Whether 'Programmable Logic Controllers' were classifiable as 'automatic data processing machines' falling under CETH 8471 or under CETH 9032 or under CETH 8537?

Case:- SIEMENS LTD Vs COMMISSIONER OF CENTRAL EXCISE, NASHIK

Citation:- 2014-TIOL-157-CESTAT-MUM

Issue:- Whether 'Programmable Logic Controllers' were classifiable as 'automatic data processing machines' falling under CETH 8471 or under CETH 9032 or under CETH 8537?

Brief facts:-The appeals were directed against Order-in-Appeal No: AKP/NSK/ 150 & 151/2011 dated 30/06/2011 passed by the Commissioner of Customs & Central Excise (Appeals), Nasik; and Orders-in-Original No: 23/CEX/2011 dated 27/09/2011 passed by the Commissioner of Customs & Central Excise, Nasik. As the issue involved in all these appeals is common, they were taken up together for consideration. The appellant, M/s. Siemens Ltd., Nasik was a manufacturer of 'Programmable Logic Controllers'. The appellant sought classification of the said goods as 'automatic data processing machines' falling under CETH 84.71 of the Central Excise Tariff, or in the alternative they contended that the goods manufactured by them would be classifiable under CETH 9032. However, it was Revenue's contention that the goods were classifiable under CETH 8537 and duty was payable on such goods under that heading. This issue had come up before the Tribunal earlier and this Tribunal vide order No. A/01 & 02/2011/EB/C-II dated 29/12/2010 had remanded the case back to the Commissioner (Appeals) with the following directions: “In pursuance to the said direction, the impugned orders have been passed. The adjudicating and appellate authorities have held that the impugned goods do not measure or control parameters such as flow level, pressure, temperature or other variable s of liquids or gases and hence they do not merit classification under CETH 9032 as the said entry pertains to automatic controlling and regulating instruments and apparatus. Similarly the equipment manufactured by the assessee also was not useful for automatic data processing but were used as a programmable controllers. Therefore, they merit classification under CETH 85.37.”

Aggrieved of the said decisions, the appellant filed the appeal.

Appellant’s contentions:- The Ld. Representative for appellant submitted that issue involves classification of the products 'Programmable Logic Controllers/Programmable Process Controllers and Automatic Data Processing Machines, viz; Model Nos. Simatic S 100A/S, 100U, 135/150U; Teleperm M; Sinaut 8F; Sicomp M and Coros 2000. Simatic S 110A/S, 100U and 135/150U were programmable process controllers and were used in process automation. They were programmable automation controllers which were an advanced form of logic controllers and incorporated multiple disciplines such as logic control, process control and motion control, all single open platforms with a single date base. Such programmable automation controllers were classifiable as 'Programmable Process Controllers' classifiable under CETH 9032. The subject goods consist of a central processing unit, input/output modules which were either digital or analog. These modules were used to connect to digital sensors for sensing parameters like the position reached or like door open/close, valve open/close, etc. or any other signals like temperature or pressure. The output modules were used to connect the actuator for valve opening/closing or heater on/off, cylinder activation or deactivation. Similarly, the analog modules were used to connect sensor like thermocouple/RTD. The products, namely, Sinaut 8F, Sicomp M and Coros 2000 were industrial computers used for centralized monitoring and control of the processes in various production lines/plants. It was their contention that they were parts and accessories which were used in conjunction with industrial process controllers and hence in terms of Chapter Note 2(b) of Chapter 90, they have to be classified under Chapter 90.

They also relied on the decision of the Hon'ble Apex Court in the case of Commissioner of Customs vs N.I. Systems (India) Pvt. Ltd. 2010 (256) ELT 173 (SC) = (2010-TIOL-52-SC-CUS) wherein it was held that programmable controller, whether an automated controller or process controller, was suitable mainly with industrial process control equipment like sensors and therefore ought to be classified under Chapter 90.32. It was also contended that the appellant's products were used in various industries for controlling and regulating processes. In the technical report provided by Victoria Jubilee Technical Institute (VJTI), it had been stated that the appellant's products were used for monitoring and controlling processes of various industries for data processing and control applications. In the impugned order also the appellate authority had observed that PLCs were performing specific function of controlling with the help of automatic data processing machines.

