2023 (10) TMI 1006 - AT - Customs

Imported employee attendance data collection devices classified under Chapter 8543 not Chapter 8473

Commissioner of Customs, Bangalore Versus M/s. Kronos Systems India Pvt. Ltd.

CESTAT Bangalore held that imported data collection devices (4500 Full A/N Prox. Exp Memory) used for employee attendance marking should be classified ... Classification of imported goods - 553 series for 4500 Full A/N Prox. Exp Memory - to be classified under Chapter Heading 8473 3020 as part of the computers or classifiable under chapter 8543? - HELD THAT:- As noted by the original authority, the device captures the data from the employee’s card or the data of the particular employee who key in the PIN into the device. The device does not do anything except for collecting the data at the time of entry or exit and this data is transmitted to a central server for further processing like marking the attendance, preparation of payroll or for other purposes. These facts are not in dispute. Based on the General Rules of Interpretation and the Chapter Notes, the item needs to be classified in the heading akin to it or where the specific description is provided. In this case, the data collection device imported by the respondent is nothing but a card reader working in conjunction with the server - Since the specific function of the imported item is to mark attendance or to take note of the persons of the employees for the purpose of attendance or payroll or leave, they cannot be classified under Chapter 84 as it excludes from this Chapter as per the Chapter Note 5(e). In the case of COMMISSIONER OF CUSTOMS BANGALORE-CUS VERSUS M/S. SHAKYA TECHNOLOGIES LTD [018 (8) TMI 1029 - CESTAT BANGALORE], a similar product viz., fingerprint scanner was classified under Chapter Heading 8543 7099 as per the observations made by the Tribunal at para 5.1, wherein it has held that We find that the Head 8543 covers electrical machines and apparatus having individual functions not specified or included elsewhere in the chapter. Therefore, the classification of the Finger Print Reader would be more appropriate under this heading. Hence, based on the discussions above and by following the decision of this Bench, the product is rightly classifiable under chapter 8543. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the imported 'data collection device' is classifiable as an automatic data processing machine or part/accessory thereof (Chapter 84 headings advanced by appellant/Commissioner (A)) or as an electrical machine/apparatus having individual functions (Chapter 85) - i.e., correct classification between Chapter 84 (8471/8473) and Chapter 85 (8543). 2. Whether the appellate authority (Commissioner (A)) exceeded jurisdiction by determining classification under a tariff heading not pleaded by the importer or included in the original show-cause/decision, contrary to the principle that new cases/headings should not be introduced at appeal. 3. The proper application of Chapter Note 5(E) to Chapter 84 and the General Rules of Interpretation (including Rule 3(c)) in determining classification of devices that collect data locally but transmit for central processing. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Classification: automatic data processing machine (Chapter 84) v. electrical machine with individual function (Chapter 85) Legal framework: Classification governed by General Rules of Interpretation and Chapter Notes; Chapter Note 5(E) to Chapter 84 excludes machines performing a specific function other than data processing or working in conjunction with an automatic data processing machine from Chapter 84 and directs classification according to their specific function or residual headings. Chapter 85 (heading 8543) covers 'Electrical machines and apparatus having individual functions' not specified elsewhere. Precedent treatment: The Tribunal's prior approach in like cases (e.g., devices such as fingerprint scanners) classifying standalone identification/reader devices under Chapter 8543 was applied. Interpretation and reasoning: The device's catalogue and manuals show it is described as a 'Data Collection Device' or badge/proximity reader: it integrates barcode, proximity and magnetic readers, accepts PIN entry, captures attendance data on swipe or entry, and routes collected data to a central server where the central server performs processing (attendance marking, payroll, archiving). The device does not perform further processing beyond capture and transmission; it functions as a card/badge reader working in conjunction with a central server. Under Chapter Note 5(E), such devices performing a specific function (badge/proximity reader) that operate with an automatic data processing machine are to be classified according to their specific function (i.e., as readers), not under Chapter 84. Ratio vs. Obiter: Ratio - where a device's primary and specific function is data capture/identification and it transmits raw data for central processing, it is excluded from Chapter 84 by Chapter Note 5(E) and classifiable under Chapter 85 heading 8543. Obiter - remarks comparing presence of CPU/runtime memory or ability to run applications were considered but secondary to the device's actual functional role of data collection and transmission. Conclusion: The device is properly classifiable under Chapter Heading 8543 as an electrical machine/apparatus (badge/proximity reader) having an individual function; it is not an automatic data-processing machine or part thereof under Chapter 84. Issue 2 - Whether Commissioner (A) could classify under a heading not pleaded before original authority Legal framework: Administrative law principle that an appellate authority should not decide a new classification case or adopt a heading not part of the show-cause or original proceedings; parties are entitled to notice and opportunity to meet the case advanced against them. Precedent treatment: The Court/Tribunal recognizes the settled rule that no new case/headings may be introduced at appeal contrary to the show-cause or original pleadings. Interpretation and reasoning: The importer had sought classification under Heading 8473; the Department classified under 8543; the Commissioner (A) reclassified under 8471 - a heading not pleaded by the importer or made the subject of the lower authority's decision. That constituted setting up a new case at the appellate stage without giving the parties opportunity to meet it. Ratio vs. Obiter: Ratio - an appellate order that decides classification under a heading not part of the original notice/pleadings is bad in law and cannot stand. Obiter - observations about technical features of the device relevant to classification but not sufficient to justify introduction of an unpleaded heading. Conclusion: The Commissioner (A)'s adoption of Heading 8471, which was not part of the original proceedings, was legally impermissible; the appellate authority should have confined itself to headings before it. Issue 3 - Application of Rule 3(c) and contextual interpretive principles where multiple headings are possible Legal framework: When goods are prima facie classifiable under two headings, Rule 3(c) of the General Rules of Interpretation directs selection of the heading which occurs last in numerical order among equally applicable headings; classification should follow the heading most appropriate to the goods' specific function and description. Precedent treatment: Tribunal decisions addressing similar devices applied Rule 3(c) and preferred Chapter 8543 where devices were electrical machines with individual functions, particularly where product descriptions and function pointed to reader/identification devices. Interpretation and reasoning: The factual matrix - product description as data collection/badge terminal, integrated readers, transmission to central server for processing - makes Chapter 8543 the more appropriate heading under GRI principles and Chapter Note 5(E). Where classification issues arise between Chapter 84 and Chapter 85, the specific function (capture/identification) and exclusion in Chapter Note 5(E) govern the choice. Ratio vs. Obiter: Ratio - where two headings are equally merited, and the specific function aligns with an electrical machine/having individual function not included in Chapter 84, Rule 3(c) and Chapter Note 5(E) support classification under 8543. Obiter - numerical-order reasoning is supplementary where merit is equal. Conclusion: Applying GRI Rule 3(c) and Chapter Note 5(E), the correct classificatory outcome is Heading 8543 rather than any Heading under Chapter 84. Cross-references See Issue 1 for the dispositive application of Chapter Note 5(E); see Issue 2 for the separate procedural/legal infirmity in the appellate reclassification under an unpleaded heading; both converge on the final determination to classify the device under Chapter 8543 and to declare the Commissioner (A)'s reclassification under an unpleaded Chapter 84 heading legally infirm. Final Conclusions 1. The device is properly classifiable under Chapter Heading 8543 as an electrical machine/apparatus having an individual function (badge/proximity reader/data collection device) and not as an automatic data-processing machine or part thereof under Chapter 84. 2. The appellate authority's reclassification under a heading not part of the original proceedings was legally impermissible and therefore flawed.