IMPORTANT CUSTOMS CASE LAWS - Second Hand server is not second hand Computer and should be treated as Capital goods & subsequent important amendment in FTP 15-20

As declared by Karnataka High Court during 2010, Second Hand server is not second hand Computer and should be treated as Capital goods and declared DGFT Circular No. 16/2003 dated 29-9-2003 is not applicable to Second Hand Servers hence does not require a Licence.

But refer below recent FTP circular where ' All electronics and IT Goods " are required prior DGFT Authorisation and brought under policy condition "Restricted "

Notification - DGFT - Foreign Trade Policy

Government of India

Ministry of Commerce & Industry

Department of Commerce

Directorate General of Foreign Trade

Udyog Bhawan

Notification No. 5/2015-2020

New Delhi Dated 7 May, 2019

Subject: Import policy for Electronics and IT Goods under Schedule - I (Import Policy) of ITC (HS), 2017.
S.O. 1701 (E):  - In exercise of powers conferred by Section 3 of FT (D&R) Act, 1992, read with paragraph 1.02 and 2.01 of the Foreign Trade Policy, 2015-2020, as amended from time to time, the Central Government hereby amends Note No 2(c) under the General Notes Regarding Import Policy and inserts Policy Condition No 2 under Chapter 84 and as Policy Condition No. 5 under Chapter 85 of ITC (HS) 2017 as under:

Existing General Note No 2 (c)

Amended General Note No.2 (c)

(c) Import policy for electronics and IT Goods: The import of Notified Goods under the "Electronics and Information Technology Goods (requirement of Compulsory Registration) Order, 2012, as amended from time to time, will be allowed subject to registration with the Bureau of Indian Standards (BIS), or on specific exemption letter from Ministry of Electronics and Information Technology (MeitY) for a particular consignment, as per provisions of Gazette Notification SO No. 3022 dated 11.09.2013. Accordingly, import of unregistered/ non- compliant notified products as in CRO, 2012, as amended is "prohibited'   Import consignments without valid registration with BIS shall be re-exported by the importer failing which Customs shall deform the goods and dispose them as scrap under intimation to MeitY.

(c) Import policy for Electronics and IT Goods: The import of Goods (new as well as second hand, whether or not refurbished, repaired reconditioned) notified under the "Electronics and Information Technology Goods (Requirement of Compulsory Registration) Order, 2012, as amended from time to time, is prohibited unless they are registered with the Bureau of Indian Standards (BIS) and comply to the 'Labelling Requirements' published by BIS, as amended from time to time', or on specific exemption letter from Ministry of Electronics and Information Technology (MeitY) for a particular consignment, as per provisions of Gazette Notification SO No. 3022 dated 11.09.2013. The importer shall re-export such prohibited Goods reaching Customs Ports else the Customs Authorities shall deform the goods beyond use and dispose of the goods as scrap under intimation to MeitY.

Policy Condition: As under Chapter 84 and 85 of ITC (HS) 2017:
The import of Goods (new as well as second hand, whether or not refurbished, repaired or reconditioned) notified under the "Electronics and Information Technology Goods (Requirement of Compulsory Registration) Order, 2012, as amended from time to time, is prohibited unless they are registered with the Bureau of Indian Standards (BIS) and comply to the 'Labelling Requirements' published by BIS, as amended from time to time', or on specific exemption letter from Ministry of Electronics and Information Technology (MeitY) for a particular consignment, as per provisions of Gazette Notification SO No. 3022 dated 11.09.2013.
The importer shall re-export such prohibited Goods reaching Customs Ports else the Customs Authorities shall deform the goods beyond use and dispose of the goods as scrap under intimation to MeitY.
2.  Further, Para 2.31 (l) (a) of Foreign Trade Policy, 2015-20 is revised as under:-

S.No.	Categories of Second Hand Goods	Import Policy	Conditions, if any
	Second Hand Capital Goods
(a)	i.  Desktop Computers ii.  refurbished/ re-conditioned spares of re-furbished parts of Personal Computers/ Laptops iii. Air Conditioners iv. Diesel generating sets	Restricted	Importable against Authorization
(b)	All electronics and IT Goods notified under the Electronics and IT Goods (Requirement of Compulsory Registration) Order, 2012 as amended from time to time.	Restricted.	(i) Importable against Authorization subject to conditions laid down under "Electronics and Information Technology Goods (Requirement of Compulsory Registration) Order, 2012, as amended from time to time. (ii) Import of unregistered / non-compliant notified products as in CRO, 2012, as amended from time to time is prohibited

3.  Effect of this Notification: Import Policy and Policy condition for import of Electronics and IT Goods is laid down.
This issues with the approval of Minister of Commerce and Industry.

