Court rules in favor of diamond polishing business in machinery seizure case. Customs' actions deemed impermissible.

The court ruled in favor of the petitioner, a diamond polishing business, in a case involving the seizure of imported machinery by Customs authorities. The court held that while the imported software was subject to service tax liability, the continued attachment of the machinery by Customs on the grounds of misdeclaration for customs duty was not permissible. The petitioner accepted and paid the service tax liability but disputed penalties imposed, leading to the quashing of the impugned order and a directive for refunding any deposited amount for interim use of the machinery.

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Issues:
1. Seizure of imported machinery by Customs authority.
2. Dispute regarding duty liability of software component.
3. Service tax liability on imported software.
4. Appeal against penalties imposed by adjudicating authority.
5. Validity of continued attachment by Customs department.

Analysis:
1. The petitioner, engaged in diamond polishing business, imported a diamond scanning machine with software from Israel. Customs authorities seized the machinery under the belief that the software should attract customs duty along with the hardware due to undeclared valuation.
2. The Customs Act proceedings were initiated for recovery of unpaid duties on the software component. Simultaneously, under the service tax regime, authorities considered the imported software as a service, imposing a service tax liability of &8377; 1.13 crores, which the petitioner accepted and paid with interest.
3. The petitioner disputed the penalties imposed in the service tax appeal, which is pending. The court noted that while one department treated the software as a service for tax purposes, continued attachment by Customs on the grounds of misdeclaration for customs duty would not be permissible.
4. The petitioner did not contest the service tax liability and accepted the principal tax amount without appeal, leading to the quashing of the impugned order dated 11.3.2014. The petition was disposed of, with a directive for refunding any deposited amount with the department for interim use of the machinery.
5. The judgment emphasized that the quashing of the attachment order was without prejudice to the department's contentions regarding the nature of imports and declarations made during importation, ensuring fairness while addressing the issues raised by the petitioner.

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