Supreme Court Clarifies Classification of All-in-One Desktop Computers under Central Excise Tariff Act: Hewlett Packard India vs. Commissioner of Customs (2023)

Date of the Judgment: 17 January 2023

Citation: (2023) INSC 28

Judges: Surya Kant, J. and Vikram Nath, J.

Can an “All-in-One Integrated Desktop Computer” be classified as a portable device simply because it weighs less than 10 kg? The Supreme Court of India recently addressed this question, focusing on the correct classification of such devices under the Central Excise Tariff Act, 1985. This case revolves around whether these computers should be taxed based on retail price or a different price mechanism. The judgment was delivered by a two-judge bench comprising Justice Surya Kant and Justice Vikram Nath, with Justice Surya Kant authoring the opinion.

Case Background

The appellants, Hewlett Packard India Sales Pvt. Ltd. and Lenovo (India) Pvt. Ltd., imported “All-in-One Integrated Desktop Computers,” classifying them under ‘Tariff Item 8471 50 00’ according to the self-assessment procedure. However, customs authorities reclassified these goods under ‘Tariff Item 8471 30 10’. This reclassification was upheld by the Assistant Commissioner of Customs, the Commissioner of Customs (Appeal), and the Customs, Excise and Service Tax Appellate Tribunal (CESTAT).

The dispute arose because while the rate of duty was the same under both tariff items, the method of computation differed. ‘Tariff Item 8471 30 10’ attracts valuation under Section 4A of the Central Excise Act, 1944, based on a percentage of the retail sale price. In contrast, ‘Tariff Item 8471 50 00’ uses a price mechanism under Section 4 of the Central Excise Act, 1944, which would result in a lower overall duty liability. The core of the dispute was whether these all-in-one computers should be considered “portable” under the tariff schedule.

Timeline

Course of Proceedings

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), West Zonal Bench, Mumbai, upheld the decisions of the lower authorities, confirming the classification of the imported goods under ‘Tariff Item 8471 30 10’. The CESTAT’s reasoning was primarily based on the fact that the goods weighed less than 10 kg and were therefore considered “portable.” The appellants then appealed to the Supreme Court of India.

Legal Framework

The core legal issue revolves around the interpretation of the First Schedule to the Central Excise Tariff Act, 1985, specifically the classification of Automatic Data Processing Machines (ADPs). The relevant tariff items are:

• Tariff Item 8471: Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data on to data media in coded form and machines for processing such data, not elsewhere specified or included.
• Tariff Item 8471 30: Portable digital automatic data processing machines, weighing not more than 10 kg, consisting of at least a central processing unit, a keyboard, and a display.
  • Tariff Item 8471 30 10: Personal computer.
  • Tariff Item 8471 30 90: Other.
• Tariff Item 8471 41: Comprising in the same housing at least a central processing unit and an input and output unit, whether or not combined.
  • Tariff Item 8471 41 10: Micro computer.
  • Tariff Item 8471 41 20: Large or main frame computer.
  • Tariff Item 8471 41 90: Other.
• Tariff Item 8471 49 00: Other, presented in the form of systems.
• Tariff Item 8471 50 00: Processing units other than those of subheading 8471 41 or 8471 49, whether or not containing in the same housing one or two of the following types of unit: storage units, input units, output units.

The classification under these tariff items determines the method of valuation for excise duty. ‘Tariff Item 8471 30 10’ is valued under Section 4A of the Central Excise Act, 1944, based on the retail sale price, while ‘Tariff Item 8471 50 00’ is valued under Section 4 of the Central Excise Act, 1944, based on the transaction value.

