M/S. XEROX INDIA LTD.versusCOMMISSIONER OF CUSTOMS, MUMBAI

              [2010] 14 (ADDL.) S.C.R. 199


               MIS. XEROX INDIA LTD.                           A
                          v.
        COMMISSIONER OF CUSTOMS, MUMBAI
           (Civil Appeal No. 1583 of 2003)
                  r.JOVEMBER 22, 2010
                                                               B
            [D.K. JAIN AND H.L. DATTU, JJ.)

     Customs Tariff Act, 1985 - Chapter Heading 8471.60
and 8479.89 - Multi-Functional Machines (which include
printer, scanner and copier) - Classification of - Held: The C
Multi-Functional Machines in question, having printing
function as the principal function meets the requirement of
Chapter Note 5(8), 5(C) and 5(0) - Chapter Note 5(E) not
applicable - Thus, classifiable under Chapter Heading
8471.60 and not under 8479.89.                               O
    The question for consideration in the instant appeal
was whether the Multi-Functional Machines performing
the functions of printers, fax machines, copier and/or
scanner, imported by the appellants would be classified
as Printers in Automatic Inter Processing Machine (ADD)
                                                               E
under Chapter Heading 8471.60 or the same would fall
under Chapter Heading 8479.89 (Residual Heading).

    Allowing the appeal, the Court
                                                               F
      HELD: The Multi-Functional Machines in question,
Xerox Regal 5799 has about 85% of its total parts and
components along with manufacturing cost allocated to
printing, as does 74% of the Xerox XD155df model. This
clearly shows that the printing function emerges as the        G
principal function and gives the Multi-Functional
Machines its essential character. Having such a nature,
it also clearly meets the three-fold requirement of Chapter
Note 5(8), as it is to be used principally in Automatic Data
                           199                                 H
    200    SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R.


A Processing Machines (ADPM), it is connectable to the
  Central Processing Unit, and it is able to accept data in a
  form (codes or signals) which can be used by the system.
  Further, there would be no application of Chapter Note
  5(E), as the Multi-Functional Machines are presented
B independently.       Moreover,     since     predominant
  components are relating to printing function, Chapter
  Note 5(0) also becomes relevant which includes printers
  under Heading 84.71. Based on the nature of the
  functions they perform, the Multi-Functional Machines
c would serve as input and output devices of an ADPM
  (computer) and thus serve as unit of an ADPM, which on
  a reading of chapter note 5(C), clearly classifies them as
  falling under Heading 84. 71.60 of the Customs Tariff Act,
  1985. No case is made out for classification of the goods
D under the Residuary Heading 84.79.89. Thus the correct
  classification for the imported Multi-Functional Machines
  invorved in this case, namely models Xerox Regal 5799,
  Xerox Workcentre XO 100 and Xerox Workcentre XO
  155df should be under Customs Tariff Chapter heading
E 84.71.60. (Paras 13, 14 and 15] (209-C-H; 210-A-C]

         MX Software Services Ltd. v. Commissioner of Customs,
    Mumbai2001 (131) ELT 422 (Tri-Del); Xerox Modicorp Ltd.
    v. Commissionerof Customs, Chennai 2001 (127) ELT 285
    (Tri-Del) - referred to.
F
                         Case Law Reference:
          2001 (131) ELT 422 (Tri-Del)   Referred to.   Para 5
          2001 (127) ELT 285 (Tri-Del)   Referred to.   Para 7
G       CIVIL APPELLATE JURISDICTION : Civil Appeal No.
    1583 of 2003.

       From the Judgment & Order dated 5.11.2002 of the
  Customs Excise and Gold (Control) Appellate, Tribunal, New
H Delhi in Appeal No C/30012002-B.
      XEROX INDIA LTD. v. COMMISSIONER OF                    201
               CUSTOMS, MUMBAI
    V. Lakshmi Kumaran, L. Sadri Narayan, Alok Yadav (for           A
M.P. Devanath) for the Appellant.

