2017 (11) TMI 415 - AT - Customs

Dispute over software classification and tax liability under CTH 8543.89 and 84.71

Vodafone Essar Ltd. Versus Commissioner of Customs (ACC & Imp.), Mumbai

The case involved a dispute over the classification of goods under CTH 8543.89 and 84.71, specifically regarding the tax liability on software and its ... Classification of imported goods - goods meant for telecommunication system and from part of computer system - revenue claimed classification under CTH 8543.89, whereas appellant claimed classification under CTH 84.71 - whether the software came in the media separately was the same as that was inbuilt in the hardware described in the Table herein before stated or that is a separate software which is sought to be included by Revenue in the value of the hardware? - Held that: - In order to determine the controversy, it is necessary that both sides are expected to demonstrate with tangible evidence whether the hardware contained the same software that came to India through the media as per page 17 of the appeal folder - Appellant was informed that unless the Bench is satisfied as to the character of the software contained in the hardware and also in the media, it is impracticable to conclude the matter. It is very clearly noticed today that insofar as classification of both the goods are concerned, that is not in dispute. So also there is no dispute that the software brought into India was classifiable under CTH 8534 and also enjoys the exemption under N/N. 21/2002-Cus. as herein before stated. In view of paucity of time, the matter could not proceed for which both sides agree to satisfy on the above aspect to the Bench on 15th November 2017 - Call on 15th November 2017. Issues:Classification of goods under CTH 8543.89 and 84.71, tax liability on software, inclusion of software value in hardware, disputed allocation of software value, relevance of Chapter Note 6 of Tariff Heading 85, applicability of Notification 21/2002-Cus.Analysis:1. The appellant argued that the goods initially intended for telecommunication systems were classified under CTH 84.71 by Revenue instead of CTH 8543.89, leading to a dispute over classification and duty rates. The appellant contested the allocation of software value to hardware, insisting on separate treatment for both categories.2. The appellant emphasized the distinction between the imported software and hardware, asserting that the declared values should not be combined. The appellant relied on a previous case to support the argument that software imported separately should not increase the assessable value of hardware, challenging Revenue's approach to value allocation.3. A key contention was whether the software imported through media was identical to the software embedded in the hardware or constituted a separate entity. The Revenue maintained that the software in media was integral to the hardware, justifying its inclusion in the assessable value of the goods listed in the show cause notice.4. Both parties presented conflicting views on the connection between the hardware and software, with the Revenue alleging non-disclosure and undervaluation by the appellant. The Revenue argued that the software's value was reasonably allocated to determine the hardware's total value, contrasting the appellant's reliance on a different case's circumstances.5. The dispute necessitated a detailed examination of the hardware's contents and the imported software to ascertain their relationship and impact on the tax liability. The Revenue referenced a Supreme Court judgment to elucidate the significance of system software and operational software in computer systems, emphasizing their interdependence for functionality.6. Despite agreement on the classification of goods and the software's exemption under Notification No.21/2002-Cus, the unresolved issues surrounding the software's inclusion in hardware values required further evidence and clarification. The case was adjourned to allow both sides to present additional information for the Bench's consideration.