specific functions to perform -
PACs!Programmable Process Controllers, 1.0. Modules and
Chassis by themselves are not measuring, regulating or
controlling instrument (system) - They are meant to operate
as part of an industrial process control equipment/system, like
E
sensors -
Thus, are correctly classifiable as a part of said
machine, instrument or apparatus under CTH 9032.
F
The
assessee
imported
computer
based
instrumentation products from their Principal/Holding
Company. The items were PXI Controllers, Input/Output
Modules, Signal Convertors and Chassis and its parts. It .
claimed the items to be computers and/or parts of
computers and classified them under CTH 8471, 8473 and
other headings falling under Chapter 84 of the Customs
Tariff Act, 1975. The Original Authority held that the
G
subject goods were not structurally designed to function
as a computer. They are measuring/controlling
instruments, specifically designed for industrial use
which is indicated from the catalogue submitted by the
435
H
436
SUPREME COURT REPORTS
[2010) 8 S.C.R.
A importer. The 0.A. classified embedded controllers,
Programmable Automation Controllers, Data acquisition
Boards, Digital Input Output Boards, PXI Chassis under
Chapter 90. The Commissioner (Appeal) upheld the order.
The tribunal held that the PXI Controller and other
B Controllers are Automatic Data Processing Machine. PXI
Controller is not a measuring instrument and can be used
only in conjunction with an independent measuring
instrument with suitable interface, thus not classified
under chapter 90 of the Act. Hence the appeal.
c
Allowing the appeal, the Court
HELD: 1.1 On the basis of technical material
(including the importer's own catalogue and webcast) it
is held that Controllers (including embedded controllers)
D are not merely PCs/ Automatic Data Processing Machine,
but have a specialized structure and specific functions
to perform and are therefore, classifiable under Chapter
90. The 1.0. Modules and Chassis are meant to operate
as parts of Industrial Process Control equipments like
E sensors. These 1.0. Modules come with software tailored
to their specific pre-defined functions. Therefore, one has
to see the package in the holistic manner. The package
as a whole-both hardware and software, constitutes one
single functional unit. Thus, 1.0. Modules and Chassis are
F classifiable as parts and accessories of Automatic
Regulating or Controlling Instruments/Apparatus under
CTH 9032.90.00. Thus, the order passed by the
Department was correct. [Paras 28, 29 and 46] [463-D-G;
474-D]
G
2.1 On examination of the technical write-up, the
purpose of Controllers whether embedded or not, is to
control industrial processes. Programmable Automation
Controller is the combination of PLC and PC technology
and this means the ruggedness of PLCs, software
H stability of a PC and the independence to incorporate
COMMISSIONER OF CUSTOMS, BANAGALORE v.
437
N.I. SYSTEMS (INDIA) P. LTD.
modular and diverse 1/0. PAC is an improvement over
A
PLC. PAC is capable of being controlled by a PC/Laptop
but it is not a PC/Laptop. The principal function of
Controllers is executing Control Algorithms for the Realtime monitoring and control of devices, processes or
systems whereas the principal function of a PC by itself
B
is acquisition, analysis and display of data. A controller
performs functions in addition to data processing. The
webcast presentation also shows the difference in the
structure and functions of a Controller vis-a-vis a PC
(simpliciter). The hardware in the Controller is dedicated

## Text

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[2010] 8 S.C.R. 435
COMMISSIONER OF CUSTOMS, BANAGALORE
A
v.
MIS, N.I. SYSTEMS (INDIA) P. LTD.
(Civil Appeal No. 5394 of 2010)
JULY 15, 2010
[S.H. KAPADIA, CJI., K.S. RADHAKRISHNAN AND
SWATANTER KUMAR, JJ.]
