REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No.5394/2010  (D 4818/2010)

Commissioner of Customs, Bangalore     … Appellant (s)

                   Versus

M/s. N.I. Systems (India) P. Ltd.          … Respondent(s)

J U D G M E N T

S. H. KAPADIA, CJI

Delay condoned.

Facts:

2. M/s.  N.I.  Systems  (India)  Private  Limited  

(hereinafter  referred  to  as  “importer”)  is  a  100%  

subsidiary of N.I. Corporation at Austin, Texas, USA.

3. Assessee imports various products from its Holding  

Company and supplies the same to its customers in India.  

During the relevant assessment year, the assessee imported  

various products from their Principal.  The products were  

computer  based  instrumentation  products.   The  importer  

filed 64 bills of entries.  The importer claimed the items  

to be computers and/ or parts of computers.  The importer  

grouped the items in accordance with similar/ identical  

functions broadly under CTH 8471, 8473 and other headings

falling  under  Chapter  84.   Broadly,  the  importer  

categorized the imported items as follows:

(i) PXI Controllers

(ii) Input/Output Modules (also known as Modem or       Control/Adaptor Units)

(iii) Signal Converters.

(iv) Chassis and its parts.

4. On verification of the technical data (including the catalogue and the webcast  

of the importer),  the Original  Authority (“O.A.”) vide its decision dated 15.11.2006  

held that the subject goods were not structurally designed to function as a computer.  

Further, according to the O.A., in the ordinary course of trade no buyer will purchase  

the subject goods as computers on account of price differential between the price of the  

subject goods and the price of the computer. According to the O.A., the subject goods  

stood manufactured for a special purpose and that purpose was either measurement or  

control. According to the O.A., the importer, in this case, had conceded before it that a  

complete system performs the function of measurement  whereas if  one looks at the  

subject  goods  item-wise,  it  shows  that  each  item performs  a  sub-function  of  data  

acquisition processing. On the basis of the said concession, the O.A. concluded that  

each imported item constituted a part of a complete Measurement System. According to  

the  O.A.,  if  one  applies  the  test  of  common  parlance  then  the  subject  goods  are  

measuring/controlling instruments and even in trade parlance they are not known as  

computers. Lastly, the subject goods are costlier than ordinary computer and the trader  

buys  them  because  of  their  enhanced  capabilities  for  the  purposes  of

measuring/controlling  instruments.  According  to  the  O.A.,  the  subject  goods  are  

specially designed for industrial use which is indicated by the catalogue submitted by  

the  importer.  The  embedded  controllers  may  perform all  functions  of  a  CPU but,  

according to the O.A., the embedded controllers are not CPUs. According to the O.A.,  

one  more  concession  is  made  by  the  importer.  In  its  reply  to  the  show cause,  the  

importer  stated  that  they  use  real-time  operating  systems  (software)  and  not  the  

standard operating systems such as Microsoft Windows. Accordingly, the O.A. held  

that controllers are manufactured for a specific purpose and not as ADP Machines. The  

specific purpose being controlling/measurement as enumerated in the catalogue. In the  

circumstances,  the O.A. has broadly classified embedded Controllers,  Programmable  

Automation  Controllers  (“PACs”),  Data  Acquisition  Boards,  Digital  Input  Output  

Boards, PXI Chassis etc. under Chapter 90. The O.A. has rejected the classification  

sought by the importer under CTH 8471.

5. Aggrieved by the decision of the Additional Commissioner dated 15.11.2006,  

the  importer  preferred Appeal  No. 98/07-CUS(B) before Commissioner  of  Customs  

(Appeals). Vide decision dated 31.7.2007, the Commissioner (A) dismissed the appeal  

preferred by the importer.

6. Against decision dated 31.7.2007, the importer preferred Customs Appeal No.  

678/07 before CESTAT.  Vide its decision dated 29.6.2009, the Tribunal held that the  

main  item of  import  was  PXI  Controller  and  other  Controllers.   According  to  the  

Tribunal, these imported Controllers were nothing but ADP Machines.  According to

the  Tribunal,  the  importer  had  placed  before  it  the  sample  of  imported  items with  

enormous data including a diagram which read as follows:

“PXI  Controllers  =  Computers  =  Data  Processing  

Machines”

[See  page  10  of  presentation  of  the  

importer company]

7. According to the Tribunal, the diagram, on which  

reliance was placed by the importer, indicated that both  

PC and PXI Controller had a structure/ design which was  

common to Automatic Data Processing Machines.  According  

to  the  Tribunal,  PXI  controller  in  itself  is  not  a  

measuring instrument; that the input of PXI Controller is  

only in the digital form as in the case of a PC; that PXI  

Controller  is  in  turn  connected  with  the  processors,  

motherboard, hard drive with Windows XP, Serial Port, USB  

Port, Video Port, Ethernet Port, etc.  According to the  

Tribunal,  since  the  PXI  Controller  is  identical  in  

function to the normal home computer, both the items are  

comparable.  According to the Tribunal, a PXI Controller  

acts  as  a  Central  Processing  Unit  for  the  entire  PXI  

system.   According  to  the  Tribunal,  a  PXI  Controller  

processes  the  data  that  enters  from  the  external  

peripherals such as a mouse and a keyboard as well as from

the  internal  peripherals  such  as  PXI  Signal  Converting  

Modules (Cards).  There is no difference between a PXI  

Controller and a PC.  Thus, according to the Tribunal, a  

PXI  Controller  and  other  Controllers  imported  by  the  

assessee are all ADP Machines.  According to the Tribunal,  

all the imported Controllers carry out the functions of  

ADP Machines.  According to the Tribunal, each and every  

imported  Controller  retains  the  characteristics  of  ADP  

Machine.  According to the Tribunal, a PXI Controller can  

be  used  for  a  variety  of  applications  ranging  from  

advanced data acquisition to automatic manufacturing which  

clearly  indicated  that  the  imported  items  were  not  

measuring  instruments  or  their  parts  as  claimed  by  the  

Department.  According to the Tribunal, the imported items  

cannot be categorized as measuring instruments.  According  

to the Tribunal, PXI Controller per se is not a measuring  

instrument.  It can be used only in conjunction with an  

independent measuring instrument with suitable interface,  

hence, the PXI Controller/ other Controllers imported by  

the assessee cannot be classified under Chapter 90 of the  

Customs Tariff Act, 1975.  Hence, this Civil Appeal is  

filed  by  the  Department  against  the  decision  of  the  

Tribunal dated 29.6.2009 in favour of the importer.       

