Hewlett Packard India Sales Pvt. Ltd. (Now HP India Sales Pvt. Ltd.) vs Commissioner of Customs (I) Nhava Sheva

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO 5373 OF 2019

Hewlett Packard India Sales Pvt. Ltd. … Appellant

(Now HP India Sales Pvt. Ltd.)

VERSUS … Respondent Commissioner of Customs (Import), Nhava Sheva

WITH CIVIL APPEAL NO 6715 OF 2019

Lenevo (India) Pvt. Ltd. … Appellant

VERSUS Commissioner of Customs (Import), Nhava Sheva … Respondent

JUDGMENT

Surya Kant, J.

Signature Not Verified

1. The question that arises for our consideration pertains to correct Digitally signed by VISHAL ANAND Date: 2023.01.17 17:20:27 IST Reason:

classification of Automatic Data Processing Machines (hereinafter,

Page | 1 ‘ADP’) which are popularly known as ‘All­in­One Integrated Desktop

Computer’ (hereinafter, ‘Concerned Goods’) under the First Schedule

to the Central Excise Tariff Act, 1985 (hereinafter, ‘First Schedule’). FACTS

2. The Appellants imported certain units of the Concerned Goods

and classified them under ‘Tariff Item 8471 50 00’ as per the prevalent

self­assessment procedure. During subsequent examination by the

Custom Authorities, the Concerned Goods were classified under ‘Tariff

Item 8471 30 10’, which was later confirmed by the Assistant

Commissioner of Customs and Commissioner of Customs (Appeal).

These findings were further affirmed by the Customs, Excise and

Service Tax Appellate Tribunal (hereinafter, ‘CESTAT’), West Zonal

Bench, Mumbai vide the impugned judgments dated 19.12.2018 and

24.06.2019.

3. While the rate of duty is same under both the Tariff Items, the

method of computing them is different. Goods under ‘Tariff Item 8471

30 10’ attract the application of Section 4A of Central Excise Act,

1944, which valued the excisable goods on the basis of percentage of

retail sale price. In contrast, a classification under ‘Tariff Item 8471 50

00’ invites valuation based on price mechanism under Section 4 of

Central Excise Act, 1944 which would have effectively reduced the

overall liability to pay the requisite duty. This difference in liability is

Page | 2 the precise reason behind the present dispute regarding classification

under the correct Tariff Item which calls for adjudication.

4. Before delving into the reasoning of the revenue authorities and

CESTAT, which is more or less identical, it would be appropriate to

reproduce the following relevant parts of the First Schedule :­

Heading/Sub­ Description of goods2 Heading/Tariff Item1 (2) (1) 8471 Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data on to data media in coded form and machines for processing such data, not elsewhere specified or included 8471 30 ­ Portable digital automatic data processing machines, weighing not more than 10 kg, consisting of at least a central processing unit, a

1 Additional Notes to The Customs Tariff Act 1975, sch 1 states that ­ 1(a) “Heading”, in respect of goods, means a description in list of tariff provisions accompanied by a four­digit number and includes all sub­headings of tariff items the first four­digits of which correspond to that number.

(b)“Sub­heading” ”, in respect of goods, means a description in list of tariff provisions accompanied by a six­digit number and includes all tariff items the first six­digits of which correspond to that number.

(c)“Tariff Item” means a description in list of tariff provisions accompanied by a six­ digit number means a description of goods in the list of tariff provisions accompanying either eight­digit number and the rate of the duty of excise or eight­ digit number with blank in the column of the rate of duty. 2 General Explanatory Notes to The Customs Tariff Act 1975, sch 1 states that ­

1. Where in column (2) of this Schedule, the description of an article or group of articles under a heading is preceded by “­”, the said article or group of articles shall be taken to be a sub classification of the article or group of articles covered by the said heading. Where, however, the description of an article or group of articles is preceded by “­­”, the said article or group of articles shall be taken to be a sub­ classification of the immediately preceding description of the article or group of articles which has “­”. Where the description of an article or group of articles is preceded by “­­­” or “­­­­”, the said article or group of articles shall be taken to be a sub­classification of the immediately preceding description of the article or group of articles which has “­” or “­­”.