(Alok Vardhan Chaturvedi)

Director General of Foreign Trade &

Ex-officio Add. Secy.

Government of India

E-mail : dgft@nic.in

(Issued from F. No. 01/89/180/39/AM-13/PC-2(A)/e-2261)

Note: The principal notification No. 36/2015-2020, dated the 17th January, 2017 was published in the Gazette of India, Extraordinary vide number S.O. 172 (E), dated the 17th January, 2017 and amended vide notification No. 50/2015-2020, dated the 8^th January, 2019 was published in the Gazette of India, Extraordinary vide number S.O. 128(E) dated the 8^th January, 2019.

KARNATAKA HIGH COURT

Other Citation: 2010 (259) E.L.T. 212 (Kar.)

COMMR. OF CUS., BANGALORE VERSUS MICROSOFT CORPORATION INDIA PVT. LTD.

17 of 2008

Dated: - 26 August 2010

EPCG scheme - Circular prohibits import of second hand goods – second hand computer – Held that: - it is clear that the goods imported, that is, personal computers (PCs/Laptops) are the items, which are covered under Annexure- E, the Circular. Therefore, the Tribunal was justified in holding that the Circular do not apply to the servers of me description, which is involved In this case. - no doubt, servers are also computers but servers are computers, which are meant for specific application in a network. They are entirely different from the personal computers and laptop computers, which are actually stand-alone equipments - there is no reason to exclude them from the scope of Capital Goods.

Judgment / Order

N. Kumar and H.S. Kempanna, JJ.

REPRESENTED BY :        Shri Y. Hariprasad, Advocate, for the Appellant.

[Judgment per : N. Kumar, J.]. -

This appeal is by the revenue against the finding recorded by the Tribunal [2008 (224) E.L.T. 322 (Tribunal)] that a Server though a Computer is not prohibited from importing as it does not fall within the meaning of second hand personal computers (Personal Computers/Laptops).

2 The Joint Director General of Foreign Trade issued a Circular No. 16/2003 dated 29-9-2003 to the effect that second hand "personal computers'" (PCs)/Laptops cannot also be permitted for import under EPCG scheme under the provisions of para 5.1 of the Exim Policy, even for service providers. In the instant case, the respondent imported goods described as HP server for testing (data processing equipment) against invoice placed by M/s. Microsoft Corporation, U.S.A. The Department got the equipment inspected by a Chartered Engineer. He opined that the item imported is a model "hp workstation ZX6000" and server appears to have been used for around 3 years and has a residual life of around 10 years.

As the aforesaid Circular prohibits import of second hand goods of the nature mentioned above, the adjudicating authority treated the server as a Computer and as admittedly, it was a second hand computer, he held that, the assessee has violated the Exim Policy under Section 111(d) and 111(m) of the Customs Act and gave an option to redeem the goods on payment of fine of Rs. 50,000/- and imposed penalty of Rs. 20,000/-. In Appeal, the Commissioner of Customs (Appeals) held that, the said server though a computer, is not covered under the said Circular. However, as the assessee did not declare the goods and he gave a mis-declaration, he reduced the fine from Rs. 20,000/- to Rs. 10,000/- The revenue aggrieved by the said order preferred an appeal before the Tribunal. The Tribunal held that, "no doubt, servers are also computers but servers are computers, which are meant for specific application in a network. They are entirely different from the personal computers and laptop computers, which are actually stand-alone equipments. Moreover, in commercial parlance, "servers' are described as 'servers' only and it is also pertinent to note that they don't have the keyboard and monitors. Normally, the servers will be the larger machines having very high memory. The processing speed also will be very high and there are various types of servers for various applications. There is no reason to exclude them from the scope of 'Capital Goods'. So, they are not stand-alone computer, Therefore, the Tribunal dismissed the appeal, and aggrieved by the same, the revenue is before us.

3.We have heard the learned counsel for the appellant.

4. From the aforesaid facts, it is clear that the goods imported, that is, personal computers (PCs/Laptops) are the items, which are covered under Annexure- E, the Circular. Therefore, the Tribunal was justified in holding that the Circular do not apply to the servers of me description, which is involved In this case. In that view of the matter, we do not see any error committed by the Tribunal. No merits. Accordingly, the appeal is dismissed.

---

Citations: in 2010 (8) TMI 426 - KARNATAKA HIGH COURT

1.   COMMR. OF CUS., BANGALORE Versus MICROSOFT CORPN. INDIA PVT. LTD. - 2007 (11) TMI 203 - CESTAT, BANGALORE