Relevant Provisions of CTA:

8. Before  proceeding  further,  we  need  to  quote  

hereinbelow  the  relevant  entries  referred  to  in  the  

Customs  Tariff  (2004-2005).   At  the  outset,  it  may  be  

mentioned that Chapter 84 finds place in Section XVI which  

deals  with  machinery  and  electrical  equipments.   The  

Section Note to Section XVI states that Section XVI does  

not cover articles falling in Chapter 90.

Notes 3 and 4 to Section XVI read as under:

“3.  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  that  machine  which  performs  the  principal function.”

“4. Where  a  machine  (including  a  combination  of  machines)  consists  of  individual  components  (whether  separate  or  interconnected  by  piping,  by  transmission devices, by electric cables  or  by  other  devices)  intended  to  contribute together to a clearly defined  function covered by one of the headings  in  Chapter  84  or  Chapter  85,  then  the  whole  falls  to  be  classified  in  the  heading appropriate to that function.”

9. Note  5(A)  to  Chapter  84  defines  the  expression  

“automatic  data  processing  machines”.   Note  5(B)  to

Chapter 84 clarifies that an ADP may be in the form of  

systems consisting of variable number of separate units.  

We quote hereinbelow, Notes 5(A) and 5(B) to Chapter 84,  

which read as follows:

“5.(A) For the purposes of heading 8471,  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;  (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.

5(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.”  

  (emphasis supplied)

10. We quote hereinbelow Note 5(E) to Chapter 84, which  

reads as follows:

“5(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.”

                                                    (emph

asis supplied)

11. Similarly, Note 7 to Chapter 84 is also relevant and  

it reads as follows:

“7. A machine which is used for more  than one purpose is, for the purposes of  classification, to be treated as if its  principal purpose were its sole purpose.  Subject to Note 2 to this Chapter  and Note 3 to Section XVI, a machine, the  principal  purpose  of  which  is  not  described in any heading or for which no  one purpose is the principal purpose is,  unless the context otherwise requires, to  be classified in heading 8479.  Heading  8479 also covers machines for making rope  or  cable  (for  example,  stranding,  twisting or cabling machines) from metal  wire, textile yarn or any other material  or from a combination of such materials.”

12. We also quote hereinbelow for the sake of clarity  

Chapter Heading 8471, which reads as follows:

“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”

Chapter Sub-Heading 8471 50 00 reads as follows:

“Digital  processing  units  other  than  

those of sub-headings 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”

13. Chapter 90 falls in Section XVIII which refers to  

“measuring  and  checking  instruments/apparatus  as  also  

parts and accessories thereof.”

Chapter Notes 1(h), 2 and 3 of Chapter 90 read as  under:

“1 This Chapter does not cover: (h) searchlights or spotlights of a kind  

used  for  cycles  or  motor  vehicles  (heading  8512);  portable  electric  lamps  of  heading  8513;

cinematographic  sound  recording,  reproducing or re-recording apparatus  (heading  8519  or  8520);  sound-heads  (heading  8522);  still  image  video  cameras, other video camera recorders  and  digital  cameras  (heading  8525);  radar  apparatus,  radio  navigational  aid apparatus or radio remote control  apparatus  (heading  8526);  numerical  control  apparatus  of  heading  8537;  sealed  beam  lamp  units  of  heading  8539; optical fibre cables of heading  8544;”

“2. Subject to Note 1 above, parts and  accessories  for  machines,  apparatus,  instruments or articles of this Chapter  are  to  be  classified  according  to  the  following rules: (a) parts and accessories which are goods  

included in any of the headings of  this Chapter or of Chapter 84, 85 or  91 (other than heading 8485, 8548 or  9033)  are  in  all  cases  to  be  classified  in  their  respective  headings;

(b) other  parts  and  accessories,  if  suitable  for  use  solely  or  principally with a particular kind of  machine, instrument or apparatus, or  with  a  number  of  machines,  instruments or apparatus of the same  heading  (including  a  machine,  instrument  or  apparatus  of  heading  9010,  9013  or  9031)  are  to  be  classified  with  the  machines,  instruments  or  apparatus  of  that  kind;

(c) all other parts and accessories are  to be classified in heading 9033.”

14. We  quote  hereinbelow  CTH  9031  which  refers  to  

measuring  or  checking  instruments,  appliances  and

machines, not specified or included elsewhere in Chapter  

90.  The Department seeks to place reliance on Chapter  

Sub-Heading 9031 80 00, which reads as under:

“Other  instruments,  appliances  and  

machines”

15. The Department also places reliance on Chapter Sub-

Heading  9031  90  00,  which  refers  to  “parts  and  

accessories”.

16. For  some  of  the  items,  the  Department  places  

reliance on Chapter Sub-Headings 9032 89 10 and 9032 90 00  

which read as follows:

“9032 89 10 Electronic  automatic  

regulators

9032 90 00 Parts and accessories”

17. At  this  stage,  we  may  deal  hereinbelow  the  

Explanatory  Notes  from  HSN.   Our  customs  tariff  is  

basically based on HSN.  Even the HSN makes it clear vide  

Section Note 1(m) that Section XVI which refers to Chapter  

84  will  not  cover  articles  mentioned  in  Chapter  90.  

Similarly,  Section  Note  3  to  Section  XVI  states  that  

multi-function machines are to be classified according to  

the principal function of the machine.  According to the  

Explanatory Notes, a printing machine with a subsidiary

machine  for  holding  the  paper  or  an  industrial  furnace  

combined with lifting or handling machinery is a composite  

machine in terms of Section Note 3.  Further, referring to  

Functional  Units,  the  Explanatory  Note,  referring  to  

Section  Note  4,  inter  alia  states  that  when  a  machine  

including a combination of machines consists of separate  

components which are intended to contribute together to a  

clearly defined function covered by one of the headings in  

Chapter 84 then the whole shall fall for classification in  

the  heading  appropriate  to  that  function,  whether  the  

various components remain separate or are inter-connected  

by devices used to transmit power, either by electrical  

cables  or  by  other  devices.   At  this  stage,  we  quote  

hereinbelow Chapter Sub-Heading 8471 49 00, which reads as  

follows:

“Other, presented in the form of systems”

18. According to HSN, the word “systems” in Chapter Sub-

Heading 8471.49 means ADP machines whose units satisfy the  

conditions of Note 5(B) to Chapter 84 and which comprises  

of a CPU, one input unit (for example, a keyboard or a  

scanner),  and  one  output  unit  (for  example,  a  visual  

display unit or a printer).

