Supreme Court of India
COMMISSIONER OF CUSTOMS, BANAGALOREversusM/S, N.I. SYSTEMS (INDIA) P. LTD.
- Citation
- 2010 INSC 404
- Decided
- 15 July 2010
- Disposal
- Appeal(s) allowed
- Bench
- S H KAPADIA
Holding
Controllers (including embedded controllers) and the associated I/O modules and chassis are classifiable under Chapter 90 (CTH 9032.90.00) as parts and accessories of automatic regulating or controlling instruments.
Summary
The importer, N.I. Systems, brought various computer‑based instrumentation items—PXI controllers, I/O modules, signal converters and chassis—into India and classified them under Chapter 84 (8471) as automatic data processing machines. The Customs authorities classified them under Chapter 90 as parts and accessories of measuring and controlling instruments. The Tribunal upheld the importer’s view, but the Commissioner appealed. The Supreme Court examined the technical characteristics of the items, the purpose of controllers (to execute control algorithms for industrial processes), and the relevant tariff notes. It held that the controllers, though capable of data processing, have a specialized structure and primary function of process control, making them parts of a measuring/control system, and thus fall under Chapter 90. The I/O modules and chassis, being tailored to specific control functions, are likewise parts and accessories under CTH 9032.90.00. Consequently, the Court set aside the Tribunal’s order and allowed the Department’s appeal.
Issues considered
- Whether PXI controllers, embedded controllers and programmable automation controllers should be classified under Chapter 84 as automatic data processing machines or under Chapter 90 as parts/accessories of measuring and controlling instruments.
- Whether Input‑Output modules and chassis are to be classified as parts and accessories of Chapter 90.
- Interpretation of Chapter 90 notes (1(h), 2(b), 3) and Chapter 84 notes (5(A), 5(E), 7) in the context of functional‑unit classification.
- Whether the ‘single entity’ test is a prerequisite for classification under Chapter 90.
Legislation cited
Subjects
customs classificationChapter 90Chapter 84Programmable Automation ControllerPXI controllerInput‑Output modulechassismeasuring instrumentparts and accessoriestariff interpretationfunctional unit
Judgment
[2010] 8 S.C.R. 435
COMMISSIONER OF CUSTOMS, BANAGALORE A
v.
MIS, N.I. SYSTEMS (INDIA) P. LTD.
(Civil Appeal No. 5394 of 2010)
JULY 15, 2010
B
[S.H. KAPADIA, CJI., K.S. RADHAKRISHNAN AND
SWATANTER KUMAR, JJ.]
Customs Tariff Act, 1975 - Chapter 90, CTH 9032 - PX/
Controllers, Input/Output Modules, Signal Convertors and C
Chassis and its parts - Classification of - Held: Are
classifiable under chapter 90 - On the basis of technical
material including importer's own catalogue and webcast,
Controllers (including embedded controllers) are not merely
PCs/Automatic Data Processing Machines, but have a D
specialized structure and specific functions to perform -
PACs!Programmable Process Controllers, 1.0. Modules and
Chassis by themselves are not measuring, regulating or
controlling instrument (system) - They are meant to operate
as part of an industrial process control equipment/system, like E
sensors - Thus, are correctly classifiable as a part of said
machine, instrument or apparatus under CTH 9032.
The assessee imported computer based
instrumentation products from their Principal/Holding
Company. The items were PXI Controllers, Input/Output F
Modules, Signal Convertors and Chassis and its parts. It .
claimed the items to be computers and/or parts of
computers and classified them under CTH 8471, 8473 and
other headings falling under Chapter 84 of the Customs
Tariff Act, 1975. The Original Authority held that the G
subject goods were not structurally designed to function
as a computer. They are measuring/controlling
instruments, specifically designed for industrial use
which is indicated from the catalogue submitted by the
435 H
436 SUPREME COURT REPORTS [2010) 8 S.C.R.
A importer. The 0.A. classified embedded controllers,
Programmable Automation Controllers, Data acquisition
Boards, Digital Input Output Boards, PXI Chassis under
Chapter 90. The Commissioner (Appeal) upheld the order.
The tribunal held that the PXI Controller and other
B Controllers are Automatic Data Processing Machine. PXI
Controller is not a measuring instrument and can be used
only in conjunction with an independent measuring
instrument with suitable interface, thus not classified
under chapter 90 of the Act. Hence the appeal.
c Allowing the appeal, the Court
HELD: 1.1 On the basis of technical material
(including the importer's own catalogue and webcast) it
is held that Controllers (including embedded controllers)
D are not merely PCs/ Automatic Data Processing Machine,
but have a specialized structure and specific functions
to perform and are therefore, classifiable under Chapter
90. The 1.0. Modules and Chassis are meant to operate
as parts of Industrial Process Control equipments like
E sensors. These 1.0. Modules come with software tailored
to their specific pre-defined functions. Therefore, one has
to see the package in the holistic manner. The package
as a whole-both hardware and software, constitutes one
single functional unit. Thus, 1.0. Modules and Chassis are
F classifiable as parts and accessories of Automatic
Regulating or Controlling Instruments/Apparatus under
CTH 9032.90.00. Thus, the order passed by the
Department was correct. [Paras 28, 29 and 46] [463-D-G;
474-D]
G 2.1 On examination of the technical write-up, the
purpose of Controllers whether embedded or not, is to
control industrial processes. Programmable Automation
Controller is the combination of PLC and PC technology
and this means the ruggedness of PLCs, software
H stability of a PC and the independence to incorporate
COMMISSIONER OF CUSTOMS, BANAGALORE v. 437
N.I. SYSTEMS (INDIA) P. LTD.
modular and diverse 1/0. PAC is an improvement over A
PLC. PAC is capable of being controlled by a PC/Laptop
but it is not a PC/Laptop. The principal function of
Controllers is executing Control Algorithms for the Real-
time monitoring and control of devices, processes or
systems whereas the principal function of a PC by itself B
is acquisition, analysis and display of data. A controller
performs functions in addition to data processing. The
webcast presentation also shows the difference in the
structure and functions of a Controller vis-a-vis a PC
(simpliciter). The hardware in the Controller is dedicated c
to perform Measurement and Control Applications.
Basically, PACs are Programmable Process Controllers
which are suitable for use principally in conjunction with
Industrial Process Control equipment like sensors which
measures temperature, pressure etc. The programmable 0
process controller, though distinct from sensors, is an
individual component intended to perform a specific
function. The programmable process controller is a part
and accessory of a controlling apparatus. [Para 31] [464"
B-F]
E
2.2 The purpose of Data Acquisition Boards is to
acquire data from external sensors, usually in the form
of Analog Voltage of+/- 10 volts, which is then converted
into digital signals, which the personal computer can
understand. Similarly, Analog Output Boards are meant F
for converting signals from external units such as PXI
controller. Similarly, Network Interface Module is used to
connect measuring instruments to a PC by sending and
receiving messages, two ways. The Chassis of PXI
provides connectivity and housing for embedded G
controllers and data acquisition modules, allowing them
to communicate with each other. Thus, the 1.0. Module is
tailored to a specific function. Each of the Boards (cards)
is inserted into the slots of PXI. Each of the 1.0. Modules
is tailored to a specific function and is, therefore, a part H
438 SUPREME COURT REPORTS [2010] 8 S.C.R.
A of a regulating and controlling apparatus like a sensor,
thermostat etc. Therefore, one has to look at the machine
(PXI Machine) holistically. [Para 33) [465-D-G]
2.3 Chapter 90 includes measuring and checking
instruments and apparatus; parts and accessories
8
thereof. In view of Section Note 1(m) of Chapter 84, it is
first to be seen whether or not PACs fall within Chapter
90. Keeping in mind the scheme of Chapter 84 and
Chapter 90, in the instant case, the correct approach
C would be to examine the scope of Chapter 90 first and
foremost and only the scope of Chapter 84 is to be
examined. Chapter Note 1 (h) of Chapter 90 does not
exclude CTH 8471. Hence, even if an item falls under
CTH 8471, it could still come under Chapter 90, however,
in view of Section Note 1(m) '~hapter 84 would stand
D excluded. This is because the ;:ipplication of Chapter 84
is subject to the applicability of Chapter 90. [Para 37)
[467-E-G]
2.4 Note 2(a) to Chapter 90 inter alia states that what
E is otherwise parts or accessories, but is classifiable as
goods under Chapter 84, shall be classified in their
respective headings. The effect of Note 2(a) is that if it can
be shown that Programmable Process Controllers/PACs
are classifiable as "goods" under Chapter 84 then such
F a classification would include the same for being
considered as parts or accessories of goods under
Chapter 90. However, in the instant case, Note 2(a) is not
attracted as PACs are not classifiable as "goods" under
Chapter 84. [Para 38] [467-H; 468-A-B]
G 2.5 The submission that PACs/Programmable
Process Controllers by themselves are not measuring,
regulating or control instruments; that physical variables
such as temperature and voltage are measured by
sensors which could be classified under Chapter 90, but
H this does not extend to PACs/Programmable Process
COMMISSIONER OF CUSTOMS, BANAGALORE v. 439
N.I. SYSTEMS (INDIA) P. LTD.
Controllers; that automatic control apparatus referred to A
in Chapter 90 must consist of a device for measuring a
control device and a starting-stopping/operating device,
all of which should form a "single entity" and since a PAC
does not fulfil the said test, CTH 9032 is not attracted in
the case of PAC/Programmable Process Controllers is B
unsustainable. [Paras 38 and 39] [468-C-F]
2.6 In view of Chapter Note 2(b) to Chapter 90 r/w
Note 3 of the same Chapter, PACs/Programmable
Process Controllers are parts and accessories of a C
system/instrument which are suitable for use solely or
mainly with a number of machines, instruments,
apparatus of the same Heading, i.e., 9032 like sensors,
thermostats etc. Thus, PACs/Programmable Process
Controllers imported by the assessee are suitable for use
principally with Industrial Process Control Equipment like D
sensors, thermostats etc. which measures temperature,
process etc. Therefore, they are correctly classifiable as
a part of the said machine, instrument or apparatus. [Para
39) [468-F-H; 469-A]
E
2.7 A "control system" generally refers to the control
of a device, process or system by monitoring one or more
of its characteristics. It ensures that output processing
remains within the desired parameters over a period of
time. Controllers are generally connected to other F
computing apparatus. The principle function of
controllers is to execute control algorithm for real time
monitoring and for controlling devices, processes or
systems. [Para 39) [469-B-C]
2.8 With regard to the classification of Input-Output G
Modules and Chassis, one has therefore to take into
account all the imported items as constituting a complete
System which performs the work of measurement. PXI is
a system. It is composed of three basic components-
chassis, system controller and peripheral modules. These H
440 SUPREME COURT REPORTS [2010] 8 S.C.R.
A modules are also imported by the importer in the instant
case. One such module is Network Interface Module. This
module is used to connect to a network for distributed
control applications. It interconnects a PC to a measuring
instrument by sending and receiving messages from the
B two units. In the chassis of the PXI there are slots in
which Analog Output Boards (Cards); Digital Input-
Output Boards, Image Acquisition Boards, Distributed
Input-Output Boards, NIM etc. are inserted. Each 1.0.
Module imported by the assessee is tailored to a specific
c function and therefore such 1.0. Module is a part of a
regulating or controlling apparatus. NIM is a hardware
device. It may be in the form of a network interface card
or a network adapter or in the form of Network Interface
Controller. It provides connectivity between the industrial
network and the 1.0. Module. A network interface module
0
works as a connector and adapter unit in order to provide
a two way interconnection between external sensor unit
and the ADP. Thus, 1.0. Module is a hardware. It is also
known as 1.0. device or 1.0. Point. It may be in the form
of 1.0. Cards or 1.0. Boards. When 1.0. Module is used to
E accept data (input) from sensors, transducers,
Programmable Logic Controllers computers etc. and then
distributes the data (output) to other devices in the
system, then 1.0. Module is called as Distributed 1.0.
Module. Such system is also called as Distributed
F Control System which is a control system used normally
in a manufacturing plant or in any other kind of dynamic
system. DCS, therefore, is used in a variety of industries
to monitor and control distributed equipments. An 1.0.
Module also converts readings from sensors and
G provides output signals which are used for operating
actuators via Network Interface Module. [Para 39] [469-F-
H; 470-A-E]
2.9 Programmable Logic Controller is a control
H. device. It is normally used in industrial control
COMMISSIONER OF CUSTOMS, BANAGALORE v. 441
N.I. SYSTEMS (INDIA) P. LTD.
applications. It is a Programmable Microprocessor based A
device which is used to control assembly lines and
machinery on th~ shop floor as well as to control many
other types of mechanical, electrical and electronic
equipment in a plant. A PLC is designed for real-time use
in rugged industrial environments, connected to sensors B
and actuators. PLCs are characterized by the number of
1.0. Ports which they provide. PLCs are also categorized
a
by their 1.0. scan rates. Thus, PAC does not replace the
traditional PLCs but it expands the role of a PLC. A PAC
has features found in Programmable Logic Controllers,· c
Distributed Control Systems, Remote Terminal Units and
PCs. [Para 39] [470-G-H; 471-A-C]
2.10 PACs/Programmable Process Controllers and
1.0. Modules by themselves are not measuring, regulating
or controlling instrument (system). Physical variables D
such as temperature and voltage are measured by
device, like sensors which constitute measuring and
control systems. Controllers and LO.Modules each have
a specific function to perform being parts of a measuring
and control system i.e. sensors. As such, PAC/PPC is a E
part of an industrial process control equipment/system
and accordingly such controllers are classifiable as a part
of instrument or apparatus (Chapter Note 2(b) read with
Note 3 of Chapter 90). [Paras 39 and 40] [471-D-E; 469-
D] F
2.11 There is no merit in the submission of the
importer that the Explanatory Notes, the Measuring
Device, the Control Device and the Operating Device has
to form a "single entity". There is no dispute that if all the G
three devices are found in one "single entity" then
classification will fall under Chapter 90. However, the test
of "single entity" containing three devices is not a pre-
condition for classification under CTH 9032. On the
contrary, the test is not that of single entity, but of the
H
442 SUPREME COURT REPORTS [2010] 8 S.C.R.
A device being capable of working as a functional unit. Note
3 of Chapter 90 is to be read. Note 3 incorporates Note 4
to Section XVI. Note 4 inter alia provides for a machine
consisting of individual components which may be
separate as long as they are intended to contribute to a
B clear defined function. The PACs/Programmable Process
Controller, though separate from sensors, is an individual
component intended to contribute to a clearly defined
function. Note 3 of Chapter 90 has to be read with Note
2(b) of Chapter 90 and if so read then it becomes clear
c that PAC/Programmable Process Controllers, being parts
and accessories and a regulating or controlling
apparatus like sensors have got to be classified under
CTH 9032.89.10. Thus, PACs(including embedded
Controllers/Programmable Process Controllers) have
been rightly classified by the Department under CTH
0
9032. [Paras 41 and 42] [471-F-H; 472-A-B]
2.12 On the question of Input-Output (1.0.) Modules
and Chassis, the tribunal has not given any finding
whatsoever thereon. However, on going through the
E technical material and the demonstration given in Court,
1.0. Modules and Chassis have also been rightly
classified by the Department as parts and accessories of
regulating and controlling apparatus classifiable under
Chapter 90. The primary function of 1.0. Modules (Boards)
F is to function as a part of measuring and control System.
It is for this reason that such Modules are required to be
·classified as parts and accessories of regulating and
measuring System. For this purpose, it is necessary to
examine each of the imported items apart from
G Controllers in order to see whether the hardware coupled
with the pre-installed software gives it a definite identity
and function. From the catalogue and technological write-
ups it is fo1:;1d that each and every 1.0. Module imported
by the assessee is configured with a sensor at one end.
H This aspect is very important. [Para 43] [472-C-G]
COMMISSIONER OF CUSTOMS, BANAGALORE v. 443
N.I. SYSTEMS (INDIA) P. LTD.
2.13 The purpose of DAQ Boards is to acquire data A
from external sensor, usually in the form of analog
voltage of +/- 10 volts. This data is converted hf DAQ
Boards into digital signals which the personal computer
can understand. Instrument Control Boards which -are
· placed inside the computer allow data required from B
external sensors to be communicated directly to the
computer. This is called as handling of information
(Explanatory Notes of HSN p 1575) which is different
from controlling temperature, pressure etc. (Explanatory
Notes of HSN p 1856). Analog Output Boards which are c
meant for converting signals from external units such as
PXI. Similarly, the Chassis provides connectivity and
housing for embedded controller and the data acquisition
modules, allowing them to communicate with each other.
A network interface module is used to connect to a
0
network for distributed control applications. It
interconnects measuring instruments to a PC by sending
and receiving messages from the two units. Thus, each
1.0. Module is tailored to a specific function and is
therefore a part of regulating and controlling apparatus. E
Handling of information under the HSN Notes is separate
and distinct from regulating and measuring temperature,
pressure etc. [Para 43] [472-H; 473-A-D] .