    V. Shekhar, Aruna Gupta, Prasanth B., Naresh Kaushik for
B.K. Prasad for the Respondent.

    The Judgment of the Court was delivered by                      B

     H.L. DATTU, J.1. In this appeal, the only question, that
arises for our consideration and decision is, whether the Multi-
Functional Machines imported by the appellants fall under
Chapter Heading 8479.89 (Residual Heading) as claimed by            c
the Revenue or under Chapter Heading 8471.60, as claimed
by the appellants, under Customs Tariff Act (hereinafter referred
to as, "the Act").

     2. The appellants are engaged in the trading of High           D
Technology reproduction and Duplicating machines, printers
and Multi-Functional Machines capable of discharging number
of functions. During the period March, September and
November, 1999, the appellants imported Xerox Regal 5799,
Xerox Work Centre XD100 and Xerox work Centre XD 155df
respectively and filed Bills of Entry before the Customs Officer.   E
The appellants sought classification of these imported
machines under Sub-Heading 8471.60 of the Act. The Deputy
Commissioner of Customs, vide his order dated 22.02.2000
classified the imported machines under Chapter Heading
8479.89 (Residual Heading) of the Act. Being aggrieved by the       F
same, the appellants filed an appeal before the Commissioner
of Customs (Appeals), Mumbai, who by his order dated
27.02.2000, rejected the appeal and thereby confirmed the
order passed by the Deputy Commissioner of Customs. The
appellants questioned the said order before Customs, Excise         G
and Gold (Control) Appellate Tribunal, New Delhi (hereinafter
referred to as, "the Tribunal"). The Tribunal, by its order dated
5.11.2002, has rejected the appeal and has confirmed the
order passed by the First Appellate Authority. Aggrieved by the
order passed by the Tribunal, the present appeal has been           H
    202     SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R.


A preferred under Section 130E of the Customs Act, 1962.

       3. To put it broadly, the controversy between the appellants
  and the Revenue is with regard to the classification of Xerox
  Regal 5799, Xerox Work Centre XD100 and Xerox Work
  Centre XD155df which, according to the appellants, are Multi-
8
  Functional Machines performing the functions of printers, fax
  machine, copier and/or scanner and therefore, requires to be
  classified as Printers in Automatic Inter Processing Machine
  (ADD) under Chapter Heading 8471.60 and the view of the
  authorities under the Act and the Tribunal is that the aforesaid
C machines require to be classified .under Chapter Heading
  8479.89 (Residual Heading).

      4. Before examining this question, the relevant Headings
  and sub-Headings may be noted. Heading 84.71 and 84.79 of
D the Customs Tariff Act at the material point of time stood 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
E
          machines for processing such data not elsewhere
          specified or included."

          "8471.60. Inputs or output units whether or not containing
          storage units in the same housing."
F
           "84.79: Machines and mechanical appliances having
          individual functions not specified or included elsewhere in
          this Chapter."

       5. The Deputy Commissioner of Customs, while holding
G that the imported machines require to be classified under the
  residual heading, was of the view that the digital printer was
  not a unit of the automatic data processing unit a$ such. To
  qualify as a unit of an automatic data processing machine, it
  should be able to work only with a computer as per Chapter
H Note 58. The moment it is able to perform independently of a
      XEROX INDIA LTD. v. COMMISSIONER OF                   203
        CUSTOMS, MUMBAI [H.L. DATTU, J.]
computer, its claim to be a unit of the computer ceased to exist.   A
Merely working in conjunction with a computer did not bestow
the status of a unit of the computer as a machine. Since digital
printer was not classifiable under any specific heading, the
same requires to be classified under residual heading. It is also
observed that the machine is capable of functioning as a stand      B
alone digital copier even without a computer and therefore, in
terms of note 5(E) of Chapter 84 of the Act, the imported
machine cannot be classified under heading 84. 71. The
Appellate Authority while deciding the appeal filed by the
appellant has concurred with the finding and conclusion reached     c
by Deputy Commissioner of Customs. The Tribunal, while
accepting the view of the authorities under the Act, inter-alia,
has observed that the machines in dispute are Multi-Functional
Machines based on digital technology and performs the
functions of a printer, scanner and digital copier and the said     D
machines are not solely or principally used in an automatic data
processing machine and further observed that the earlier
decisions rendered by the Tribunal in the case of MX Software
Services Ltd. v. Commissioner of Customs, Mumbai 2001
(131) ELT 422 (Tri-Del) is clearly distinguishable on facts.
                                                                    E
     6. Sri V. Lakshmi Kumaran, learned counsel appearing for
the appellants, has argued in great detail for the classification
of imported machines - Digital Printer under heading 84. 71.60.
In the course of his detailed submissions, he has explained that
a printer performs the function of printing documents, which        F
works alongside a computer. The printing is carried out by the
computer giving orders in the form of a digital signal, which is
transmitted through wires, converted into~a readable language,
and then printed. He has gone on to explain the function of a
scanner, which converts documents into digital signals for          G
storage in the computer. In this way, the scanner and printer
serve as input and output devices for the computer. He further
explains the purpose of a digital scanner, which copies the
document and sends it to the central processing unit of the
computer; independently, the copier can also print on its own       H
    204    SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R.