B
Customs Tariff Act, 1975 - Chapter 90, CTH 9032 - PX/
Controllers, Input/Output Modules, Signal Convertors and C
Chassis and its parts -
Classification of -
Held: Are
classifiable under chapter 90 -
On the basis of technical
material including importer's own catalogue and webcast,
Controllers (including embedded controllers) are not merely
PCs/Automatic Data Processing Machines, but have a
D
specialized structure and specific functions to perform -
PACs!Programmable Process Controllers, 1.0. Modules and
Chassis by themselves are not measuring, regulating or
controlling instrument (system) - They are meant to operate
as part of an industrial process control equipment/system, like
E
sensors -
Thus, are correctly classifiable as a part of said
machine, instrument or apparatus under CTH 9032.
F
The
assessee
imported
computer
based
instrumentation products from their Principal/Holding
Company. The items were PXI Controllers, Input/Output
Modules, Signal Convertors and Chassis and its parts. It .
claimed the items to be computers and/or parts of
computers and classified them under CTH 8471, 8473 and
other headings falling under Chapter 84 of the Customs
Tariff Act, 1975. The Original Authority held that the
G
subject goods were not structurally designed to function
as a computer. They are measuring/controlling
instruments, specifically designed for industrial use
which is indicated from the catalogue submitted by the
435
H
436
SUPREME COURT REPORTS
[2010) 8 S.C.R.
A importer. The 0.A. classified embedded controllers,
Programmable Automation Controllers, Data acquisition
Boards, Digital Input Output Boards, PXI Chassis under
Chapter 90. The Commissioner (Appeal) upheld the order.
The tribunal held that the PXI Controller and other
B Controllers are Automatic Data Processing Machine. PXI
Controller is not a measuring instrument and can be used
only in conjunction with an independent measuring
instrument with suitable interface, thus not classified
under chapter 90 of the Act. Hence the appeal.
c
Allowing the appeal, the Court
HELD: 1.1 On the basis of technical material
(including the importer's own catalogue and webcast) it
is held that Controllers (including embedded controllers)
D are not merely PCs/ Automatic Data Processing Machine,
but have a specialized structure and specific functions
to perform and are therefore, classifiable under Chapter
90. The 1.0. Modules and Chassis are meant to operate
as parts of Industrial Process Control equipments like
E sensors. These 1.0. Modules come with software tailored
to their specific pre-defined functions. Therefore, one has
to see the package in the holistic manner. The package
as a whole-both hardware and software, constitutes one
single functional unit. Thus, 1.0. Modules and Chassis are
F classifiable as parts and accessories of Automatic
Regulating or Controlling Instruments/Apparatus under
CTH 9032.90.00. Thus, the order passed by the
Department was correct. [Paras 28, 29 and 46] [463-D-G;
474-D]
G
2.1 On examination of the technical write-up, the
purpose of Controllers whether embedded or not, is to
control industrial processes. Programmable Automation
Controller is the combination of PLC and PC technology
and this means the ruggedness of PLCs, software
H stability of a PC and the independence to incorporate
COMMISSIONER OF CUSTOMS, BANAGALORE v.
437
N.I. SYSTEMS (INDIA) P. LTD.
modular and diverse 1/0. PAC is an improvement over
A
PLC. PAC is capable of being controlled by a PC/Laptop
but it is not a PC/Laptop. The principal function of
Controllers is executing Control Algorithms for the Realtime monitoring and control of devices, processes or
systems whereas the principal function of a PC by itself
B
is acquisition, analysis and display of data. A controller
performs functions in addition to data processing. The
webcast presentation also shows the difference in the
structure and functions of a Controller vis-a-vis a PC
(simpliciter). The hardware in the Controller is dedicated c
to perform Measurement and Control Applications.
Basically, PACs are Programmable Process Controllers
which are suitable for use principally in conjunction with
Industrial Process Control equipment like sensors which
measures temperature, pressure etc. The programmable
0
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. [Para 31] [464"
B-F]
2.2 The purpose of Data Acquisition Boards is to
acquire data from external sensors, usually in the form
E
of Analog Voltage of+/- 10 volts, which is then converted
into digital signals, which the personal computer can
understand. Similarly, Analog Output Boards are meant
F
for converting signals from external units such as PXI
controller. Similarly, Network Interface Module 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
G
controllers and data acquisition modules, allowing them
to communicate with each other. Thus, the 1.0. Module is
tailored to a specific function. Each of the Boards (cards)
is inserted into the slots of PXI. Each of the 1.0. Modules
is tailored to a specific function and is, therefore, a part
H
438
SUPREME COURT REPORTS
[2010] 8 S.C.R.
