IMPORTANT POINT
Computer software loaded on a hard disk drive imported would be assessable at the rate of 10% as per Heading 85.24 read with Exemption Notification No. 59/95-Cus dated 16.3.1995.

Headnote:Customs Tariff Act, 1975-Tariff Headings 84.71, 84.24 and 84.25-Hard disk drive loaded with software -Department levying duty at rate of 25% on hard disk drive under chapter Heading 84.71 and on software at rate of 10% under Heading 84.25 r/w notification No. 59/95 dated 16.3.1995-Not justified-Disk or a floppy on which computer data is recorded would be covered by Heading 85.24-Consignment in question is essentially a computer software covered by specific Heading 85.24-Computer software imported in hard disk drive is assessable at rate of 10% as per Heading 85.24 read with exemption Notification No. 59/95-Cus dated 16.3.1995.
       Held : In the present case, what is imported by the appellant is hard disk drive loaded with software material. Heading 84.71 apparently covers automatic data processing machines and units thereof and magnetic or optical readers not elsewhere specified or included. It is to be stated that heading 85.23 deals with prepared unrecorded media for sound recording or similar recording of other phenomena, which includes magnetic tapes. As against this, heading 85.24 covers records, tapes and other recorded media for sound or other similarly recorded phenomena which covers gramophone records or magnetic tapes for reproducing phenomena. That software material is admittedly classifiable under Tariff, Heading No. 85.24 which provides for taxing records, tapes and other recorded media for sound or other similarly recorded phenomena. The difference between the hard disk drives and magnetic storage devices or floppy disks is only with regard to the use of rigid, hard, aluminium or glass as the base for recording medium. What is covered by the said heading is recorded tapes, magnetic tapes or other similar recorded phenomena. As per the literature supplied by the department, hard disk drive is used to store data and programs permanently inside the computer. The difference between hard disk drive and common magnetic storage device or floppy disk is the base for recording medium. It also provides faster access and larger storage capacity; its function is to store the data instructions, sound images etc. and it is like phonograph records. Floppy disk uses flexible plastic like carrier for magnetic recording medium. Information is stored in the hard disk drive using the same magnetic recording method which is used to store songs on an audio tape or movies on a video tape. Therefore, hard disk is a refined form of floppy and serves the same purpose of recording material in more efficient way. The moot difference between the hard disk and the software is that a hard disk is a hardware whereas software is a representation of any type of data and which can be stored in the hard disk. There is no dispute that floppy on which software is stored would be taxable under Tariff Heading 85.24. Instead of storing the software on the floppy if it is stored on a hard disk drive, it would not ceased to be a software. As stated above, it is an information stored in the hard disk drive using magnetic recording method. (Para 6)
       As per Item 2 of the Notification No. 59/95-Cus dated 16.3.1995 rate of duty is 25% for hard disk drive or floppy disk drive covered by heading or sub-heading 84.71. As against this, for computer software, if it falls under Chapter 49 or under Heading No. 85.24, the rate of duty would be 10%. If simplicitor hard disk drive is imported, it may be taxable under the Heading 84.71. However, in a case where essentially a software is imported which is loaded on a hard disk drive, it would be computer software material and in that set of circumstances, it would be taxable under Heading 85.24. This is also made clear in Chapter Note 6 of Chapter 85. (Para 7)
       Further testing from the rules of interpretation contained in Rules 2(b), 3 and 4, it would be clear that the disk or a floppy on which computer data is recorded, would be covered by heading 85.24. Rule 3(a), inter-alia, provides that when two or more headings each refer to part only of the materials or composite goods, those headings are to be regarded as equally specific in relation to those goods, even if one of item gives a more complete or precise description of the goods. Further, considering imported goods to be a mixture of two substances namely hard disk drive and software as per Rule 3(b) they can be classified under the heading which gives them their essential character. In the present case, considering its price factor it would be computer software. The price of the imported consignment was approximately Rs. 68 lakhs. As against this value of the seven hard disk drives would be roughly Rs. 60000/- that is to say, value of the computer software is hundred times more than its containers hard disk. Hence, the essential character of the imported goods is computer software. (Para 9)
       The argument that hard disk drive can be used either directly or through one or more other units for processing the data and, therefore, it would be automatic data processing machine falling under Heading No. 84.71, cannot be accepted for the consignment in question is essentially a computer software covered by specific Heading No. 85.24 which is for levying duty on records, tapes and other recorded media for sound or other similarly recorded phenomena. As mentioned in the Notification dated 16th March, 1995, computer software is covered by Heading No. 85.24. The said notification also covers computer software imported in the form of printed books, pictures manuscripts and typed scripts covered by Chapter 49. Computer software can be brought either on a floppy or magnetic tape or on a hard disk or in a printed form and hence, what is imported is software on a container which is a hard disk drive. (Para 10)
       Held consequently, computer software imported by the appellant on a hard disk drive is assessable at the rate of 10% as per Heading 85.24 with the Exemption Notification stated above because what was imported by the appellant was software on a hard disk and it was not hard disk in the garb of software. (Para 11)

