Case Note & Summary
The case involved a dispute between the Commissioner of Customs, Chennai, and M/s Hewlett Packard India Sales (P) Ltd regarding the classification of imported laptops with preloaded software. The Department demanded customs duty of approximately Rs.5.9 crores by classifying the goods under Heading 84.71 and denying the benefit of exemption under Notification No.21/2002-Cus. The respondent contested this classification, arguing that the software-loaded hard disks should be classified under Heading 85.24, citing previous Tribunal decisions. The CESTAT had initially ruled in favor of the respondent, allowing the appeal and granting duty exemption. The Supreme Court was tasked with determining whether the operating systems, which control the laptop's functionality, should be classified separately or as part of the laptop. The Court analyzed the definitions of software and hard disks, concluding that the preloaded operating system is integral to the laptop's operation. It emphasized that without the operating system, the laptop would be non-functional, akin to an empty building. The Court ultimately upheld the Department's classification of the laptops under Heading 84.71, while recognizing that packaged software could be classified under Heading 85.24. The appeal by the Department was allowed, and the Tribunal's judgment was set aside, with no order as to costs.
Headnote
A) Customs Law - Classification of Goods - Classification of Software-Loaded Hard Discs - Customs Tariff Act, 1985, Heading 84.71 and 85.24 - The Court held that preloaded operating systems on hard disks form an integral part of laptops and should be classified under Heading 84.71, while packaged software is classified under Heading 85.24. The Department's classification was upheld as correct, and the Tribunal's decision was set aside (Paras 10-12).
Issue of Consideration
Whether operating systems preloaded in laptops are classifiable as a separate entity under CTH 85.24 or as an integral part of the laptop under CTH 84.71.
Final Decision
The Supreme Court allowed the appeal by the Commissioner of Customs, classifying the imported laptops under Heading 84.71 and the software-loaded hard disks under Heading 85.24. The Tribunal's judgment was set aside, with no order as to costs.
Law Points
- Customs classification
- duty exemption
- software classification
- integral part of machine
- Notification No.21/2002-Cus