A of a regulating and controlling apparatus like a sensor,
thermostat etc. Therefore, one has to look at the machine
(PXI Machine) holistically. [Para 33) [465-D-G]
2.3 Chapter 90 includes measuring and checking
8 instruments and apparatus; parts and accessories
thereof. In view of Section Note 1 (m) of Chapter 84, it is
first to be seen whether or not PACs fall within Chapter
90. Keeping in mind the scheme of Chapter 84 and
Chapter 90, in the instant case, the correct approach
C would be to examine the scope of Chapter 90 first and
foremost and only the scope of Chapter 84 is to be
examined. Chapter Note 1 (h) of Chapter 90 does not
exclude CTH 8471. Hence, even if an item falls under
CTH 8471, it could still come under Chapter 90, however,
in view of Section Note 1 (m) '~hapter 84 would stand
D excluded. This is because the ;:ipplication of Chapter 84
is subject to the applicability of Chapter 90. [Para 37)
[467-E-G]
2.4 Note 2(a) to Chapter 90 inter alia states that what
E is otherwise parts or accessories, but is classifiable as
goods under Chapter 84, shall be classified in their
respective headings. The effect of Note 2(a) is that if it can
be shown that Programmable Process Controllers/PACs
are classifiable as "goods" under Chapter 84 then such
F a classification would include the same for being
considered as parts or accessories of goods under
Chapter 90. However, in the instant case, Note 2(a) is not
attracted as PACs are not classifiable as "goods" under
Chapter 84. [Para 38] [467-H; 468-A-B]
G
2.5 The submission that PACs/Programmable
Process Controllers by themselves are not measuring,
regulating or control instruments; that physical variables
such as temperature and voltage are measured by
sensors which could be classified under Chapter 90, but
H this does not extend to PACs/Programmable Process
COMMISSIONER OF CUSTOMS, BANAGALORE v.
439
N.I. SYSTEMS (INDIA) P. LTD.
Controllers; that automatic control apparatus referred to A
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 is B
unsustainable. [Paras 38 and 39] [468-C-F]
2.6 In view of Chapter Note 2(b) to Chapter 90 r/w
Note 3 of the same Chapter, PACs/Programmable
Process Controllers are parts and accessories of a C
system/instrument which are suitable for use solely or
mainly with a number of machines, instruments,
apparatus of the same Heading, i.e., 9032 like sensors,
thermostats etc. Thus, PACs/Programmable Process
Controllers imported by the assessee are suitable for use
principally with Industrial Process Control Equipment like D
sensors, thermostats etc. which measures temperature,
process etc. Therefore, they are correctly classifiable as
a part of the said machine, instrument or apparatus. [Para
39) [468-F-H; 469-A]
E
2.7 A "control system" generally refers to the control
of a device, process or system by monitoring one or more
of its characteristics. It ensures that output processing
remains within the desired parameters over a period of
time. Controllers are generally connected to other F
computing apparatus. The principle function of
controllers is to execute control algorithm for real time
monitoring and for controlling devices, processes or
systems. [Para 39) [469-B-C]
2.8 With regard to the classification of Input-Output G
Modules and Chassis, one has therefore to take into
account all the imported items as constituting a complete
System which performs the work of measurement. PXI is
a system. It is composed of three basic componentschassis, system controller and peripheral modules. These H
440
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[2010] 8 S.C.R.
A
modules are also imported by the importer in the instant
case. One such module is Network Interface Module. This
module is used to connect to a network for distributed
control applications. It interconnects a PC to a measuring
instrument by sending and receiving messages from the
B
two units. In the chassis of the PXI there are slots in
which Analog Output Boards (Cards); Digital InputOutput Boards, Image Acquisition Boards, Distributed
Input-Output Boards, NIM etc. are inserted. Each 1.0.
