2006 (1) TMI 271 - SC - Central Excise

Court affirms EPROM classification as integral part of STD-PCO unit, rejects exemption claim

ANJALEEM ENTERPRISES PVT. LTD. Versus COMMISSIONER OF C. EX., AHMEDABAD

The court dismissed the civil appeal, affirming the classification of the programmed EPROM as an integral part of the STD-PCO unit under CH 85.17. The ... Whether a programmed or designed EPROM is an integral part of STD-PCO Unit? 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? Held that:- Appeal dismissed. As 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. Issues Involved:1. Whether a programmed or designed EPROM is an integral part of STD-PCO Unit.2. Whether the appellant was entitled to exemption under notification No. 84/89-C.E., dated 1-3-1989, which required showing 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.Detailed Analysis:Issue 1: Integral Part of STD-PCO UnitThe primary question was whether a programmed or designed EPROM is an integral part of the STD-PCO unit. The appellant manufactured STD-PCO units, which are computer-based equipment used for various telecommunication functions. The appellant classified the unit under chapter heading (CH) 85.17 and the programmed EPROM under CH 85.24, claiming it as a recorded medium. However, the department issued a show-cause notice arguing that the programmed EPROM was an essential component of the STD-PCO unit, without which the unit was non-functional. The Assistant Collector (AC) and subsequent authorities found that the programmed EPROM was integral to the STD-PCO unit, serving the purpose of transmitting electronic instructions necessary for the unit's operation. Therefore, the EPROM was classified under CH 85.17 as part of the STD-PCO unit.Issue 2: Entitlement to Exemption under Notification No. 84/89-C.E.The appellant claimed exemption under notification No. 84/89-C.E., arguing that the programmed EPROM was a 'recorded medium' under CH 85.24. The appellant contended that the programmed EPROM should be classified under sub-heading 8524.90, which covers recorded media, and thus be exempt from excise duty. The Assistant Collector, however, held that the recorded EPROMs were integrated circuits (ICs) under heading 85.42 and not recorded media under CH 85.24. The AC concluded that the appellant was not entitled to exemption because the programmed EPROMs were integral parts of the STD-PCO unit and should be classified under CH 85.17. This classification was upheld by the Collector (Appeals) and the tribunal.Legal Reasoning and Conclusion:The court examined the classification of the programmed EPROM and its role in the STD-PCO unit. It was essential to determine whether the programmed EPROM changed its essential character to become a 'recorded media' or remained an integrated circuit (IC). The court noted that an EPROM (Erasable Programmable Read-Only Memory) is a type of IC that performs intelligent functions and is not merely a storage device like a floppy disk. The court found that the essential character of the EPROM did not change with the program embedded in it, and it remained an IC under CH 85.42. Consequently, the programmed EPROM was not a recorded media under CH 85.24, and its value was includible in the assessable value of the STD-PCO unit.The court also distinguished the present case from previous judgments cited by the appellant, such as PSI Data Systems Ltd. and Sprint RPG India Ltd., noting that those cases involved different contexts and subject matters. The court concluded that the programmed EPROM was an integral part of the STD-PCO unit and that the appellant was not entitled to the claimed exemption under notification No. 84/89-C.E.Final Judgment:The civil appeal was dismissed, affirming the classification of the programmed EPROM as an integral part of the STD-PCO unit under CH 85.17 and rejecting the claim for exemption under notification No. 84/89-C.E.