2.14 Once a machine incorporating an ADPM
performs a specific function other than data processing F
then that machine is classifiable in the heading
corresponding to the function of that machine (Note 4 of
Section XVI and Note 3 to Chapter 90). Further, HSN
clearly indicates that Heading 8478 is excluded where the
case is of a clearly defined function to which separate G
components contribute. [Para 44] [473-E-G]
2.15 In order to attract Note 5(E) the real test is
whether or not the machine imported is performing a
specific function relatable to the functional unit as a
H
444 SUPREME COURT REPORTS [2010] 8 S.C.R.
A whole. The said machine should be seen as a System.
As a functional unit, the imported machine should
perform a function other than data processing or it should
perform a function in addition to data processing.
Industrial Process Controllers and 1.0. Modules, which are
B part of a functional unit, the function of which is to be
judged as a whole are therefore classifiable in Chapter
90. The sentence in Chapter Note 5(E) "incorporating or
working in conjunction with an ADPM" merely indicates
that the overall package, which is presented before the
c Department, had an ADP Machine in it. In other words,
what is imported is a System containing an ADPM. The
said interpretation stands to reason because if the
contention of the importer is accepted, it would mean that
every machine that contains an element of ADP would be
D classifiable as an ADP Machine under Chapter 84. This
would completely obliterate the specific function test and
the concept of functional unit. [Para 45) [473-H; 474-A-C)
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
5394 of 2010.
E
From the Judgment & Order dated 29.06.2009 of the
Customs Excise and Service Tax Appellate Tribunal, Bangalore
(CESTAT) in Final Order No. 846 of 2009 in Appeal No.
Customs 1678 o) 2007.
F Gourab Banerji, ASG, K. Swami, Rajiv Nanda, B. Krishna
Prasad for the Appellant.
V. Lakshmikumaran, Badri Narayan, Sunil Kumar,
Ravinder Singhania, A.M. Ranjan, K.C. Dua for the
G Respondents.
The Judgment of the Court was delivered by
S.H. KAPADIA, CJI. 1. Delay condoned.
H
COMMISSIONER OF CUSTOMS, BANAGALORE v. 445
N.I. SYSTEMS (INDIA) P. LTD. [S.H. KAPADIA, CJI.]
Facts: A
2. M/s. N.I. Systems (India) Private Limited (hereinafter
refetred to as "importer") is a 100% subsidiary of N .I.
Corporation at Austin, Texas, USA. '
3. Assessee imports various products from its Holding B
. Company and supplies the same to its customers in India.
During the relevant assessment year, the assessee imported
various products from their Principal. The products were
computer based instrumentation products. The importer filed
64 bills of entries. The importer claimed the items to be C
computers and/ or parts of computers. The importer grouped
the items in accordance with similar/ identical functions broadly
under CTH 8471, 8473 and other headings falling under
Chapter 84. Broadly, the importer categorized the imported
items as follows: D
(i) PXI Controllers
(ii) Input/Output Modules (also known_ as Modem or
Control/Adaptor Units)
E
(iii) Signal Converters.
(iv) Chassis and its parts.
4. On verification of the technical data (including the
catalogue and the webcast of the importer), the Original F
Authority ("O.A.") vide its decision dated 15.11.2006 held that
the subject goods were not structurally designed to function as
a computer. Further, according to the O.A., in the ordinary
course of trade no buyer will purchase the subject goods as
computers on account of price differential between the price G
of the subject goods and the price of the computer. According
to the O.A., the subject goods stood manufactured for a special
purpose and that purpose was either measurement or control.
According to the O.A., the irnporter, in this case, had conceded
before it that a complete system performs the function of H
446. SUPREME COURT REPORTS (2010] 8 S.C.R.
A measurement whereas if one looks at the subject goods item-
wise, it shows that each item performs a sub-function of data
acquisition processing. On the basis of the said concession,
the O.A. concluded that each imported item constituted a part
of a complete Measurement System. According to the O.A., if
B one applies the test of common parlance then the subject goods
are measuring/controlling inst1Uments and even in trade
parlance they are not known as computers. Lastly, the subject··
goods are costlier than ordinary computer and the trader buys
them because of their enhanced capabilities for the purposes
c of measuring/controlling instruments. According to the O.A., the
subject goods are specially designed for industrial use which
is indicated by the catalogue submitted by the importer. The
embedded controllers may perform all functions of a CPU but,
according to the O.A., the embedded controllers are not CPUs.
D According to the O.A., one more concession is made by the
importer. In its reply to the show cause, the importer stated that
they use real-time operating systems (software) and not the
standard operating systems such as Microsoft Windows.
Accordingly, the 0.A. held that controllers are manufactured for
a specific purpose and not as ADP Machines. The specific
E purpose being controlling/measurement as enumerated in the
catalogue. In the circumstances, the O.A. has broadly classified
embedded Controllers, Programmable Automation Controllers
("PACs"), Data Acquisition Boards, Digital Input Output Boards,
PXI Chassis etc. under Chapter 90. The O.A. has rejected the
F classification sought by the importer under CTH 8471.
5. Aggrieved by the decision of the Additional
Commissioner dated 15.11.2006, the importer preferred
Appeal No. 98/07-CUS(B) before Commissioner of Customs
G (Appeals). Vide decision dated 31.7.2007, the Commissioner
(A) dismissed the appeal preferred by the importer.
6. Against decision dated 31.7.2007, the importer
preferred Customs Appeal No. 678/07 before CESTAT. Vide
its decision dated 29.6.2009, the Tribunal held that the main
H
COMMISSIONER OF CUSTOMS, BANAGALORE v. 447
N.I. SYSTEMS (INDIA) P. LTD. [S.H. KAPADIA, CJI.]
item of import was PXI Controller and other Controllers. A
According to the Tribunal, these imported Controllers were
nothing but ADP Machines. According to the Tribunal, the
importer had placed before it the sample of imported items with
enormous data including a diagram which read as follows:
"PXI Controllers = Computers = Data Processing
B
Machines"
[See page 10 of presentation of the importer
company]
c
7. According to the Tribunal, the diagram, on which
reliance was placed by the importer, indicated that both PC and
PXI Controller had a structure/ design which was common to
Automatic Data Processing Machines. According to the
Tribunal, PXI controller in itself is not a measuring instrument; · D
that the input of PXI Controller is only in the digital form as in
the case of a PC; that PXI Controller is in turn connected with
the processors, motherboard, hard drive with Windows XP,
Serial Port, USB Port, Video Port, Ethernet Port, etc. According
to the Tribunal, since the PXI Controller is identical in function
to the normal home computer, both the items are comparable. E
According to the Tribunal, a PXI Controller acts as a Central
Processing Unit for the entire PXI system. According to the
Tribunal, a PXI Controller processes the data that enters from
the external peripherals such as a mouse and a keyboard as
well as from the internal peripherals such as PXI Signal F
Converting Modules (Cards). There is no difference between
a PXI Controller and a PC. Thus, acc9rding to the Tribunal, a
PXI Controller and other Controllers imported by the assessee
are all ADP Machines. According to the Tribunal, all the
imported Controllers carry out the functions of ADP Machines. G
According to the Tribunal, each aqd every imported Controller
retains the characteristics of ADP Machine. According to the
Tribunal, a PXI Controller can be used for a variety of
applications ranging from advanced data acquisition to
automatic manufacturing which clearly indicated that the H
448 SUPREME COURT REPORTS [2010) 8 S.C.R.
A imported items were not measuring instruments or their parts
as claimed by the Department. According· to the Tribunal, the
imported items cannot be categorized as measuring
instruments. According to the Tribunal, PXI Controller per se is
not a measuring instrument. It can be used only in conjunction
8 with an independent measuring instrument with suitable
interface, hence, the PXI Controller/ other Controllers imported
by the assessee cannot be classified under Chapter 90 of the
Customs Tariff Act, 1975. Hence, this Civil Appeal is filed by
the Department against the decision of the Tribunal dated
C 29.6.2009 in favour of the importer.
Relevant Provisions of CT A:
8. Before proceeding further, we need to quote
hereinbelow the relevant entries referred to in the Customs
D Tariff (2004-2005). At the outset, it may be mentioned that
Chapter 84 finds place in Section XVI which deals with
machinery and electrical equipments. The Section Note to
Section XVI states that Section XVI does not cover articles
falling in Chapter 90.
E Notes 3 and 4 to Section XVI read as under:
"3. Unless the context otherwise requires.
composite machines consisting of two or
more machines fitted together to form a
F whoie and other machines designed for the
purpose of performing two or more
complementary 01 alternative functions are to
be classified as if consisting only of that
component or as being that machine which
G performs the principal function."
