Software on CDs and floppy disks retained its character as software, and an undisclosed clarification could not sustain the duty demand.

Software imported on CDs and floppy disks remained software for tariff classification purposes and was not to be treated as parts of a remote access server system; the exemption under Notification No. 20/99-Cus. was therefore available. The Tribunal also held that the demand could not stand because the adjudication relied on an undisclosed third-party clarification and the assessee was not given a proper opportunity to rebut it, amounting to a breach of natural justice. The absence of a proper show cause notice further vitiated the demand. The appeal succeeded and the duty demand and exemption denial were set aside with consequential relief.

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Issues: (i) Whether the imported software on CDs and floppy disks was classifiable as parts of a remote access server system or as software eligible for exemption under Notification No. 20/99-Cus.; (ii) Whether reliance on undisclosed third-party clarification and the absence of a proper show cause notice vitiated the demand.

Issue (i): Whether the imported software on CDs and floppy disks was classifiable as parts of a remote access server system or as software eligible for exemption under Notification No. 20/99-Cus.

Analysis: The goods were admittedly software imported in the form of CDs and floppy disks. The lower authorities treated them as parts of the remote access server system and denied the exemption, but the classification adopted was found unsustainable. The order also failed to apply the relevant tariff principles correctly and did not justify treating software as hardware parts merely because it was meant for use with the system. The Tribunal found no merit in the view that the imported items were parts of the remote access server system, and held that software imported in such media remained software for classification purposes.

Conclusion: The issue was decided in favour of the assessee; the imported goods were not to be treated as parts of the remote access server system and were entitled to the benefit of the exemption.

Issue (ii): Whether reliance on undisclosed third-party clarification and the absence of a proper show cause notice vitiated the demand.

Analysis: The adjudication relied on a clarification from the end user that was not furnished to the assessee, preventing effective rebuttal. This was treated as a clear breach of natural justice. The Tribunal also noted that no proper show cause notice had been issued clearly setting out the department's stand. These procedural defects further undermined the demand and the appellate order confirming it.

Conclusion: The issue was decided in favour of the assessee; the demand was vitiated by violation of natural justice and want of proper notice.

Final Conclusion: The appeal succeeded and the duty demand based on the impugned classification and exemption denial was set aside with consequential relief.

Ratio Decidendi: Software imported on CDs or floppy disks remains software for tariff classification purposes, and a demand based on undisclosed material and defective notice cannot be sustained.

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