Module imported by the assessee is tailored to a specific
c function and therefore such 1.0. Module is a part of a
regulating or controlling apparatus. NIM 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. It provides connectivity between the industrial
0
network and the 1.0. 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, 1.0. Module is a hardware. It is also
known as 1.0. device or 1.0. Point. It may be in the form
of 1.0. Cards or 1.0. Boards. When 1.0. Module is used to
E accept data (input) from sensors, transducers,
Programmable Logic Controllers computers etc. and then
distributes the data (output) to other devices in the
system, then 1.0. Module is called as Distributed 1.0.
Module. Such system is also called as Distributed
F
Control System which is a control system used normally
in a manufacturing plant or in any other kind of dynamic
system. DCS, therefore, is used in a variety of industries
to monitor and control distributed equipments. An 1.0.
Module also converts readings from sensors and
G provides output signals which are used for operating
actuators via Network Interface Module. [Para 39] [469-FH; 470-A-E]
2.9 Programmable Logic Controller is a control
device. It is normally used in industrial control
H.
COMMISSIONER OF CUSTOMS, BANAGALORE v.
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N.I. SYSTEMS (INDIA) P. LTD.
applications. It is a Programmable Microprocessor based
A
device which is used to control assembly lines and
machinery on th~ shop floor as well as to control many
other types of mechanical, electrical and electronic
equipment in a plant. A PLC is designed for real-time use
in rugged industrial environments, connected to sensors
B
and actuators. PLCs are characterized by the number of
1.0. Ports which they provide. PLCs are also categorized
by their 1.0. scan rates. Thus, a PAC does not replace the
traditional PLCs but it expands the role of a PLC. A PAC
has features found in Programmable Logic Controllers,· c
Distributed Control Systems, Remote Terminal Units and
PCs. [Para 39] [470-G-H; 471-A-C]
2.10 PACs/Programmable Process Controllers and
1.0. Modules by themselves are not measuring, regulating
or controlling instrument (system). Physical variables
D
such as temperature and voltage are measured by
device, like sensors which constitute measuring and
control systems. Controllers and LO.Modules each have
a specific function to perform being parts of a measuring
and control system i.e. sensors. As such, PAC/PPC is a
E
part of an industrial process control equipment/system
and accordingly such controllers are classifiable as a part
of instrument or apparatus (Chapter Note 2(b) read with
Note 3 of Chapter 90). [Paras 39 and 40] [471-D-E; 469D]
F
2.11 There is no merit in the submission of the
importer that 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
G
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 precondition for classification under CTH 9032. On the
contrary, the test is not that of single entity, but of the
H
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SUPREME COURT REPORTS
[2010] 8 S.C.R.
A device being capable of working as a functional unit. 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
B 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
c that PAC/Programmable Process Controllers, being parts
and accessories and a regulating or controlling
apparatus like sensors have got to be classified under
CTH 9032.89.10. Thus, PACs(including embedded
Controllers/Programmable Process Controllers) have
0 been rightly classified by the Department under CTH
9032. [Paras 41 and 42] [471-F-H; 472-A-B]
2.12 On the question of Input-Output (1.0.) Modules
and Chassis, the tribunal has not given any finding
whatsoever thereon. However, on going through the
E technical material and the demonstration given in Court,
1.0. Modules and Chassis have also been rightly
classified by the Department as parts and accessories of
regulating and controlling apparatus classifiable under
Chapter 90. The primary function of 1.0. Modules (Boards)
F is to function as a part of measuring and control System.
It is for this reason that such Modules are required to be
·classified as parts and accessories of regulating and
measuring System. For this purpose, it is necessary to
examine each of the imported items apart from
G Controllers in order to see whether the hardware coupled
with the pre-installed software gives it a definite identity
and function. From the catalogue and technological writeups it is fo1:;1d that each and every 1.0. Module imported
by the assessee is configured with a sensor at one end.
H This aspect is very important. [Para 43] [472-C-G]
COMMISSIONER OF CUSTOMS, BANAGALORE v.
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N.I. SYSTEMS (INDIA) P. LTD.
