REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1583 OF 2003

M/s. Xerox India Ltd.                            ………...…....Appellant

Versus

Commissioner of Customs, Mumbai         ...………...…..Respondent

J U D G M E N T

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  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 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  

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of Entry before the Customs Officer.  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 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 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 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-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  machines  require  to  be  classified  under  Chapter  Heading  

8479.89 (Residual Heading).  

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4) Before examining this question, the relevant Headings and sub-Headings may  

be noted.  Heading 84.71 and 84.79 of 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 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.”   

           “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  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 as  

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 Note 5B.  The moment it  

is able to perform independently of a computer, its claim to be a unit of the  

computer ceased to exist.  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 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  

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while deciding the appeal filed by the appellant has concurred with the finding  

and conclusion reached 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 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.   

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  

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 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 after scanning. Thus, according to the learned counsel, a copier serves as a  

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combined scanner-cum-printer.   The learned counsel  submits  that  while the  

Multi-Functional  Machines (which includes printer,  scanner  and copier)  are  

not Automatic Data Processing Machines (in short, “ADPM”), they serve as  

input 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  

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 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 5(B)(a);  (ii)  the  

relevant chapter notes 5(B)(b) and 5(B)(c) have not been relied on; (iii) 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 note  

5(B),  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)  

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5(b)(c): it is able to accept or deliver data in a form (codes or signals) which  

can be used by the 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  for”  and  it  is  clear  that  the  Multi-

Functional Machines  in the present case are meant to be used with an ADPM,  

as neither 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  are not qualifiable under chapter note 5(B). As chapter  

note 5(B) 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 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 in dispute.  Referring to chapter note 5(D), 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  

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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 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  

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 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 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  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,  

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as  per  chapter  note  5(E)  to  Chapter  84  of  the  Act,  they  are  to  be  either  

classified  under  heading  appropriate  to  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 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 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 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 period, was as under :-

“5(A) For the purposes of heading no. 84.71, the  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 programme;  

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

(3)  performing  arithmetical  computations  specified by the 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 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 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;

(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.

(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 paragraph (B)(b) and (B)(c) above,  are  in  all  cases  to  be  classified  as  units  of  heading No. 84.71.

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(E)  Machines  performing  a  specific  function  other than data processing and incorporating or  working in conjunction with 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 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  

the Customs Act) provides:   

“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:

“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   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:

“Unless  the  context  otherwise  requires,  composite  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  

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that  machine  which  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 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(B), as it is to be used principally in 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 correctly pointed out by the learned counsel  

for  the  appellants,  as  the  Multi-Functional  Machines  are  presented  

independently.  Moreover,  since  predominant  components  are  relating  to  

printing  function,  chapter  note  5(D)  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 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.

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  

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one function of the Multi-Functional Machines, even printing, can be seen as  

predominant. This has clearly been shown to be incorrect on facts, and in light  

of  the submissions by the appellants,  there has  been no case made out  for  

classification of the goods under the 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, 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 correct classification for  

the imported Multi-Functional Machines involved in this case, namely models  

Xerox Regal  5799,  Xerox Workcentre  XD 100 and Xerox Workcentre  XD  

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 05.11.2002 is set aside.  Parties to bear their  

own costs.

   .......……………………J.                                                 [ D.K. JAIN ]

...………………………J.   [ H.L. DATTU ]

New Delhi, November 22, 2010.

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