19. According  to  HSN,  the  following  classification

principles have to be applied in accordance with Note 5(E)  

to  Chapter  84  in  the  case  of  machine  incorporating  or  

working in conjunction with ADPM and performing a specific  

function.  These principles are as follows:

“(1) A  machine  incorporating  an  automatic  data  processing  machine  and  performing a specific function other than  data  processing  is  classifiable  in  the  heading corresponding to the function of  that  machine  or,  in  the  absence  of  a  specific heading, in a residual heading,  and not in heading 84.71. (2) Machines  presented  with  an  automatic  data  processing  machine  and  intended to work in conjunction therewith  to perform a specific function other than  data processing, are to be classified as  follows: The  automatic  data  processing  machine  must be classified separately in heading  84.71  and  the  other  machines  in  the  heading  corresponding  to  the  function  which they perform unless, by application  of Note 4 to Section XVI or Note 3 to  Chapter  90,  the  whole  is  classified  in  another heading of Chapter 84, Chapter 85  or of Chapter 90.”

20. The  most  important  aspect  which  needs  to  be  

emphasized in this case is that, according to HSN, data  

processing consists of handling information of all kinds,  

in pre-established logical sequences and for a specific  

purpose(s).  According to HSN, ADP machines are machines  

which, by logically interrelated operations performed in  

accordance  with  pre-established  instructions  (program),

furnish data which can be used as such or, in some cases,  

serve  in  turn  as  data  for  other  data  processing  

operations.  The important thing to be noted is that there  

is  a  wide  difference  between  handling  information,  

referred to at page 1575 of HSN in the context of CTH 8471  

and automatically controlling the flow, level, pressure or  

other variables of liquids or gases, referred to at page  

1856 of HSN in the context of CTH 90.32.   

21. To complete the chronology of the paragraphs used in  

the Explanatory Notes, the HSN has stated in the context  

of CTH 84.71 that a CPU incorporates storage, arithmetical  

and logical elements and control elements, an input unit  

which receives input data and converts them into signals  

which  can  be  processed  by  machines  and  an  output  unit  

which converts the signals provided by the machine into an  

intelligible form (printed text, displays, etc.) or into a  

coded  data  for  further  use  (processing,  controlling,  

etc.). [See page 1577 of HSN]  In this connection, we  

quote hereinbelow the conditions laid down by the HSN for  

classifying a unit as a part of digital data processing  

system.  These conditions are laid down at page 1577 of  

HSN, which read as follows:

“A unit is to be regarded as being a part  of  a  complete  digital  data  processing

system,  if  it  satisfies  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.

The interconnections may be made by  material means (e.g. cables) or by non- material  means  (e.g.,  radio  or  optical  links).  In  accordance  with  Note  5(D)  to  this  Chapter,  printers,  keyboards,  X-Y  co-ordinate  input  devices  and  disc  storage  units  which  satisfy  the  conditions  of  items  (b)  and  (c)  above,  are  in  all  cases  to  be  classified  as  constituent  units  of  data  processing  systems.  The  foregoing  provision  is,  however, to be considered in the overall  context of Note 5 to Chapter 84 and is  therefore  applicable  subject  to  the  provisions of paragraph (E) of that Note,  by  virtue  of  the  introductory  part  of  paragraph  (B)  thereof.   Thus,  ink-jet  printers working in conjunction with an  automatic  data  processing  machine  but  having,  particularly  in  terms  of  their  size,  technical  capabilities  and  particular  applications,  the  characteristics  of  a  printing  machine  designed to perform a specific function  in  the  printing  or  graphics  industry  (production  of  pre-press  colour  proofs,  for  example)  are  to  be  regarded  as  machines  having  a  specific  function  classifiable in heading 84.43.  Furthermore,  appliances  such  as  measuring or checking instruments adapted  by  the  addition  of  devices  (signal

converters,  for  example),  which  enable  them to be connected directly to a data  processing  machine,  are,  in  particular,  not to be regarded as of a kind solely or  principally  used  in  automatic  data  processing systems.  Such appliances fall  to be classified in their own appropriate  heading.  Digital  data  processing  machines  are  put  to  many  uses,  for  example,  in  industry,  in  trade,  in  scientific  research  and  in  public  or  private  administrations.”

22. Further, at page 1578 of HSN, it is stipulated that  

Chapter  Heading  84.71  also  covers  constituent  units  of  

data processing systems.  These may be in the form of  

units  having  a  separate  housing  and  designed  to  be  

connected, for example, by cables or in the form of units  

not having a separate housing and designed to be inserted  

into a machine.  Display units of ADP machines provide a  

graphical presentation of the data processed. (See page  

1579 of HSN).

23. Coming to Section XVIII, in which Chapter 90 falls,  

the Explanatory Notes in HSN amongst other things indicate  

that  instruments  and  apparatus  for  automatically  

controlling the flow, level, pressure or other variables  

of  liquids  or  gases,  or  for  automatically  controlling  

temperature fall in CTH 90.32. (See Note 7 to Chapter 90  

at pages 1766 and 1856)

Case of the Department:

24. Based on the technological write-ups given by the  

importer  read  with  the  description  provided  in  the  

catalogue and the website it was argued on behalf of the  

Department  that  a  complete  system  performs  the  work  of  

measurement  whereas  the  item  imported  by  the  assessee  

forms a sub-function of data acquisition and processing.  

According  to  the  Department,  the  terms  “control”  and  

“control  systems”  generally  refer  to  the  control  of  a  

device, process or system by monitoring one or more of its  

characteristics.  This  is  used  to  ensure  that  output,  

processing,  quality  and/or  efficiency  remain  within  the  

parameters  over  the  duration  of  time.  According  to  the  

Department,  in  several  control  systems,  digital  data  

processing  monitors  a  device,  process  or  system  and  

automatically adjusts its operational parameters. In other  

control  systems,  such  an  apparatus  only  monitors  the  

device,  process  or  system  and  displays  alarm  leaving  

responsibility  for  adjustment  to  the  operator.  Thus,  

process control is typically employed in the manufacturing  

sector for process and discrete manufactures. According to  

the  Department,  field  devices  include  temperature,  flow

and  other  sensors  that  measure  characteristics  of  the  

device, process or system being controlled. On the other  

hand,  control  devices  include  valves,  actuators  which  

control the devise, process or system itself. According to  

the  Department,  controllers  generate  settings  for  the  

control  devices  based  on  measurements  from  the  field  

devices.  Controller  operation  is  typically  based  on  

control  algorithm  that  maintains  a  control  system  at  a  

desired level by minimizing differences between the values  

measure  by  the  sensors.  According  to  the  Department,  

controllers may be connected to other computing apparatus  

that facilitates monitoring or administration. According  

to the Department, the principal function of controllers  

is  to  execute  control  algorithms  for  the  real  time  

monitoring and to control devices, processes or systems.  