2.13 The purpose of DAQ Boards is to acquire data
A
from external sensor, usually in the form of analog
voltage of +/- 10 volts. This data is converted hf DAQ
Boards into digital signals which the personal computer
can understand. Instrument Control Boards which -are
· placed inside the computer allow data required from
B
external sensors to be communicated directly to the
computer. This is called as handling of information
(Explanatory Notes of HSN p 1575) which is different
from controlling temperature, pressure etc. (Explanatory
Notes of HSN p 1856). Analog Output Boards which are c
meant for converting signals from external units such as
PXI. Similarly, the Chassis provides connectivity and
housing for embedded controller and the data acquisition
modules, allowing them to communicate with each other.
A network interface module is used to connect to a
0
network for distributed control applications. It
interconnects measuring instruments to a PC by sending
and receiving messages from the two units. Thus, each
1.0. Module is tailored to a specific function and is
therefore a part of regulating and controlling apparatus.
E
Handling of information under the HSN Notes is separate
and distinct from regulating and measuring temperature,
pressure etc. [Para 43] [472-H; 473-A-D] .
2.14 Once a machine incorporating an ADPM
performs a specific function other than data processing
F
then that machine is classifiable in the heading
corresponding to the function of that machine (Note 4 of
Section XVI and Note 3 to Chapter 90). Further, HSN
clearly indicates that Heading 8478 is excluded where the
case is of a clearly defined function to which separate
G
components contribute. [Para 44] [473-E-G]
2.15 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 functional unit as a
H
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SUPREME COURT REPORTS
[2010] 8 S.C.R.
A whole. The said machine should be seen as a System.
As a functional unit, the imported machine should
perform a function other than data processing or it should
perform a function in addition to data processing.
Industrial Process Controllers and 1.0. Modules, which are
B part of a functional unit, the function of which is to be
judged as a whole are therefore classifiable in Chapter
90. The sentence in Chapter Note 5(E) "incorporating or
working in conjunction with an ADPM" merely indicates
that the overall package, which is presented before the
c Department, had an ADP Machine in it. In other words,
what is imported is a System containing an ADPM. The
said interpretation stands to reason because if the
contention of the importer is accepted, it would mean that
every machine that contains an element of ADP would be
D classifiable as an ADP Machine under Chapter 84. This
would completely obliterate the specific function test and
the concept of functional unit. [Para 45) [473-H; 474-A-C)
E
F
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
5394 of 2010.
From the Judgment & Order dated 29.06.2009 of the
Customs Excise and Service Tax Appellate Tribunal, Bangalore
(CESTAT) in Final Order No. 846 of 2009 in Appeal No.
Customs 1678 o) 2007.
Gourab Banerji, ASG, K. Swami, Rajiv Nanda, B. Krishna
Prasad for the Appellant.
V. Lakshmikumaran, Badri Narayan, Sunil Kumar,
Ravinder Singhania, A.M. Ranjan, K.C. Dua for the
G Respondents.
H
The Judgment of the Court was delivered by
S.H. KAPADIA, CJI. 1. Delay condoned.
COMMISSIONER OF CUSTOMS, BANAGALORE v.
445
N.I. SYSTEMS (INDIA) P. LTD. [S.H. KAPADIA, CJI.]
Facts:
2. M/s. N.I. Systems (India) Private Limited (hereinafter
refetred 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.
A
B
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
C
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) Signal Converters.
(iv) Chassis and its parts.
4. On verification of the technical data (including the
catalogue and the webcast of the importer), the Original
Authority ("O.A.") vide its decision dated 15.11.2006 held that
the subject goods were not structurally designed to function as
D
E
F
a computer. Further, according to the O.A., in the ordinary
course of trade no buyer will purchase the subject goods as
computers on account of price differential between the price
G
of the subject goods and the price of the computer. According
to the O.A., the subject goods stood manufactured for a special
purpose and that purpose was either measurement or control.
According to the O.A., the irnporter, in this case, had conceded
before it that a complete system performs the function of
H
446.
SUPREME COURT REPORTS
(2010] 8 S.C.R.