Teleperm ME and Sinaut 8F were process control systems for power plants. It was their contention that even though the products were multiple units, they were tailored to perform the specific function of regulating and controlling various processes in different industries and therefore, must be classified under Chapter 90.32. Alternatively, it was pleaded that the products would merit classification under CETH 84.71 as automatic data processing machines as they essentially do processing of data and, therefore, it could not be classified under CETH 85.37.

Reliance was also placed on the decisions of this Tribunal in the case of Larsen & Toubro Ltd. vs. Commissioner of Central Excise vide order No. A/294/2011/EB/C-II dated 06/04/2011 wherein the programmable logic controller manufactured by M/s. Larsen & Toubro Ltd. was held to be classifiable under CETH 90.32. The products manufactured by the appellant herein were also similar to those manufactured by M/s. Larsen & Toubro Ltd. and, therefore, it was contended that these products also merit classification under CETH 90.32.

Respondent’s contentions:-The learned Authorised Representative (AR) appearing for the Revenue, reiterated the findings of the lower authorities and submits as follows:

To merit classification under CETH 90.32, the equipment should consist of a measuring device, an electrical control device and a starting/stopping operative device. The goods falling under CETH 90.32 regulate the electrical quantities and automatically control non-electrical quantities, the operation of which depends on the electrical phenomenon varying according to the factor to be controlled. Such a device compares the measured value with the desired value and gives a signal and such controlling devices were meant to regulate or control attributes such as pressure, flow, temperature, etc. The equipment manufactured by the appellant did not undertake any of these activities and it was only a programmable logic controller. It only undertook processing of data and control functions were performed by the other machines. CETH 90.32 specifically excludes from its scope programmable controllers falling under CETH 85.37. It was therefore, pleaded that the decision of the Hon'ble apex Court in the case of N.I. Systems (India) Pvt. ltd. (supra) was not relevant. So was the case with the decision of the Tribunal in the case of Larsen & Toubro Ltd. 2011 (270) ELT 385.

As regards the contention that, alternatively the goods manufactured by the appellant should be classified under Heading 84.71, the learned AR submitted that as per the expert opinion tendered by the appellant himself, the products were programmable controllers were classified under Heading CETH 85.37. It was therefore, prayed that the appeals did not have any merits and were liable to be rejected.

Reasoning of judgment:- The Bench carefully considered the submissions made by both the sides. The consideration was first laid on the admissibility of the additional documents now submitted by the appellant . Rule 23 of the Cestat (Procedure) Rules, 1982 prescribed that no additional evidence shall be admitted by the Tribunal in the normal course, unless sufficient cause was shown and the tribunal should be satisfied that the additional evidence was very relevant for determination of the issue on hand. The Hon'ble Apex Court laid down the principle of admitting additional evidence in the case of Shivajirao Nilengakar Patil vs. Dr. Mahesh Madhav Gosavi [1987 AIR 294].

The Bench perused the product literature available on record as also those produced along with their written submissions received on 31-10-2013, the expert opinion submitted by the appellant from M/s. VJTI and also by Shri Vijay Ramchand Ansari, a chartered engineer and also from the Department of Electronics.

They found it useful to refer to the tariff descriptions of the competing entries and they were reproduced below: "8471 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." The said entry covers computers and other data processing machines, input or output units whether or not containing storage units in the same housing, printers and storage units. Entry 85.37 as it stood at relevant time read as follows: "8537 Boards, panels, consoles, desks, cabinets and other bases, equipped with two or more apparatus of heading 8535 or 8536, for electric control or the distribution of electricity, including those incorporating instrument or apparatus of Chapter 90, and numerical control apparatus, other than switching apparatus of Heading 8517." As per HSN Explanatory Notes, the Heading covers numerical control panels with built-in automatic data processing machines, which were generally used to control machine tools; programmed switchboards to control apparatus and programmable controllers which were digital apparatus using a programmable memory for the storage of instructions such as logic sequencing, timing, counting and arithmetic to control through digital or analog input/output modules, various types of machines. Heading 90.32 covers "Automatic regulators of electrical quantities, and instruments or apparatus for automatically controlling non-electrical quantities the operation of which depends on an electrical phenomenon varying according to the factor to be controlled." The said heading specifically excludes programmable controllers of Heading 85.37.

