By TIOL News Service

MUMBAI, OCT 18, 2016: THE dispute is as regards classification of 'external hard disks', whether under heading 84717030 or 84717020 of the CETA, 1985.

And the quarrel has its roots in eligibility of concessional rate of additional duty of customs (CVD) @5% in accordance with notification no. 6/2006-CE dated 1 st March 2006 [superseded by notification no. 12/2012-CE dated 17th March 2012].

The eligible items are those classifiable under 8471 70, 8473 30 or 8523 and are (a) microprocessor for computer, other than motherboards, (b) floppy disc drive (c) hard disc drive (d) CD-ROM drive (e) DVD Drive/DVD writer (f) flash memory and (g) combo drive.

Commissioner of Customs (Import) denied them the aforesaid exemption notification and, instead, allowed them the benefit of notification no. 2/2008-CE dated 1 st March 2008 at 10% till 16th March 2012.

The adjudicating Commissioner held that the qualification 'removable' in the description relating to heading 84717030 of the Schedule to the CETA, 1985 is applicable to external storage devices; that hard disks, by addition of circuits/connection interfaces/enclosures, lose their character to become removable disk drives; and that whether rule 3 (a), 3 (c) or 4 of General Rules for Interpretation of Tariff are resorted to, the imported goods find best fitment in heading 84717030.

Before the CESTAT, the appellant submitted that hard disk drive is a secondary storage device in automatic data processing machines or computers and that the qualifying expression 'removable' refers to media that can be separated from the drive which the imported hard disks, albeit external, are not amenable to. It was also contended that hard disks may be internal or external just as removable hard disks may be internal or external. Further, describing the external hard disk drive, it was pointed out that external and internal devices differ only in the casing that encloses the former and that the connection to the computer distinguishes the external from the internal and not the 'removable' from the 'fixed'. It is also argued that the imported item is commercially known as 'hard disk'; as the Drive is fused to the disk in the imported products, it is not amenable to classification as removable or exchangeable. Technical opinion of faculty of reputed technology institutions and that of M/s Seagate International were also placed before the Bench.

The following case laws were cited to emphasise that eligibility to exemption under the notification is not dependent on the classification but on the description.

+ 2007-TIOL-1848-CESTAT-BANG

+ 2007-TIOL-1848-CESTAT-BANG

+ 2008-TIOL-891-CESTAT-AHM

+ 2006-TIOL-86-SC-CT

+ 2008-TIOL-2713-CESTAT-MUM

+ 2007-TIOL-55-HC-P&H-CUS

+ 2014-TIOL-2514-CESTAT-MUM

+ 2011-TIOL-62-SC-CUS

+ 2002-TIOL-333-SC-CT

+ 2002-TIOL-604-SC-CUS

+ 2003-TIOL-46-SC-CX

+ 2013-TIOL-13-SC-CUS

+ 2006-TIOL-96-SC-CX-LB

+ 2007-TIOL-192-SC-CUS

The AR supported the order of the adjudicating authority and placed reliance on the following case laws -

Hewlett Packard India Sales (P) Ltd - 2007-TIOL-154-SC-CUS

Bajaj Auto Ltd - 2010-TIOL-94-SC-CX

Connaught Plaza Restaurant (P) Ltd - 2012-TIOL-114-SC-CX

Hitachi Home & Life Solution Ltd - 2012-TIOL-1167-CESTAT-MUM

Samsung India Electronics Ltd - 2013-TIOL-1846-CESTAT-DEL

Steag Encotee India Pvt Ltd - 2009-TIOL-1776-CESTAT-MUM.

The Member (T) writing for the Bench observed thus -

Merits:

+ The classification within the Schedule to the Tariff should appeal by its consistency which is a consummation arising from compliance with the rules of interpretation and uninfluenced by technical opinion or the revenue-driven motives.

+ Entry 847170 is for storage units which, in computer technology, are many and varied; these are appropriately distinguished among seven types and a residuary heading. Disc drives are of five varieties, viz., floppy disc, hard disc, removable or exchangeable disc, compact disc and digital video disc. Of these, four are specifically described as eligible for exemption; apparently, there is some specific logic for exclusion of removable or exchangeable disc drive.

+ It is the trade parlance that should determine the proximity to a description if the meaning of the description is not adequately clear. We, therefore, prefer to discard the opinions of technical experts furnished by the appellant.

+ Entitlement to the exemption notification follows the primary step of ascertaining the tariff entry. In crossing this hurdle, the most apt description is identified and the classification digits, thereafter, become the standard of identity. The applicability of any notification, being a consequential action, revolves around the classification with the description to further narrow the range. Therefore, products falling under 847170, being the first qualification, will also have to pass the muster of the second, i.e. the description which may not replicate the entry in the tariff itself. That is a natural corollary of exemption notifications being instruments for implementation of policies of the government.

+ That the common understanding of the commercial world is the key to determination of the classification has been laid down by the Supreme Court in Garware Nylons Ltd. and Indo-International Industries .

+ It is not the claim of the appellant that the hard discs imported by them can be attached through an interface with the computer and is capable of functioning on a computer that does not have an internal disc drive.

+ Apparently, the imported disc drives are not pre-loaded with the operating system as to enable usage with any computer that does not have an internal hard disk. Moreover, such portable disc drives are marketed as capable of being used as an external storage of any computer system irrespective of its operating system. That flexibility will, of itself, render it classifiable as a removable hard disc that is distinguished from the fixed internal hard disc .

No Estoppel:

+ Under Customs Act, 1962 each import is assessed on its own merits and upon the contents of the declaration in the bill of entry. Therefore, there is neither a bar on querying the declared classification at anytime nor can it be a valid defence that acceptance of declaration in a past import is an acknowledgement of declaration having been true and correct.

Limitation:

+ It is not uncommon for importers to align description of imported goods, not with the tariff entries, but with descriptions in exemption notification and continuing with the description until the mis-declaration is unearthed.

+ The differential duty is adequate motive for suppression of facts relevant to assessment. The notice issued to appellant alleges that, in the bills of entry, the description did not bring on record that these drives were portable; no justifiable counter to this allegation has been furnished before the adjudicating authority. The plea of limitation is, therefore, not tenable.

Concluding that the imports are liable to be classified under 84717030,the appeals were dismissed.

(Condition) in passing:

++ Notification 6/2006-CE -

++ Notification 12/2012-CE as amended by 24/2015-CE (see portion in red) -

(See 2016-TIOL-2727-CESTAT-MUM)