In re HP India Sales Pvt. Ltd. (CAAR Delhi)
The moot question is as to whether or not, the items, i.e printers in question, in absence of formatter board and firmware have the essential character of a printer. To arrive at the conclusion, I intend to refer to a few judgments. In the case of Jaypee Forges v. Collector of Central Excise, Bombay reported vide 1996 (83) E.L.T. 49 (Tribunal), it is observed that the factors, which determine the essential character will vary as between different kinds of goods and may be determined not only by the nature of the material used but as well by the use to which the goods are intended. Further, the Hon’ble Orissa High Court held in State of Orissa v. Gestetnet Duplicators (P) Ltd.-(1974) 33 S.T.C. 353 that it is a matter of common experience that the identity of an article is associated with its primary function; it is only logical that it should be so; when a consumer buys an article, he buys it because it performs a specific function for him; there is a mental association in the mind of the consumer between the article and the need it supplies in his life; it is the functional character of the article which identifies it in his mind.
In light of the facts and foregoing discussion, I am of the view that the printers proposed to be imported without the formatter boards and firmware possess the essential character of a complete printer though they may not be functional at the time of import.
Accordingly,
– Item, HP 136 and HP 438 are correctly classifiable under Sub heading 8443 31 00 of the Customs Tariff.
– Item, HP 108 is rightly classifiable under CTI 8443 32 40 of the Customs Tariff.
– Item, HP 136 and HP 438 are eligible for exemption under Si. No. 2 of Notification No. 24/2005-Cus.
FULL TEXT OF ORDER OF CUSTOMS AUTHORITY OF ADVANCE RULING, DELHI
M/s. HP India Sales Private Limited., DLF Cyber City, Phase 3, Tower D & E, 4th Floor, Gurgaon – 122002, a company having PAN AAACC9862F (applicant, in short), has filed an application dated 23.05.2022 seeking advance ruling under section 28-H of the Customs Act, 1962 before the Customs Authority for Advance Rulings, New Delhi (CAAR, New Delhi in short). The application was received in the Secretariat of CAAR, New Delhi on 23.05.2022. The application was accordingly registered under serial No. 11/2022-Delhi dated 23.05.2022.
2.1 The Secretariat of CAAR, New Delhi sought comments of the concerned Principal Commissioner(s)/Commissioner(s) of Customs, on the application for advance ruling. Comments on application of advance ruling have been received from the concerned Principal Commissioner/Commissioner, Air Cargo, Chennai, Airport and Air Cargo Complex, Bengaluru and Air Cargo Complex, Sahar, Mumbai.
2.2 As per the application for advance ruling, the nature: of activity is proposed import of “three different models of Laser jet printer i.e., HP Laser jet 108a (HP 108, in short), HP Laser jet MFP 136a (HP 136, in short) and HP Laser jet MFP 438nda (HP 438, in short)” and advance ruling has been sought on classification of the goods under Sub heading 8443 32 40 and 8443 31 00 of the Customs Tariff Act, 1975. Further, advance ruling has also been sought on eligibility to claim benefit of exemption under Sl. No. 2 of Notification No. 24/2005-Cus dated 01.03.2005.
3.1 It is further stated in the application that
A) HP 108 is a small and compact printer which works on laser technology; it has an inbuilt memory of 64MB and works on a processor of 400 MHz; it comes with a LED display and can be connected to any computer through a high-speed USB 2.0 port;
B) HP 136 is a multi-function printer which can be used for printing, copying as well as scanning of documents; HP 136 works on laser technology for printing and contact image sensor technology for scanning of documents; it has an inbuilt memory of 128MB and it works on the processor of 600MHz; it can also be connected to a computer through a high-speed USB 2.0 port; and
C) HP 438 is a large multi-function printer which performs the functions of printing, copying and scanning of documents; it is a more advanced multi-function printer which works on laser technology for printing and Digital CMOS Image Sensor technology for scanning of documents; it has an inbuilt memory of 512MB and comes with a processor of 600MHz; it comes with a 4-line LCD display and can be connected to a computer through high-speed USB 2.0 port as well as ethernet 10/100 Base TX.
3.2 In respect of the said three models of printers, it is also stated that the applicant intends to import the subject goods without formatter boards; the applicant will import the formatter boards later on and assemble it in the subject goods before selling it to their customers; a formatter board is a PCB which is used for controlling various functions of the printer like receiving and processing print data, developing and coordinating data placement and timing with the DC controller PCA, storing font and cwt.- r( configuration information, communicating with the host computer, and monitoring control panel functions etc.; furthermore, the subject goods proposed to be imported by the applicant will not have the firmware at the time of import and the same will be downloaded once the subject goods are cleared for home consumption; a firmware is a software that is etched directly into a piece of hardware; when a device is powered on, firmware is the first part to run and starts sending instructions to the device’s processor to execute; the firmware helps the printer in performing various functions.
3.3 It is further stated in the application for advance ruling that the applicant has till now not imported the subject goods without formatter boards through any of the ports in India. Accordingly, the applicant has raised following questions on which advance ruling is sought:
a. Whether the HP 136 and HP 438 proposed to be imported without formatter board are rightly classifiable under Customs Tariff Item (“CTI”) 8443 31 00 of the First Schedule of the Customs Tariff Act, 1975?
b. Whether the HP 108 proposed to be imported without formatter board is rightly classifiable under CTI 8443 32 40 of the Customs Tariff?
c. If the answer to the above questions (a) and (b) is in the negative, then, what is the appropriate classification of subject goods under the Customs Tariff?
d. If the answer to question (a) is in positive, whether the applicant is eligible to claim benefit of exemption under Sl. No. 2 of Notification No. 24/2005- Cus dated 01.03.2005?