Arguments

Appellants’ Submissions:

• The appellants argued that ‘Tariff Item 8471 30 10’ applies to laptops or notebooks, which are inherently portable and functional without a constant external power source. They contended that the “All-in-One Integrated Desktop Computers” lack this inherent portability.
• They submitted that the CESTAT erred by solely relying on the weight of the goods (less than 10 kg) to classify them as “portable.” They argued that portability should also consider functionality and ease of transport, suitable for a mobile lifestyle.
• The appellants highlighted that the CESTAT incorrectly used the dictionary definition of “portable” instead of defining it within the context of Automatic Data Processing Machines (ADPs). They emphasized that ‘Sub-Heading 8471 30’ is a sub-classification of ‘Heading 8471,’ and thus, the term “portable” should be interpreted within that context.
• The appellants also pointed out that the European Commission and the World Customs Organization’s Harmonized System Explanatory Notes (HSN) do not classify these goods as portable under ‘Tariff Item 8471 30 10’.

Respondent’s Submissions:

• The respondent argued that since the term “portable” is not defined in the statute, it should be interpreted using its general meaning. They asserted that the dictionary definition of “portable” is sufficient to resolve the dispute.
• They contended that the legislature’s intention was clear: any ADP weighing less than 10 kg is automatically considered portable. They relied on Mathuram Agrawal v. State of MP [(1999) 8 SCC 667] to support the argument that the plain meaning of the language used in a taxation statute should be followed.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the “All-in-One Integrated Desktop Computers” are to be classified as ‘portable’ under ‘Tariff Item 8471 30 10’ of the First Schedule to the Central Excise Tariff Act, 1985?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Court used Mathuram Agrawal v. State of MP [(1999) 8 SCC 667] to highlight that the intention of the legislature has to be discerned from the plain and unambiguous meaning of the language used in a taxation statute, but clarified that the term “portable” should be interpreted in the context of ADPs.
• The Court relied on Collector of Central Excise, Shillong v Wood Craft Products Limited [(1995) 3 SCC 454] to note that the HSN is a safe guide for classifying goods.
• The Court referred to CCE v Krishna Carbon Paper Co. [(1989) 1 SCC 150] to explain the correct approach to be taken when a word is to be defined in the context of any entry under the First Schedule.
• The Court cited Commissioner of Customs, Bangalore v Acer India (P) Ltd. [(2008) 1 SCC 382] to caution against using online sources like Wikipedia for legal dispute resolution.
• The Court used Dabur India Ltd. v CCE, Jamshedpur [(2005) 4 SCC 9] to emphasize that the burden of proof was on the customs authorities to showcase a different classification.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to interpret the term “portable” in the context of Automatic Data Processing Machines (ADPs) and not merely based on dictionary definitions or weight. The Court emphasized that the practical aspects of portability, including the ability to easily carry and use the device in transit, should be considered. The Court also highlighted the impact of technological advancements on the understanding of goods and trade.

Fact:Law Ratio

The Court’s reasoning was a blend of factual analysis (assessing the physical characteristics of the goods) and legal interpretation (understanding the meaning of “portable” within the statute). The Court gave more weight to the factual aspects of the case.

The Court rejected the interpretation that weight is the sole determinant of portability. It also rejected the dictionary definition of portable and instead interpreted the word in the context of ADPs. The Court’s decision was based on the practical aspects of portability, considering the dimensions and usage of the device.

The court quoted:

• “The trade meaning is one which is prevalent in that particular trade where the goods is known or traded. If special type of goods is subject-matter of a fiscal entry then that entry must be understood in the context of that particular trade, bearing in mind that particular word.”
• “The first ingredient is their ability to be carried around easily which includes all aspects such as weight and their dimensions.”
• “Keeping in view the applicable understanding of the element of ‘portable’ as understood in common parlance used in the trade of ADPs, we must hold that the Concerned Goods are not portable…”

There were no minority opinions in this case.

The Supreme Court’s decision has significant implications for the classification of similar devices. It clarifies that the term “portable” should not be interpreted solely based on weight but should also consider the practical aspects of portability. This decision may lead to changes in how customs authorities classify such devices in the future.