A   after scanning. Thus, according to the learned counsel, a copier
    serves as a combined scanner-cum-printer. The learned
    counsel submits that while the Multi-Functional Machines (which
    ineludes printer, scanner and copier) are not Automatic Data
    Processing Machines (in short, "ADPM"), they serve as input
B   and output devices of an ADPM (computer) and thus they fall
     under sub-heading 84.71.60. It is further contended that the
    Chapter heading 84.71 covers ADPM and units thereof, which
    when read with chapter note 5(C) to chapter 84 of the Act
    clearly establishes that the heading would include both ADPMs
c   as well as separately presented units of ADPMs. He also relies
    on some of the explanatory notes of the Harmonized System
    of Nomenclature {for short "HSN") to buttress this contention
    (specifically, internal page number 1406 of the HSN Handout).
    He submits that the "unit" referred to in Chapter heading 84.71
    is not restricted to essential parts and components of an
0
    ADPM, as there is a separate Chapter heading 84.73 which
    deals with the same, and that does not apply in the instant case.
    It is also pointed out by Sri V. Lakshmi Kumaran that the
    decision of the Tribunal is erroneous on three grounds, namely,
    (i) the Tribunal ought not to have placed reliance on chapter note
E   5(B)(a); (ii) the relevant chapter notes 5(B)(b) and 5(B)(c) have
    not been relied on; (Hi) after relying on chapter note 5(B)(a),
    there has been incorrect application of the same. He further
    submits that the requirement of the Chapter, that to be regarded
    as a unit of an ADPM, a three-fold test, as laid out in chapter
F   note 5(8), should be fulfilled, i.e. Chapter 5(B){a): it is of a kind
    solely or principally used in ADPM; (2) 5(B)(b): it is connectable
    to the Central Processing Unit either directly or through one or
    more other units; and (3) 5(b)(c): it is able to accept or deliver
    data in a form (codes or signals) which can be used by the
G   system. He submits that it is undisputed that the Multi-Functional
    Machines meet the requirements of chapter notes 5(B)(b) and·
    5(B)(c) as they are connected to a Central Processing Unit and
    can accept and deliver recognizable data. Further, it is argued
    that the term "principally" in chapter note 5(B)(a) implies "meant
H   for" and it is clear that the Multi-Functional Machines in the
     XEROX INDIA LTD. v. COMMISSIONER OF                    205
       CUSTOMS, MUMBAI [H.L. DATTU, J.]
present case are meant to be used with an ADPM, as neither          A
the printing nor the scanning function can be performed without
an ADPM, and little purpose will be served to the consumers if
they do not perform these essential functions. Thus, there has
been an erroneous finding by the Tribunal that chapter note
5(B)(a) does not apply and that the Multi-Functional Machines       B
are not qualifiable under chapter note 5(8). As chapter note
5(8) is to be read with chapter note 5(E), he points out that the
wording of chapter note 5(E) is "machines performing a specific
function other than data processing and incorporating or
working in conjunction with an automatic data processing            c
machine", which does not apply as neither are the Multi-
Functional Machines in the case incorporating an ADPM, nor
are they presented with an ADPM, but rather are presented
independently. Therefore, he submits that chapter note 5(E) has
no application for the purpose of classification of the machines    0
in dispute. Referring to chapter note 5(0), which includes
printers under Chapter heading 84.71, the learned counsel
submits that upto 85% of printer-related components are
present in the machine and they are to function as printers.
Thus, he argues the machines in dispute require to be classified
                                                                    E
only under this heading.