"4. 'Nhere a machine (including a
combination of machines) consists of
individual components (whether separate or
interconnected by piping. by transmission
H
COMMISSIONER OF CUSTOMS, 8ANAGALORE v. 449
N.I. SYSTEMS (INDIA) P. LTD. [S.H. KAPADIA, CJI.]
devices, by electric cables or by other A
devices) intended to contribute together to a
clearly defined function covered by one of
the headings in Chapter 84 or Chapter 85,
then the whole falls to be classified in the
heading appropriate to that function." 8
9. Note 5(A) to Chapter 84 defines the expression
"automatic data processing machines". Note 5(8) to Chapter
84 clarifies that an ADP may be in the form of systems
consisting of variable number of separate units. We quote C
hereinbelow, Notes 5(A) and 5(8) to Chapter 84, which read
as follows:
"5.(A) For the purposes of heading 8471, the expression
"automatic data processing machines" means:
D
(a) digital machines, capable of (1) storing the
processing programme or programmes and at least the
data immediately necessary for the execution of the
programme; (2) being freely programmed in accordance
with the requirements of the user; (3) performing E
arithmetical computations specified by the user; and (4)
executing, without human intervention, a processing
programme which requires them to modify their execution,
by logical decision during the processing run;
(b) analogue machines capable of simulating F
mathematical models and comprising at least: analogue
elements, control elements and programming elements;
(c) hybrid machines consisting of either a digital
machine with analogue elements or an analogue machine G
with digital elements.
5(8) Automatic data processing machines may be in the
form of systems consisting of a variable number of
separate units. Subject to paragraph (E) below, a unit is
H
450 SUPREME COURT REPORTS [2010] 8 S.C.R.
A to be regarded as being a part of a complete system if it
meets all of the following conditions:
(a) it is of a kind solely or principally used in an
automatic data processing system;
B (b) it is connectable to the central processing
unit either directly or through one or more
~r units; and
(c) it is able to accept or deliver data in a form
c (codes or signals) which can be used by the
system."
(emphasis supplied)
10. We quote herein below Note S(E) to Chapter 84, which
D reads as follows:
"S(E) Machines performing a specific function other than
data processing and incorporating or working in
conjunction with an automatic data processing machine
E are to be classified in the headings appropriate to their
respective functions or, failing that, in residual headings."
(emphasis supplied)
11. Similarly, Note 7 to Chapter 84 is also relevant and it
F reads as follows:
"7. A machine which is used for more than one purpose
is, for the purposes of classification, to be treated as if its
principal purpose were its sole purpose.
G Subject to Note 2 to this Chapter and Note 3 to
Section XVI, a machine, the principal purpose of which is
not described in any heading or for which no one purpose
is the principal purpose is, unless the context otherwise
requires, to be classified in heading 8479. Heading 8479
H
COMMISSIOt,fER OF CUSTOMS, BANAGALORE v. c 451
N.I. SYSTEMS (INDIA) P. LTD. [S.H. KAPADIA, CJI.]
also covers machines for making rope or cable (for A
example, stranding, twisting or cabling machines) from
metal wire, textile yarn or any other material or from a
combination of such materials."
12. We also quote hereinbelow for the sake of clarity
8
Chapter Heading 8471, which reads as follows:
"Automatic data processing machines
and units thereof; magnetic or optical
readers, machines for transcribing data
on to data media in coded form and C
machines for processing such data, not
elsewhere specified or included"
Chapter Sub-Heading 8471 50 00 reads as follows:
"Digital processing units other than D
those of sub-headings 8471 41 or 8471
49, whether or not containing in the
same housing one or two of the
following types of unit: storage units,
input units, output units" E
13. Chapter 90 falls in Section XVI 11 which refers to
"measuring and checking instruments/apparatus as also parts
and accessories thereof."
Chapter Notes 1(h), 2 and 3 of Chapter 90 read as under: F
"1 This Chapter does not cover:
(h) searchlights or spotlights of a kind used for cycles
or motor vehicles (heading 8512); portable electric lamps G
of heading 8513; cinematographic sound recording,
reproducing or re-recording apparatus (heading 8519 or
8520); sound-heads (heading 8522); still image video
cameras, other video camera recorders and digital
cameras (heading 8525); radar apparatus, radio H
452 SUPREME COURT REPORTS [2010] 8 $.C.R.
A navigational aid apparatus or radio remote control
apparatus (heading 8526); numerical control apparatus of
heading 8537; sealed beam lamp units of heading 8539;
optical fibre cables of heading 8544;"
"2. Subject to Note 1 above, parts and accessories for
B machines, apparatus, instruments or articles of this
Chapter are to be classified according to the following
rules:
(a) parts and accessories which are goods
c included in any of the headings of this
Chapter or of Chapter 84, 85 or 91 (other
than heading 8485, 8548 or 9033) are in all
cases to be classified in their respective
headings;
D
(b) other parts and accessories, if suitable for
use solely or principally with a particular kind
of machine, instrument or apparatus, or with
a number of machines, instruments or
apparatus of the same heading (including a
E machine, instrument or apparatus of heading
9010, 9013 or 9031) are to be classified with
the machines, instruments or apparatus of
that kind;
F (c) all other parts and accessories are to be
classified in heading 9033."
14. We quote hereinbelow CTH 9031 which refers to
measuring or checking instruments, appliances and machines,
not specified or included elsewhere in Chapter 90. The
G Department seeks to place reliance on Chapter Sub-Heading
9031 80 00, which reads as under:
"Other instruments, appliances and machines"
H 15. The Department also places reliance on Chapter Sub-
COMMISSIONER OF CUSTOMS, BANAGALORE v. 453
N.I. SYSTEMS (INDIA) P. LTD. [S.H. KAPADIA, CJI.]
Heading 9031 90 00, which refers to "parts and A
accessories".
16. For some of the items, the Department places reliance
on Chapter Sub-Headings 9032 89 10 and 9032 90 00 which
read as follows: B
"9032 89 10 Electronic automatic regulators
9032 90 00 Parts and accessories"
17. At this stage, we may deal hereinbelow the C
Explanatory Notes from HSN. Our customs tariff is basically
based on HSN. Even the HSN makes it clear vide Section Note
1(m) that Section XVI which refers to Chapter 84 will not cover
articles mentioned in Chapter 90. Similarly, Section Note 3 to
Section XVI states that multi-function machines are to be
0
classified according to the principal function of the machine.
According to the Explanatory Notes, a printing machine with a
subsidiary machine for holding the paper or an industrial
furnace combined with lifting or handling machinery is a
composite machine in terms of Section Note 3. Further,
referring to Functional Units, the Explanatory Note, referring to E
Section Note 4, inter alia states that when a machine including
a combination of machines consists of separate components
which are intended to contribute together to a clearly defined
function covered by one of the headings in Chapter 84 then the
whole shall fall for classification in the heading appropriate to F
that function, whether the various components remain separate
or are inter-connected by devices used to transmit power, either
by electrical cables or by other devices. At this stage, we quote
hereinbelow Chapter Sub-Heading 8471 49 00, which reads
as follows: G
"Other, presented in the form of systems"
18. According to HSN, the word "systems" in Chapter Sub-
Heading 8471.49 means ADP machines whose units satisfy
H
454 SUPREME COURT REPORTS [2010] 8 S.C.R.
A the conditions of Note 5(8) to Chapter 84 and which comprises
of a CPU, one input unit (for example, a keyboard or a scanner),
and one output unit (for example, a visual display unit or a
printer).
19. According to HSN, the following classification
8
principles have to be applied in accordance with Note 5(E) to
Chapter 84 in the case of machine incorporating or working in
conjunction with ADPM and performing a specific function.
These principles are as follows:
c "(1) A machine incorporating an automatic data
processing machine and performing a specific function
other than data processing is classifiable in the heading
corresponding to the function of that machine or, in the
absence of a specific heading, in a residual heading, and
D not in heading 84.71.
(2) Machines presented with an automatic data
processing machine and intended to work in conjunction
therewith to perform a specific function other than data
processing, are to be classified as folfows:
E
The automatic data processing machine must be classified
separately in heading 84.71 and the other machines in the
heading corresponding to the function which they perform
unless, by application of Note 4 to Section XVI or Note 3
F to Chapter 90, the whole is classified in another heading
of Chapter 84, Chapter 85 or of Chapter 90."
20. The most important aspect which needs to be
emphasized in this case is that, according to HSN, data
G processing consists of handling information of all kinds, in
pre-established logical sequences and for a specific
purpose(s). According to HSN, ADP machines are machines
which, by logically interrelated operations performed in
accordance with pre-established instructions (program), furnish
H data which can be used as such or, in some cases, serve in
. .
