M/S. Xerox India Ltd vs Commnr. Of Customs, Mumbai

M/s. Xerox India Ltd. ...................Appellant

Versus

Commissioner of Customs, Mumbai ....................Respondent

JUDGMENT

H.L. Dattu, J.

1) In this appeal, the only question, that arises for our consideration and decision

is, whether the Multi-Functional Machines imported by the appellants fall

under Chapter Heading 8479.89 (Residual Heading) as claimed by the

Revenue or under Chapter Heading 8471.60, as claimed by the appellants,

under Customs Tariff Act (hereinafter referred to as, "the Act").

2) The appellants are engaged in the trading of High Technology reproduction

and Duplicating machines, printers and Multi-Functional Machines capable of

discharging number of functions. During the period March, September and

November, 1999, the appellants imported Xerox Regal 5799, Xerox Work

Centre XD100 and Xerox work Centre XD 155df respectively and filed Bills

1 of Entry before the Customs Officer. The appellants sought classification of

these imported machines under Sub-Heading 8471.60 of the Act. The Deputy

Commissioner of Customs, vide his order dated 22.02.2000 classified the

imported machines under Chapter Heading 8479.89 (Residual Heading) of the

Act. Being aggrieved by the same, the appellants filed an appeal before the

Commissioner of Customs (Appeals), Mumbai, who by his order dated

27.02.2000, rejected the appeal and thereby confirmed the order passed by the

Deputy Commissioner of Customs. The appellants questioned the said order

before Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi

(hereinafter referred to as, "the Tribunal"). The Tribunal, by its order dated

5.11.2002, has rejected the appeal and has confirmed the order passed by the

First Appellate Authority. Aggrieved by the order passed by the Tribunal, the

present appeal has been preferred under Section 130E of the Customs Act,

1962.

3) To put it broadly, the controversy between the appellants and the Revenue is

with regard to the classification of Xerox Regal 5799, Xerox Work Centre

XD100 and Xerox Work Centre XD155df which, according to the appellants,

are Multi-Functional Machines performing the functions of printers, fax

machine, copier and/or scanner and therefore, requires to be classified as

Printers in Automatic Inter Processing Machine (ADD) under Chapter Heading

8471.60 and the view of the authorities under the Act and the Tribunal is that

the aforesaid machines require to be classified under Chapter Heading

8479.89 (Residual Heading).

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4) Before examining this question, the relevant Headings and sub-Headings may

be noted. Heading 84.71 and 84.79 of the Customs Tariff Act at the material

point of time stood as under:

"84.71 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."

"8471.60. Inputs or output units whether or not containing storage units in the same housing."

"84.79: Machines and mechanical appliances having individual functions not specified or included elsewhere in this Chapter."

5) The Deputy Commissioner of Customs, while holding that the imported

machines require to be classified under the residual heading, was of the view

that the digital printer was not a unit of the automatic data processing unit as

such. To qualify as a unit of an automatic data processing machine, it should

be able to work only with a computer as per Chapter Note 5B. The moment it

is able to perform independently of a computer, its claim to be a unit of the

computer ceased to exist. Merely working in conjunction with a computer did

not bestow the status of a unit of the computer as a machine. Since digital

printer was not classifiable under any specific heading, the same requires to be

classified under residual heading. It is also observed that the machine is

capable of functioning as a stand alone digital copier even without a computer

and therefore, in terms of note 5(E) of Chapter 84 of the Act, the imported

machine cannot be classified under heading 84.71. The Appellate Authority

3 while deciding the appeal filed by the appellant has concurred with the finding

and conclusion reached by Deputy Commissioner of Customs. The Tribunal,

while accepting the view of the authorities under the Act, inter-alia, has

observed that the machines in dispute are Multi-Functional Machines based on

digital technology and performs the functions of a printer, scanner and digital

copier and the said machines are not solely or principally used in an automatic

data processing machine and further observed that the earlier decisions

rendered by the Tribunal in the case of MX Software Services Ltd. v.

Commissioner of Customs, Mumbai 2001 (131) ELT 422 (Tri-Del) is clearly

distinguishable on facts.