They have neither the computing power nor user interfaces  

required to facilitate the design of a control algorithm.  

Historically, the process control industry has used manual  

operations, such as manually reading level and pressure  

gauges, turning valve wheels, etc. in order to operate the  

measurement and control field devices within a process.  

However,  with  the  emergence  of  the  microprocessor-based  

Distributed  Control  System  (“DCS”),  the  distributed

electronic  process  control  came  into  existence  in  the  

process control industry. A DCS includes an analog or a  

digital computer, such as a Programmable Logic Controller  

(“PLC”), connected to numerous electronic monitoring and  

control  devices  like  electronic  sensors,  transmitters,  

transducers  etc.  located  throughout  a  process.  The  DCS  

computer stores and implements a centralized and complex  

control scheme in order to effect measurement and control  

of devices within the process so as to control process  

parameters  according  to  the  overall  control  scheme.  

According to the Department, PACs are not meant to be used  

as personal computers. The purpose of controllers is to  

control  industrial  processes.  Thus,  according  to  the  

Department,  a  controller  by  its  very  name  performs  

functions  distinct  from  data  processing.  Moreover,  

according to the Department, there are differences in the  

structure  and  the  function  of  a  controller  and  the  

function  of  a  PAC  vis-a-vis  the  PC.  According  to  the  

Department, PAC cannot  be equated to a PC as is sought to  

be done by the Tribunal. A PAC combines a PLC and a PC.  

The Department also placed reliance on the webcast to show  

that a processor is separated from FPGA by a high-speed  

bus.  According  to  the  Department,  the  webcast  further

shows that a processor is separate and distinct from the  

main  controller  wherein  the  hardware  is  dedicated  to  

perform measurement and control applications. According to  

the Department, the software used in order to programme  

the  processor  is  designed  using  a  proprietary  software  

known as Lab View. The catalogue is relied upon by the  

Department  to  show  that  the  controller,  in  the  present  

case, has been designed and made for a specific function  

and  regulating  and  controlling  industrial  processes.  

According  to  the  Department,  none  of  the  above  aspects  

have been duly considered by the Tribunal. The entire case  

of  the  Department  before  us  was  that  the  Programmable  

Process Controllers when imported were suitable for use  

principally  with  industrial  process  control  equipment,  

i.e.,  sensors  which  measure  temperature,  pressure,  flow  

etc. and therefore such programmable process controllers  

were  classifiable  as  a  part  of  the  said  equipment,  

instrument  or  apparatus.  The  programmable  process  

controller, though separate from sensors, is necessarily  

an  individual  component  intended  to  contribute  to  a  

clearly defined function. According to the Department, the  

programmable  process  controllers  being  parts  and  

accessories of a regulating or controlling apparatus have

been  classified  rightly  by  the  adjudicating  authorities  

under CTH 9032 89 10. According to the Department, PACs  

whether embedded or otherwise are in essence Programmable  

Process  Controllers.  In  support  thereof,  the  Department  

has  placed  reliance  on  two  circulars  issued  by  Central  

Board dated 2.9.1996 and 9.5.1997.

25. As  regards  Input-Output  (“I.O.”)  Modules  and  

Chassis, the Department contended that I.O. modules and  

chassis have been rightly classified by the adjudicating  

authorities  as  parts  and  accessories  of  regulating  and  

controlling  apparatus  classifiable  under  

CTH  9031  90  00/9032  90  00.  In  this  connection,  the  

Department  submitted  on  the  basis  of  the  catalogue  and  

technical  write-ups  that  each  and  every  imported  I.O.  

Modules is configured primarily to match with a sensor. In  

this connection, the Department has demonstrated by way of  

an  illustration  that  one  of  the  items  imported  by  the  

assessee is Instrument Control Boards (Cards). Instrument  

Control  Board  (Card)  is  a  stand-alone  instrument.  It  

acquires data from external sensors, but it is unable to  

send  the  data  directly  to  a  computer.  Therefore,  a  

suitable board like instrument control board is required  

to be placed inside the computer to allow the data to be

sent directly to the computer. Similarly, another example  

given  by  the  Department  is  concerning  Data  Acquisition  

Board.  The  purpose  of  a  Data  Acquisition  Board  is  to  

acquire  data  from  external  sensor  and  convert  it  to  

digital  sensors  which  the  PC  can  understand.  Thus  I.O.  

Module is tailored to a specific function and is therefore  

a part of regulating a controlling apparatus. According to  

the Department, a signal converting device or I.O. unit  

has  got  to  be  properly  aligned  with  the  measuring  or  

checking  instrument.  According  to  the  Department,  

industrial process controllers and I.O. modules are parts  

of  a  functional  unit,  the  function  of  which  is  to  be  

judged as a whole and is therefore classifiable in Chapter  

90.  According  to  the  Department,  for  the  abovestated  

reasons  Controllers  imported  by  the  assessee  including  

embedded  controllers  are  not  merely  PCs.  They  have  a  

specialized structure. They have a specialized function to  

perform. Moreover, I.O. modules and chassis, which are the  

subject matter of import are also specialized to operate  

with specific sensors and devices. The data available from  

sensors is transmitted to the controller for the execution  

of control functions. Therefore, the package as a whole –  

both  hardware  and  software  –  must  be  seen  as  one

functional unit. Hence, the imported goods, according to  

the  Department,  have  been  rightly  classified  by  the  

adjudicating  authorities  under  Chapter  90.  According  to  

the Department, I.O. modules and chassis have been rightly  

classified by the adjudicating authorities as parts and  

accessories  of  Automatic  Regulating  or  Controlling  

Instruments and apparatus under CTH 9032 90 00.

Case of the Importer:

26. Briefly, the case of the importer before us was that  

imported items cannot perform any specific function unless  

the  end-users  have  an  appropriate  programming  software.  

According to the importer, the input for the above items  

is digital signals captured by sensors. According to the  

importer, just because the imported items were to be used  

with measuring instruments, it cannot be said that such  

items are to be classified under Chapter 90. According to  

the  importer,  PXI  controller,  I.O.  modules  and  signal  

converters are all varieties of ADP Machines. They all run  

on operating systems like linux, windows etc. According to  

the  importer,  no  ADP  Machine  can  capture  an  electrical  

signal such as temperature, voltage, pressure etc. on its  

own as a stand-alone item. According to the importer, an  

ADP  Machine  requires  various  types  of  interface

boards/units which are required to be installed in it and  

connected  to  sensors  so  that  temperature,  voltage  and  

pressure can be received by the interface boards/units and  

converted  into  digital  signals  and  then  sent  to  ADPM  

processing. Therefore, according to the importer, it is  

the sensor which measures the real world phenomena as ADPM  

cannot  interface  by  itself  directly  with  the  sensors.  