COMMISSIONER OF CUSTOMS, BANAGALORE v. 455
N.I. SYSTEMS (INDIA) P. LTD. (S.H. KAPADIA, CJI.]
turn as data for other data processing operations. The A
important thing to be noted is that there is a wide difference
between handling information, referred to at page 1575 of
HSN in the context of CTH 8471 and automatically controlling
the flow, level, pressure or other variables of liquids or
gases, referred to at page 1856 of HSN in the context of CTH B
90.32.
21. To complete the chronology of the paragraphs used in
the Explanatory Notes, the HSN has stated in the context of CTH
84.71 that a CPU incorporates storage, arithmetical and logical C
elements and control elements, an input unit which receives
input data and converts them into signals which can be
processed by machines and an output unit which converts the
signals provided by the machine into an intelligible form (printed
text, displays, etc.) or into a coded data for further use
(processing, controlling, etc.). [See page 1577 of HSN] In thfs D
connection, we quote hereinbelow the conditions laid down by
the HSN for classifying a unit as a part of digital data processing
system. These conditions are laid down at page 1577 of HSN,
which read as follows:
E
"A unit is to be regarded as being a part of a complete
digital data processing system, if it satisfies the following
conditions:
(a) It is of a kind solely or principally used in an
F
automatic data processing system;
(b) It is connectable to the central processing
unit either directly or through one or more
other units; and
G
(c) It is able to accept or deliver data in a form
(codes or signals) which can be used by the
system.
The interconnections may be made by material
H
456 SUPREME COURT REPORTS [2010] 8 S.C.R.
A means (e.g. cables) or by non-material means (e.g., radio
or optical links).
In accordance with Note 5(0) to this Chapter,
printers, keyboards, X-Y co-ordinate input devices and
disc storage units which satisfy the conditions of items (b)
B
and (c) above, are in all cases to be classified as
constituent units of data processing systems.
The foregoing provision is, however, to be
considered in the overall context of Note 5 to Chapter 84
c and is therefore applicable subject to the provisions of
paragraph (E) of that Note, by virtue of the introductory part
of paragraph (B) thereof. Thus, ink-jet printers working in
conjunction with an automatic data processing machine but
having, particularly in terms of their size, technical
D capabilities and particular applications, the characteristics
of a printing machine designed to perform a specific
function in the printing or graphics industry (production of
pre-press colour proofs, for example) are to be regarded
as machines having a specific function classifiable in
E heading 84.43.
Furthermore, appliances such as measuring or
checking instruments adapted by the addition of devices
(signal converters, for example), which enable them to be
connected directly to a data processing machine, are, in
F particular, not to be regarded as of a kind solely or
principally used in automatic data processing systems.
Such appliances fall to be classified in their own
appropriate heading.
G Digital data processing machines are put to many
uses, for example, in industry, in trade, in scientific
research and in public or private administrations."
22. Further, at page 1578 of HSN, it is stipulated that
H Chapter Heading 84.71 also covers constituent units of data
COMMISSIONER OF CUSTOMS, BANAGALORE v. 457
N.I. SYSTEMS (INDIA) P. LTD. [S.H. KAPADIA, CJI.]
processing systems. These may be in the form of units having A
a separate housing and designed to be connected, for
example, by cables or in the form of units not having a separate
housing and designed to be inserted into a machine. Display
units of ADP machines provide a graphical presentation of the
data processed. (See page 1579 of HSN). B
23. Coming to Section XVIII, in which Chapter 90 falls, the
Explanatory Notes in HSN amongst other things indicate that
instruments and apparatus for automatically controlling the flow,
· level, pressure or other variables of liquids or gases, or for C
automatically controlling temperature fall in CTH 90.32. (See
Note 7 to Chapter 90 at pages 1766 and 1856)
Case of the Department:
24. ·Based on the technological write·ups given by the o
.importer read with the description provided in the.catalogue and
the website it was argued on behalf of the Department that a
complete system performs the work of measurement whereas
the item imported by the assessee forms a sub-function of data
acquisition and processing. According to the Department, the E
terms "control" and "control systems" generally refer to the
control of a device, process or system by monitoring one or
more of its characteristics. This is used to ensure that output,
processing, quality and/or efficiency remain within the
parameters over the duration of time. According to the
Department, in several control systems, digital data processing F
monitors a device, process or system and automatically adjusts
its operational parameters. In other contro.1 systems, such an
apparatus only monitors the device, process or system and
displays alarm leaving responsibility for adjustment to the
operator. Thus, process control is typically employed in the G
manufacturing sector for process and discrete manufactures.
According to the Department, field devices include
temperature, flow. and other sensors that measure
characteristics of the device, process or system being
H
458 SUPREME COURT REPORTS [2010] 8 S.C.R.
A controlled. On the other hand, control devices include valves,
actuators which control the devise, process or system itself.
According to the Department, controllers generate settings for
the control devices based on measurements from the field
devices. Controller operation is typically based on control
B algorithm that maintains a control system at a desired level by
minimizing differences between the values measure by the
sensors. According to the Department, controllers may be
connected to other computing apparatus that facilitates
monitoring or administration. According to the Department, the
c principal function of controllers is to execute control algorithms
for the real time monitoring and to control devices, processes
or systems. They have neither the computing power nor user
interfaces required to facilitate the design of a control algorithm.
Historically, the process control industry has used manual
D operations, such as manually reading level and pressure
gauges, turning valve wheels, etc. in order to operate the.
measurement and control field devices within a process.
However, with the emergence of the microprocessor-based
Distributed Control System ("DCS"), the distributed electronic
process control came into existence in the process control
E industry. A DCS includes an analog or a digital computer, such
as a Programmable Logic Controller ("PLC"), connected to
. numerous electronic monitoring and control devices like
electronic sensors, transmitters, transducers etc. located
throughout a process. The DCS computer stores and
· F implements a centralized and complex control scheme in order
to effect measurement and control of devices within the process
so as to control process parameters according to the overall
control scheme. According to the Department, PACs are not
meant to be used as personal computers. The purpose of
G controllers is to control industrial processes. Thus, according
to the Department, a controller by its very name performs
functions distinct from data processing. Moreover, according
' to the Department, there are differences in the structure and
·.. <-the function of a controller and the function of a PAC vis-a-vis
H the PC. According to the Department, PAC cannot be equated
COMMISSIONER OF CUSTOMS, BANAGALORE v. 459
N.I. SYSTEMS (INDIA) P. LTD. [S.H. KAPADIA, CJI.]
to a PC as is sought to be done by the Tribunal. A PAC A
combines a PLC and a PC. The Department also placed
reliance on the webcast to show that a processor is separated
from FPGA by a high-speed bus. According to the Department,
the webcast further shows that a processor is separate and
distinct from the main controller wherein th~,, hardware is B
dedicated to perform measurement and control applications.
According to the Department, the software used in order to
·programme the processor is designed using a proprietary
software known as Lab View. The catalogue is relied upon by
the Department to show that the controller, in the present case, c
has been designed and made for a specific function a11d
regulating and controlling industrial processes. According to the
Department, none of the above aspects have been d_uly
considered by the Tribunal. The entire case of the Department
before us was that the Programmable Process Controllers when D
imported were suitable for use principally with industrial process
control equipment, i.e., sensors which measure temperature,
pressure, flow etc. and therefore such programmable process
controllers were classifiable as a part of the said equipment,
instrument or apparatus. The programmable process controller, I
though separate from sensors, is necessarily an individual E
component intended to contribute to a clearly defined function.
According to the Department, the programmable process
controllers being parts and accessories of a regulating or
controlling apparatus have been classified rightly by the
adjudicating authorities under CTH 9032 89 10. According to F
the Department, PACs whether embedded or otherwise are in
essence Programmable Process Controllers. In support
thereof, the Department has placed reliance on two circulflrs
issued by Central Board dated 2.9.1996 and 9.5.1997. ·
G
25. As regards Input-Output ("1.0.") Modules and Chassis,
the.Department contended that 1.0. modules and chassis have
been rightly classified by the adjudicating authorities as parts
and accessories of regulating and controlling apparatus
classifiable under CTH 9031 90 00/9032 90 00. In this H
460 SUPREME COURT REPORTS [2010] 8 S.C.R.
A connection, the Department submitted on the basis of the
catalogue and technical write-ups that each and every imported
1.0. Modules is configured primarily to match with a sensor. In
this connection, the Department has demonstrated by way of
an illustration that one of the items imported by the assessee
B is Instrument Control Boards (Cards). Instrument Control Board
(Card) is a stand-alone instrument. It acquires data from
external sensors, but it is unable to send the data directly to a
computer. Therefore, a suitable board like instrument control
board is required to be placed inside the computer to allow the
c data to be sent directly to the computer. Similarly, another
example given by the Department is concerning Data
Acquisition Board. The purpose of a Data Acquisition Board
is to acquire data from external sensor and convert it to digital
sensors which the PC can understand. Thus 1.0. Module is
D tailored to a specific function and is therefore a part of regulating
a controlling apparatus. According to the Department, a signal
converting device or 1.0. unit has got to be properly aligned with
the measuring or checking instrument. According to the
Department, industrial process controllers and 1.0. modules are
parts of a functional unit, the function of which is to be judged
E as a whole and is therefore classifiable in Chapter 90.