A measurement whereas if one looks at the subject goods itemwise, it shows that each item performs a sub-function of data
acquisition processing. On the basis of the said concession,
the O.A. concluded that each imported item constituted a part
of a complete Measurement System. According to the O.A., if
B one applies the test of common parlance then the subject goods
are measuring/controlling inst1Uments and even in trade
parlance they are not known as computers. Lastly, the subject··
goods are costlier than ordinary computer and the trader buys
them because of their enhanced capabilities for the purposes
c of measuring/controlling instruments. According to the O.A., the
subject goods are specially designed for industrial use which
is indicated by the catalogue submitted by the importer. The
embedded controllers may perform all functions of a CPU but,
according to the O.A., the embedded controllers are not CPUs.
D According to the O.A., one more concession is made by the
importer. In its reply to the show cause, the importer stated that
they use real-time operating systems (software) and not the
standard operating systems such as Microsoft Windows.
Accordingly, the 0.A. held that controllers are manufactured for
a specific purpose and not as ADP Machines. The specific
E purpose being controlling/measurement as enumerated in the
catalogue. In the circumstances, the O.A. has broadly classified
embedded Controllers, Programmable Automation Controllers
("PACs"), Data Acquisition Boards, Digital Input Output Boards,
PXI Chassis etc. under Chapter 90. The O.A. has rejected the
F classification sought by the importer 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
G (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
H
COMMISSIONER OF CUSTOMS, BANAGALORE v.
447
N.I. SYSTEMS (INDIA) P. LTD. [S.H. KAPADIA, CJI.]
item of import was PXI Controller and other Controllers.
A
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
B
c
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; · D
that the input of PXI Controller is only in the digital form as in
the case of a PC; that PXI Controller is in turn connected with
the processors, motherboard, hard drive with Windows XP,
Serial Port, USB Port, Video Port, Ethernet Port, etc. According
to the Tribunal, since the PXI Controller is identical in function
to the normal home computer, both the items are comparable.
According to the Tribunal, a PXI Controller acts as a Central
Processing Unit for the entire PXI system. According to the
Tribunal, a PXI Controller processes the data that enters from
the external peripherals such as a mouse and a keyboard as
well as from the internal peripherals such as PXI Signal
Converting Modules (Cards). There is no difference between
a PXI Controller and a PC. Thus, acc9rding to the Tribunal, a
PXI Controller and other Controllers imported by the assessee
E
F
are all ADP Machines. According to the Tribunal, all the
imported Controllers carry out the functions of ADP Machines.
G
According to the Tribunal, each aqd every imported Controller
retains the characteristics of ADP Machine. According to the
Tribunal, a PXI Controller can be used for a variety of
applications ranging from advanced data acquisition to
automatic manufacturing which clearly indicated that the
H
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[2010) 8 S.C.R.
A imported items were not measuring instruments or their parts
as claimed by the Department. According· to the Tribunal, the
imported items cannot be categorized as measuring
instruments. According to the Tribunal, PXI Controller per se is
not a measuring instrument. It can be used only in conjunction
8 with an independent measuring instrument with suitable
interface, hence, the PXI Controller/ other Controllers imported
by the assessee cannot be classified under Chapter 90 of the
Customs Tariff Act, 1975. Hence, this Civil Appeal is filed by
the Department against the decision of the Tribunal dated
C 29.6.2009 in favour of the importer.
Relevant Provisions of CT A:
8. Before proceeding further, we need to quote
hereinbelow the relevant entries referred to in the Customs
D Tariff (2004-2005). At the outset, it may be mentioned that
Chapter 84 finds place in Section XVI which deals with
machinery and electrical equipments. The Section Note to
Section XVI states that Section XVI does not cover articles
falling in Chapter 90.
E
F
G
H
Notes 3 and 4 to Section XVI read as under:
"3. Unless the context otherwise requires.
composite machines consisting of two or
more machines fitted together to form a
whoie and other machines designed for the
purpose of performing two or more
complementary 01 alternative functions are to
be classified as if consisting only of that
component or as being that machine which
performs the principal function."
"4. 'Nhere a
machine (including
a
combination of machines) consists of
individual components (whether separate or
interconnected by piping. by transmission
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devices, by electric cables or by other
A
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."
