2014 (12) TMI 411 - AT - Central Excise

Analysis of Software Duty Liability for Telecom Equipment Supplier to BSNL

M/s ICOMM TELE LTD. Versus Commissioner of Central Excise, Service Tax and Customs - VISAKHAPATNAM-II

The court analyzed whether the appellant was liable to pay duty on software supplied with telecom equipment to BSNL. The judgment focused on the ... Waiver of pre deposit - Whether the appellant is liable to pay duty on the software supplied along with telecom equipments to BSNL - Held that:- appellant had given the details of clearances, copy of purchase order and also the basis for their plea that as to why software cost need not to be included. In our opinion, it shows that there was ground for the appellant to claim limitation. Moreover, the appellant reiterated his serious financial hardship and submitted that they had suffered loss of ₹ 170 crores during the financial year 20012-13 and the companys proposal for financial restructure has been approved only in the previous year. In these circumstances, we consider that on the issue of limitation and also on financial difficulties, the appellant has made out prima facie case for waiver of pre-deposit. Accordingly, the requirement of pre-deposit of the adjudged dues is waived and stay against recovery is granted during pendency of the appeal - Stay granted. Issues:1. Liability to pay duty on software supplied with telecom equipments to BSNL.Analysis:The judgment revolves around the issue of whether the appellant is liable to pay duty on the software supplied along with telecom equipments to BSNL. The Revenue's contention was that the purchase order from BSNL did not differentiate between hardware and software, treating them as a single entity. The Commissioner's observations highlighted that the order was for a functional IPLC-LIM system, combining various hardware and software components necessary for lawful interception and monitoring. The Commissioner's analysis emphasized that the equipment was cleared as a unit comprising both hardware and software components. The judgment delved into the details of the IPLC-LIM system's functionality, emphasizing the integration of hardware and software to achieve the system's purpose effectively.The appellant argued that software was supplied separately and loaded only for testing purposes before clearance. Referring to a circular issued by the Central Board of Excise & Customs, the appellant contended that the value of software need not be included if cleared separately, but should be included if the system is cleared with software loaded condition. The appellant's stance was supported by the separate classification of software in the Central Excise Invoices under specific chapter sub-headings, indicating a deliberate attempt to avail the benefit of a 'Nil' rate of duty under the said chapter heading.The judgment also considered a letter written by the appellant to the department, clarifying the separate supply of software to BSNL on a Compact Disc along with the systems. The appellant highlighted that the software would be installed at the time of installation and commissioning of the infrastructure at BSNL sites. The appellant's letter included details of clearances, a copy of the purchase order, and the rationale behind why the software cost should not be included. The appellant's financial difficulties, including significant losses and approved financial restructuring, were also presented as grounds for waiver of pre-deposit of adjudged dues. The court acknowledged the appellant's prima facie case for waiver of pre-deposit and granted a stay against recovery during the appeal's pendency.In conclusion, the judgment extensively analyzed the nature of the supplied telecom equipments, the integration of hardware and software components, the appellant's arguments regarding separate software supply, and the financial hardships faced by the appellant. The decision to waive pre-deposit and grant a stay against recovery during the appeal process was based on the appellant's prima facie case regarding limitation and financial difficulties.