1995 (9) TMI 171 - AT - Customs

Customs duty on software: Tribunal rules license fee basis for duty assessment.

STATE BANK OF INDIA Versus COLLECTOR OF CUSTOMS, BOMBAY

STATE BANK OF INDIA Versus COLLECTOR OF CUSTOMS, BOMBAY - 1996 (81) E.L.T. 81 (Tribunal) Issues Involved:1. Assessment of Customs Duty on Software Licence Fees2. Interpretation of Customs Valuation Rules, 19883. Distinction between Licence Fee and Reproduction Charges4. Admissibility of Refund ClaimIssue-wise Detailed Analysis:1. Assessment of Customs Duty on Software Licence Fees:The appellant imported 'computer software and Manuals' and paid customs duty on the full invoice value of US $ 4,084,475. They later claimed a refund, arguing that the duty should have been assessed only on the licence fee for a single site, valued at US $ 401,047. The Assistant Collector rejected the refund claim, noting that the original invoice included a countrywide licence for India and that the detailed invoice showing a split in licence fees was not available at the time of the original assessment. The Assistant Collector concluded that the claim was an afterthought aimed at taking advantage by splitting the licence fees into two categories.2. Interpretation of Customs Valuation Rules, 1988:The Collector (Appeals) upheld the Assistant Collector's decision, stating that the main ground for the refund claim was based on the Interpretative Notes to Rule 9(1)(c) of the Customs Valuation Rules, 1988. The note specifies that charges for the right to reproduce the imported goods should not be added to the price paid or payable. However, the Collector (Appeals) clarified that the appellants had paid a licence fee for countrywide use, not for the right to reproduce the software. The total cost incurred, including both single site and countrywide licence fees, should be the transaction value for customs duty assessment.3. Distinction between Licence Fee and Reproduction Charges:The Assistant Collector and Collector (Appeals) both emphasized that the licence fee paid by the appellants was for the use of the software and not for reproduction. The agreement between the appellant and the supplier specified that the software remains the property of the supplier, and the licence fee is for the use of the software at licensed sites. The agreement did not indicate that the fees were for reproduction, although reproduction under certain conditions was permitted. The Collector (Appeals) noted that the appellants were confusing the licence fee with charges for the right to reproduce, which are distinct and not applicable in this case.4. Admissibility of Refund Claim:The Assistant Collector and Collector (Appeals) both rejected the refund claim, stating that the detailed invoice showing a split in licence fees was not available at the time of the original assessment and could not be accepted as per Section 149 of the Customs Act, 1962. The original customs-attested invoice was the basic document for granting a refund, and substituting it with a new unattested invoice was unwarranted. The Collector (Appeals) also noted that the appellants had relied excessively on the Interpretative Note to Rule 9(1)(c) without considering the harmonious construction of the Valuation Rules and the Notes.Conclusion:The Tribunal, after considering the submissions and documents, agreed with the lower authorities' reasoning and upheld their decisions. The Tribunal concluded that the licence fee represented the transaction value of the software, and the claim for a refund based on a split in licence fees was an afterthought and not supported by evidence. The appeal was dismissed, and the original customs duty assessment was deemed correct.