By TIOL News Service

MUMBAI, APRIL 19 2017: THE  dispute is as regards classification of 'external hard disks', whether under heading 84717030 [Removable or exchangeable disc] or 84717020 [Hard disc drives] 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of additional duty of customs (CVD) @5% in accordance with notification no. 6/2006-CE dated 1 st March 2006 as amended [superseded by notification no. 12/2012-CE dated 17th March 2012].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 the importers 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 also 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.

The CESTAT by its order dated 04.10.2016 - 2016-TIOL-2727-CESTAT-MUM held thus -

Cus - External Hard Disks are classifiable under Heading 8471 7030 & not under 8471 7020 as Hard disc drives - qualification 'removable' in the description relating to heading 8471 7030 of the Schedule to the CETA, 1985 is applicable to external storage device - benefit of notification 6/2006-CE, 12/2012-CE not available - Appeals dismissed: CESTAT

The applicants claimed that there is an error apparent on record in the final orders 2016-TIOL-2727-CESTAT-MUM passed by the Bench and, therefore, filed an application for Rectification of mistake.

Inasmuch as it was the submission of the applicants that the Bench had not considered the opinion given by the Department of Electronics and Information Technology [DeitY], Govt. of India and some other relevant materials, which were relied upon and produced during the hearing before Bench.

The Division Bench observed -

"…it is noticed that the clarification issued by Department of Electronics and Information Technology, GOI though produced before us, escaped our attention while recording the order, as also other materials like orders of first appellate authority on the same issue for subsequent periods. The said clarification of the Department of Electronics and Information Technology, GOI and other materials may throw some light as to the classification of the products in question. We have also noticed that both sides have not argued on these points elaborately during the proceedings hence it may have escaped our attention…."

Accordingly, the final order was recalled and the Registry was directed to relist the appeals for fresh hearing.

We reported this order as 2016-TIOL-3316-CESTAT-MUM.

Incidentally, Fortune India Marketing Ltd. had preferred Civil Appeal before the Supreme Court praying that the orders dated 04.10.2016 - 2016-TIOL-2727-CESTAT-MUM and 13.12.2016 orders - 2016-TIOL-3316-CESTAT-MUM be quashed and set aside.

However, the Civil Appeal was dismissed on 13.01.2017. See 2017-TIOL-39-SC-CUS.

Thus, both sides were again heard by the CESTAT in February 2017, along with other appeals.

An order was passed recently by the Division Bench.

The Bench observed that vide an Office Memorandum dated 5 th June 2013, bearing No. 5(6)/2012-IPHW, Department of Electronics and Information Technology, Government of India has clarified the issue with copies marked to the Joint Secretary (TRU), Tax Research Unit, Department of Revenue, Ministry of Finance, and to the Director (Customs), CBEC, Department of Revenue, Ministry of Finance, North Block, New Delhi that -

"2. A Technical Committee was constituted by the Department of Electronics and Information Technology (DeitY) to give its recommendation regarding the matter. A meeting of the Technical Committee was held on 26.5.2013. The following were present in the meeting:

x x x

The comments/ technical opinion of the Committee are as under:

(i) The Notification No. 12/2012 - Central Excise dated 17 th March, 2012 provides for duty exemption to goods covered under the heading 8471 70 covering hard disk drives along with other items.

(ii) The CTH in the notification is at 6 digit level which would mean both the hard disk drive viz. hard disk drives and removable or exchangeable are covered by the exemption notification.

(iii) Earlier in Notification No. 12/2012-Central Excise dated 27.2.2010, there were two categories for the items in the category 8471 70 of 847330 or 8532 51 00 namely, (i) meant for fitment inside the CPU housing/laptop body only; and (ii) meant for external use with a computer or laptop as a plug-in-device and the custom duty benefit was Nil in the first category and 4% in the second category. Now, in the present notification separate categorization is not there and the custom duty benefit at 6% is available to all goods covered under 8471 70 or 847330 or 8523.

(iv) The External Hard Disc Drives are portable Hard Disc Drives and are not exchangeable Disc drives. Thus, the external hard disk drives shall also be covered under 84717020, if at all, the classification has to be extended to 8 digit HS codes.

