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Saturday, Nov 20, 2004

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In dock with a document processor off the dockyard

D. Murali

IBM Global Services India P Ltd knocked the doors of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore, unhappy that the Customs officials misconstrued a gizmo that the company had imported. The product was described, `refurbished stacker modules with accessories' giving one an impression that the dispute is about some second-hand gadget landing on the Indian shores.

Keeping aside such misgivings, if we look at the Customs examination report, it said the goods were "stacker modules (storage bins) for cheque sorting machine". Accordingly, the suggested classification was 8472.90 "since the function of the machine was akin to that of a letter sorting machine'.

IBM was put off by the suggestion and proposed that the machine be classified under 8473.50 "as parts and accessories equally suitable for use with machines of two or more of sub-heading numbers 84.69 to 84.72". Well, whatever that means, it was clear that IBM didn't like the apparatus to be on par with a letter-sorting contraption.

The company submitted that the machine is "based on the function of machine 3890-XP1 IBM Document Processor" and that it had a magnetic reader to scan MICR data and "convert them into electric signals and transcribe/process such coded information".

Magnetic reader falls under a different head of the Customs Tariff Act, said IBM. `Reader' was the input device; and the `stacker' was for output, "in which cheques, after being read, are sorted out and stacked into pockets depending upon the program." However, the company's pleas didn't find support before the Customs authorities.

At the Tribunal, Mr B.V. Kumar argued for IBM that the Document Processor was not "a machine for sorting or folding mail, or for inserting mail in envelopes or bands, or machines for opening, closing, or sealing mail, or machines for affixing or cancelling postage stamps, and is not capable of doing any of these functions."

No ordinary machine, this

Mr Kumar cited the technical write-up to point out that the machine was of `third generation' in which IBM has added "even greater processor and speed and more memory to existing 3890 XP features as well as offering new features of its own".

More about the appliance's prowess, you'd learn from the Tribunal's order: That its capability results in greater productivity and significant savings in time and money for the financial institutions; that it has increased processing capability and optional programmable endorsing/item number feature, so you can print a unique and changeable endorsement on every document; that information such as the account number, pocket number and statement cycle number can be printed on the back of the document "resulting in fewer operator errors and even greater productivity in cheque processing departments focussed on research adjustments and returned items."

Therefore, it was not okay to call it a dumb letter sorter, felt the company.

For the Department, it was Ms Shobha L. Chary who argued. "She pointed out that as per the catalogue, the item is a Document Processor and is a `sorter' with additional features for increasing the efficiency in the banking system."

Ms Chary said that Chapter 8472, under which the Department wanted to classify the imported item, covered all office machines such as hectograph or stencil, and those for duplicating, addressing, as well as automatic bank note dispensers, coin sorters/counters, wrapping machines and so on. Office machines, she explained, would include "all machines used in office, shops, factories, workshops, schools, restaurants, railway stations, and so on, for doing office work, that is, work concerning writing, recording, sorting, filing, and so on, of correspondence, documents, forms, records, accounts and so forth." That's lot of work for the office!

Letter is no different from cheque

Ms Chary submitted that the main function of the documentation centre was "to sort the cheque bank-wise or branch-wise" and was controlled by automatic data processing machine. Document Processor can be programmed to execute the functions of cheque-sorting; and that was similar to what a letter-sorting machine would do, she contended. Look at the nomenclature of the instrument, she reasoned; the name `Document Processor' established the fact that the equipment is used in the office for office automation, she claimed, suitable for 8472, rather than 8471 that was for situations where data processing was involved.

To help classification, there was a Note in the Tariff. It read: "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." Something that justified the Revenue's categorisation of the machine.

Dr S. L. Peeran, Judicial Member of the Tribunal had to wake up IBM to the fact that its argument was not right, to start with. What the Revenue had done was to classify the item under 8472.90, the residual heading, `other'; but IBM was arguing as if the classification were under 8472.30, which was for machines to sort or fold mail and so on. "There is a clear confusion in the mind of the importer," he said.

Also, the item cannot be considered as part of input or output units whether or not containing storage units in the same housing, he ruled, okaying the Commissioner's reasoning and stating that there was no merit in IBM's appeal.

In dock with a document processor off the dockyard, despite dogged dispute, shall we say, all because IBM didn't like what a dakiya does?

Who wants Shylocks

The Mumbai Income-Tax Appellate Tribunal gave a literary twist when giving its ruling in the Ajay Singh Deol case, reported recently. Ajay, a cine artist, spent about Rs 3 lakh towards reimbursement of medical expenses incurred by Rawat, his chauffeur.

The assessing officer disallowed the expenses when computing Ajay's income, saying that the expenses were towards the treatment of Rawat's wife. "Not in accordance with the terms of employment of the driver," said the AO, considering the expenditure to be "guided by charitable attitude rather than business expediency."

When appealed to, the Commissioner appreciated Ajay's gesture but "regretted his inability to allow the expense as a deduction," and observed that such expenses "on account of magnanimity and generosity" be charged to personal accounts, rather than to the Revenue. However, Mr Pramod Kumar, Accountant Member of the Tribunal, said that it was not necessary for every expense to be `hard nosed' and devoid of `sense of compassion'. Giving an `emphatic no' to the Department's view, he said that such deeds should be encouraged, not belittled as being at the cost of the exchequer. Punch line: "The exchequer does not require taxpayers to pay taxes on all their receipts, without any deductions, or to claim deductions for only such expenses as Shylock would have incurred if he was in the assessee's place." We leave it at that, he added.


"Have you read `Return of the Prodigal Son'?"

"Revised or belated?"

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