Thus,  assessee  imports  a  variety  of  such  interface  

boards/units which are then installed into ADPM. According  

to  the  importer,  these  boards/units  meet  the  criteria  

mentioned  in  Chapter  Note  5(B)  as  well  as  Explanatory  

Notes (I)(D)(4) & (5) which inter alia state that such  

boards/units when imported should be classified under CTH  

8471 as units of ADPM. According to the importer, an ADPM  

when imported has only an operating software which cannot  

perform  any  specific  function  without  application  of  

software. For example, a PXI Controller is incapable of  

processing  the  digital  data  fed  to  its  CPU  unless  a  

specific software is written for such processing. At the  

time of import no software is written or provided. It is  

the  end-user  who  uses  a  programming  language  or  an  

appropriate  tool  such  as  Lab  View  software  to  write  a  

specific software for its own stand-alone instrument or

application  like  thermostat,  spectrum  analyzer,  

oscilloscopes etc.. According to the importer, at the time  

of import, the assessee is not aware of what application  

the end-user may put the PXI controller to use. Moreover,  

a PXI controller is not dedicated to a single type of  

machine or operator. It is capable of being connected to  

multiple apparatuses simultaneously which apparatuses can  

be changed continuously. As such, the PXI controller is  

freely programmable as per the requirements of the user.  

This end-user developed software or programme is stored in  

the  memory  and  is  executed  by  PXI  controller.  It  is  

according to the software and the data fed to the CPU that  

the  PXI  controller  processes  the  data  and  provides  the  

required processed output. According to the importer, as  

the  PXI  controller  satisfies  the  requirement  of  free  

programmability,  storing  and  processing  of  programmes,  

performance and arithmetical computation and execution of  

programmes, the PXI controller qualifies as ADP Machine in  

terms  of  Chapter  Note  5(A)  to  Chapter  84  of  Customs  

Tariff.

27. According to the importer, the above position has  

not been disputed by the Department. That, the Department  

has  not  disputed  that  the  Controllers  imported  by  the

assessee  satisfy  all  the  requirements  of  Chapter  Note  

5(A). According to the importer, the only reason why the  

Department  was  to  classify  the  imported  items  under  

Chapter  90  is  because  according  to  the  Department,  in  

addition  to  Chapter  Note  5(A),  Chapter  Note  5(E)  also  

applies. The same test is applied by the Department to  

I.O.  Modules.  According  to  the  importer,  even  the  

Department  accepts  that  these  modules  satisfy  the  

definition of ADP given in Chapter Note 5(B). However, the  

Department has classified the said modules under Chapter  

9031 by virtue of Chapter Note 5(E). The same test is also  

applied  by  the  Department  in  the  context  of  signal  

convertors.  According  to  the  importer,  even  the  signal  

convertors  satisfy  the  definition  of  units  of  ADP  as  

provided in Chapter Note 5(B). However, the Department has  

classified  the  said  items  under  Chapter  9031  only  by  

virtue of Chapter Note 5(E) of Chapter 84. In short, the  

Department  has  classified  the  Controllers  under  heading  

9031  or  9032  as  measuring,  checking  or  controlling  

instruments. They have classified signal converter units  

and I.O. modules under heading 9031 as parts of measuring  

and  checking  instruments  which  is  objected  to  by  the  

importer.  The  basis  for  the  Department  case  has  always

been that the imported goods, though ADPM, are meant for  

use with checking or controlling instruments are therefore  

classifiable under heading 9031 and 9032.

Findings:

28. For the reasons given hereinafter, we hold on the  

basis of technical material (including the importer’s own  

catalogue  and  webcast)  that  Controllers  (including  

embedded controllers) are not merely PCs/ADPMs, but have a  

specialized  structure  and  specific  functions  to  perform  

and are therefore classifiable under Chapter 90.

29. Similarly, I.O. Modules and Chassis, which are the  

subject matter of import in this civil appeal are meant to  

operate as parts of Industrial Process Control equipments  

like  sensors.  These  I.O.  Modules  come  with  software  

tailored  to  their  specific  pre-defined  functions.  

Therefore,  one  has  to  see  the  package  in  the  holistic  

manner.  The  package  as  a  whole  –  both  hardware  and  

software  –  constitutes  one  single  functional  unit.  

Accordingly,  we  hold  that  I.O.  Modules  and  Chassis  are  

classifiable  as  parts  and  accessories  of  Automatic  

Regulating or Controlling Instruments/Apparatus under CTH  

9032.90.00.

Reasons:

(A) Based on Technical Material:

30. Whether a PXI Controller = PC Controller = ADPM?  

This is the basic issue which we need to answer in this  

civil appeal.

31. On  examination  of  the  technical  write-up,  before  

going into the analysis of the classification principles,  

we are of the view that the purpose of Controllers whether  

embedded  or  not,  is  to  control  industrial  processes.  

Programmable Automation Controller is the combination of  

PLC and PC technology and this means the  ruggedness of  

PLCs, software stability of a PC and the independence to  

incorporate modular and diverse I/O. PAC is an improvement  

over  PLC.  PAC  is  capable  of  being  controlled  by  a  

PC/Laptop  but  it  is  not  a  PC/Laptop.  The  principal  

function  of  Controllers  is  executing  Control  Algorithms  

for  the  Real-time  monitoring  and  control  of  devices,  

processes or systems whereas the principal function of a  

PC by itself is acquisition, analysis and display of data.  

A  controller  performs  functions  in  addition  to  data  

processing.  The  webcast  presentation  also   shows  the  

difference in the structure and functions of a Controller  

vis-à-vis  a  PC  (simpliciter).  The  hardware  in  the

Controller is dedicated to perform Measurement and Control  

Applications.  Basically,  PACs  are  Programmable  Process  

Controllers  which  are  suitable  for  use  principally  in  

conjunction with Industrial Process Control equipment like  

sensors  which  measures  temperature,  pressure  etc.  The  

programmable  process  controller,  though  distinct  from  

sensors, is an individual component intended to perform a  

specific function. The programmable process controller is  

a part and accessory of a controlling apparatus.

32. A word about PXI, PAC, Sensor and FPGA.

(i)  PXI: PXI  is  designed  for  measurement  and  

automation applications which require high performance and  

a rugged industrial form. In the Chassis of PXI, there are  

about  8  slots.  PXI  is  a  system.  It  consists  of  three  

components,  namely,  chassis,  system  controller  and  

peripheral  modules.  One  can  select  the  modules  to  be  

installed  in  the  PXI  System.  PXI  uses  PCI-based  

technology. There are PXI Modules, including those which  

are  imported  herein,  available  for  almost  every  

conceivable measurement and automation application.