According to the Department, for the abovestated reasons
Controllers imported by the assessee including embedded
controllers are not merely PCs. They have a specialized
structure. They have a specialized function to perform.
F Moreover, LO. modules and chassis, which are the subject
matter of import are also specialized to operate with specific
sensors and devices. The data available from sensors is
transmitted to the controller for the execution of control functions.
Therefore, the package as a whole - both hardware and
G software - must be· seen as one functional unit. Hence, the
imported goods, according to the Department, have been rightly
classified by the adjudicating authorities under Chapter 90.
According to the Department, 1.0. modules and chassis have
been rightly classified by the adjudicating authorities as parts
H
COMMISSIONER OF CUSTOMS, BANAGALORE v. 461
N.I. SYSTEMS (INDIA) P. LTD. [S.H. KAPADIA, CJI.]
and accessories of Automatic Regulating or Controlling A
Instruments and apparatus under CTH 9032 90 00.
Case of the Importer:
26. Briefly, the case of the importer before us was that
imported items cannot perform any specific function unless the 8
end-users have an appropriate programming software.
According to the importer, the input for the above items is
·digital signals captured by sensors. According to the importer,
just because the imported items were to be used with
measuring instruments, it cannot be said that such items are C
to be classified under Chapter 90. According to the importer,
PXI controller, 1.0. modules and signal converters are all
varieties of ADP Machines. They all run on operating systems
like linux, windows etc. According to the importer, no ADP
Machine can capture an electrical signal such as temperature, D
voltage, pressure etc. on its own as a stand-alone item.
According to the importer, an ADP Machine requires various
types of interface boards/units which are required to be installed
in it and connected to sensors so that temperature, voltage and
pressure can be received by the interface boards/units and E
converted into digital signals and then sent to ADPM
processing. Therefore, according to the importer, it is the
sensor which measures the real world phenomena as ADPM
cannot interface by itself directly with the sensors. Thus,
assessee imports a variety of such interface boards/units which F
are then installed into ADPM. According to the importer, these
boards/units meet the criteria mentioned in Chapter Note 5(8)
as well as Explanatory Notes (1)(0)(4} & (5) which inter alia state
that such boards/units when imported should be classified
under CTH 8471 as units of ADPM. According to the importer, G
an ADPM when imported has only an operating software which
cannot perform any specific function without application of
software. For example, a PXI Controller is incapable of
processing the digital data fed to its CPU unless a specific
software is written for such processing. At the time of import
H
462 SUPREME COURT REPORTS [2010] 8 S.C.R.
A :io software is written or provided. It is the end-user who uses
a programming language or an appropriate tool such as Lab
View software to write a specific software for its own stand-
alone instrument or application like thermostat, spectrum
analyzer, oscilloscopes etc .. According to the importer, at the
B time of import, the assessee is not aware of what application
the end-user may put the PXI controller to use. Moreover, a PXI
controller is not dedicated to a single type. of machine or
operator. It is capable of being connected to multiple
apparatuses simultaneously which apparatuses can be
c changed continuously. As such, the PXI controller is freely
programmable as per the requirements of the user. This end-
user developed software or programme is stored in the memory
and is executed by PXI controller. It is according to the software
and the data fed to the CPU that the PXI controller processes
D the data and provides the required processed output.
According to the importer, as the PXI co.ntroller satisfies the
requirement of free programmability, storing and processing of
programmes, performance and arithmetical computation and
execution of programmes, the PXI controller qualifies as ADP
E Machine in terms of Chapter Note 5(A} to Chapter 84 of
Customs Tariff.
27. According to the importer, the above position has not
been disputed by the Department. That, the Department has
not disputed that the Controllers imported by the assessee
F satisfy all the requirements of Chapter Note 5(A}. According to
the importer, the only reason why the Department was to
classify the imported items under Chapter 90 is because
according to the Department, in addition to Chapter Note 5(A},
Chapter Note 5(E} also applies. The same test is applied by
G the Department to 1.0. Modules. According to the importer, even
the Department accepts that these modules satisfy the definition
of ADP given in Chapter Note 5(8). However, the Department
has classified the said modules under Chapter 9031 by virtue
of Chapter Note 5(E). The same test is also applied by the
H Department in the context of signal convertors. According to the:
. . .
COMMISSIONER· OF CUSTOMS, BANAGALORE v, 463
N.I. SYSTEMS (INDIA) P. LTD. [S.H, KAPADIA, CJI.]
importer, ever.i the signal convertors satisfy the definition of units A
of ADP as provided in en.apter Note 5(8). However, the
Department has classified .the said items under Chapter 9031
only by virtue of Chapter Note 5(E) of Chapter 84. In short, the
Departm~nt ha$ cfassified the Controllers under heading 9031
o~ 9032 as .measuring, checking or controlling instruments. They B
have i;l~ssified ~igrial converter units and 1.0. modules under
heading 9031 :as parts of measuring and checking Instruments
which is objected to by the. importer. The basis for the
Department case has always been that the imported goods,
though ADPM, are meant for use with checking or controlling c
instruments are.therefore classifiable under heading 9031 and
9032.
Findings:
28. For the reasons given hereinafter, we hold on the basis D
of technical material (including the importer's own catalogue
and webcast) that Controllers (including embedded controllers)
are not merely PCs/ADPMs, but have a specialized structure
and specific functions to perform and are therefore classifiable
under Chapter 90. E
29. Similarly, 1.0. Modules and Chassis, which are the
subject matter of import in this civil appeal are meant to operate
as parts of Industrial Process Control equipments like sensors.
These 1.0. Modules come with software tailored to their specific
pre-defined functions. Therefore, one has to see the package
F
in the holistic manner. The package as a whole - both hardware
and software - constitutes one single functional unit.
Accordingly, we hold that 1.0. Modules and Chassis are
classifiable as parts and accessories of Automatic Regulating
or Controlling Instruments/Apparatus under CTH 9032.90.00. G
Reasons:
(A) Based on Technical Material:
30. Whether a PXI Controller = PC Controller =ADPM? H
464 SUPREME COURT REPORTS [2010] 8 S.C.R.
A This is the basic issue which we need to answer in this civil
appeal.
31. On examination of the technical write-up, before going
into the analysis of the classification principles, we are of the
view that the purpose of Controllers whether embedded or not,
9
is to control industrial processes. Programmable Automation
Controller is the combination of PLC and PC technology and
this means the ruggedness of PLCs, software stability of a PC
and the independence to incorporate modular and diverse 1/0.
C PAC is an improvement over PLC. PAC is capable of being
controlled by a PC/Laptop but it is not a PC/Laptop. The
principal function of Controllers is executing Control Algorithms
for the Real-time monitoring and control of devices, processes
or systems whereas the principal function of a PC by itself is
acquisition, analysis and display of data. A controller performs
D functions in addition to data processing. The webcast
presentation also shows the difference in the structure and
functions of a Controller vis-a-vis a PC (simpliciter). The
hardware in the Controller is dedicated to perform
Measurement and Control Applications. Basically, PACs are
E Programmable Process Controllers which are suitable for use
principally in conjunction with Industrial Process Control
equipment like sensors which measures temperature, pressure
etc. The programmable process controller, though distinct from
sensors, is an individual component intended to perform a
F specific function. The programmable process controller is a part
and accessory of a controlling apparatus.
32. A word about PXI, PAC, Sensor and FPGA.
(I) PXI: PXI is designed for measurement and automation
G applications which require high performance and a rugged
industrial form. In the Chassis of PXI, there are about 8 slots.
PXI is a system. It consists of three components, namely,
chassis, system controller and peripheral modules. One can
select the modules to be installed in the PXI System. PXI uses
H PCl-based technology. There are PXI Modules, including those
. .
COMMISSIONER OF CUSTOMS, BANAGALORE v. 465
N.I. SYSTEMS (INDIA) P. LTD. [S.H. KAPADIA, CJI.]
which are imported herein, available for almost every A
conceivable measurement and automation application.
(ii) PAC: PAC stands for Programmable Automation Controller.
PAC is a Controller. PAC is an improvement on PLC. Various
characteristics of PAC includes multi-domain functionality - 8
ability of handling logic, motion and process control - all on a
single control platform. Every computational algorithm cannot
be solved with a PC. PAC is meant for a wide variety of
applications. PAC incorporates multiple disciplines such as
logic control, process control and motion control all on a single C
open platform with a single data base.
A classic example of the uses of a PAC would be in a
large bakery with multiple ovens. The ovens must stay within a
specific temperature range in order to properly bake the
products; this can be accomplished by someone physically D
inspecting thermometers on each oven, then manually adjusting
the burners on each as needed. A PAC could automate these
tasks by monitoring temperature remotely, then sending
instructions to the burners to either increase or decrease the
heat until the temperature returns to the acceptable range. A E
person in an office overlooking the ovens can view all of the
temperature data in real-time from their Personal Computer,
which can be connected to the PAC's by serial cable, Ethernet
· or a wireless modem.
· (iii) Sensor: In the field of measurement and instrumentation, If
the parameter to be measured (motion, pressure, temperature,
etc.) is first detected with the help of a sensor. The sensor
converts the detected information into a suitable form
(measurable currents and voltages) for acceptance in the later
stages for decision-making. There are many types of sensors. G
Example: Photo electric sensor, motion detector, pressure
sensors etc ..
(iv) FPGA: FPGA stands for a Field-programmable Gate
Array. FPGAs are integrated circuits which are used in H
466 SUPREME COURT REPORTS [2010] 8 S.C.R.
A electronic equipments. It is a special kind of chip on which there
is embedded software. FPGA receives signals (information)
from devices like sensors or any other input device. Such
information is processed by FPGA. After processing, the
processed data/command is sent to the required destination
B like a computer, actuator, thermostat, motor etc. to perform a
specific function like Controlling. For example, on receiving the
command the motor can start or stop. Similarly, on receipt of
the command the thermostat can regulate the temperature.
33. At this stage, it is required to examine each of the
C imported items, including 1.0. Modules, to see whether the
hardware coupled with pre-installed software gives a definite
identity and function. For example, the purpose of Data
Acquisition Boards ("DAQ") is to acquire data from external
sensors, usually in the form of Analog Voltage of +/- 10 volts,
D which is then converted into digital signals, which the personal
computer can understand. Similarly, Analog Output Boards are
meant for converting signals from external units such as PXI
controller. Similarly, Network Interface Module ("NIM") is used
to connect measuring instruments to a PC by sending and
E receiving messages, two ways. The Chassis of PXI provides
connectivity and housing for embedded controllers and data
acquisition modules, allowing them to communicate with each
other. To sum up, the 1.0. Module is tailored to a specific
function. Each of the abovementioned Boards (cards) is
F inserted into the slots of PXI. Each of the 1.0. Modules is tailored
to a specific function and is, therefore, a part of a regulating
and controlling apparatus like a sensor, thermostat etc.
Therefore, one has to look at the machine (PXI Machine)
holistically.
G
(B)Application of above technical material to the relevant
Tariff Entries:
34. At the outset, it needs to be stated that PACs, whether
embedded or otherwise, are in essence Programmable
H Process Controllers.
COMMISSIONER OF CUSTOMS, BANAGALORE v. 467
N.I. SYSTEMS (INDIA) P. LTD. [S.H. KAPADIA, CJI.]
35. In the matter of classification, we need to discuss A
"PACs" and "lnpuUOutput (1.0.) Modules and Chassis" in two
separate parts.
36. Chapter 84 is located in Section XVI. Note 1(m) shows
that if an article falls in Chapter 90, regardless of whether or 8
not it may otherwise fall within Chapter 84, that Chapter (No.
84) stands excluded. There are eight Chapter Notes to Chapter
84. The key Chapter Notes for deciding the present Civil
Appeal are Notes 5(E), and 7, which are quoted hereinabove.
Chapter Note 5(E) inter alia refers to machines performing C
specific functions other than data processing and incorporating
in it a data processing machine or it may be working in
conjunction with ADPM in which event the said machines
performing specific functions are to be classified in the heading
appropriate to their respective functions. Under Note 7, a·
machine which is used for more than one purpose is, for the D
purpose of classification, to be treated as if its principal
purpose is its sole purpose. -
37_ Chapter 90 includes measuring and checking
instruments and apparatus; parts and accessories thereof, In E
view of Section Note 1(m) of Chapter 84, quoted above, it is
first to be seen whether or not PACs fall within Chapter 90.
Keeping in mind the scheme of Chapter 84 and Chapter 90,
we are of the view that, in the present case, the correct
approach would be to examine the scope of Chapter 90 first F
and foremost and only then we need to examine the scope of
Chapter 84. At this stage, we need to state that Chapter Note
1(h) of Chapter 90 does not exclude CTH 84 71 _ Hence, even
if an item falls under CTH 8471, it could still come under
Chapter 90, however, in view of Section Note 1(m) Chapter 84 G
would stand excluded. This is because the application of
Chapter 84 is subject to the applicability of Chapter 90.
38. At this stage, we may refer to Chapter Note 2 to
Chapter 90 which is in two parts_ Note 2(a) inter alia states that
H
468 SUPREME COURT REPORTS [2010) 8 S.C.R.
A what is otherwise parts or accessories, but is classifiable as
goods under Chapter 84, shall be classified in their respective
headings. The effect of Note 2(a) is that if it can be shown that
Programmable Process Controllers/PACs are classifiable as
"goods" under Chapter 84 then such a classification would
B include the same for being considered as parts or accessories
of goods under Chapter 90. However, in this case, Note 2(a)
is not attracted as PACs are not classifiable as "goods" under
Chapter 84. It has been argued on behalf of the importer itself
that PACs/Programmable Process Controllers by themselves
c are not measuring, regulating or control instruments and hence
CTH 9032 classification relied upon by the Department was
unsustainable. It was further argued on behalf of the importer
that physical variables such as temperature and voltage are
measured by sensors which could be classified under Chapter
90, but this does not extend to PACs/Programmable Process
0
Controllers. It had been further argued on behalf of the importer
that automatic control apparatus referred to in Chapter 90 must
consist of a device for measuring a control device and a
starting-stopping/operating device, all of which should f0,rm a
E "single entity" and since a PAC does not fulfil the said test, CTH
9032 is not attracted in the case of PAC/Programmable
Process Controllers.
39. In our view, the above argument of the importer is
unsustainable for the following reasons. Firstly, it is nobody's
F case that a PAC/Programmable Process Controller by itself is
an automatic regulating, controlling instrument or apparatus in
terms of Chapter 90. On the contrary, in view of Chapter Note
2(b) to Chapter 90 read with Note 3 of the same Chapter,
PACs/Programmable Process Controllers are parts and
G accessories of a system/instrument which are suitable for use
solely or mainly with a number of machines, instruments,
apparatus of the same Heading, i.e., 9032 like sensors,
thermostats etc. In our view, PACs/Programmable Process
Controllers imported by the assessee herein are suitable for
H use principally with Industrial Process Control Equipment like
COMMISSIONER OF CUSTOMS, BANAGALORE v. 469
N.I. SYSTEMS (INDIA) P. LTD. [S.H. KAPADIA, CJI.]
sensors, thermostats etc. which measures temperature, A
process etc. Therefore, they are correctly classifiable as a part
of the said machine, instrument or apparatus. Secondly, a
"control system" generally refers to the control of a device,
process or system by monitoring one or more of its
characteristics. It ensures that output processing remains within B
the desired parameters over a period of time. Controllers are
generally connected to other computing apparatus. The principle
function of controllers is to execute control algorithm for real time
monitoring and for controlling devices, processes or systems.
In this connection, it may be noted that, a PAC/Programmable c.
Process Controller ("PPC") is not by itself an automatic
regulating, controlling instrument or apparatus. A PAC/PPC
when imported is suitable for use mainly with an industrial
process control equipment like sensors, which measures
temperature, pressure etc. As such, a PAC/PPC is a part of 0
an industrial process control equipment/system and accordingly
such controllers are classifiable as a part of instrument or
apparatus (see Chapter Note 2(b) read with Note 3 of Chapter
90). Thirdly, in this case, we are concerned with not only
classification of PXI Controller and other controllers, we are
also concerned with classification of Input-Output Modules and
E
Chassis. The key aspect, therefore, concerns the nature and
function of 1.0. Modules and Chassis along with controllers. One
has therefore to take into account all the imported items as
constituting a complete System which performs the work of
measurement. PXI is a system. It is composed of three basic F
components - chassis, system controller and peripheral
modules. These modules are also imported by the importer in
this case. One such module is Network Interface Module. This
module is used to connect to a network for distributed control
applications. It interconnects a PC to a measuring instrument G
by sending and receiving messages from the two units .. It is
important to note that in the chassis of the PXI there are slots
in which Analog Output Boards (Cards); Digital Input-Output
Boards, Image Acquisition Boards, Distributed Input-Output
Boards, NIM etc. are inserted. Each 1.0. Module imported by H
410 SUPREME COURT REPORTS [2010] 8 S.C.R.
A the assessee is tailored to a specific function and therefore
such 1.0. Module is a part of a regulating or controlling
apparatus. Take the case of NIM. It is a hardware device. It may
be in the form of a network interface card or a network adapter
or in the form of Network Interface Controller ("NIC"). NIM is a
B computer hardware component designed to allow computers
to communicate over a computer network. It provides
connectivity between the industrial network and the 1.0. Module.