     7. Sri V. Lakshmi Kumaran also invites our attention to
Rule 3 of the General Rules for the Interpretation of the Import
Tariff Schedule, in particular, Rule 3(a) which provides that
specific headings are to be preferred to non-specific residual      F
headings, and Rule 3(b) which provides for classification of
goods to be done based on the material or component which
gives them their essential character. The learned counsel
reiterates that upto 85% of the imported components are
dedicated to the printing function and the product technology       G
is specifically intended for use as a network printer with "add-
ons". He has also pointed out how in the United States of
America, Xerox Documents Work Center Pro 535, Cannon
CLC 1000 and three models in the Cannon GP series, which
are similar to the Multi-Functional Machines,. have been placed     H
    206    SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R.


A under heading 84.71. The learned counsel drew our attention
  to the Judgment of the Tribunal in MX Software Services
  (supra) and Xerox Modicorp Ltd. v. Commissioner of
  Customs, Chennai 2001 (127) ELT 285 (Tri-Del) to contend
  that on identical facts, the Multi-Functional Machines are
B classified under the heading 84. 71.60.
          8. Contending to the contrary, Sri V. Shekhar, the learned
    senior counsel appearing for the Revenue, after referring to the
    order of the Tribunal, submitted that unless the Tribunal's order
    is found to be perverse or arbitrary, this Court may not interfere
C   with the conclusion reached by it. He also submitted that the
    imported machines are performing specific functions other than
    data processing, and are working in conjunction with an ADPM,
    and thus, as per chapter note 5(E) to Chapter 84 of the Act,
    they are to be either classified under heading appropriate to
D   their respective functions, or under Residuary heading. He
    submits that since the copy unit in the device cannot be
    consider as a photocopier so as to fall under Chapter 90, it,
    therefore, must essentially come under Chapter Heading
    84. 79.89. He further argued that the machines in question are··~
E   not printer simpliciter attached to a computer, but are capable
    of performing multifunction input and output facility, and,
    therefore, it is difficult to say that the machine is performing only
    one function, i.e. printing. His argument is that no single function
    of the machines, printing or otherwise, can be said to be
F   predominant and the device/system in the machine has variable
    number of separate units capable of performing separate
    function. He also submitted that on a reading of chapter notes
    5(B}(b), 5(B)(c) with 5(E), only a printer, keyboard, x-y co-
    ordinate input devices and disk storage unit, which satisfy
G   conditions of Notes 5(B}{b) and 5(B)(c), are classifiable under
    heading 84.71.60. The rest including the Multi- Functional
    Machines in this case, as per Note 5(E), has to be classified
    under the residuary heading of 84.79.89.
       9. Chapter note 5 of Chapter 84, during the relevant
H period, was as under:-
 XEROX INDIA LTD. v. COMMISSIONER OF                     207
   CUSTOMS, MUMBAI [H.L. DATTU, J.]
"5(A) Fo.r the purposes of heading no. 84. 71, the               A
expression "automatic data processing machines" means:

(a) Digital machines, capable of (1) storing the processing
programme or programmes and at least the data
immediately necessary for the execution of the
                                                                 B
programme;

(2) being freely programmed in accordance with the
requirements of the user;

(3) performing arithmetical computations specified by the        c
user; and

(4) executing, without human intervention, a processing
programme which requires them to modify their execution,
by logical decision during the processing run;

(b) Analogue machines capable of simulating
mathematical models and comprising at least: analogue
elements, control elements and programming elements;

(c) Hybrid machines consisting of either a digital machine       E
with analogue elements or an analogue machine with
digital elements.

(B) Automatic data processing machines may be in the
form of systems consisting of a variable number of
separate units. Subject to paragraph (E) below, a unit is        F
to be regarded as being a part of a complete system if it
meets all of the following conditions:

(a) It is of a kind solely or principally used in an automatic
data processing system;                                          G

(b) It is connectable to the central processing unit either
directly or through one or more other units; and

(c) It is able to accept or deliver data in a form (codes or
signals) which can be used by the system.                        H
    208    SUPREME COURT REPORTS [2010) 14 (ADDL.) S.C.R.