Page | 3 keyboard and a display 8471 30 10 ­­­ Personal computer 8471 30 90 ­­­ Other ­ Other automatic data processing machines 8471 41 ­­ Comprising in the same housing at least a central processing unit and an input and output unit whether or not combined 8471 41 10 ­­­ Micro computer 8471 41 20 ­­­ Large or main frame computer 8471 41 90 ­­­ Other 8471 49 00 ­­ Other, presented in the form of systems 8471 50 00 ­ Processing units other than those of subheading 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 (Emphasis Applied)

5. Since, the reasoning confirming the classification under ‘Tariff

Item 8471 30 10’ by the adjudicating authorities including CESTAT is

identical, hence, it would be sufficient to discuss the key findings of

the impugned decisions in brevity. These observations are :­

a) The Concerned Goods weighed less than 10 kilogram and were

easily carried from one place to another. In this respect the CESTAT

relied on dictionary meaning of the word ‘portable’ to hold that the

goods were rightly classified under ‘Tariff Item 8471 30 10”;

b) The absence of in­built power source does not render the

Concerned Goods as non­portable;

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c) The dimensions of the Concerned Goods as well as the fact that

it was not foldable did not impact the element of portability;

d) The Concerned goods had a display unit, a touch screen which

could function as a keyboard and thus it fulfilled the description

mentioned under ‘Tariff Item 8471 30 10’.

B. CONTENTIONS

6. We have heard learned counsel for the parties and perused the

documents produced on record. It must be noted that both sides have

not disputed the findings of the adjudicating authorities except in

respect of the aspect of portability of Concerned Goods. Hence, the

only limited question that falls for consideration before us in these

proceedings is whether the Concerned Goods are ‘portable’ or not

under ‘Tariff Item 8471 30 10’.

7. Mr. V Lakshmikumaran, learned counsel for the Appellants, has

made four key contentions. Firstly, that ‘Tariff Item 8471 30 10’

pertains to class of ADPs which are popularly known as laptops or

notebooks. He has highlighted that the classification under ‘Tariff Item

8471 30 10’ involves an element of ‘functionality’ which is not

applicable in the present case as Concerned Goods are not capable of

functioning without an external source of power. Secondly, he

contended that Concerned Goods have been wrongly held to be

‘portable’ by the CESTAT on the sole aspect that their weight was less

than 10 kilograms. He argued that mere weight cannot be the sole

Page | 5 consideration for deciding whether any good is ‘portable’ or not, and it

is necessary to consider additional aspects such as functionality and

ease of transportability which is suitable for a mobile lifestyle of the

user. Thirdly, he urged that the CESTAT erroneously relied on the

general definition of ‘portable’ given in dictionaries and instead the

same should have been defined in relation to the class of goods, i.e.

ADPs. In this respect, he pointed out that the relevant ‘Sub­Heading

8471 30’ which entails the condition of being ‘portable’ in the

description of goods was preceded by a single ‘­’ and consequently all

the goods under the said sub­heading should be taken as a sub

classification of the goods covered by the ‘Heading 8471’. Finally, to

buttress the aforementioned arguments, he highlighted that the

Concerned Goods are not considered as ‘portable’ by the European

Commission’s classification and are also not covered by the ‘Tariff Item

8471 30 10’ as per the World Customs Organization’s Harmonized

System Explanatory Notes (hereinafter, ‘HSN’). We must also bring to

the fore and appreciate the efforts of learned counsel for the

Appellants who physically demonstrated by setting up one of the

sample units of the Concerned Goods to showcase the aspects of

portability involved in present matter.

8. On the contrary, Mr. Arjit Prasad, learned senior counsel for the

Respondent while supporting the observations in the impugned

decisions, put forth two counter arguments. Firstly, that since the

Page | 6 word ‘portable’ is nowhere defined in the statute, it should be

interpreted on the principle of general parlance. In other words, he

submitted that the dictionary meaning of the word ‘portable’ is

sufficient to resolve the dispute regarding its interpretation. Secondly,

he maintained that the legislature’s intention was crystal clear in

qualifying the term ‘portable’ by providing the condition in the

description that any ADP less than 10Kgs would automatically become

portable. In furtherance of this argument, he relied on the

Constitution Bench decision of this Court in Mathuram Agrawal v

State of MP3 to urge that the intention of the legislature has to be

discerned from the plain and unambiguous meaning of the language

used in a taxation statute and any other interpretation is

impermissible.

9. We now examine these contentions of both parties.

ANALYSIS

10. Before we ponder over the question whether the Concerned

Goods are ‘portable’ or not, it would be appropriate to highlight their

key characteristics which are as follows :­

a) The central processing unit is embedded within the display unit;

b) The display unit is generally a touch screen which can be used

as an input unit also, such as in the capacity of a keyboard or a

mouse;

3 Mathuram Agrawal v State of MP (1999) 8 SCC 667, para 12.

Page | 7

c) The units generally come along with in­built speakers as well as

ports for further connectivity including a port for establishing links

with internet network;

d) The diagonal length of the display is at the minimum of 18.5

inches. It may be clarified that presently certain models of the

Concerned Goods even exceed this aspect by having the display’s

diagonal length as wide as 25 inches while still being weighed under

10 kilograms;4

e) It needs a constant source of external power source to function;

f) It is non­foldable and cannot be carried around in the usual

laptop bags because of its dimensions;

g) The Concerned Goods for efficient functioning need to remain in

a vertical state and to be tethered to a stand which is provided along

with it or requires support of something else such as a wall. It must be

noted that the user guides brought on record in respect of one of the

models of the Concerned Goods indicate that any other method of

usage including horizontal use was harmful and could cause damage

to the Concerned Goods.

11. The first aspect which we will address is with respect to the

issue of constant source of power and whether the same is a

necessary characteristic to treat goods as ‘portable’. In this respect,

the Appellants argued that ‘Tariff Item 8471 30 10’ is only applicable

4 It must be noted that in respect of current market trends, generally the largest display for laptops/notebooks is around 17 inches.

Page | 8 to laptops/notebooks and that the applicable sub­heading HSN

indicated this. The relevant part of the same reads as follows –

“Subheading 8471.30 This subheading covers portable automatic data processing machines weighing not more than 10 kg. These machines, which are equipped with a flat screen, may be capable of operating without an external source of electric power and often have a modem or other means for establishing a link with a network.” (Emphasis Applied)

12. While it appears well settled that the HSN is to be normally

taken as a safe guide for classifying goods under the First Schedule

because it is based on an internationally recognized ‘harmonized

nomenclature’5, a bare reading of the explanatory note applicable to

the sub­heading clearly lays out the fact that there is no mandatory

condition for being operable without any external source of power. We

are thus unable to agree with the Appellants that only ADPs with a

built­in power source is necessarily required to be classified under

‘Tariff Item 8471 30 10’. In other words, no element of ‘functionality’ is

contemplated for the purpose of classifying the Concerned Goods as

‘portable’.

13. The second aspect deals with the question as to whether mere

factum of weighing less than 10 kilograms would be sufficient to

classify the Concerned Goods as ‘portable’ or not. In this respect, it

may be seen that the CESTAT vide its impugned order(s) has relied on

5 Collector of Central Excise, Shillong v Wood Craft Products Limited (1995) 3 SCC 454.

Page | 9 the dictionary meaning which defined ‘portable’ as ­ “that can be easily

carried and not permanently fixed in a place”. It then went on to

conclude that the dimensions of the Concerned Goods were not a

concern as long as it could be easily lifted and moved. As noted above,

a similar argument has been raised by learned senior counsel for the

Respondent before us also.

14. At the outset, we must note that the adjudicating authorities

while coming to their respective conclusions, especially the

Commissioner of Customs (Appeal) have extensively referred to online

sources such as Wikipedia to support their conclusion. While we

expressly acknowledge the utility of these platforms which provide free

access to knowledge across the globe, but we must also sound a note

of caution against using such sources for legal dispute resolution. We

say so for the reason that these sources, despite being a treasure trove

of knowledge, are based on a crowd­sourced and user­generated

editing model that is not completely dependable in terms of academic

veracity and can promote misleading information as has been noted by

this court on previous occasions also.6 The courts and adjudicating

authorities should rather make an endeavor to persuade the counsels

to place reliance on more reliable and authentic sources.

15. Moving forward, we must now address the issue at hand,

namely, the interpretation of the word ‘portable’ and more so when the

6 Commissioner of Customs, Bangalore v Acer India (P) Ltd. (2008) 1 SCC 382, para 17.

Page | 10 reasoning of the CESTAT solely hinges on the aspect of weight. Such

an approach is apparently erroneous because despite the fact that the

‘portable’ was not defined under the statute, it was incorporated in

‘Sub­Heading 8471 30’ and was preceded by a single ‘­’, which meant

that classification of goods under the same would be taken as a sub­

classification of the ‘Heading 8471’.

16. In other words, ‘portable’ should have been defined in reference

to the ADPs instead of relying on dictionary meaning which contains

all kinds of hues of associated meanings as held by this Court in CCE

v Krishna Carbon Paper Co.7. The cited decision also explains the

correct approach to be taken in case when a word is to be defined in

context of any entry under the First Schedule. It thus holds that :–

“10. The trade meaning is one which is prevalent in that particular trade where the goods is known or traded. If special type of goods is subject­matter of a fiscal entry then that entry must be understood in the context of that particular trade, bearing in mind that particular word. Where, however, there is no evidence either way then the definition given and the meaning following (sic flowing) from particular statute at particular time would be the decisive test.”8 (Emphasis Applied)

17. In our considered opinion, the word ‘portable’ should have been

interpreted in the context of ADPs. In this regard, relevant technical

and commercial literature has been perused by us. On a minute

7 CCE v Krishna Carbon Paper Co. (1989) 1 SCC 150, para 6. 8 ibid, para 10.

Page | 11 analysis thereof, we deem it appropriate to extract the following

relevant material:­ The Institute of Electrical and Electronics Engineers defines ‘portable

computer’ as ­ “A personal computer that is designed and configured to permit transportation as a piece of handheld luggage”9

The Dictionary of Computer and Internet Terms defines it as ­ “able to be carried around. A portable computer is larger than a laptop computer, but is still easily movable”10

The Oxford Dictionary of Computer Science defines ‘portable’ in

respect of computers as ­ “A computer that can be simply carried from one place to another by one person. They cannot necessarily be used in transit. Examples include laptop computers.”11

The Microsoft Computer Dictionary also provides a definition along with an illustrative chart depicting various types of ‘portable computers’ –

“Any computer designed to be moved easily. Portable computers can be characterized by size and weight.”12

Type Approximate Power Comments weight source

9 The Institute of Electrical and Electronics Engineers, IEEE Standard Computer Dictionary (1990) 155.

10 Douglas A. Downing and others, Dictionary of Computer and Internet Terms (10th edn, Barron’s Educational Series 2009) 374.

11 Andrew Butterfield and Gerard Ekembe Ngondi (eds), Oxford Dictionary of Computer Science (7th edn, OUP 2016).

12 Alex Blanton (ed), Microsoft Computer Dictionary (5th edn, 2002) 412­413.

Page | 12 Transportable 15–30 lb. House Sometimes called current luggable; usually has floppy and hard drives; standard CRT screen. Laptop 8–15 lb. House Can be held on current or the lap; usually batteries has a floppy drive; uses flat LCD or plasma screen. Ultralight 2–8 lb. Batteries or Easy to carry in a transformer briefcase; pack sometimes uses RAM drive or EPROM instead of floppy or hard drive; thinner models are known as notebook computers. Handheld Less than 2 Batteries or Also called lb. transformer palmtop or palm­ pack sized; can be held in one hand.

