Appeal dismissed for artificially splitting modem value into hardware and software to evade duty payment

CESTAT Bangalore dismissed the appeal involving short payment of duty on modems. The appellant artificially bifurcated the total modem value into hardware and software components to evade duty payment, invoicing software separately as PC software. Despite appellant's claim of bona fide belief based on PSI Data Systems case, the tribunal found the practice was intentionally adopted for evasion purposes. The appellant discontinued this practice after a short period and paid duty belatedly on 20.07.2004, but provided no contrary evidence to rebut the Commissioner's findings of deliberate duty evasion.

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Issues involved: Appeal against Order-in-Appeal regarding duty payment on Data Communication Equipment.

The appeal was filed against Order-in-Appeal No.202/2011-CE (de novo) dated 15.7.2011 passed by Commissioner of Central Excise (Appeals-I), Bangalore. The case involved the appellant, engaged in manufacturing Data Communication Equipment like 'Modem' and 'Network Terminators', classified under Chapter Subheading 8517 of Central Excise Tariff Act, 1985. The appellant was also engaged in trading related products. Allegations were made regarding the bifurcation of the value of Modem into hardware and software with the intention to evade duty payment. A show-cause notice was issued, leading to the confirmation of demand with interest and penalty by the adjudicating authority. The appeal was made against this order, resulting in a remand by the Tribunal to reconsider penalty and interest imposition in light of a Supreme Court decision.

Regarding the imposition of penalty and recovery of interest, the learned Commissioner (A) upheld the order of the adjudicating authority based on the appellant's alleged suppression of product value. The appellant's advocate argued that the duty was paid under a bona fide belief following a Supreme Court judgment. The Revenue's representative countered this, stating that the appellant knowingly split the value of the Modem to evade duty, as evidenced by a statement from the CFO. The Tribunal noted this was the second round of litigation, with the Revenue challenging the setting aside of penalty and interest in a previous order.

The learned Commissioner (A) analyzed the facts and legal principles, concluding that the appellant suppressed facts to evade duty payment. The Commissioner highlighted discrepancies in the appellant's actions, such as splitting the value of the Modem into hardware and software despite the software being integral to the product. The Commissioner found no merit in the appellant's argument of bona fide belief based on a previous judgment. The Tribunal, after hearing both sides and reviewing the records, upheld the impugned order and dismissed the appeal. No contrary evidence was presented to challenge the findings, and the Tribunal found no merit in the appellant's contention of acting under a bona fide belief.

In conclusion, the Tribunal upheld the decision of the learned Commissioner (A) regarding penalty, interest, and duty payment on the Data Communication Equipment, based on the appellant's alleged suppression of facts to evade duty.

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