A         (C) Separately presented units of an automatic data
          processing machine are to be classified in heading No.
          84.71.

          (D) Printers, keyboards, X-Y co-ordinate input devices and
          disk storage units which satisfy the conditions of
B
          paragraph (B)(b) and (B)(c) above, are in all cases to be
          classified as units of heading No. 84.71.

          (E) Machines performing a specific function other than data
          processing and incorporating or working in conjunction with
c         an automatic data processing machine are to be classified
          in the headings appropriate to their respective functions
          or, failing that, in residual headings."

         10. In order to determine the classification of the Multi
0   Functional Machines, it is necessary to look into some relevant
    provisions. Rule 3(a) of the General Rules for the Interpretation
    of the First Schedule (which along with the Second Schedule
    specifies the rates at which duties of customs shall be levied
    under t~e Customs Act) provides:

E         ''The heading which provides the most specific description
          shall be preferred to headings providing a more general
          description ... "

          11. Further, Rule 3(b) of the same reads as follows:
F
          "Mixtures, composite goods consisting of different
          materials or made up of different components, and goods
          put up in sets for retail sale, which cannot be classified by
          reference to (a), shall be classified as if they consisted of
          the material or component which gives them their
G         essential character, insofar as this criterion is applicable."
          (emphasis supplied).

       12. In addition, Note 3 of Section XVI (which includes both
    Chapter 84 and Chapter 85) reads as follows:
H
      XEROX INDIA LTD. v. COMMISSIONER OF                    209
        CUSTOMS, MUMBAI [H.L. DATTU, J.]

    "Unless the context otherwise requires, composite                A
    machines consisting of two or more machines fitted
    together to form a whole and other machines designed for
    the purpose of performing two or more complementary or
    alternative functions are to be classified as if consisting
    only of that component or as being that machine which            B
    performs the principal function." (emphasis supplied).

     13. It is not in dispute that the Multi-Functional Machines
in question, Xerox Regal 5799 has about 85% of the its total
parts and components along with manufacturing cost allocated         C
to printing, as does 74% of the Xerox XD155df model. This
clearly shows that the printing function emerges as the principal
function and gives the Multi-Functional Machines its essential
character. Having such a nature, it also clearly meets the three-
fold requirement of chapter note 5(8), as it is to be used
principally in ADPM, it is connectable to the Central Processing     D
Unit, and it is able to accept data in a form (codes or signals)
which can be used by the system. Further, there would be no
application of chapter note 5(E) as correctly pointed out by the
learned counsel for the appellants, as the Multi-Functional
Machines are presented independently. Moreover, since                E
predominant components are relating to printing function,
chapter note 5(0) also becomes relevant which includes
printers under heading 84. 71. We are also satisfied with the
contention of the appellants that based on the nature of the
functions they perform, the Multi-Functional Machines would          F
serve as input and output devices of an ADPM (computer) and
thus serve as unit of an ADPM, which on a reading of chapter
note 5(C), clearly classifies them as falling under heading
84.71.60 of the Act.
                                                                     G
     14. We are not in agreement with the submission made
by the learned senior counsel for the Revenue. The primary
contention of the respondent is that no one function of the Multi-
F unction a I Machines, even printing, can be seen as
predominant. This has clearly been shown to be incorrect on
                                                                     H
        210      SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R.


     A facts, and in light of the submissions by the appellants, there
       has been no case made out for classification of the goods
       underthe residuary heading 84.79.89. We may also notice that
       the Tribunal, while considering the decision on which reliance
       was placed by learned counsel appearing for the appellants,
     s has stated that those decisions are distinguishable on facts
.'     without appreciating that in principle, the case cannot be
       distinguished.

           15. In view of the above, we are of the opinion that the
     C correct classification for the imported Multi-Functional
       Machines involved in this case, namely models Xerox Regal
       5799, Xerox Workcentre XO 100. and Xerox Workcentre XO
       155df should be under Customs Tariff Chapter heading
       84.71.60. Accordingly, the appeal is allowed and the order
       passed by the Tribunal in Appeal No. C/300/2002-B dated
     D 05.11.2002 is set aside. Parties to bear their own costs.

        K.K.T.                                       Appeal allowed.