The Bench also perused the technical opinion given by the Electrical Engineering Department of VJTI dated 04/01/1994 and the products covered under the said report were: Simatic S5 110A/s,(ii) Simatic S5 135/150U; Simatic S5 100U; Teleperm ME; Sicomp M; Sinaut 8F.

On the basis of literature provided and personal inspection of the said products, M/s VJTI had opined as follows:

"The first three of these, Simatic S5 110 A/S, 135/150U and 100U are PLC's (Programmable Logic Controllers). They are multiprocessor controllers intended for automation and data processing tasks in the medium and upper performance levels of automation. They provide simple and economic solutions for all automation and data processing tasks." From this opinion, it was clear that three of the six products manufactured by the appellant are programmable logic controllers. The product literature of Simatic 100U describes the product as 'programmable controller' and "as a low priced and modern replacement for contractors and relays." The literature for S5-135/150 U describes the product as a 'programmable controller which simply and economically executes automation tasks of the medium and upper range performance'. There are two types of central processors available for this controller, namely, S-processor for 'open-loop control, monitoring and reporting' and R-processor for 'arithmetic operations, closed loop control, monitoring and reporting'. These controllers perform the following tasks - "loop control, sequence control with Graph, digital functions, reporting systems, data exchange with communications processors and operation of signal preprocessing I/Os." Thus from the technical opinion given by VJTI and the product literature, it was obvious that these goods were not mere data processing machines falling under CETH 84.71 or automatic regulators of electrical quantities of instruments or apparatus for automatically controlling nonelectrical quantities. These goods, from the nature of functions undertaken by them were controllers with built in data processing machines and based on the programme written in the memory, monitors the input status and executes the outputs. Thus, on the basis of technical literature produced and the expert opinion adduced, these were programmable logic controllers meriting classification under CETH 8537 of the Central Excise tariff and they held accordingly.

As regards the Teleperm ME, Sicomp M, Sinaur 8F, and Coros 2000 it was seen that no expert opinion had been obtained in respect of Coros 2000. Teleper ME, as per the technical opinion, was an automatic data acquisition and process control computer system consisting of an automation system and operator communication system. The automation system processes the data and converts into digital form as per the requirement of automation. The communication system accepts the required process status and fault information from automation system and displays to the operator which helps him in quick trouble shooting in the case of fault. As per the product literature, Teleperm ME was a "distributed control system capable of fulfilling all the tasks of power plant automation." Power plants equipped with Teleperm ME achieves a very high degree of efficiency and operational safety. In other words, the said machine not only processes the data but also communicates with the operator about the fault in the system which requires trouble shooting, thus providing for automatic control of power plants. Thus it is not a mere data processing machine but is a logic controller incorporating a data processing machine. Similarly as per the product literature, Sinaut 8F is a supervisory control and data acquisition system used to monitor and control various parameters of process control from a central master station. Both the master and remotely controlled stations were equipped with Sinaut for exchange of information and control the required parameters. The remote stations acquire all the parameters of the stations through transducers, process the same and transmit the data serially to the master station. These parameters were processed at the master station and suitable action is initiated to remote stations for the desired operations. Thus these were control systems with built in automatic data processing machines which were generally used to control machines/appliances and were programmable controllers for implementing specific functions such as logic sequencing, timing, counting and arithmetic to control through digital or analog input/output modules various types of machines. Thus they answer to the description of Programmable Logic Controller falling under CETH 8537. Though the expert opinion tendered by VJTI classify these products as automatic data processing machines, the said opinion could not be accepted in view of Notes 3 and 4 to Section XVI which read as under:-

"3. Unless the context otherwise requires, composite machines consisting of machines fitted together to form a whole ad other machines designed for the purpose of performing two or more complementary or alternative functions were 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 electrical 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 84, then the whole falls to be classified in the heading appropriate to that function." From the product literature, it was obvious that the principal function of these machines were control of machines and not computation of data. Automatic processing of data was with a view to perform the control function. Therefore, as per Section Notes 3 and 4 cited above, the product was a Programmable Logic Controller meriting classification under CETH 8537. The other expert opinion do not throw much light on the functional capability of the equipment and hence cannot be given much weightage.