6) Sri V. Lakshmi Kumaran, learned counsel appearing for the appellants, has

argued in great detail for the classification of imported machines - Digital

Printer under heading 84.71.60. In the course of his detailed submissions, he

has explained that a printer performs the function of printing documents, which

works alongside a computer. The printing is carried out by the computer giving

orders in the form of a digital signal, which is transmitted through wires,

converted into a readable language, and then printed. He has gone on to

explain the function of a scanner, which converts documents into digital

signals for storage in the computer. In this way, the scanner and printer serve

as input and output devices for the computer. He further explains the purpose

of a digital scanner, which copies the document and sends it to the central

processing unit of the computer; independently, the copier can also print on its

own after scanning. Thus, according to the learned counsel, a copier serves as a

4 combined scanner-cum-printer. The learned counsel submits that while the

Multi-Functional Machines (which includes printer, scanner and copier) are

not Automatic Data Processing Machines (in short, "ADPM"), they serve as

input and output devices of an ADPM (computer) and thus they fall under sub-

heading 84.71.60. It is further contended that the Chapter heading 84.71 covers

ADPM and units thereof, which when read with chapter note 5(C) to chapter

84 of the Act clearly establishes that the heading would include both ADPMs

as well as separately presented units of ADPMs. He also relies on some of the

explanatory notes of the Harmonized System of Nomenclature (for short

"HSN") to buttress this contention (specifically, internal page number 1406 of

the HSN Handout). He submits that the "unit" referred to in Chapter heading

84.71 is not restricted to essential parts and components of an ADPM, as there

is a separate Chapter heading 84.73 which deals with the same, and that does

not apply in the instant case. It is also pointed out by Sri V. Lakshmi Kumaran

that the decision of the Tribunal is erroneous on three grounds, namely, (i) the

Tribunal ought not to have placed reliance on chapter note 5(B)(a); (ii) the

relevant chapter notes 5(B)(b) and 5(B)(c) have not been relied on; (iii) after

relying on chapter note 5(B)(a), there has been incorrect application of the

same. He further submits that the requirement of the Chapter, that to be

regarded as a unit of an ADPM, a three-fold test, as laid out in chapter note

5(B), should be fulfilled, i.e. Chapter 5(B)(a): it is of a kind solely or

principally used in ADPM; (2) 5(B)(b): it is connectable to the Central

Processing Unit either directly or through one or more other units; and (3)

5 5(b)(c): it is able to accept or deliver data in a form (codes or signals) which

can be used by the system. He submits that it is undisputed that the Multi-

Functional Machines meet the requirements of chapter notes 5(B)(b) and

5(B)(c) as they are connected to a Central Processing Unit and can accept and

deliver recognizable data. Further, it is argued that the term "principally" in

chapter note 5(B)(a) implies "meant for" and it is clear that the Multi-

Functional Machines in the present case are meant to be used with an ADPM,

as neither the printing nor the scanning function can be performed without an

ADPM, and little purpose will be served to the consumers if they do not

perform these essential functions. Thus, there has been an erroneous finding by

the Tribunal that chapter note 5(B)(a) does not apply and that the Multi-

Functional Machines are not qualifiable under chapter note 5(B). As chapter

note 5(B) is to be read with chapter note 5(E), he points out that the wording of

chapter note 5(E) is "machines performing a specific function other than data

processing and incorporating or working in conjunction with an automatic data

processing machine", which does not apply as neither are the Multi-Functional

Machines in the case incorporating an ADPM, nor are they presented with an

ADPM, but rather are presented independently. Therefore, he submits that

chapter note 5(E) has no application for the purpose of classification of the

machines in dispute. Referring to chapter note 5(D), which includes printers

under Chapter heading 84.71, the learned counsel submits that upto 85% of

printer-related components are present in the machine and they are to function

as printers. Thus, he argues the machines in dispute require to be classified

6 only under this heading.

7) Sri V. Lakshmi Kumaran also invites our attention to Rule 3 of the General

Rules for the Interpretation of the Import Tariff Schedule, in particular, Rule

3(a) which provides that specific headings are to be preferred to non-specific

residual headings, and Rule 3(b) which provides for classification of goods to

be done based on the material or component which gives them their essential

character. The learned counsel reiterates that upto 85% of the imported

components are dedicated to the printing function and the product technology

is specifically intended for use as a network printer with "add-ons". He has

also pointed out how in the United States of America, Xerox Documents Work

Center Pro 535, Cannon CLC 1000 and three models in the Cannon GP series,

which are similar to the Multi-Functional Machines, have been placed under

heading 84.71. The learned counsel drew our attention to the Judgment of the

Tribunal in MX Software Services (supra) and Xerox Modicorp Ltd. v.

Commissioner of Customs, Chennai 2001 (127) ELT 285 (Tri-Del) to contend

that on identical facts, the Multi-Functional Machines are classified under the

heading 84.71.60.

8) Contending to the contrary, Sri V. Shekhar, the learned senior counsel

appearing for the Revenue, after referring to the order of the Tribunal,

submitted that unless the Tribunal's order is found to be perverse or arbitrary,

this Court may not interfere with the conclusion reached by it. He also

submitted that the imported machines are performing specific functions other

than data processing, and are working in conjunction with an ADPM, and thus,

7 as per chapter note 5(E) to Chapter 84 of the Act, they are to be either

classified under heading appropriate to their respective functions, or under

Residuary heading. He submits that since the copy unit in the device cannot be

consider as a photocopier so as to fall under Chapter 90, it, therefore, must

essentially come under Chapter Heading 84.79.89. He further argued that the

machines in question are not printer simpliciter attached to a computer, but are

capable of performing multifunction input and output facility, and, therefore,

it is difficult to say that the machine is performing only one function, i.e.

printing. His argument is that no single function of the machines, printing or

otherwise, can be said to be predominant and the device/system in the machine

has variable number of separate units capable of performing separate function.

