2019 (9) TMI 1723 - SC - Customs

Software embedded in transmission equipment before supply must be included in import valuation under Rule 9/10

Indusind Media & Communications Ltd. Versus Commissioner of Customs, New Delhi

The SC upheld the Tribunal's decision regarding mis-declaration of imported transmission apparatus valuation. The Court found that software embedded in ... Mis-declaration established in respect of valuation of the goods - 'transmission apparatus' - Technical Assistance Fee Under Article 4 - Valuation of imported goods under Rule 9 and 10(1)(c) - Post-importation activities - confiscation - penalty - HELD THAT:- It is a matter of record that after considering the purchase order in the instant case, the Tribunal found that apart from supply of equipment, necessary software had to be embedded in the equipment before the supply was effected. The facts also disclose that out of 19 items indicated in the Bill of Entry, only 8 items were physically presented while the rest were already embedded in the main unit. These facts are not only reflective that the individual components were intended to contribute together and attain a clearly defined function as dealt with in Note 4 of Section XVI as stated above, but also indicate that software that was embedded through cards in the main unit, was not any post-importation activity. The value of the software and the concerned services were therefore rightly included and taken as part of the importation. The facts on record as stated, further disclose that the Department was therefore right in invoking principle under said Note 4 and considering the imported items as part of one apparatus or machine to be classifiable under the heading appropriate to the function. The submission advanced by the Appellant in that behalf therefore has to be rejected. Rule 9(1)(b) of 1988 Rules as quoted above in the decision in Toyota Kirloskar [2007 (5) TMI 20 - SUPREME COURT], case shows that the value in respect of 'materials, components, parts and similar items incorporated in the imported goods' has to be added while determining the transaction value. Said Rule 9 is almost identical to Rule 10 of 2007 Rules. Thus, even if the governing Rule is taken to be Rule 9 of 1988 Rules, there would be no difference in the ultimate analysis. Consequently, we do not find any merit in the present appeal. Affirming the view taken by the Tribunal, we dismiss this appeal. Issues Involved:1. Classification of Imported Goods.2. Valuation of Imported Goods.Issue-Wise Detailed Analysis:1. Classification of Imported Goods:The primary issue was whether the imported goods should be classified under Tariff Item 8525 or 8543. The Tribunal concluded that the goods should be classified under Tariff Item 8525, which pertains to 'Transmission apparatus for radio-telephony, radio-telegraphy, radio-broadcasting or television, whether or not incorporating reception apparatus or sound recording or reproducing apparatus; television, cameras; still image video cameras and other video camera recorders; digital cameras.' This conclusion was based on the fact that the different pieces of equipment were intended to work together to perform a clearly defined function, specifically as a 'Head End' for cable TV operations, as per Note 4 to Section XVI of the Customs Tariff Act. The Tribunal relied on previous decisions in SET India Pvt. Ltd. v. Commissioner of Customs, Cochin and Commissioner of Customs v. Multi Screen Media Private Limited.2. Valuation of Imported Goods:The second issue was whether the value of the software already embedded in the equipment and the service charges should be included in the assessable value. The Tribunal found that the software was embedded in the equipment before importation, and thus, its value should be included in the transaction value as per Sub-rule (iii) of Rule 10 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. The Tribunal noted that the inclusion of the software value was justified because it was part of the importation process and not a post-importation activity. The Tribunal's conclusion was based on the purchase order, which indicated that the necessary software had to be embedded in the equipment before supply.Principal Arguments and Findings:- Appellant's Argument: The Appellant contended that the imported items did not form a complete 'Head End' and should be classified individually under various Chapter Headings. They also argued that the 2007 Rules should not apply since the Bill of Entry was from 2003, and that certain activities like embedding software were post-importation and should not be included in the valuation.- Respondent's Argument: The Respondent argued that the items should be considered collectively as part of one apparatus, invoking Note 4 to Section XVI. They also contended that Rule 9 of the 1988 Rules, which is almost identical to Rule 10 of the 2007 Rules, justified the inclusion of the software value in the transaction value.- Court's Finding: The Court affirmed the Tribunal's findings that the imported goods should be classified under Tariff Item 8525 and that the value of the embedded software should be included in the transaction value. The Court noted that the facts indicated that the software embedding was not a post-importation activity and was essential for the function of the imported equipment.Conclusion:The Supreme Court dismissed the appeal, affirming the Tribunal's decision that the imported goods should be classified under Tariff Item 8525 and that the value of the embedded software should be included in the assessable value. The Court found no merit in the Appellant's arguments and upheld the principles applied by the Tribunal regarding classification and valuation.