3. This has the approval of Dr Ajay Kumar, Joint Secretary, DeitY."

The CESTAT also noted that vide a judgment dated 06.01.2017 - 2017-TIOL-125-CESTAT-DEL, the Principal Bench had already decided this issue in favourof Supertron Electronics Pvt. Limited by dismissing the appeal filed by Revenue against one such Order-in-Appeal passed by Commissioner (Appeals), while holding that exemption under the same Exemption Notification 12/2012-CX dated 17.2.2012 (Sr. No. 255) was rightly sought on 'external hard disk drives'.

The CESTAT, Member (J) writing for the Bench in an expansive order inter alia observed as under -

"8. Customs tariff Heading 8471 covers broadly the following products -

"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"

Thus "drives" for reading or transcribing data on to any "data media" are appropriately covered under broad heading 8471.

9. At six-digit level, CTH 8471.70 covers "Storage Units" i.e. all the "drives", for reading or transcribing data on to any "data media". It is not in dispute that the imported "drives" are "Storage Units" covered by CTH 8471.70.

10. At eight-digit level, the said CTH 8471.70 further sub-divides various "drives" as follows-

The above sub-classification "drives" shows that in the various entries, the words preceding the word "drives", describe the type of 'data media' suitable/used/to be used in that 'drive'. The different types of 'drives' are thus sub-classified based on the particular type of "data media" suitable for that 'drive'. Thus, CTH 8471 70 10 covers "Floppy disc drive", i.e. a drive for data media "floppy disc"; CTH 8471 70 20 covers "Hard Disc Drives", i.e. a drive for data media "hard disc"; CTH 8471 70 30 covers "Removable or Exchangeable Disc Drives", i.e a drive for data media "Removable or Exchangeable Disc"; CTH 8471 7040 covers "Magnetic tape drives", i.e. a drive for data media "magnetic tape"; CTH 8471 70 50 covers "Cartridge tape"; CTH 8471 70 60 covers "CD- ROM drive" i.e a drive for data media "CD-ROM"; CTH 8471 70 70 covers " Digital video disc drive" i.e. a drive for data media "DVD"' and the CTH 8471 7090 being a residuary heading would cover all other types of drives with data media not specified above. Vide Circular No. 105/2003-CUS dated 16.12.2003 the Board has clarified that item "Storage Disk Arrays" is appropriately classifiable under CTH 84717090.

11. This sub-classification of different "drives" is evidently not on the basis of whether the "drive" is external, portable, removable or exchangeable, but on the basis of the "data media" suitable for that "drive". The word 'removable' has to be read with the word 'disc' and not with the word 'drive'. Hence, mere fact whether a "drive" is for external use as plug-in device or for internal fitting in CPU, would have no impact at 8 digit level in CTH 8471.70.

13. It is not the removability or exchangeability or portability of the drive per se which defines its classification, but rather that of the data media suitable for that drive. The "data media" ought to be a removable or exchangeable disc in order to classify it as a "removable or exchangeable disc drive". This important and most fundamental distinction has been lost sight of by the Department…

16. It is, therefore, a case where the Revenue has only taken a stand of convenience to anyhow deny the benefit of exemption which is clearly available to the appellant importers, by ignoring amongst others even the clarification dated 5.6.2013 (reproduced supra) issued in this regard by such Department of Central Government, which is concerned with such imported goods.

17. CTH 8471 70 20 provides the most specific description "Hard Disc Drives" for the imported "External Hard Disc Drives" and hence there is no room for classifying the goods elsewhere."

The Bench also held that the the imported hard disc drive is eligible for a concessional rate of duty of customs claimed by the importer for the said product under Exemption Notification Nos.6/2011 CE dated 01.03.2011 (Sr.No.17) and 12/2012-CE dated 17 th March 2012 (Sr. No. 255) which specified tariff heading as 8471 70 at only six-digit level and described the eligible goods only as "hard disk drives".

All the appeals were allowed with consequential reliefs.

Interestingly, the Member (Technical) too penned a separate order concurring with the findings of the Member (Judicial) that the liability to duty determined in the impugned order is not sustainable.

Nonetheless, the Member (T) also observed -

"33. Even if we were inclined to retain our original finding of lack of eligibility for exemption, judicial discipline mandates us to conform to the later decision of the Principal Bench as Tribunal must be consistent in its approach and to distinguish only when the factual matrix alters. Discordant articulation will only undermine the credibility of the Tribunal and is to be avoided at all costs."

(See 2017-TIOL-1303-CESTAT-MUM)