2017 (5) TMI 445 - AT - Customs

Tribunal decision: Imported goods classified as composite item of hardware and software

The Tribunal upheld the classification of imported goods under CTH 8471 as a composite item of hardware and software, emphasizing the inseparability of ... Classification - import of hardware with embedded software - Computer System with model VTP 560 SAMS workstation - 'IT software CA' and SAM software with 2000 pieces of 'Smart Cards' - Held that: - it is evident that software was very much part of the hardware imported. Adjudicating authority has noted that the software has merged and formed part of the essential constituent of software for which reason, the identity of the software is lost and the hardware and software values will be inseparable. Thus, it appears to reason that the software has been embedded along with hardware. Appellants have not been able to prove otherwise, either in the original adjudication or even before this forum. Reliance was placed in the case of Bhagyanagar Metals Ltd. [2016 (2) TMI 614 - CESTAT HYDERABAD], wherein Tribunal relied upon Apex Courts judgment in CC Chennai Vs Hewlett Packard India Sales (P) Ltd. [2007 (8) TMI 347 - SUPREME COURT OF INDIA] which held that preloaded operating systems software in the hard drive of a laptop forms an integral part of the laptop and therefore cost of such preloaded software forms part of the value of laptop. Accordingly, only laptop is imported with inbuilt preloaded operating system recorded on the hard disk. Such items forming integral part of the laptop and has to be classified as laptop and not as computer software separately - it was also held that in case of fixed wireless telephones, FWT, consisting of hardware and software, without software, activation of the telephones was not possible and hence there could not be two separate / distinguished goods for classification and assessment,since the software could not be considered as optional - appeal dismissed - decided against appellant. Issues: Classification of imported goods under Customs Tariff Heading (CTH) 8471, 852499, 8525.10, and 854389; Software embedded in hardware; Proper classification of smart cards; Adjudicating authority's jurisdiction; Compliance with show cause notice (SCN) and corrigenda; Application of legal precedents.Classification of Imported Goods under CTH 8471, 852499, 8525.10, and 854389:The case involved the classification of imported goods, including a computer system, software, and smart cards. The appellants imported items under different headings, leading to a dispute regarding the correct classification. The adjudicating authority concluded that the software was an essential part of the hardware, resulting in a composite item classified under CTH 8471. The appellants contested this classification, arguing that the software was only preloaded onto the hard disk and should be classified separately. The Tribunal analyzed the facts and upheld the original classification under CTH 8471, emphasizing the inseparability of the hardware and software values.Software Embedded in Hardware:The key issue revolved around whether the software was embedded in the hardware or could be considered a separate entity. The appellants claimed that the software was not embedded but preloaded onto the hard disk, citing legal precedents. However, the Tribunal found that the software was an integral part of the hardware, based on the documents accompanying the imported goods and the nature of the software's functionality. The Tribunal rejected the argument that the software could be classified separately, emphasizing the merged nature of the hardware and software values.Proper Classification of Smart Cards:The case also addressed the correct classification of 2000 smart cards imported along with the computer system and software. The adjudicating authority ordered the smart cards to be assessed under CTH 844210. The appellants did not challenge this specific classification, focusing primarily on the classification of the computer system and software. The Tribunal's decision did not raise any issues regarding the classification of smart cards.Adjudicating Authority's Jurisdiction and Compliance with SCN and Corrigenda:There were concerns raised regarding the adjudicating authority's jurisdiction and the compliance with the show cause notice (SCN) and corrigenda. The appellants faced difficulties in arguing their case without the SCN and corrigenda being submitted along with the appeal papers. However, the Tribunal considered these issues but ultimately focused on the substantive classification dispute rather than procedural matters.Application of Legal Precedents:Both parties relied on legal precedents to support their arguments. The appellants referenced a Supreme Court judgment and a Tribunal decision to challenge the classification under CTH 8471. The Tribunal differentiated the facts of those cases from the present situation, emphasizing the unique nature of the software being an essential component of the imported goods. The Tribunal also highlighted a Larger Bench decision regarding the classification of integrated hardware and software, supporting the classification under CTH 8471 in the current case.In conclusion, the Tribunal dismissed the appeal, upholding the classification of the imported goods under CTH 8471 as a composite item of hardware and software. The decision was based on the inseparability of the hardware and software values, the functionality of the imported goods, and the relevant legal precedents applied to the case.