The court introduced the principle that the term “portable” should be interpreted in the context of the specific goods being classified, in this case, Automatic Data Processing Machines (ADPs). The court also emphasized that weight alone is not sufficient to determine portability and that practical aspects of portability, such as ease of transport and daily use, should also be considered.

Key Takeaways

• The term “portable” in the context of Automatic Data Processing Machines (ADPs) should not be solely determined by weight.
• Practical aspects of portability, such as ease of transport, dimensions, and daily use, must be considered.
• The interpretation of terms in tariff schedules should be done in the context of the specific goods and trade.
• Customs authorities bear the burden of proof when seeking to reclassify goods.
• Technological advancements should be considered when interpreting legal provisions.

This judgment will likely impact how customs authorities classify similar devices in the future, moving away from a sole focus on weight to a more holistic assessment of portability. It also highlights the need for legal interpretations to keep pace with technological advancements and their impact on trade and consumer understanding.

Directions

The Supreme Court directed that the valuation of the Concerned Goods for levy of duty be determined under the initially declared ‘Tariff Item 8471 50 00’. All necessary consequences were to follow.

Development of Law

The ratio decidendi of this case is that the term “portable” in the context of Automatic Data Processing Machines (ADPs) should be interpreted considering the practical aspects of portability, such as ease of transport and daily use, and not solely based on weight. This decision changes the previous position where weight was considered a primary factor in determining portability.

Conclusion

The Supreme Court allowed the appeals, setting aside the orders that classified “All-in-One Integrated Desktop Computers” under ‘Tariff Item 8471 30 10’. The court held that these devices are not “portable” and should be classified under ‘Tariff Item 8471 50 00’. This decision clarifies the interpretation of “portable” in the context of ADPs and emphasizes the need to consider practical aspects of portability, not just weight.

Category

Parent Category: Central Excise Tariff Act, 1985

Child Categories:

• Tariff Item 8471, Central Excise Tariff Act, 1985
• Tariff Item 8471 30, Central Excise Tariff Act, 1985
• Tariff Item 8471 30 10, Central Excise Tariff Act, 1985
• Tariff Item 8471 50 00, Central Excise Tariff Act, 1985
• Automatic Data Processing Machines
• Customs and Excise Law
• Classification of Goods
• Portability

FAQ

Q: What was the main issue in the Hewlett Packard India vs. Commissioner of Customs case?

A: The main issue was the correct classification of “All-in-One Integrated Desktop Computers” under the Central Excise Tariff Act, 1985. The dispute was whether these computers should be classified as “portable” under ‘Tariff Item 8471 30 10’ or as processing units under ‘Tariff Item 8471 50 00’.

Q: Why did the classification matter?

A: The classification mattered because it determined the method of valuation for excise duty. ‘Tariff Item 8471 30 10’ is valued based on retail sale price, while ‘Tariff Item 8471 50 00’ is valued based on transaction value, resulting in different duty liabilities.

Q: What did the Supreme Court decide about the term “portable”?

A: The Supreme Court decided that the term “portable” should not be interpreted solely based on the weight of the device. It emphasized that practical aspects of portability, such as ease of transport, dimensions, and daily use, should also be considered in the context of Automatic Data Processing Machines (ADPs).

Q: What are the practical implications of this judgment?

A: This judgment means that customs authorities should not automatically classify devices weighing less than 10 kg as “portable.” They need to consider whether the device can be easily carried around and used in transit. This may lead to changes in how similar devices are classified and taxed.

Q: How does this judgment affect consumers?

A: This judgment may indirectly affect consumers by influencing the pricing of “All-in-One Integrated Desktop Computers” and similar devices. If devices are classified under ‘Tariff Item 8471 50 00’, the duty may be lower, potentially leading to lower prices for consumers.

Q: What was the court’s view on the use of online sources like Wikipedia?

A: The court cautioned against using online sources like Wikipedia for legal dispute resolution, emphasizing the need for reliable and authentic sources. It noted that such sources are crowd-sourced and not always academically dependable.