Imported software value cannot be added to telecom equipment assessable value where software is separately supplied from the manufactured hardware.

Imported software supplied separately to telecom service providers could not be added to the assessable value of telephone exchange equipment manufactured in India for central excise purposes. Excise duty applies only to goods manufactured in the factory, and the liability ends on clearance of the manufactured goods; the software was a distinct post-manufacture transaction, not part of the goods assembled or cleared from the factory. Chapter 85 treated software and recorded media separately, and Note 6 did not permit its inclusion in the value of telecom equipment. The separate classification of hardware and software therefore required exclusion of the software value, rendering the duty demand, interest, and penalty unsustainable.

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Issues: Whether the value of imported software supplied separately to telecom service providers could be included in the assessable value of the telephone exchange equipment manufactured in the factory for levy of central excise duty.

Analysis: The equipment manufactured in the factory had already suffered excise duty, and the subsequent import and supply of software was a distinct transaction. Central excise duty attaches only to goods manufactured in India, and the liability ends upon clearance of the manufactured goods from the factory. The software was not brought into the factory as part of the manufactured goods, nor was it shown to be a component assembled with the equipment at the factory. The classification scheme under Chapter 85 also treated recorded media/software separately, and Note 6 to Chapter 85 did not permit its inclusion under the heading applicable to telecom equipment. The settled principle that software and hardware are distinct articles also supported exclusion of the software value from the assessable value of the hardware.

Conclusion: The value of the imported software could not be added to the assessable value of the manufactured telephone equipment, and the duty demand, interest, and penalty were unsustainable.

Ratio Decidendi: Imported software supplied separately from manufactured hardware cannot be included in the assessable value of the hardware for central excise purposes, because excise is confined to manufactured goods and software remains a distinct article of classification.

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