(ii)  PAC: PAC  stands  for  Programmable  Automation

Controller. PAC is a Controller. PAC is an improvement on  

PLC.  Various  characteristics  of    PAC  includes  multi-

domain functionality – ability of handling logic, motion  

and process control – all on a single control platform.  

Every computational algorithm cannot be solved with a PC.  

PAC  is  meant  for  a  wide  variety  of  applications.  PAC  

incorporates multiple disciplines such as logic control,  

process control and motion control all on a single open  

platform with a single data base.

A classic example of the uses of a PAC would be in a  

large bakery with multiple ovens.  The ovens must stay  

within a specific temperature range in order to properly  

bake  the  products;  this  can  be  accomplished  by  someone  

physically  inspecting  thermometers  on  each  oven,  then  

manually adjusting the burners on each as needed.  A PAC  

could  automate  these  tasks  by  monitoring  temperature  

remotely,  then  sending  instructions  to  the  burners  to  

either increase or decrease the heat until the temperature  

returns to the acceptable range.  A person in an office  

overlooking the ovens can view all of the temperature data  

in real-time from their Personal Computer, which can be  

connected  to  the  PAC’s  by  serial  cable,  Ethernet  or  a  

wireless modem.

(iii)   Sensor:   In  the  field  of  measurement  and  

instrumentation,  the  parameter  to  be  measured  (motion,  

pressure, temperature, etc.) is first detected with the  

help  of  a  sensor.  The  sensor  converts  the  detected  

information into a suitable form (measurable currents and  

voltages) for acceptance in the later stages for decision-

making. There are many types of sensors. Example: Photo  

electric sensor, motion detector, pressure sensors etc..

(iv)  FPGA:   FPGA stands for a Field-programmable Gate  

Array.  FPGAs  are  integrated  circuits  which  are  used  in  

electronic equipments. It is a special kind of chip on  

which there is embedded software. FPGA receives signals  

(information) from devices like sensors or any other input  

device.  Such  information  is  processed  by  FPGA.  After  

processing,  the  processed  data/command  is  sent  to  the  

required  destination  like  a  computer,  actuator,  

thermostat, motor etc. to perform a specific function like  

Controlling.  For  example,  on  receiving  the  command  the  

motor  can  start  or  stop.  Similarly,  on  receipt  of  the  

command the thermostat can regulate the temperature.  

33. At this stage, it is required to examine each of the  

imported items, including I.O. Modules, to see whether the  

hardware  coupled  with  pre-installed  software  gives  a

definite identity and function. For example, the purpose  

of Data Acquisition Boards (“DAQ”) is to acquire data from  

external sensors, usually in the form of Analog Voltage of  

+/-  10  volts,  which  is  then  converted  into  digital  

signals,  which  the  personal  computer  can  understand.  

Similarly, Analog Output Boards are meant for converting  

signals  from  external  units  such  as  PXI  controller.  

Similarly,  Network  Interface  Module  (“NIM”)  is  used  to  

connect  measuring  instruments  to  a  PC  by  sending  and  

receiving messages, two ways. The Chassis of PXI provides  

connectivity and housing for embedded controllers and data  

acquisition  modules,  allowing  them  to  communicate  with  

each other. To sum up, the I.O. Module is tailored to a  

specific  function.  Each  of  the  abovementioned  Boards  

(cards) is inserted into the slots of PXI. Each of the  

I.O. Modules is tailored to a specific function and is,  

therefore,  a  part  of  a  regulating  and  controlling  

apparatus like a sensor, thermostat etc. Therefore, one  

has to look at the machine (PXI Machine) holistically.

(B) Application  of above technical material to the  relevant Tariff            Entries:

34. At the outset, it needs to be stated that PACs,  

whether embedded or otherwise, are in essence Programmable

Process Controllers.

35. In the matter of classification, we need to discuss  

“PACs” and “Input/Output (I.O.) Modules and Chassis” in  

two separate parts.

36. Chapter  84  is  located  in  Section  XVI.  Note  1(m)  

shows that if an article falls in Chapter 90, regardless  

of whether or not it may otherwise fall within Chapter 84,  

that  Chapter  (No.  84)  stands  excluded.  There  are  eight  

Chapter Notes to Chapter 84. The key Chapter Notes for  

deciding the present Civil Appeal are Notes 5(E), and 7,  

which are quoted hereinabove. Chapter Note 5(E) inter alia  

refers  to  machines  performing  specific  functions  other  

than  data  processing  and  incorporating  in  it  a  data  

processing  machine  or  it  may  be  working  in  conjunction  

with  ADPM  in  which  event  the  said  machines  performing  

specific  functions  are  to  be  classified  in  the  heading  

appropriate to their respective functions. Under Note 7, a  

machine which is used for more than one purpose is, for  

the purpose of classification, to be treated as if its  

principal purpose is its sole purpose.

37. Chapter  90  includes  measuring  and  checking  

instruments and apparatus; parts and accessories thereof.

In view of Section Note 1(m) of Chapter 84, quoted above,  

it is first to be seen whether or not PACs fall within  

Chapter 90. Keeping in mind the scheme of Chapter 84 and  

Chapter 90, we are of the view that, in the present case,  

the  correct  approach  would  be  to  examine  the  scope  of  

Chapter 90 first and foremost and only then we need to  

examine the scope of Chapter 84. At this stage, we need to  

state  that  Chapter  Note  1(h)  of  Chapter  90  does  not  

exclude CTH 8471. Hence, even if an item falls under CTH  

8471, it could still come under Chapter 90, however, in  

view of Section Note 1(m) Chapter 84 would stand excluded.  

This is because the application of Chapter 84 is subject  

to the applicability of Chapter 90.

38. At this stage, we may refer to Chapter Note 2 to  

Chapter 90 which is in two parts. Note 2(a) inter alia  

states that what is otherwise parts or accessories, but is  

classifiable  as  goods  under  Chapter  84,  shall  be  

classified  in  their  respective  headings.  The  effect  of  

Note 2(a) is that if it can be shown that Programmable  

Process Controllers/PACs are classifiable as “goods” under  

Chapter 84 then such a classification would include the  

same for being considered as parts or accessories of goods  

under Chapter 90. However, in this case, Note 2(a) is not

attracted as PACs are not classifiable as “goods” under  

Chapter 84. It has been argued on behalf of the importer  

itself  that  PACs/Programmable  Process  Controllers  by  

themselves  are  not  measuring,  regulating  or  control  

instruments and hence CTH 9032 classification relied upon  

by the Department was unsustainable. It was further argued  

on behalf of the importer that physical variables such as  

temperature  and  voltage  are  measured  by  sensors  which  

could be classified under Chapter 90, but this does not  

extend  to  PACs/Programmable  Process  Controllers.  It  had  

been  further  argued  on  behalf  of  the  importer  that  

automatic control apparatus referred to in Chapter 90 must  

consist of a device for measuring a control device and a  

starting-stopping/operating  device,  all  of  which  should  

form a “single entity” and since a PAC does not fulfil the  

said  test,  CTH  9032  is  not  attracted  in  the  case  of  

PAC/Programmable Process Controllers.

