Circular No. 454/20/99-CX
Government of India
Ministry of Finance, Department of Revenue,
Central Board of Excise and Customs,
Subject : Central Excise – Duty liability on the activity of upgradation of computer system and addition of hard disk – regarding
I am directed to say that certain doubts have been expressed whether upgradation of computer system by increasing the storage/processing capacity of computer system etc. will amount to manufacture under the Central Excise Act, 1944.
2. The matter has been examined by the Board. It is observed that computers are covered under heading No. 84.71 of the Schedule to the Central Excise Tariff Act, 1985 which describes computers as automatic data processing machines. An automatic data processing machine will be known by this name, irrespective of its capacity of storage and processing. The storage capacity or processing speed may be enhanced by increasing the hard disk capacity, RAM or by changing the processor chip (say from 386 to 486, or say from Pentium I to Pentium II), but it cannot be said that new goods with a different name, character and use have come into existence, which can be subjected to duty again.
3. Upgradation of computer may involve changing the processor (e.g. from 486 chip to Pentium or Pentium II chip), the motherboard, the hard disk etc. The new components which replace the components in existing system have already suffered duty. The remaining old parts of the old system have also suffered duty as a system initially. The upgradation is generally carried out at residential or business premises of the customer and there is no rigid requirement for the upgradation to be done at the factory of the manufacturer. The value addition in such upgradation involved, whether or not of significant magnitude, is by itself not relevant to determine whether upgradation is a process of manufacture.
4. In view of the above facts and taking note of the existing law, Board is of the view that the upgrading of old and used computer systems would not amount to manufacture, in so far as the upgradation does not bring into existence goods with a distinct new name, character and use.
Under Secretary to the Govt. of India