He also submitted that on a reading of chapter notes 5(B)(b), 5(B)(c) with 5(E),

only a printer, keyboard, x-y co-ordinate input devices and disk storage unit,

which satisfy conditions of Notes 5(B)(b) and 5(B)(c), are classifiable under

heading 84.71.60. The rest including the Multi- Functional Machines in this

case, as per Note 5(E), has to be classified under the residuary heading of

84.79.89.

9) Chapter note 5 of Chapter 84, during the relevant period, was as under :-

"5(A) For the purposes of heading no. 84.71, the expression "automatic data processing machines" means:

(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;

8 (2) being freely programmed in accordance with the requirements of the user;

(3) performing 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 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 with digital elements.

(B) 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 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) It is connectable to the central processing unit either directly or through one or more other units; and

(c) It is able to accept or deliver data in a form (codes or signals) which can be used by the system.

(C) Separately presented units of an automatic data processing machine are to be classified in heading No. 84.71.

(D) Printers, keyboards, X-Y co-ordinate input devices and disk storage units which satisfy the conditions of paragraph (B)(b) and (B)(c) above, are in all cases to be classified as units of heading No. 84.71.

9 (E) Machines performing a specific function other than data processing and incorporating or working in conjunction with an automatic data processing machine are to be classified in the headings appropriate to their respective functions or, failing that, in residual headings."

10) In order to determine the classification of the Multi Functional Machines, it is

necessary to look into some relevant provisions. Rule 3(a) of the General Rules

for the Interpretation of the First Schedule (which along with the Second

Schedule specifies the rates at which duties of customs shall be levied under

the Customs Act) provides:

"The heading which provides the most specific description shall be preferred to headings providing a more general description..."

11) Further, Rule 3(b) of the same reads as follows:

"Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to

(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable." (emphasis supplied).

12) In addition, Note 3 of Section XVI (which includes both Chapter 84 and

Chapter 85) reads as follows:

"Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines designed for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being

10 that machine which performs the principal function." (emphasis supplied).

13) It is not in dispute that the Multi-Functional Machines in question, Xerox

Regal 5799 has about 85% of the its total parts and components along with

manufacturing cost allocated to printing, as does 74% of the Xerox XD155df

model. This clearly shows that the printing function emerges as the principal

function and gives the Multi-Functional Machines its essential character.

Having such a nature, it also clearly meets the three-fold requirement of

chapter note 5(B), as it is to be used principally in ADPM, it is connectable to

the Central Processing Unit, and it is able to accept data in a form (codes or

signals) which can be used by the system. Further, there would be no

application of chapter note 5(E) as correctly pointed out by the learned counsel

for the appellants, as the Multi-Functional Machines are presented

independently. Moreover, since predominant components are relating to

printing function, chapter note 5(D) also becomes relevant which includes

printers under heading 84.71. We are also satisfied with the contention of the

appellants that based on the nature of the functions they perform, the Multi-

Functional Machines would serve as input and output devices of an ADPM

(computer) and thus serve as unit of an ADPM, which on a reading of chapter

note 5(C), clearly classifies them as falling under heading 84.71.60 of the Act.

14) We are not in agreement with the submission made by the learned senior

counsel for the Revenue. The primary contention of the respondent is that no

11 one function of the Multi-Functional Machines, even printing, can be seen as

predominant. This has clearly been shown to be incorrect on facts, and in light

of the submissions by the appellants, there has been no case made out for

classification of the goods under the residuary heading 84.79.89. We may also

notice that the Tribunal, while considering the decision on which reliance was

placed by learned counsel appearing for the appellants, has stated that those

decisions are distinguishable on facts without appreciating that in principle, the

case cannot be distinguished.

15) In view of the above, we are of the opinion that the correct classification for

the imported Multi-Functional Machines involved in this case, namely models

Xerox Regal 5799, Xerox Workcentre XD 100 and Xerox Workcentre XD

155df should be under Customs Tariff Chapter heading 84.71.60.

Accordingly, the appeal is allowed and the order passed by the Tribunal in

Appeal No. C/300/2002-B dated 05.11.2002 is set aside. Parties to bear their

own costs.

...............................J. [ D.K. JAIN ]

..............................J. [ H.L. DATTU ]

New Delhi, November 22, 2010.

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