39. In our view, the above argument of the importer is  

unsustainable for the following reasons. Firstly, it is  

nobody’s case that a PAC/Programmable Process Controller  

by  itself  is  an  automatic  regulating,  controlling  

instrument or apparatus in terms of Chapter 90. On the  

contrary, in view of Chapter Note 2(b) to Chapter 90 read

with Note 3 of the same Chapter, PACs/Programmable Process  

Controllers  are  parts  and  accessories  of  a  

system/instrument  which  are  suitable  for  use  solely  or  

mainly with a number of machines, instruments, apparatus  

of the same Heading, i.e., 9032 like sensors, thermostats  

etc.  In  our  view,  PACs/Programmable  Process  Controllers  

imported  by  the  assessee  herein  are  suitable  for  use  

principally with Industrial Process Control Equipment like  

sensors,  thermostats  etc.  which  measures  temperature,  

process etc. Therefore, they are correctly classifiable as  

a  part  of  the  said  machine,  instrument  or  apparatus.  

Secondly,  a  “control  system”  generally  refers  to  the  

control of a device, process or system by monitoring one  

or  more  of  its  characteristics.  It  ensures  that  output  

processing remains within the desired parameters over a  

period  of  time.  Controllers  are  generally  connected  to  

other  computing  apparatus.  The  principle  function  of  

controllers is to execute control algorithm for real time  

monitoring  and  for  controlling  devices,  processes  or  

systems.  In  this  connection,  it  may  be  noted  that,  a  

PAC/Programmable  Process  Controller  (“PPC”)  is  not  by  

itself an automatic regulating, controlling instrument or  

apparatus.  A  PAC/PPC  when  imported  is  suitable  for  use

mainly with an industrial process control equipment like  

sensors,  which  measures  temperature,  pressure  etc.  As  

such, a PAC/PPC is a part of an industrial process control  

equipment/system  and  accordingly  such  controllers  are  

classifiable  as  a  part  of  instrument  or  apparatus  (see  

Chapter  Note  2(b)  read  with  Note  3  of  Chapter  90).  

Thirdly,  in  this  case,  we  are  concerned  with  not  only  

classification of PXI Controller and other controllers, we  

are  also  concerned  with  classification  of  Input-Output  

Modules and Chassis. The key aspect, therefore, concerns  

the nature and function of I.O. Modules and Chassis along  

with controllers. One has therefore to take into account  

all the imported items as constituting a complete System  

which performs the work of measurement. PXI is a system.  

It is composed of three basic components – chassis, system  

controller and peripheral modules. These modules are also  

imported by the importer in this case. One such module is  

Network Interface Module. This module is used to connect  

to  a  network  for  distributed  control  applications.  It  

interconnects a PC to a measuring instrument by sending  

and receiving messages from the two units. It is important  

to note that in the chassis of the PXI there are slots in  

which Analog Output Boards (Cards); Digital Input-Output

Boards, Image Acquisition Boards, Distributed Input-Output  

Boards, NIM etc. are inserted. Each I.O. Module imported  

by the assessee is tailored to a specific function and  

therefore such I.O. Module is a part of a regulating or  

controlling apparatus. Take the case of NIM.  It is a  

hardware  device.   It  may  be  in  the  form  of  a  network  

interface card or a network adapter or in the form of  

Network Interface Controller (“NIC”). NIM is a computer  

hardware  component  designed  to  allow  computers  to  

communicate  over  a  computer  network.  It  provides  

connectivity between the industrial network and the I.O.  

Module. A network interface module works as a connector  

and  adapter  unit  in  order  to  provide  a  two  way  

interconnection between external sensor unit and the ADP.  

Thus, I.O. Module is a hardware. It is also known as I.O.  

device or I.O. Point. It may be in the form of I.O. Cards  

or I.O. Boards. When I.O. Module is used to accept data  

(input)  from  sensors,  transducers,  Programmable  Logic  

Controllers (“PLC”), computers etc. and then distributes  

the data (output) to other devices in the system, then  

I.O.  Module  is  called  as  Distributed  I.O.  Module.  Such  

system  is  also  called  as  Distributed  Control  System  

(“DCS”),  which  is  a  control  system  used  normally  in  a

manufacturing  plant  or  in  any  other  kind  of  dynamic  

system. DCS, therefore, is used in a variety of industries  

to  monitor  and  control  distributed  equipments.  An  I.O.  

Module is important from another angle also. It converts  

readings from sensors and provides output signals which  

are used for operating actuators (which make a device move  

or start working) via Network Interface Module. A Modular  

Distributed I.O. System which is also known as a Field  

Point  provides  for  industrial  monitoring  and  control  

applications. Thus, the Field Point System includes Analog  

and  Digital  I.O.  Modules,  terminal  bases  and  network  

modules which connect I.O. Modules to industrial networks  

and software tools. Field Point Systems are ideal for use  

in  industrial  environment.  Fourthly,  Programmable  Logic  

Controller  (“PLC”)  is  a  control  device.  It  is  normally  

used  in  industrial  control  applications.  It  is  a  

Programmable Microprocessor based device which is used to  

control assembly lines and machinery on the shop floor as  

well  as  to  control  many  other  types  of  mechanical,  

electrical and electronic equipment in a plant. A PLC is  

designed  for  real-time  use  in  rugged  industrial  

environments, connected to sensors and actuators. PLCs are  

characterized  by  the  number  of  I.O.  Ports  which  they

provide.  PLCs  are  also  categorized  by  their  I.O.  scan  

rates. As stated, PACs, which expands the role of PLCs  

and,  at  the  same  time,  combines  the  capabilities  of  

several  traditional  controls  and  monitoring  systems,  

offers  several  benefits  in  the  form  of  enhanced  

functionalities.  Thus,  a  PAC  does  not  replace  the  

traditional PLCs but it expands the role of a PLC. A PAC  

has  features  found  in  Programmable  Logic  Controllers,  

Distributed  Control  Systems,  Remote  Terminal  Units  and  

PCs.