A network interface module works as a connector and adapter
unit in order to provide a two way interconnection between
c external sensor unit and the ADP. Thus, 1.0. Module is a
hardware. It is also known as 1.0. device or 1.0. Point. It may
be in the form of 1.0. Cards or 1.0. Boards. When 1.0. Module
is used to accept data (input) from sensors, transducers,
Programmable Logic Controllers ("PLC"), computers etc. and.
D then distributes the data (output) to other devices in the system,
then 1.0. Module is called as Distributed 1.0. Module. Such
system is also called as Distributed Control System ("DCS"),
which is a control system used normally in a manufacturing plant
or in any other kind of dynamic system. DCS, therefore, is used
E in a variety of industries to monitor and control distributed
equipments. An /. 0. Module is important from another angle
also. It converts readings from sensors and provides output
signals which are used for operating actuators (which make
a device move or start working) via Network Interface Module.
A Modular Distributed 1.0. System which is also known as a
F Field Point provides for industrial monitoring and control
applications. Thus, the Field Point System includes Analog and
Digital 1.0. Modules, terminal bases and network modules
which connect 1.0. Modules to industrial networks and software
tools. Field Point Systems are ideal for use in industrial
G environment. Fourthly, Programmable Logic Controller ("PLC")
is a control device. It is normally used in industrial control
applications. It is a Programmable Microprocessor based
device which is used to control assembly lines and machinery
on the shop floor as well as to control many other types of
H
COMMISSIONER OF CUSTOMS, BANAGALORE v. 471
N.I. SYSTEMS (INDIA) P. LTD. [S.H. KAPADIA, CJI.]
mechanical, electrical and electronic equipment in a plant. A A
PLC is designed for real-time use in rugged industrial
environments, connected to sensors and actuators. PLCs are
characterized by the number of 1.0. Ports which they provide.
PLCs are also categorized by their 1.0. scan rates. As stated,
PACs, which expands the role of PLCs and, at the same time, B
combines the capabilities of several traditional controls and
monitoring systems, offers several benefits in the form of
enhanced functionalities. Thus, a PAC does not replace the
traditional PLCs but it expands the role of a PLC. A PAC has
features found in Programmable Logic "Controllers, Distributed c
Control Systems, Remote Terminal Units and PCs.
40. The summary of what we have stated above is that
PACs/Programmable Process Controllers and 1.0. Modules by _
themselves are not measuring, regulating or controlling
instrument (system). Physical variables such as temperature D
and voltage are measured by device, like sensors which
constitute measuring and control systems. In other words,
controllers and 1.0. Modules each have a specific function to
perform being parts of a measur-ir1g_aoc:l ~ontrol system i.e.
sensors. E
, 41. We also do not find any merit in the submission of the .
importer that in view of the Explanatory Notes, the Measuring
Device, the Control Device and the Operating Device has to
form a "single entity". There is no dispute that if all the above F
three devices are found in one "single entity" then classification
will fall under Chapter 90. However, the test of "single entity"
containing three devices is not a pre-condition for classification
under CTH 9032. On the contrary, the test is not that of single
entity, but of the device being capable of working as a functional G
unit. In this connection, Note 3 of Chapter 90 is to be read. Note
3 incorporates Note 4 to Section XVI. Note 4 inter alia provides
for a machine consisting of individual components which may
be separate as long as they are intended to contribute to a
clear defined function. The PACs/Programmable Process H
472 SUPREME COURT REPORTS [20101 a s.c.R:
A Controller, though separate from sensors, is an individual
component intended to contribute to a clearly defined function.
Note 3 of Chapter 90 has to be read with Note 2(b) of Chapter
90 and if so read then it becomes clear that PAC/
Programmable Process Controllers, being parts and
B accessories and a regulating or controlling apparatus like
sensors have got to be classified under CTH 9032.89.10.
42. For the above reasons, we hold that PACs (including
embedded Controllers/Programmable Process Controllers)
C have been rightly classified by the Department under CTH
9032.
43. On the question of Input-Output (1.0.) Modules and
Chassis, the Tribunal has not given any finding whatsoever
thereoh. However, on going through the technical material and
D the demonstration given to us in Court, we are of the view that
1.0. Modules and Chassis have also been rightly classified by
the Department as. parts and accessories of regulating and
controlling apparatus classifiable under Chapter 90. In this
connection, one needs to examine the nature and function of
E 1.0. Modules and Chassis which we have already discussed
hereinabove. To put it briefly, at the cost of repetition we may
say that the primary function of 1.0. Modules (Boards) is to
function as a part of measuring and control System. It is for this
reason that such Modules are required to be classified as parts
F and accessories of regulating and measuring System. For this
purpose, it is necessary to examine each of the imported items
apart from Controllers in order to see whether the hardware
coupled with the pre-installed software gives it a definite identity
and function. From the catalogue and technological write-ups
we find that each and every 1.0. Module imported by the
G assessee is configured with a sensor at one end. This aspect
is very important. Take the example of Data Acquisition Boards
(DAO). The purpose of DAO Boards is to acquire data from
external sensor, usually in the form of analog voltage of+/- 10
volts. This data is converted by DAO Boards into digital signals
H
COMMISSIONER OF CUSTOMS, BANAGALORE v. 473
N.I. SYSTEMS (INDIA) P. LTD. [S.H. KAPADIA, CJI.]
which the personal computer can understand. On the other A
hand, Instrument Control Boards which are placed inside the
computer allow data required from external sensors to be
communicated directly to the computer. This is called as
handling of information (see Explanatory Notes of HSN at page
1575) which is different from controlling temperature, pressure B
etc. (see Explanatory Notes of HSN at page 1856). On the
other hand, we have what is called as Analog Output Boards
which are meant for converting signals from external units such
as PXI. Similarly, the Chassis provides connectivity and
housing for embedded controller and the data acquisition c
modules, allowing them to communicate with each other. A
network interface module is used to connect to a ne~ork for
distributed control applications. It interconnects measuring
instruments to a PC by sending and receiving messages from
the two units. Thus, each 1.0. Module is tailored to a specific D
function and is therefore a part of regulating and controlling
apparatus. Handling of information under the HSN Notes is
separate and distinct from regulating and measuring
temperature, pressure etc.
44. Lastly, we need to analyse Chapter Note 5(E) to E
Chapter 84. In our view, once a machine incorporating an
ADPM performs a specific function other than data processing
then that machine is classifiable in the heading corresponding
to the function of that machine (see Note A of Section XVI and
Note 3 to Chapter 90, the scope wnereof has already been F
explained hereinabove). Further, HSN clearly indicates that
, Heading 8478 is excluded where the case is of a clearly
defined function to which separate components contribute.
45. In our view, in order to attract Note 5(E) the real test is G
whether or not the machine imported is performing a specific
function relatable to the functional unit as a whole. The said
machine should be seen as a System. As a functional unit, the
imported machine should perform a function other than data
processing or it should perform a function in addition to data
H
474 SUPREME COURT REPORTS [2010] 8 S.C.R.
A processing. In our view, Industrial Process Controllers and 1.0.
Modules, which are part of a functional unit, the function of which
· is to be judged as a whole are therefore classifiable in Chapter
90. The sentence in Chapter Note 5(E) "incorporating or
working in conjunction with an ADPM" merely indicates that the
B overall package, which is presented before the Department,
had an ADP Machine in it. In other words, what is imported is
a System containing an ADPM. Our above interpretation stands
to reason because if the contention of the importer herein is
accepted, it would mean 'that every machine that contains an
c element of ADP would be classifiable as an ADP Machine
under Chapter 84. This would completely obliterate the specific
function test and the concept of functional unit.
46. For the aforestated reasons, we are of the view that
the imported goods were rightly classified by the Department
D under Chapter 90. We are also of the view that the Department
was right in classifying the 1.0. Modules and Chassis as parts
and accessories of Automatic Regulating or Controlling
Instruments and Apparatus in terms of CTH 9032.90.00.
E 47. For the aforestated reasons, the impugned order of
CESTAT is hereby set aside and the Civil Appeal filed by the
Department stands allowed with no order as to costs.
N.J. Appeal allowed.
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "customs classification"Sign in to search