Tax treatment of bundled software: whether it is a service or part of imported goods remains undecided; adjudication stayed for hearing.

Dispute concerned whether specialised software bundled with an imported diamond-scanning machine is taxable as a service or forms part of the dutiable value of the imported goods, and whether tax authorities may pursue both service-tax recovery and customs demand for the same transaction. HC recorded that service-tax adjudication had affirmed a service-tax demand (basic tax paid; penalties contested) but did not resolve the legal issue of dual characterisation or permissibility of concurrent proceedings. Court issued notice, directed adjudicatory proceedings to be listed for hearing, and granted interim facilitation allowing the importer to seek adjournment before the adjudicating authority.

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Issues: Whether the software supplied with the imported diamond scanning machine is taxable as a service (service tax) or forms part of the imported goods (attributable to the machine for customs valuation), and whether the department can pursue both service tax recovery and customs demand proceedings in respect of the same transaction.

Analysis: The petition challenges a show cause notice alleging undervaluation of the imported machine by excluding the value of specialised software, leading to a proposed customs duty demand. The petition records that separate adjudication has confirmed a service tax demand in relation to the software, with the petitioner having paid the basic service tax but disputing penalties. The Court noted the contention that the software cannot be concurrently treated both as a taxable service and as part of the dutiable value of imported goods; the matter was not decided on merits in the present order. The Court issued notice to the respondents and directed that the show cause proceedings be placed for hearing; an interim direction was given that the petitioner may seek adjournment before the adjudicating authority meanwhile.

Conclusion: The Court did not decide the substantive question on classification or liability; notice was issued returnable on 2 December 2014 and interim relief regarding adjournment before the adjudicating authority was directed.

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