2006 (7) TMI 62 - AT - Customs

Tribunal rules in favor of appellants on software classification issue under Customs Tariff Act

The Tribunal ruled in favor of the appellants in a case concerning the classification of imported software under the Customs Tariff Act. The Tribunal ... Customs –CDs and floppy disks imported and described as software –Even though original authority agrees and classified goods under heading 851750, relying upon the details clarification provided by end user of imported items -Reasoning given by adjudication authority to deny benefit of exemption and classifying as parts of RAS system not proper Issues:1. Classification of imported goods under Customs Tariff Act.2. Denial of benefit of exemption Notification No. 20/99-Cus.3. Violation of principles of Natural Justice.4. Classification of software as Information Technology Software.5. Application of Chapter Note No. 6 to Chapter 85.6. Compliance with show cause notice requirements.Analysis:1. The case involved the classification of imported goods described as software under the Customs Tariff Act. The Original authority classified the goods under Chapter heading 851750, considering them as parts of the remote access server system. The appellants contended that software imported in the form of CDs/Floppy Disks should be recognized as separate and independent commodities, citing various Apex Court judgments supporting their argument. The Tribunal noted that the goods were undisputedly software and found the Original authority's classification as parts of the server system unjustified. The Tribunal held in favor of the appellants, allowing the appeal with consequential relief.2. The denial of the benefit of exemption Notification No. 20/99-Cus was a significant issue in the case. The Original authority concluded that the imported software did not qualify as Information Technology Software under the notification, leading to the confirmation of duty liability. The appellants argued that the software fell within the definition of Information Technology Software as per the notification's explanation. The Tribunal found that the lower authorities had failed to properly consider the nature of the imported software and the clarification provided by the end user, M/s. VSNL. The Tribunal criticized the lack of clarity in the reasoning provided by the authorities and ruled in favor of the appellants.3. The violation of principles of Natural Justice was raised by the appellants due to the Department collecting information from VSNL without providing the appellants with the opportunity to cross-examine or respond to the collected information. The Tribunal agreed with the appellants, highlighting that the Department's actions constituted a clear violation of Natural Justice. The failure to provide the appellants with relevant information for their defense was considered unjust and contributed to the decision in favor of the appellants.4. The classification of software as Information Technology Software was a crucial aspect of the case. The appellants argued that the imported software met the criteria for being classified as Information Technology Software under the relevant notification. The Tribunal found that the lower authorities had not adequately assessed the nature of the software and had wrongly classified it as parts of the remote access server system. The Tribunal's analysis supported the appellants' position, emphasizing the software's independent nature and entitlement to the benefits under the notification.5. The application of Chapter Note No. 6 to Chapter 85 was referenced by the appellants to support their classification argument. The Tribunal considered this reference along with the General Rules of Interpretation Note to the Customs Tariff Act and the Central Excise Act. The Tribunal's assessment aligned with the appellants' interpretation, emphasizing the independent classification of the imported software under Chapter heading 8524.6. The compliance with show cause notice requirements was raised by the appellants, highlighting the absence of a formal notice before the confirmation of duty liability. The Tribunal acknowledged this procedural oversight and emphasized the importance of following due process. The lack of a show cause notice was considered a deficiency in the Department's actions, contributing to the decision in favor of the appellants.