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Issues: (i) Whether the application software supplied in floppies and CDs for the DCS was classifiable under Chapter Heading 85.24 or under Chapter Heading 85.37 of the Central Excise Tariff. (ii) Whether the value of such software was includible in the assessable value of the DCS hardware.
Issue (i): Whether the application software supplied in floppies and CDs for the DCS was classifiable under Chapter Heading 85.24 or under Chapter Heading 85.37 of the Central Excise Tariff.
Analysis: Note 6 to Chapter 85 provides that records, tapes and other media of Heading 85.23 or 85.24 remain classified in those headings whether or not they are cleared with the apparatus for which they are intended. The software in question was supplied separately through floppies and CDs and was not embedded or etched into the DCS. Chapter Heading 85.37 did not properly cover such software, and the software was more appropriately classifiable under Heading 85.24.
Conclusion: The software was correctly classified under Chapter Heading 85.24, and the Revenue's challenge on classification failed.
Issue (ii): Whether the value of such software was includible in the assessable value of the DCS hardware.
Analysis: Since the software and hardware were distinct and separate entities and the software was supplied separately in CDs and floppies, its value could not be added to the value of the DCS. The reasoning applied was that separately supplied software did not form part of the hardware's assessable value merely because it was intended for use with that equipment.
Conclusion: The value of the software was not includible in the assessable value of the DCS.
Final Conclusion: The Revenue's appeal failed, and the orders of the lower authorities were sustained.
Ratio Decidendi: Software supplied separately on media such as floppies or CDs remains classifiable under the relevant software heading and, when not embedded in the apparatus, its value is not includible in the assessable value of the hardware with which it is used.
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