As regards Sicomp M and Coros 2000, they are powerful processing systems for a wide variety of applications and these were hard disk based multiuser system. These equipments consist of interface for connecting external peripherals. They control and manage process I/O image, cyclically update plant flow diagrams, short-term archiving of curve value, on-line management functions and co-ordination functions between several terminals. They were designed to be used in conjunction with programmable control systems of the SIMATIC family discussed above. Thus they were not mere data processing systems but undertake control/management functions in industrial automation. Thus they were an integral part of the programmable controllers.

In the book "Programmable Controllers- Theory and Implementation" by L.A.Bryan and E.A. Bryan (2 nd Edition published by Industrial Text Company Publication, USA). Programmable Logic Controllers were described as solid-state members of computer family using integrated circuits instead of electromechanical devices to implement control functions and are capable of storing instructions, such as sequencing, timing, counting, arithmetic, data manipulation, and communication to control industrial machines and processes. Technological advances have brought about changes in the system architecture of PLCs both hardware and software and some of the hardware enhancements include-

• Faster scan times using advanced microprocessor and electronic technology;
• Replacement of significant number of relays;
• High density input/output (I/O) systems;
• Intelligent microprocessor based I/O interfaces providing distributed processing;
• Mechanical design improvements;
• Special interfaces providing for direct connection to the controller; and
• Improved operator interface techniques and system documentation.

Similar developments have taken place in software development also. These developments have made PLCs capable of communicating with other control systems, providing production reports, scheduling production, and diagnosing their own failures and those of the machines or processes. PLCs have been successfully implemented in every segment of the industry, including steel mills, paper plants, food-processing plants, chemical plants and power plants. PLCs perform a great variety of control tasks, from repetitive ON/OFF control of simple machines to sophisticated manufacturing and process control. The HSN Explanatory notes on CETH 8537 also states that goods of this heading vary from small switchboards to complex control panels for machine tools, rolling mills, power stations, radio stations, etc. Thus the technical literature on the subject as also the HSN explanatory notes clearly support the classification of the goods discussed above under CETH 8537 as Programmable Logic Controllers.

The Central Board of Excise & Customs had issued a 37B order vide order NO. 49/3/97-Cx dated 09/05/1997 clearly pointing out differences between a programmable logic controller and programmable process controller. The said 37B order was reproduced below:

"2. Representations have been received from trade pointing out that programmable logic controller and programmable process controllers such as process control equipment/distributed control systems were two different types of controls classifiable under different headings of central excise tariff i.e. heading 85.37 and heading 90.32 respectively. The following specific differences have been pointed out between two types of controllers.

PROGRAMMABLE LOGIC CONTROLLER	PROGRAMMABLE PROCESS CONTROLLER
These were for controlling various types of machines	These were for controlling various types of processes
Operations depends on set of predetermined operations	Operations depend on factor to be controlled
Operations based on desired sequence of operations	Operation operates basically by continuously monitoring and maintain the variable to be controlled such as pressure, flow, temperature, level etc. with/at pre-determined level
No regulatory function	Regulatory function by continuously monitoring the desired value with actual value and bringing variable to be controlled to the desirable value
Conventionally it was relay based panel for electric control with timer and switches	Regulating apparatus for process control for continuous process governing
Relay based panel has been upgraded to programmable controller commonly known as programmable logic controller by using micro processor for storing and doing sequence of operations.	Mirco processors were used for doing complex storing and algorithms primarily for controlling. These were commonly known as controllers, e.g. digital distributed control system, distributed control system

The matter has been re-examined by the Board in consultation with the Dept. of Electronics. Their opinion was reproduced below:

(i) The programmable controllers covered under heading 85.37. They perform specific functions such as logic instruments timing etc. to control various types of machines in a plant.
(ii) The automatic regulating or controlling instruments and apparatus under heading No. 90.32: they may be considered as industrial process control systems satisfying criteria mentioned in No. 90.32. These were primarily used for controlling/maintaining the flow level, pressure or variables of liquids or gases or for automatically controlling temperature of a process (may be refinery, steel, chemical industry) at the present level. They can perform functions both sequence logic and different control strategies like Proportional-integral-differential (PID) control and other forms of control.

4. It was observed that opinion of the Dept. of Electronics was also in conformity with the Explanatory Notes of HSN.

5. Now therefore, in exercise of the powers conferred under sectin37B of the Central Excise Act, 1944 and in supersession of the Board's order dated 6-8-96 referred to above, and for the purpose of ensuring uniformity in the classification of the goods in question, Board hereby orders that programmable logic controller as described in para 2 and other similar forms will be classifiable under heading No. 85.37 of the Central Excise Tariff and programmable process controllers as described in para 2 and other similar forms will be classifiable under heading No. 90.32 of the Central Excise tariff".

From the above clarifications it was seen that to qualify as 'programmable process controller', Continuous monitoring of the various parameters such as pressure, flow and temperature level etc. has to be done and comparison should be made of the parameters of the desired value with the actual value and the machine should be capable of bringing the variables to the desired value. None of the machines in the present case undertake these functions nor do they have a measuring device to measure any of these parameters. As per the HSN Explanatory Notes, to fall under heading 9032, the equipment should consist of a measuring device (sensing device, resistance probe, thermocouple, etc.) which determines the actual value of the variable to be controlled and converts it into a proportional electrical signal, an electrical control device which compares the measured value with the desired value and a starting or stopping or operating device (contacts, switches or circuit breakers, relay switches). From the technical literature, it was seen that the impugned goods do not satisfy the criteria laid down. Therefore, they do not merit classification under Heading CETH 90.32.6.12 The appellant had relied on the decision of the Hon'ble Apex court in the case of N.I. Systems (India) P. Ltd. The said case dealt with import of a system consisting of PXI controllers, Input/Output Modules (Modem or Control/Adaptor units), Signal converters, and chassis and its parts. Examination of the technical literature of the product revealed that PXI controller was designed for measurement and automation applications and was a system in itself consisting of chassis, system controller and peripheral modules. It consisted of Programmable Automation Controller, Sensor and Field Programmable gate Array and it was found to be a regulating and controlling apparatus. Based on the technical literature on the equipment, the Apex Court held that Programmable Automation Controllers, whether embedded or otherwise, were in essence Programmable Process controllers. In the case of the facts before us, as per the technical obtained by the appellant, while 3 items were Programmable Logic Controllers (that is, Simatic 110A/S. 100U and 135/150U), the other three, namely, Teleperm ME, Sicomp M and Sinaut 8 were automatic data processing machines. Thus the technical opinion relied upon by the appellant itself does not support their case for classification under CETH 9032. For the same reason, the reliance placed on this tribunal's decision in the Larsen & Toubro case also fails.

To sum up, the Bench held that:

(i) The Programmable logic controllers manufactured by the appellant do not fall under CETH heading 90.32 as programmable process controllers nor do they fall under CETH 84.71 as automatic data processing machines;

(ii) All the seven products under consideration, Simatic S5 110A/s, Simatic S-5135/150U, Simatic AS-5 100U, Teleperm ME, Sinaut 8F, Sicomp M and Coros 2000 merit classification under CETH 85.37 as "programmable logic controllers."

(iii) The duty demands confirmed classifying the products under CETH 85.37 were sustainable in law along with interest thereon in accordance with law.

(iv) Since the matter relates to a classification dispute, imposition of penalty was not warranted.

Decision:- The appeals were disposed off.

Comment:- The analogy drawn from the case is that Programmable logic controllers are different from Programmable process controllers as drawn from the reasons of judgment. While Programmable logic controllers are covered under CETH 85.37 Programmable process controllers are covered under CETH 90.32.

Prepared by Ranu Dhoot

Comments

PJ/Case Law/2014-15/2341

Post a Comment

Query