8
9. Note 5(A) to Chapter 84 defines the expression
"automatic data processing machines". Note 5(8) to Chapter
84 clarifies that an ADP may be in the form of systems
consisting of variable number of separate units. We quote
C
hereinbelow, Notes 5(A) and 5(8) 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 least the
data immediately necessary for the execution of the
programme; (2) being freely programmed in accordance
with the requirements of the user; (3) performing
arithmetical computations specified by the user; and (4)
executing, without human intervention, a processing
programme which requires them to modify their execution,
by logical decision during the processing run;
(b)
analogue machines capable of simulating
mathematical models and comprising at least: analogue
elements, control elements and programming elements;
(c)
hybrid machines consisting of either a digital
D
E
F
machine with analogue elements or an analogue machine
G
with digital elements.
5(8) Automatic data processing machines may be in the
form of systems consisting of a variable number of
separate units. Subject to paragraph (E) below, a unit is
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A
to be regarded as being a part of a complete system if it
meets all of the following conditions:
B
c
(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
~r
units; and
(c)
it is able to accept or deliver data in a form
(codes or signals) which can be used by the
system."
(emphasis supplied)
10. We quote herein below Note S(E) to Chapter 84, which
D reads as follows:
"S(E) Machines performing a specific function other than
data processing and incorporating or working in
conjunction with an automatic data processing machine
E
are to be classified in the headings appropriate to their
respective functions or, failing that, in residual headings."
(emphasis supplied)
11. Similarly, Note 7 to Chapter 84 is also relevant and it
F
reads as follows:
G
H
"7.
A machine which is used for more than one purpose
is, for the purposes of classification, to be treated as if its
principal purpose were its sole purpose.
Subject to Note 2 to this Chapter and Note 3 to
Section XVI, a machine, the principal purpose of which is
not described in any heading or for which no one purpose
is the principal purpose is, unless the context otherwise
requires, to be classified in heading 8479. Heading 8479
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also covers machines for making rope or cable (for
A
example, stranding, twisting or cabling machines) from
metal wire, textile yarn or any other material or from a
combination of such materials."
12. We also quote hereinbelow for the sake of clarity
8
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
C
machines for processing such data, not
elsewhere specified or included"
Chapter Sub-Heading 8471 50 00 reads as follows:
"Digital processing units other than
D
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"
E
13. Chapter 90 falls in Section XVI 11 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
F
or motor vehicles (heading 8512); portable electric lamps
G
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
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navigational aid apparatus or radio remote control
apparatus (heading 8526); numerical control apparatus of
heading 8537; sealed beam lamp units of heading 8539;
optical fibre cables of heading 8544;"
"2.
Subject to Note 1 above, parts and accessories for
machines, apparatus, instruments or articles of this
Chapter are to be classified according to the following
rules:
(a)
parts and accessories which are goods
included in any of the headings of this
Chapter or of Chapter 84, 85 or 91 (other
than heading 8485, 8548 or 9033) are in all
cases to be classified in their respective
headings;
(b)
other parts and accessories, if suitable for
use solely or principally with a particular kind
of machine, instrument or apparatus, or with
a number of machines, instruments or
apparatus of the same heading (including a
machine, instrument or apparatus of heading
9010, 9013 or 9031) are to be classified with
the machines, instruments or apparatus of
that kind;
(c)
all other parts and accessories are to be
classified in heading 9033."
14. We quote hereinbelow CTH 9031 which refers to
measuring or checking instruments, appliances and machines,
not specified or included elsewhere in Chapter 90. The
G Department seeks to place reliance on Chapter Sub-Heading
9031 80 00, which reads as under:
"Other instruments, appliances and machines"
H
15. The Department also places reliance on Chapter Sub-
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Heading 9031 90 00, which refers to "parts and
A
accessories".
