Full Judgment
3. Appellants are a private limited company registered under the Companies. Act. They are engaged in the manufacture of mini computers, micro processors based computer systems falling under Heading 84.71 of CETA. They had a licence from 1982. At that time the above items were falling under T.I. 33-D and when they were exempted from 17-3-1985 till 28-2-1987 they surrendered their licence. The duty on the same started to be levied from 1-3-1987 and they applied for licence and were issued with the same 011 3-3 1987. They filed classification lists showing the mini computer with CPU only which was approved by A.C. on 28-2-1985. On .1-3-1987 they filed first classification list from 1-3-1987. Second classification list was filed effective from 1-4-1987 claiming as under : 4. Further the appellants were also carrying on business of trading activity in items known as monitors and printers. By their letter dated 13-8-1987 they had informed the department. They filed the classification lists on 1-4-1988 mentioning monitor and terminals. The said monitor and terminal had been included on the basis of advice given by the range officials. They have been filed as and when there was a change in the Central Excise Duty. The department felt there has been under-valuation. Show cause notice was given mentioning about the various statements .given by officers of the appellants and also charging the appellants for under-valuation and claimed duty of Rs. 23,04,866/-. The appellants filed denying the same mentioning inter alia that monitors and printers were not cleared from the licenced premises. The computer is known as computer even without monitors and printers. The product computer can function as such without the printers and monitors. In effect they argued that the keyboard and CPU are the important parts. The Centralised processing unit is the material which does all the functions of the computers. They denied the charge of undervaluation. They have also added that printers and monitors even though duty paid items no Modvat duty was claimed. The supply of printers was only optional as only to 30 to 40% of the customers availed of the same. They argued that monitors required only for the correctness of all the data etched into the computer. When a person comes and contracts for computer the appellant gives a CPU and input device and output device. The printer and the monitor set they give only if specifically demanded by the customer. Now it is argued that inputs are known as keyboard etc. and output devices are known as printers, monitors etc. It was contended before the authority below that the trading activities has been informed earlier and the department is fully well aware that it was never manufactured by the appellant. This is emphasized by the appellant before the Collector from the classification lists is very clear. They were manufacturing only computers not its peripherals. They meant that the central processing unit and keyboard was computer. The monitors and printers were never manufactured by them and the department nowhere did allege they have manufactured. It was emphasized before the Collector that the exigibility of the duty will arise only if any person manufactures an excisable goods. The appellant did not have the capacity to manufacture the monitors and printers. It is also argued that printers which is an additional device for carrying out the function of printing cannot be a part of computer. Therefore clearance of such printers and monitors outside the licenced premises cannot be part of the assessable value of the computer as computers is manufactured only at the licenced premises and cleared as such. The entire process of the marketing of the final product viz. the computer is that at the time of clearance the computer is purchased viz. CPU and keyboard and when these materials are cleared as such the peripherals like the printers and the monitors which are the output device are cleared from outside the licenced premises optionally as a trading activity which was known to the department. The assessing authority did not agree with the contentions raised by the appellants and levied the duty. Hence the present appeal.
5. Learned Advocate Shri M.H. Patil assisted by Shri Arun Mehta argued before us that the approach of the Collector in this case was absolutely wrong. They reiterated their contentions raised before the Collector. They tried to emphasise the fact that whatever may be the Chapter Note 5 of Chapter 84 it may be used only for purpose of classification and not for the purpose of valuation. It was also argued that whenever any computer does not meet with the requirements of the customer's satisfaction they are brought back after following the prescribed procedure under Rule 173H. They are returned back to the customers after following the procedure in terms of the provisions of the said Rule 173H meaning thereby they were undertaking repair so as to not to fall within the term manufacture. He also attacked the finding of the Collector viz. Collector's reliance on the so called private records could form basis for clandestine removal. He also stated that exemption under Notification 175/86 should be considered for the period 1987-89 correctly if proper valuation in respect of the final product is undertaken. Alternatively Shri Patil argued that even if the above arguments is accepted on the point of limitation his case is very strong. He would argue that the classification list has been approved especially CL of 84 making CPU as only the computer. Further the classification list for 1-3-1987 and 1-4-1987 have been approved taking the computer as CPU, keyboard and drives only not printers and monitors. On 1-4-1988 CL has been approved treating CPU keyboard, drive and monitor as computer. The fact that the treating of monitor and computer as a trading activity would show that department was prima facie in the knowledge of the activity. They rely on several judgments including Pushpam Pharmaceuticals - 1995 (78) E.L.T. 401, 1989 (40) E.L.T. 276 and 1989 (43) E.L.T. 195. Shri Patil also emphasized the fact that once CLS have been approved there cannot be resorted to a longer period of limitation. He emphasized the fact that approval of CLS have been done by a proper official. And he relied on the judgment of the Mussafar Steels. He says in any event Modvat credit of the duty on bought out items has to be allowed against the duty demands. Last but not least he says that levy of penalty should not be levied.
Hindustan Steel v. U.O.I. -1979 (4) E.L.T. (J 33). He says that the period in dispute is 1-4-1987 and show cause notice has been given on 10-9-1992. Therefore it is clearly barred by limitation.
5. As against this ld. DR would reiterate the grounds mentioned in the Show Cause Notice as well as the Order in original.
7. As far as the question of levy of duty on printers and monitors is concerned, it is to be stated that they are not parts of computer but are only accessories for the effective utilization under convenience.