18. On a conjoint reading of the relevant material and inputs, it is

explicitly clear that weight cannot be the sole factor to determine the

factum of portability. Instead, the essential ingredients to logically

establish whether an ADP is ‘portable’ are twofold. The first ingredient

is their ability to be carried around easily which includes all aspects

Page | 13 such as weight and their dimensions. We must hasten to add that in

appropriate cases, this assessment would also take into consideration

the necessary accessories which are required for safe and efficient

usage such as mounted stands or any power adapters. The second

ingredient is that the ADP must be suitable for daily transit of a

consumer and would include aspects such as durability to withstand

frequent commute and damage protection. An example of the same

would be the availability of protection cases which allows users to

carry the ADPs in hand or possibility of carrying the same in normal

briefcases or shoulder bags.

19. On applying these core ingredients to the characteristics of

Concerned Goods, there is no room to doubt that they are not

‘portable’. Firstly, the dimensions of the Concerned Goods make it

illogical and unviable for daily transit. While it is true that

classification of the goods must not be usually made on the

advertisement material of the manufacturer, the user guides produced

before us showcase that placing the product in other than the

specified orientation could lead to damage to the Concerned Goods.

The user guides also emphatically highlight that the Concerned Goods

were meant to be used at a fixed place and contained specifications

that made them ideal for being mounted on a wall.

20. Secondly, the inability of the consumer to carry these goods

around in the absence of any protective case or any covering bags,

Page | 14 which makes the Concerned Goods vulnerable to damage during

transit. As noted in the literature relied upon before us, the weight

was not the sole consideration for being considered as ‘portable’. For

example, there used to be computers which are now no longer in

common use which were popularly known as ‘luggable’. They used to

weigh more than 10 kilograms. These old predecessors of laptops were

designed at the relevant time to be portable and used to fold up neatly

in one box with a handle. Despite their weight and the size comparable

to small suitcase, they could still be transported, albeit without a

wagon.

21. Furthermore, we must also use this opportunity to highlight the

impact of technological advancement on law. It’s a matter of fact that

at the time when the relevant entries of the First Schedule came into

effect, weight was definitely an important criterion for deciding

whether any ADPs was ‘portable’. Scientific progress has greatly

reduced the weight associated with high performance in the context of

ADPs. It is not surprising that the advent of LED technology, faster

microchips, etc. has made it possible for mobile phones to have

performance specifications which merely a decade ago was possible

only on high end laptops. We must therefore be cognizant of such an

impact on the consumer’s understanding of any good or trade.

Page | 15

22. Keeping in view the applicable understanding of the element of

‘portable’ as understood in common parlance used in the trade of

ADPs, we must hold that the Concerned Goods are not portable for the

reasons that­ Firstly, the diagonal dimension of the Concerned Goods

being minimum of the length of 18.5 inches and the same needs to be

transported along with the power cable as well as the applicable stand

in most cases if it is to be mounted and; secondly there being no

protective case designed by the markets for daily transport for these

Concerned Goods. Such requirements make the Concerned Goods

unable to be carried around easily during daily transit. We, thus, hold

that the Concerned Goods are not ‘portable’.

23. It goes without saying that since the customs authorities wanted

to classify the goods differently, the burden of proof to showcase the

same was on them, which they failed to discharge. 13 Hence under the

prevalent self­assessment procedure, the classification submitted by

the Appellants must be accepted.

CONCLUSION

24. In light of the abovementioned discussion, we allow the appeals

and set aside the impugned orders which classified the Concerned

Goods under ‘Tariff Item 8471 30 10’. It is directed that valuation of

the Concerned Goods for levy of the duty be determined under the

13 Dabur India Ltd. v CCE, Jamshedpur (2005) 4 SCC 9.

Page | 16 initially declared ‘Tariff Item 8471 50 00’. All necessary consequences

shall follow.

25. The appeals are disposed of along with any pending applications

in the above terms.

………..………………… J.

(SURYA KANT)

………………………….. J.

(VIKRAM NATH) NEW DELHI DATED:17.01.2023

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