COMMISSIONER OF CUSTOMS, CHENNAI versus M/S. HEWLETT PACKARD INDIA SALES (P) LTD.

Citation: [2007] 9 S.C.R. 641 · Decided: 30-08-2007 · Supreme Court of India · Bench: ARIJIT PASAYAT · Disposal: Disposed off
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Judgment (excerpt)

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COMMISSIONER OF CUSTOMS, CHENNAI 
A 
v. 
M/S. HEWLETT PACKARD INDIA SALES (P) LTD. 
AUGUST 30, 2007 
IDR.ARIJITPASAYAT ANDLOKESHWARSINGHPANTA,JJ.) 
B 
Customs Tariff Act, 1985; Headings 84. 71 and 85.24 and Notification 
No.2112002-Cus. Dated 1.3.2002 issued thereunder: 
Classification-Import of Laptops with Hard Disc Drives-CTH 84. 71 C 
or 85.24-Assessee claiming duty exemption-Exemption Notification-
Applicability of-Held: Assessee imported Laptops containing preloaded 
Hard Disc Drives preloaded with <!perating systems which control the working 
of the Computer-Value of Laptops depend on the operating system, which 
is preloaded-A preloaded operating system recorded on Hard Disc Drives D 
is an integral part of the Laptop-Assessee not only imported Laptops but 
also imported Hard Disc Drives on which operating system recorded-
Software is classifiable u/CTH 85.24 and Laptop is classifiable u/CTH 84. 71-
Hence, Revenue rightly classified the Laptops, so imported, as a Unit 
classifiable u/CTH 84. 71 and giving the benefit of deduction for the value 
of software classifiable u/CTH 85.25. 
E 
Words and Phrases: 
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'Hard disc~ 'platter' and 'software'-Meaning of 
Revenue had demanded certain amount of customs duty from the F 
respondent-assessee by classifying the goods imported by them as Laptop liable 
for duty under Heading 84. 71 of the First Schedule of the Customs Tariff Act 
and denying them benefit of exemption Notification No.21/2000-Cus.dated 
I .3.2002. Assessee filed an appeal before CEST AT, the Tribunal, against the 
demand so raised by the Revenue, which was allowed by the Tribunal. Hence 
the present appeal. 
G 
The question which arose for determination in this civil appeal was as 
to whether the imported goods, the operating systems (software) which controls 
the working of the computer and which is preloaded in the laptop (notebook), 
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SUPREME COURT REPORTS 
[2007] 9 S.C.R. 
A 
is classifiable as a separate entity under CTH 85.24 at 'nil' rate of duty or 
as an integral part of the laptop under CTH 84.71 at the appropri,ate rate of 
duty. 
Allowing the appeal, the Court 
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B 
HELD: 1.1. The Revenue has classified the laptop as a machine 'under 
CTH 84.71 of the Customs Tariff Act, 1985 and has demanded di.ty on the 
assessable value determined by deducting the software value from the total 
value of the laptop whereas the assessee has classified the software loaded 
Hard Disk Drive under CTH 85.24 separately from the laptop and. has claimed 
the benefit of Notification No.21/2002-Cus dated 1.3.2002. 
C 
lPara 7) (647-A) 
1.2. The assessee imported laptops containing preloaded Hard Disc 
Drives (HDD). The said drives were preloaded with operating systems 
(software) which controls the working of the computer. The value of the laptop 
depends on the operating system, which is preloaded. The computer cannot 
D open without the operating system. (Para 91 (648-DJ 
1.3. It may be clarified that the operating system can also be imported 
as a packaged software which is like an accessory and which is classified by 
the Revenue under CTH 85.24. However, a preloaded operating system 
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recorded on HDD is an integral part of the laptop (unit). 
(Para 9) (648-E) 
F 
1.4. A laptop is a stand alone unit classifiable under CTH 84.71. A laptop 
is a small portable Personal Computer. It runs either on battery or electricity. 
Laptop has a screen and a small key board. (Para 91 (648-FI 
1.5. The preloaded operating system recorded in HOD in the laptop, 
the imported item, forms an integral part of the laptop. Wh~t was imported 
in the present case was a laptop as a stand alone item (unit). Present dispute 
relates to the transaction value of the unit. An importer who buys a laptop 
containing an operating system pays for the laptop as a unit. Without the 
G operating system, the laptop cannot work. The computer cannot open without 
operating system. The respondent has not only imported laptops, it has also 
imported HDDs on which the operating system was recorded (packaged 
software) which has been classified by the Revenue unde~ CTH 85.24. 
However, when a laptop is imported with in-built preloaded.opehttingsyste'm 
recorded on HDD the said item forms an integral part of the laptop (computer 
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COMMR. OF CUSTOMS v. HEWLEIT PACKARD INDIA SALES (P) LTD. [PASA YAT, J.] 643 
system) and in which case the Revenue is right in treating the laptop as one A 
single unit imported by
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