2017 (3) TMI 914 - AT - Customs

Tribunal orders fresh valuation of Time Bound Software and Beta Software under Customs Valuation Rules, 2007

M/s Microsoft Corporation (India) Pvt. Ltd Versus C.C. New Delhi

M/s Microsoft Corporation (India) Pvt. Ltd Versus C.C. New Delhi - 2017 (358) E.L.T. 1095 (Tri. - Del.) Issues Involved:1. Valuation of Time Bound Software.2. Valuation of Beta Software.Issue-wise Detailed Analysis:1. Valuation of Time Bound Software:The appellant, M/s Microsoft Corporation (India) Private Limited, contested the valuation method applied by the Commissioner (Appeals) for Time Bound Software, which was determined under Rule 4 of the Customs Valuation Rules, 2007. The appellant argued that Time Bound Software is imported for demo/trial purposes with a limited operative period (90-180 days) and is also available for free download. They proposed that the valuation should be based on the cost of media (including replication cost) on which the software is loaded, as no royalty is paid for its use, and it is meant for free distribution. The appellant cited the case of Atul Kaushik Vs. Commissioner of Customs, where it was held that non-commercial shipments should be valued at the cost of the media alone.The Tribunal noted that Time Bound Software is different from fully packaged products (FPP) due to its limited lifespan and non-commercial nature. The Tribunal disagreed with the Commissioner (Appeals) that Time Bound Software and identical software with no time limit are similar, as the former has a limited lifespan. Consequently, the Tribunal held that Rule 4 of the Customs Valuation Rules, 2007, which pertains to the valuation of identical goods, is not applicable. Instead, the Tribunal directed the valuation to be determined under Rule 9 of the Customs Valuation Rules, 2007, which allows for valuation using reasonable means consistent with the principles and general provisions of the rules. The matter was remanded to the original adjudicating authority for fresh valuation under Rule 9.2. Valuation of Beta Software:The appellant argued that Beta Software, released for testing and feedback, should be valued based on the cost of media (including replication cost) as it is not meant for sale in the open market and undergoes several changes before the final version is released. They contended that Beta Software is not identical to the final version and should not be valued under Rule 4 of the Customs Valuation Rules, 2007. The Tribunal agreed that Beta Software is not identical to the final version and that the provisional assessment until the final version is released is erroneous. The Tribunal also rejected the appellant's argument that Beta Software is not 'goods' under Section 2(22) of the Customs Act, 1962, as it is a movable property imported in the form of media (CD/DVDs).The Tribunal concluded that the valuation of Beta Software should not be determined under Rule 4 but under Rule 9 of the Customs Valuation Rules, 2007, similar to Time Bound Software. The matter was remanded to the original adjudicating authority for fresh valuation under Rule 9.Conclusion:The Tribunal set aside the orders of the lower Revenue authorities and remanded the matters to the original adjudicating authority for fresh valuation of both Time Bound Software and Beta Software under Rule 9 of the Customs Valuation Rules, 2007, read with Section 14(1) of the Customs Act, 1962. The adjudicating authority was directed to decide the matter de novo within four months, considering the Tribunal's observations and allowing the appellants to present evidence as per law.