JUDGMENT

Shah, J.-Appeal admitted.

2. The short question involved in this appeal is whether custom duty on imported computer software loaded on a hard disk is to be levied on the basis of hard disk simplicitor or computer software . Goods imported by the appellant were examined on 9th August, 1995 and were found to be seven pieces of hard disk drive loaded with software. As per the department, custom duty on hard disk drive is leviable under Chapter Heading 84.71 at the rate of 25% and on a computer software it is at the rate of 10% as per the tariff Heading 85.24 read with notification No. 59/95 dated 16.3.1995. It is admitted fact that total value of the consignment was Rs. 67,75,119/- for seven hard disk drives having software loaded thereon. Value of the hard disk simplicitor would be roughly at the most Rs.60000/-. The relevant headings of the Chapter are 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.

8471.70 Storage units. 5%

8471.80 Other units of automatic date processing machines. 20%

8471.90 Other 20%

85.23 Prepared unrecorded media for sound recording or similar recording of other phenomena, other than products of Chapter 37.

-Magnetic tapes.

85.24 Records, tapes and other recorded media for sound or other similarly recorded phenomena, including matrices and masters for the production of records, but excluding products of Chapter 37.

8524.10 Gramophone records. 40%

-Discs for laser reading systems;

8524.31 For reproducing pheno- mena other than sound or image. 25%

8524.40 Magnetic types for re- producing phenomena other than sound or image.

-Other magnetic tapes.

8524.99 Others 40%"

2. The Tribunal arrived at the conclusion that as the software was loaded on a hard disk, it would remain to be a hard disk drive on which software was loaded and, therefore, alongwith Chapter Note 5(A) and (B) of Chapter 84, it would be hard disk drive loaded with software and would be taxable under the Heading 84.71 and not 85.24. The Tribunal considered the decision of this Court in PSI Data Systems Ltd. v. Collector of Central Excise1, and observed that it would not be applicable to the facts of the present case.

3. For understanding of computer software and the hard disk, learned counsel for the Customs has produced on record some extracts from Modern All about Hard Disk Drive" of BPB Publications, which reads as under :-

"Today Hard Disk Drives are the most common storage device used with the computer system. The hard disk drive is also known as Hard Disk, Hard Drive, Fixed Disk Drive or Winchester Disk Drive. The hard disk drive is used to store data and programs permanently inside the computer. The information stored in the hard disk drive does not get erased when the power supply to the computer is switched off.

This device is known as "Hard Disk Drive" because compared to the other common magnetic storage device, floppy disk, which uses flexible plastic like carrier for the magnetic recording medium; the hard disk drive uses rigid, hard, aluminium or glass as the base for recording medium.

xxx xxx xxx xxx

Information is stored in the hard drive using the same magnetic recording method, which is used to store songs on a audio tape or movies on a video tape. The audio or video tape does not lose its content when the power supply given to the audio or video recorded is switched off, same way the hard drive also retains the information stored in it, even when the power supply to the hard drive is switched off."

4. He has also pointed out the extract from PC Power Boosting Your PC s Performance written by

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2000 Supreme(SC) 148

IMPORTANT POINTComputer software loaded on a hard disk drive imported would be assessable at the rate of 10% as per Heading 85.24 read with Exemption Notification No. 59/95-Cus dated 16.3.1995.

Cases Referred (1)

IMPORTANT POINT
Computer software loaded on a hard disk drive imported would be assessable at the rate of 10% as per Heading 85.24 read with Exemption Notification No. 59/95-Cus dated 16.3.1995.