40. The summary of what we have stated above is that  

PACs/Programmable Process Controllers and I.O. Modules by  

themselves  are  not  measuring,  regulating  or  controlling  

instrument  (system).  Physical  variables  such  as  

temperature  and  voltage  are  measured  by  device,  like  

sensors which constitute measuring and control systems. In  

other  words,  controllers  and  I.O.  Modules  each  have  a  

specific function to perform being parts of a measuring  

and control system i.e. sensors.

41. We also do not find any merit in the submission of  

the importer that in view of the Explanatory Notes, the  

Measuring  Device,  the  Control  Device  and  the  Operating

Device has to form a “single entity”. There is no dispute  

that  if  all  the  above  three  devices  are  found  in  one  

“single  entity”  then  classification  will  fall  under  

Chapter  90.  However,  the  test  of  “single  entity”  

containing  three  devices  is  not  a  pre-condition  for  

classification under CTH 9032. On the contrary, the test  

is not that of single entity, but of the device being  

capable  of  working  as  a  functional  unit.  In  this  

connection, Note 3 of Chapter 90 is to be read. Note 3  

incorporates Note 4 to Section  XVI. Note 4 inter alia  

provides for a machine consisting of individual components  

which may be separate as long as they are intended to  

contribute  to  a  clear  defined  function.  The  

PACs/Programmable Process Controller, though separate from  

sensors, is an individual component intended to contribute  

to a clearly defined function. Note 3 of Chapter 90 has to  

be read with Note 2(b) of Chapter 90 and if so read then  

it  becomes  clear  that  PAC/Programmable  Process  

Controllers, being parts and accessories and a regulating  

or  controlling  apparatus  like  sensors  have  got  to  be  

classified under CTH 9032.89.10.

42. For the above reasons, we hold that PACs (including

embedded  Controllers/Programmable  Process  Controllers)  

have been rightly classified by the Department under CTH  

9032.

43. On the question of Input-Output (I.O.) Modules and  

Chassis, the Tribunal has not given any finding whatsoever  

thereon. However, on going through the technical material  

and the demonstration given to us in Court, we are of the  

view that I.O. Modules and Chassis have also been rightly  

classified by the Department as parts and accessories of  

regulating  and  controlling  apparatus  classifiable  under  

Chapter 90. In this connection, one needs to examine the  

nature and function of I.O. Modules and Chassis which we  

have already discussed hereinabove. To put it briefly, at  

the  cost  of  repetition  we  may  say  that  the  primary  

function of I.O. Modules (Boards) is to function as a part  

of measuring and control System. It is for this reason  

that such Modules are required to be classified as parts  

and accessories of regulating and measuring System. For  

this  purpose,  it  is  necessary  to  examine  each  of  the  

imported  items  apart  from  Controllers  in  order  to  see  

whether  the  hardware  coupled  with  the  pre-installed  

software gives it a definite identity and function. From  

the  catalogue  and  technological  write-ups  we  find  that

each and every I.O. Module imported by the assessee is  

configured with a sensor at one end. This aspect is very  

important.  Take  the  example  of  Data  Acquisition  Boards  

(DAQ). The purpose of DAQ Boards is to acquire data from  

external sensor, usually in the form of analog voltage of  

+/- 10 volts. This data is converted by DAQ Boards into  

digital  signals  which  the  personal  computer  can  

understand. On the other hand, Instrument Control Boards  

which are placed inside the computer allow data required  

from external sensors to be communicated directly to the  

computer. This is called as handling of information (see  

Explanatory Notes of HSN at page 1575) which is different  

from  controlling  temperature,  pressure  etc.  (see  

Explanatory Notes of HSN at page 1856). On the other hand,  

we have what is called as Analog Output Boards which are  

meant for converting signals from external units such as  

PXI.  Similarly,  the  Chassis  provides  connectivity  and  

housing for embedded controller and the data acquisition  

modules, allowing them to communicate with each other. A  

network interface module is used to connect to a network  

for  distributed  control  applications.  It  interconnects  

measuring  instruments  to  a  PC  by  sending  and  receiving  

messages from the two units. Thus, each I.O. Module is

tailored to a specific function and is therefore a part of  

regulating  and  controlling  apparatus.  Handling  of  

information under the HSN Notes is separate and distinct  

from regulating and measuring temperature, pressure etc.

44. Lastly,  we  need  to  analyse  Chapter  Note  5(E)  to  

Chapter 84. In our view, once a machine incorporating an  

ADPM  performs  a  specific  function  other  than  data  

processing  then  that  machine  is  classifiable  in  the  

heading corresponding to the function of that machine (see  

Note 4 of Section XVI and Note 3 to Chapter 90, the scope  

whereof has already been explained hereinabove). Further,  

HSN clearly indicates that Heading 8478 is excluded where  

the  case  is  of  a  clearly  defined  function  to  which  

separate components contribute.

45. In our view, in order to attract Note 5(E) the real  

test is whether or not the machine imported is performing  

a specific function relatable to the functional unit as a  

whole. The said machine should be seen as a System. As a  

functional  unit,  the  imported  machine  should  perform  a  

function other than data processing or it should perform a  

function  in  addition  to  data  processing.  In  our  view,  

Industrial Process Controllers and I.O. Modules, which are  

part of a functional unit, the function of which is to be

judged as a whole are therefore classifiable in Chapter  

90. The sentence in Chapter Note 5(E) “incorporating or  

working in conjunction with an ADPM” merely indicates that  

the  overall  package,  which  is  presented  before  the  

Department, had an ADP Machine in it. In other words, what  

is  imported  is  a  System  containing  an  ADPM.  Our  above  

interpretation stands to reason because if the contention  

of the importer herein is accepted, it would mean that  

every machine that contains an element of ADP would be  

classifiable  as  an  ADP  Machine  under  Chapter  84.  This  

would completely obliterate the specific function test and  

the concept of functional unit.

46. For the aforestated reasons, we are of the view that  

the  imported  goods  were  rightly  classified  by  the  

Department under Chapter 90. We are also of the view that  

the Department was right in classifying the I.O. Modules  

and  Chassis  as  parts  and  accessories  of  Automatic  

Regulating  or  Controlling  Instruments  and  Apparatus  in  

terms of CTH 9032.90.00.

47. For the aforestated reasons, the impugned order of  

CESTAT is hereby set aside and the Civil Appeal filed by  

the Department stands allowed with no order as to costs.

..................CJI      (S. H. Kapadia)

...................J.      (K.S. Radhakrishnan)

...................J.      (Swatanter Kumar)

New Delhi;  July 15, 2010