The entire law has been fully crystallized by the Supreme Court in the case of PSI Data Systems v. C.C.E. - 1997 (89) E.L.T. 3. Secondly that computer and its software were distinct and separate is clear both as a matter of commercial parlance as also upon the material on record. A computer may not be capable of effective functioning unless loaded with software such as discs. Floppies and CD. ROMs, but that it is not to say that these are part of the computer or to hold that if they are sold along with the computer, their value must form part of the assessable value of the computer for the purposes of excise duty. To give an example, a cassette recorder will not function unless a cassette is inserted in it, but the two are well known and recognized to be different and distinct articles. The value of the cassette, if sold along with the cassette recorder, cannot be included in the assessable value of the cassette recorder. Just so, the value of software, if sold along with the computer, cannot be included in the assessable value of the computer for the purposes of excise duty. This will cover the entire controversy. No doubt Shri Kumar invited our attention to the statement of Shri Gopalkrishna Saldhana and P.C. Jain which are reflected in the Show Cause Notice. In Gopalkishan's statement dated 10-12-1988 the same has been reflected in paragraphs 3 and 4 of the Show Cause Notice. It states that once a machine system is ready after lifting the production but the department prepares the machine record. The said machine records indicates the ordered configuration carried out. It also refers to the manufacture systems were cleared after due amounting. The elaborate details of the sales, production etc. have not been discussed in paragraphs 3 and 4 of the Show Cause Notice. As far as Jain's statement has been dealt with in para 5 of the Show Cause Notice, he states inter alia that the manufacturing operation of computers could be [divided] into two stages (a) assembly (b) integration. The assembly consists of combination of blank PCBs and integration consists of building up of computers for which machine record is made. The said machine record consists of components gone into building of the said machine. The machine records are prepared when the machine is functionally ready when the machine is packed as per packing slip. Once packing is done the goods are ready for delivery. The monitor and printer is the output devices. He explained as reflected in paragraph 5 of the Show Cause Notice that the computer consists of configuration by computer of CPU unit and input device and output device. On being specifically asked about the use of monitor he stated that it was output device to display the information.
He also stated that it could be used in the retrieving information. The list of events given by the appellants show that from 17-3-1985 to 27-1-1981 (sic) computers were exempted under Notification Nos. 65/86 and 76/86. On 1-3-1987 exemption to computer was withdrawn. On 1-4-1987 classification lists were filed and on 1-4-1988 further classification list was filed for keyboard, CPU, floppy drive and monitor terminals.
It is the contention of the Counsel that trade items like monitors, printers should not be included in the value of the computers, as the computer is complete in itself without monitors and printers. The Modvat has not been claimed for printer and monitor. Moreover it is urged the supply of printer were optional at 30 to 40%. No doubt the statement of Pankaj Jain shows that output device is used by means of monitor and printers. Where it is a bought out item, it need not be included for the purpose of valuation. For that purpose he mentions several cases and one of which we cited is C.C.E. v. Kishore Pumps - 1997 (91) E.L.T. page 91 where the Tribunal has held that electrical motor, cannot be regarded a component or an integral part of a pump unless the excisable product manufactured is an unit combining both article or is a component system which also may be known to the trade.
The court held that electrical motor could be distinct article or best as an accessory. Nowhere in the show cause notice or in the statements that they were manufacturing monitor and printers. They were only trading in those items. Hence the duty cannot be included in respect of trading items as it may not amount to levy by way of excise duty.
Moreover the judgment of Supreme Court in ORG Systems, Baroda v. C.C.E.-1998 (102) E.L.T. 3 (S.C.) has held that peripheral devices system software could not be included in the assessable value of the computer which includes monitor as well. Hence following the said judgment monitor and printer cannot be included. Hence they are not liable for taxation. The amount involved for the printers is Rs. 9.17 lakhs, and monitor is Rs. 4.01 lakhs. As far as the duty of alleged misdeclaration is concerned, it is argued by Shri Patil that duty is not payable as they have been brought back under Rule 173H and returned back after rectification. For that purpose he relies on the CBEC instruction dated 6-2-1997 contained in File No. 158/4/97. He also cites the case of Enfield India v. C.C.E. -1996 (88) E.L.T. 773. We are of the view that the above case squarely applicable to the facts of this case.
8. As far as the SSI exemption is concerned, the claim of the appellant regarding SSI notification is concerned the duty claim is Rs. 23 lakhs the turnover of the total come to Rs. 6,67,62,000/- + Rs. 8,59,000/- Annexure D and Annexure B of the Show Cause Notice. If we remove that period 1-4-19871989 (sic) exemption would be available.
9. Moreover the Show Cause Notice dated 10-9-1989 it was demanding a duty from 1-3-1987 to 31-3-1989. In this case the classification lists No. 3/84 treating the CPU only as a computer has been approved. Two classification lists dated 1-3-1987 and 1-4-1987 treating CPU, Keyboard and drives as computer have been approved. Further classification lists dated 16-1-1988 treating CPU, keyboard drives, monitor and computer has been approved. They also sought permission from department treating the monitors as computer. Moreover there has been a periodical audits of stock taking, visits of various officers of the department. Hence it is argued that the entire claim is barred by limitation.
10. We have carefully considered that it is settled law that where the classification list has been approved the claim is barred by limitation. Pushpam Pharmaceuticals v. C.C.E. -1995 (78) E.L.T. 401; Cosmic Dye Chemical v. C.C.E. -1995 (75) E.L.T. 721; Jagdambay Engg. v.C.C.E. -1995 (77) E.L.T. 895. Since the claim is barred by limitation as well we feel it is unnecessary to deal with other issues in this appeal.