16. For some of the items, the Department places reliance
on Chapter Sub-Headings 9032 89 10 and 9032 90 00 which
read as follows:
"9032 89 10 Electronic automatic regulators
9032 90 00
Parts and accessories"
B
17. At this stage, we may deal hereinbelow the
C
Explanatory Notes from HSN. Our customs tariff is basically
based on HSN. Even the HSN makes it clear vide Section Note
1 (m) that Section XVI which refers to Chapter 84 will not cover
articles mentioned in Chapter 90. Similarly, Section Note 3 to
Section XVI states that multi-function machines are to be
0
classified according to the principal function of the machine.
According to the Explanatory Notes, a printing machine with a
subsidiary machine for holding the paper or an industrial
furnace combined with lifting or handling machinery is a
composite machine in terms of Section Note 3. Further,
referring to Functional Units, the Explanatory Note, referring to
E
Section Note 4, inter alia states 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
F
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:
G
"Other, presented in the form of systems"
18. According to HSN, the word "systems" in Chapter SubHeading 8471.49 means ADP machines whose units satisfy
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A the conditions of Note 5(8) 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).
8
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:
c
D
E
F
"(1)
A machine incorporating an automatic data
processing machine and performing a specific function
other than data processing is classifiable in the heading
corresponding to the function of that machine or, in the
absence of a specific heading, in a residual heading, and
not in heading 84.71.
(2)
Machines presented with an automatic data
processing machine and intended to work in conjunction
therewith to perform a specific function other than data
processing, are to be classified as folfows:
The automatic data processing machine must be classified
separately in heading 84.71 and the other machines in the
heading corresponding to the function which they perform
unless, by application of Note 4 to Section XVI or Note 3
to Chapter 90, the whole is classified in another heading
of Chapter 84, Chapter 85 or of Chapter 90."
20. The most important aspect which needs to be
emphasized in this case is that, according to HSN, data
G processing consists of handling information of all kinds, in
pre-established logical sequences and for a specific
purpose(s). According to HSN, ADP machines are machines
which, by logically interrelated operations performed in
accordance with pre-established instructions (program), furnish
H data which can be used as such or, in some cases, serve in
.
.
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turn as data for other data processing operations. The
A
important thing to be noted is that there is a wide difference
between handling information, referred to at page 1575 of
HSN in the context of CTH 8471 and automatically controlling
the flow, level, pressure or other variables of liquids or
gases, referred to at page 1856 of HSN in the context of CTH
B
90.32.
21. To complete the chronology of the paragraphs used in
the Explanatory Notes, the HSN has stated in the context of CTH
84.71 that a CPU incorporates storage, arithmetical and logical
C
elements and control elements, an input unit which receives
input data and converts them into signals which can be
processed by machines and an output unit which converts the
signals provided by the machine into an intelligible form (printed
text, displays, etc.) or into a coded data for further use
(processing, controlling, etc.). [See page 1577 of HSN] In thfs
D
connection, we quote hereinbelow the conditions laid down by
the HSN for classifying a unit as a part of digital data processing
system. These conditions are laid down at page 1577 of HSN,
which read as follows:
"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
E
F
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[2010] 8 S.C.R.
means (e.g. cables) or by non-material means (e.g., radio
or optical links).
In accordance with Note 5(0) 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 terms of their size, technical
capabilities and particular applications, the characteristics
of a printing machine designed to perform a specific
function in the printing or graphics industry (production of
pre-press colour proofs, for example) are to be regarded
as machines having a specific function classifiable in
heading 84.43.
Furthermore, appliances such as measuring or
checking instruments adapted by the addition of devices
(signal converters, for example), which enable them to be
connected directly to a data processing machine, are, in
particular, not to be regarded as of a kind solely or
principally used in automatic data processing systems.
Such appliances fall to be classified in their own
appropriate heading.
Digital data processing machines are put to many
uses, for example, in industry, in trade, in scientific
research and in public or private administrations."
22. Further, at page 1578 of HSN, it is stipulated that
H Chapter Heading 84.71 also covers constituent units of data
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processing systems. These may be in the form of units having
A
a separate housing and designed to be connected, for
example, by cables or in the form of units not having a separate
housing and designed to be inserted into a machine. Display
units of ADP machines provide a graphical presentation of the
data processed. (See page 1579 of HSN).
B
23.