2008 (10) TMI 173 - AT - Customs

Tribunal classifies software separately from hardware, overturns Commissioner's order

The Tribunal ruled in favor of the appellants, holding that the software imported separately retains its separate identity from the hardware, should be ... Telephone equipments have been imported along with operational software preloaded in the factory of the supplier and also along with CDs/Tapes loaded with such software - Since software has come in a recorded media in the form of tapes/CDs, separately also, it is clear that it is not of the type which is embedded or etched - appellants contention that being operational software, it falls u/ch 8524 and its value cannot be included in the value of the hardware, is acceptable - and accordingly there has been no mis-declaration and no duty is therefore demandable. No confiscation can therefore be done Issues Involved:1. Classification of imported software and hardware.2. Inclusion of software value in hardware for duty assessment.3. Allegations of mis-declaration and extended period invocation.4. Confiscation and redemption fine.5. Applicability of previous judgments and legal precedents.Issue-wise Detailed Analysis:1. Classification of Imported Software and Hardware:The appellants imported Mobile Switching Centre (MSC), Base Station Controller (BSC), and Base Transceiver Station (BTS) equipment from Nokia Corporation, Finland, pre-loaded with operational software. The software was also imported separately on CDs/Tapes. The appellants claimed classification under Chapter Heading 85.24 for the software and sought exemption under Notification No. 21/02-Cus. The revenue contended that the software was already integrated into the hardware and should be classified under the same heading as the hardware (Chapter Heading 8517 for MSC and 8525 for BSC and BTS).2. Inclusion of Software Value in Hardware for Duty Assessment:The revenue argued that the software's value should be included in the hardware's value as it was pre-loaded and essential for the equipment's operation. They alleged that the software was artificially split from the hardware's value to evade duty. The appellants cited several Supreme Court decisions, including PSI Data Systems Ltd. and Acer India Ltd., which held that software, even if pre-loaded, retains its separate identity and should be classified and assessed separately under Chapter Heading 85.24. The Tribunal agreed with the appellants, stating that the software retains its character and should not be included in the hardware's value.3. Allegations of Mis-declaration and Extended Period Invocation:The revenue issued a show cause notice alleging mis-declaration by the appellants for not indicating that the software was pre-loaded in the hardware. They invoked the extended period for duty demand. The appellants argued that they had declared the correct description and value of the goods in the bills of entry, and there was no suppression or mis-declaration. The Tribunal found no evidence of mis-declaration or suppression and ruled that the extended period invocation was unjustified.4. Confiscation and Redemption Fine:The Commissioner ordered the confiscation of the goods with an option to redeem them on payment of a fine and imposed a penalty. The appellants contended that the goods had already been cleared, and confiscation was not possible. The Tribunal agreed, citing the Punjab & Haryana High Court's decision in Raja Impex, which held that goods already cleared could not be confiscated, and set aside the confiscation and redemption fine.5. Applicability of Previous Judgments and Legal Precedents:The Tribunal referred to several Supreme Court and Tribunal decisions, including PSI Data Systems Ltd., Acer India Ltd., Hewlett Packard, and others, which consistently held that software pre-loaded in hardware should be classified separately under Chapter Heading 85.24 and its value should not be included in the hardware's value. The Tribunal found these precedents applicable to the present case and ruled in favor of the appellants.Conclusion:The Tribunal upheld that the value of the software cannot be added to the value of the hardware, there was no mis-declaration, and no duty was demandable. The confiscation and redemption fine were also set aside. The appeal was allowed, and the Commissioner's order was overturned.