Case: Commissioner Of Customs, Bangalore Vs. M/S. N.I. Systems India P.Ltd

. M/s. N.I. Systems (India) Private Limited (hereinafter referred to as "importer") is a 100% subsidiary of N.I. Corporation at Austin, Texas, USA.3. Assessee imports various products from its Holding Company and supplies the same to its customers in India. During the relevant assessment year, the assessee imported various products from their Principal. The products were computer based instrumentation products. The importer filed 64 bills of entries. The importer claimed the items to be computers and/ or parts ofThe importer grouped the items in accordance with similar/ identical functions broadly under CTH 8471, 8473 and other headings falling under Chapter 84. Broadly, the importer categorized the imported items as follows:(i) PXI Controllers(ii) Input/Output Modules (also known as Modem or Control/Adaptor Units)(iii) Signal Converters.(iv) Chassis and its parts.4. On verification of the technical data (including the catalogue and the webcast of the importer), the Original Authority ("O.A.") vide its decision dated 15.11.2006 held that the subject goods were not structurally designed to function as a computer. Further, according to the O.A., in the ordinary course of trade no buyer will purchase the subject goods as computers on account of price differential between the price of the subject goods and the price of the computer. According to the O.A., the subject goods stood manufactured for a special purpose and that purpose was either measurement or control. According to the O.A., the importer, in this case, had conceded before it that a complete system performs the function of measurement whereas if one looks at the subject goods item-wise, it shows that each item performs a sub-function of data acquisition processing. On the basis of the said concession, the O.A. concluded that each imported item constituted a part of a complete Measurement System. According to the O.A., if one applies the test of common parlance then the subject goods are measuring/controlling instruments and even in trade parlance they are not known as computers. Lastly, the subject goods are costlier than ordinary computer and the trader buys them because of their enhanced capabilities for the purposes of measuring/controlling instruments. According to the O.A., the subject goods are specially designed for industrial use which is indicated by the catalogue submitted by the importer. The embedded controllers may perform all functions of a CPU but, according to the O.A., the embedded controllers are not CPUs. According to the O.A., one more concession is made by the importer. In its reply to the show cause, the importer stated that they use real-time operating systems (software) and not the standard operating systems such as Microsoft Windows. Accordingly, the O.A. held that controllers are manufactured for a specific purpose and not as ADP Machines. The specific purpose being controlling/measurement as enumerated in the catalogue. In the circumstances, the O.A. has broadly classified embedded Controllers, Programmable Automation Controllers ("PACs"), Data Acquisition Boards, Digital Input Output Boards, PXI Chassis etc. under Chapter 90. The O.A. has rejected the classification sought by the importer under CTH 8471.5. Aggrieved by the decision of the Additional Commissioner dated 15.11.2006, the importer preferred Appeal No. 98/07-CUS(B) before Commissioner of Customs (Appeals). Vide decision dated 31.7.2007, the Commissioner (A) dismissed the appeal preferred by the importer.6. Against decision dated 31.7.2007, the importer preferred Customs Appeal No. 678/07 before CESTAT. Vide its decision dated 29.6.2009, the Tribunal held that the main item of import was PXI Controller and other Controllers. According to the Tribunal, these imported Controllers were nothing but ADP Machines. According to the Tribunal, the importer had placed before it the sample of imported items with enormous data including a diagram which read as follows:"PXI Controllers = Computers = Data Processing Machines"[See page 10 of presentation of the importer company]7. According to the Tribunal, the diagram, on which reliance was placed by the importer, indicated that both PC and PXI Controller had a structure/ design which was common to Automatic Data Processing Machines. According to the Tribunal, PXI controller in itself is not a measuring instrument; that the input of PXI Controller is only in the digital form as in the case of a PC; that PXI Controller is in turn connected with the processors, motherboard, hard drive with Windows XP, Serial Port, USB Port, Video Port, Ethernet Port, etc. According to the Tribunal, since the PXI Controller is identical in function to the normal home computer, both the items are comparable. According to the Tribunal, a PXI Controller acts as a Central Processing Unit for the entire PXI system. According to the Tribunal, a PXI Controller processes the data that enters from the external peripherals such as a mouse and a keyboard as well as from the internal peripherals such as PXI Signal Converting Modules (Cards). There is no difference between a PXI Controller and a PC. Thus, according to the Tribunal, a PXI Controller and other Controllers imported by the assessee are all ADP Machines. According to the Tribunal, all the imported Controllers carry out the functions of ADP Machines. According to the Tribunal, each and every imported Controller retains the characteristics of ADP Machine. According to the Tribunal, a PXI Controller can be used for a variety of applications ranging from advanced data acquisition to automatic manufacturing which clearly indicated that the imported items were not measuring instruments or their parts as claimed by the Department. According to the Tribunal, the imported items cannot be categorized as measuring instruments. According to the Tribunal, PXI Controller per se is not a measuring instrument. It can be used only in conjunction with an independent measuring instrument with suitable interface, hence, the PXI Controller/ other Controllers imported by the assessee cannot be classified under Chapter 90 of the Customs Tariff Act, 1975.

Court's reasoning:
On the other hand, we have what is called as Analog Output Boards which are meant for converting signals from external units such as PXI. Similarly, the Chassis provides connectivity and housing for embedded controller and the data acquisition modules, allowing them to communicate with each other. A network interface module is used to connect to a network for distributed control applications. It interconnects measuring instruments to a PC by sending and receiving messages from the two units. Thus, each I.O. Module is tailored to a specific function and is therefore a part of regulating and controlling apparatus. Handling of information under the HSN Notes is separate and distinct from regulating and measuring temperature, pressure etc.44. Lastly, we need to analyse Chapter Note 5(E) to Chapter 84. In our view, once a machine incorporating an ADPM performs a specific function other than data processing then that machine is classifiable in the heading corresponding to the function of that machine (see Note 4 of Section XVI and Note 3 to Chapter 90, the scope whereof has already been explained hereinabove). Further, HSN clearly indicates that Heading 8478 is excluded where the case is of a clearly defined function to which separate components contribute.45. In our view, in order to attract Note 5(E) the real test is whether or not the machine imported is performing a specific function relatable to the functional unit as a whole.