3.4 The applicant also states that classification of the goods mentioned in the First Schedule of the Customs Tariff is governed by the General Rules for Interpretation (GRI, in short); the said rules for interpretation have been adopted from the General Rules for the Interpretation of the Harmonized System; as per Rule 1 of the GRI, goods under consideration should be classified in accordance with the ‘terms’ of the heading or the relevant Section or Chapter Notes; it further states that in the event the goods cannot be classified solely on the basis of said Rule 1, and if the headings and legal notes do not otherwise require, the remaining Rules 2 to 6 may then be applied in sequential order; Rule 1 of the GRI is extracted below for ready reference:
“The titles of Sections, Chapters and sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions:”;
the Section or Chapter Notes and Sub-Notes give detailed explanation as to the scope and ambit of the respective Section and Chapter; these notes have been given statutory backing and have been incorporated at the top of each Chapter; further, as per Rule 2(a) of the GRI, where a complete or finished article is presented unassembled or disassembled or an incomplete/unfinished article is presented which has the essential character of a finished article, the same is to be classified under the tariff heading as that of the finished/complete article; Rule 2(a) of the GRI is extracted below for ready reference:
“2. (a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled.”;
Rule 2(a) of GRI can be applied in a circumstance wherein the imported goods have the `essential character’ of the finished goods; it is submitted that the exercise for determining the classification on the basis of essential character will have to be done on a case-to-case basis; the phrase ‘essential character’ is not defined either under Customs Tariff or any allied laws; the said term broadly denotes that the goods imported must have the heart and soul of the complete product; the applicability of essential character test varies with the facts and circumstances of each case; reliance in this regard is placed on the decision of Hon’ble Tribunal in Principal Commissioner of Customs (Port), Kolkata v. MIS Kanha Electronics, Kolkata, 2021 (11) TMI 960 – CESTAT Kolkata wherein, strands of LEDs imported without adapters were classified as lighting sets by applying rule 2(a) of GRI; the relevant portion of the judgement states, “11. Coming to the nature of the goods that are imported, although they were declared as LEDs, on examination, they were found to be not individual LEDs but strands of 50 LEDs each. Such strands of LEDs are used for decoration, etc. but one needs to attach the adapters and connectors to the strings of LEDs. There were no adapters in the consignment and therefore, they were incomplete. Learned adjudicating authority has correctly applied Rule 2(a) to conclude that they were classifiable as Lighting sets of a kind used for Christmas trees 94053000. The classification of the goods by the Commissioner (Appeals) needs to be set aside and the classification by the original authority needs to be restored and we do so. “; reliance is also placed on the decision of Hon’ble Tribunal, Mumbai in the case of Maharaja Whiteline Industries Ltd. v. Commissioner of Customs, 2019-TIOL-1797-CESTAT-MUM; in this case, the imported goods were examined, and it was found that the goods were essentially six sets of Injection Moulding Machine without clamping units; the goods had been imported in semi-knocked down condition; the Hon’ble Tribunal held that mere absence of clamping unit would not affect the classification of the goods, which were in semi-knocked down condition, by application of Rule 2(a) of GRI; for the purpose of assessment, the goods were to be treated to be complete machine classifiable under Sub heading 8477 10 00 of the Customs Tariff; in the present case, the applicant intends to import various printers without formatter boards; a formatter board is a PCB installed in a Laser jet printer; the primary task of the formatter board is to relay data from a computer to the printer’s engine; the formatter system communicates with the user via the control panel. It is submitted that the subject goods, in the condition in which they are proposed to be imported by the applicant, have the essential character of complete printers; reliance in this regard is placed to the Harmonized System of Nomenclature (“HSN”, in short) Explanatory Notes to section XVI; the relevant portion of the HSN Explanatory Notes states, “Throughout the Section any reference to a machine or apparatus covers not only the complete machine, but also an incomplete machine (i.e., an assembly of parts so far advanced that it already has the main essential features of the complete machine). “;thus a machine lacking only a flywheel, a bed plate, calender rolls, tool holders, etc., is classified in the same heading as the machine, and not in any separate heading provided for parts; similarly a machine or apparatus normally incorporating an electric motor (e.g., electro-mechanical hand tools of heading 84.67) is classified in the same heading as the corresponding complete machine even if presented without that motor.”; from above HSN Explanatory notes, it can be seen that if a machine (which incorporates a motor) is imported without the motor, it can still be classified as complete machine, even though machine is not able to function in absence of the motor; similarly, in the present case also The printers proposed to be imported without the formatter boards will have the essential character of a complete printer though they may not be functional at the time of import; in order to determine the classification of a product, reliance can be placed on the Explanatory Notes to the HSN; the HSN is a multipurpose international product nomenclature governed by ‘The International Convention on the Harmonized Commodity Description and Coding System’ and developed by the World Customs Organization; it comprises of various commodity groups, each identified by a six-digit code, arranged in a legal and logical structure and is supported by well-defined rules to achieve uniform classification; the HSN Explanatory Notes are not merely of persuasive value; instead, they are entitled to greater consideration and this proposition has been upheld in a catena of decisions:
