TaxTMI 
TaxTMI 
1981 (9) TMI 277
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....ories. The Computer Machine is also known as Data Processing Machine. As the computer system machine consisted of a variable number of separately housed units, the same was imported by Air and came by four consignments. The petitioners filed four Bills of Entry for home consumption with the Customs authorities at the Santa Cruz Air-Port and the Customs authorities classified the computer system machine as falling under Tariff Item No. 73 in Section XVI of the First Schedule to the Indian Customs and Central Excise Tariff (Vol. I) (hereinafter referred to as the "Tariff"). The authorities accordingly assessed the computer system machine for overall duty of Rs. 29,50,994 69. 3. The petitioners paid the duty under protest. According to the petitioners, the computer system machine attracts duty under Item No. 72(b) of the Tariff and the duty leviable would aggregate to Rs. 17,77,881.42. The petitioners after clearing the goods filed four refund applications to the Assistant Collector of Customs for refund of the excise duty amounting to Rs. 11,73,112.87. The petitioners claimed that the computer consists of different units like Central Processing Unit, Tape drives, Disk Cartrid....
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....er Item No. 72 of the Tariff. The learned Counsel urged that the authorities below have not taken into consideration various salient features of the case and have ignored as to how the computer system is known in the trade but have proceeded to record a finding on the strength of trade notice dated February 22, 1972 issued by the Central Board of Excise. 6. Shri Chinai, the learned Counsel appearing on behalf of the Department, on the other hand, submitted that the conclusion arrived at by the authorities below is in accordance with law and requires no interference. It was urged by the learned Counsel that there is no distinction between 'machinery' and the 'apparatus' and the difference lies in whether it is predominantly an electrical instrument or otherwise. Shri Chinai submits that the expression 'machinery' connotes generation of movement and the Central Processor which is a heart of the computer lacks any movement. The learned Counsel further urged that the computer is only an electrical device and not a mechanical device and, therefore, it was properly assessed under Item No. 73 of the Tariff. It was finally urged by Shri Chinai that even assuming that the two views ....
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....of not otherwise specified. Preferential Revenue 60 per cent ad valorem 50 per cent ad valor-em - 10 per cent ad valo-rem - The principal question which requires determination is whether the computer would fall under definition of 'machine' or could be properly described as an electrical instrument, apparatus or appliance. To appreciate the problem, it would be convenient to find out what the expression 'computer' connotes. The 'computer' is a comprehensive expression which includes the Central Processing Unit, Disk File Storage Units, Disk Pack Drives, Disk Cartridge Drives, Magnetic Tape Drive Units, Line Printers, Card Readers, Paper Tape Punch Unit, Console Printers and Display Terminals. The whole combination of these devices constitute an integrated computer system (Data Processing Machine). Individual Units of the system cannot be considered as a computer by itself and none of the units are capable of working except in conjunction with the others and a particular system can be configured after giving due regards to the particular requirements e.g. raw data can be accepted by the system either through punched cards, paper tape, console terminals or can be....
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....e Central Processing Unit being heart of the computer must be considered independently of the ancillary units. According to the authorities, the Central Processing Unit as a functioning equipment, does not have any moving parts and, therefore, it would not fall within the expression "machine". This line of reasoning is clearly erroneous because it would not be appropriate to treat Central Processor Unit independently of the other ancillary systems. As mentioned hereinabove. the entire system has to be classified as one integrated unit. It was not disputed that the Central Processor Unit, by itself, cannot function and the entire computer system can work only as the integrated unit. 10. The second reason which appealed to the authorities below is that as per the Machinery Committee Report of the year 1922, the computer was not adopted for use in the equipment of industrial concern. The appellate authority felt that the computer is not directly concerned with any industrial operation and it is not used for production of any commodity. This reasoning is also faulty. In the first instance, it was not appropriate to take into consideration a report of the year 1922 which had not....
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....t be able to do with accuracy and speed. In modern days, the computer machines are used for a large number of activities and it is futile to claim that the results given by the computers are to be ignored on the ground that it produces no commodity. It is impossible to imagine that unless concrete commodity is produced, the instrument cannot be described as a machine. The use of the computer gives definite and accurate results and, therefore, it is futile not to treat the computers as machines. In my judgment, both the reasons assigned by the authorities below for holding that the computers are not machines are untenable. 12. Shri Talyarkhan submits that computers or Data Processing Machines are regarded as machines in all Tariffs and in support of his submission relied upon Entry 84.53 in Brussels Nomenclature. Volume 3 at page 1346. The heading of the entry reads as under : "Automatic Data Processing Machines and Units thereof; Magnetic or Optical Readers, Machines for Transcribing Data onto Data Media in Coded Form and Machines for processing such Data, not elsewhere specified or included." Paragraph I of Entry 84.53 sets out that Data Processing Machines are descr....
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....treated as machines not only in Tariffs but in Encyclopaedia Britannica and the World Book Encyclopaedia. 14. Shri Talyarkhan also submitted that by judicial decisions, it has been held that the computers are machines. The learned Counsel placed reliance on the decision dated August 10, 1972 of Acting Chief Justice K.K. Desai in Miscellaneous Petition No. 330 of 1968 (IBM World Trade Corporation v. The Municipal Corporation of Greater Bombay and Another). I.B.M. World Trade Corporation has imported into Greater Bombay, Data Processing machinery and components and spares thereof. In respect of the goods imported, the Corporation levied duty under Item No. 52 of the Octroi Schedule at 2% ad valorem, while according to the petitioners, the duty could have been validly levied only under Item 50 of the Schedule. Item 50 deals with machinery and their components and spares, while Item No. 52 covered instruments, apparatus, appliances and parts thereof. The controversy arose between I.B.M. and the Corporation as to whether the Data Processing Machines are to be treated as machinery or as apparatus attracting duty under Item 52. The learned Judge took the view that possibly all mac....
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....lows :- "Data processing machine is a complicated machinery which could not be easily operated by laymen and special training for a period which may cover three months in some cases and a much longer period in others is necessary in order to equip a person with the knowledge and art of operating these machines. The installation and operation of the machines is on a scientific basis and even for the purposes of installation certain special conditions have to be provided in the form of air-conditioning or a particular temperature. The purposes for which such machines which can be described as computers are used are well known and in highly scientifically developed systems, they have their own roles to play and they cannot be equated, therefore, with office appliances which would be of a much simpler nature. They are really substitutes for human labour not in the sense of manual labour but in the sense they perform intellectual functions which would normally be performed by highly qualified engineers. One machine by itself serves no purpose, but what has to be used is a group of machines which make up a "system". The basic functions of a computer are : (i) input; (ii) storage; (iii....
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....r consideration and Shri Talyarkhan claims that looking to the stand taken by the Department in that case, it is obvious that the Department treated the computers as machines. It is not possible to jump to that conclusion only because of the stand taken by the Department in a particular case. 19. Shri Talyarkhan also relied upon the contents of paragraph 5 of the return dated September 16, 1981 filed by Shri Pichai Mohideen Mohamed Ali, the Assistant Collector of Customs. In paragraph 5, the Department has stated that the "computer" is nothing but a specie of genus which is machine and the computer is nothing but a specialised form of machine which is appropriately classified under Item 73 of the Tariff. Shri Talyarkhan submits that from what has been stated by the Department, it is obvious that even the Department does not dispute that the computers are machines. The learned Counsel further submitted that it is impossible to consider "computers ' as electric appliances because electric appliance has reference to domestic use only and in support of the submission placed reliance upon the decision in the case of Viswa & Co. v. The State of Gujarat reported in 17, Sales Tax C....
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....tem 72 or Item 73 of the Tariff. 21. Shri Chinai urges that the computer is only an electrical device and is not any mechanical device at all. The learned Counsel urges that initially the computers were known even as engines, arithmetic machines, stepped reckoner, etc. and it would not be appropriate to determine the liability to duty by reference to nomenclature of data processing machines. The submission is that in the early years, the computers worked not purely on electrical or electronic devices and that time it was possible to treat them as machines. As the technology advanced, the computers' function becomes purely electronic and mechanical processes are deleted. The learned Counsel submitted that in the present days, the computers are worked purely on electrical or electronic devices and, therefore, it should not be considered as electrical apparatus liable for duty under Item No. 73 of the Tariff. The submission of Shri Chinai that the mechanical devices are ruled out and the present computers worked purely as an electrical or electronic device is correct. The history of the development of the computers given in Encyclopaedia of Britannica and in the book "The Comp....