Supreme Court rejects State Bank of India's appeal on custom duty refund for imported software

The Supreme Court upheld the lower authorities' decision and dismissed the appeal by the State Bank of India regarding the refund of custom duty paid on imported software. The Court ruled that the countrywide licensing fee was part of the transaction value subject to customs duty, as it was for the right to use the software and not for reproduction. The Court held that the fee did not qualify as reproduction charges exempt from customs duty under the relevant rules and press note. Consequently, SBI was not entitled to a refund, and the appeal was dismissed with costs.

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Issues Involved:
1. Refund of custom duty under Section 27 of the Customs Act, 1962.
2. Interpretation of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, specifically Rule 9(1)(c) and its Interpretative Note.
3. Applicability of the Press Note dated March 17, 1992 by the Department of Electronics, Government of India.

Detailed Analysis:

1. Refund of Custom Duty:
The State Bank of India (SBI) sought a refund of custom duty amounting to Rs. 10,86,49,119/- paid on a consignment of computer software and manuals imported from Kindle Software Ltd., Dublin, Ireland. SBI argued that the duty was incorrectly levied on the total invoice value of US $4,084,475.00, which included a countrywide licensing fee. SBI contended that the duty should only be levied on the software's cost for a single site, which was US $401,047.00, including the cost of manuals and diskettes.

2. Interpretation of the Customs Valuation Rules:
The SBI's claim was based on the interpretation of Rules 2, 3, 4, 9(1)(c), and 12 of the Customs Valuation Rules, 1988, and the Interpretative Note to Rule 9(1)(c). SBI argued that the licensing fee for the right to use the software countrywide should not be included in the customs value, as per the Interpretative Note to Rule 9(1)(c), which states that charges for the right to reproduce imported goods in the country of importation should not be added to the price actually paid or payable for the imported goods.

3. Applicability of the Press Note:
SBI also relied on the Press Note dated March 17, 1992, which directed that custom duty was not to be levied on reproduction charges. The Press Note aimed to reduce the prices of imported software and save foreign exchange by allowing duplication/reproduction of imported software in India without attracting excise duty. SBI argued that the countrywide licensing fee was essentially a reproduction charge and thus exempt from customs duty.

Judgment Analysis:

1. Tribunal and Lower Authorities' Decisions:
The Assistant Collector, Collector (Appeals), and the Tribunal all rejected SBI's refund claim. The Tribunal's decision was based on the interpretation that the countrywide licensing fee was not a reproduction charge but a fee for the right to use the software across multiple sites.

2. Supreme Court's Interpretation:
The Supreme Court upheld the Tribunal's decision, emphasizing that the agreement between SBI and Kindle did not grant SBI the right to reproduce the software but only the right to use it at various sites. The Court noted that the software remained the property of Kindle, and the license fee was for the use of the software, not for reproduction. The Court also highlighted that the original invoice did not show any split-up of charges, and the subsequent detailed invoice appeared to be an afterthought.

3. Applicability of the Press Note:
The Court found that the Press Note did not apply to SBI's case, as the note was intended for commercial exploitation of imported software, not for internal use by an organization like SBI. The Court concluded that the countrywide licensing fee could not be considered as charges for the right to reproduce the imported software.

Conclusion:
The Supreme Court dismissed the appeal, holding that the countrywide licensing fee was part of the transaction value and subject to customs duty. The Court affirmed that SBI was not entitled to any refund of the custom duty paid, as the licensing fee for the right to use the software countrywide did not qualify as reproduction charges exempt from customs duty under the Interpretative Note to Rule 9(1)(c) or the Press Note. The appeal was dismissed with costs.

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