TaxTMI 
TaxTMI 
1994 (7) TMI 136
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....ng omitted by Notification No. 177/80 dated 12-11-1980) read with Rule 9(2) of the Central Excise Rules, 1944." "I also impose a penalty of Rs. 25 lakhs on M/s. ORG Systems (a division of Ambalal Sarabhai Enterprise Ltd., Baroda), under sub-rule (1) of Rule 173-Q of Central Excise Rules, 1944." 2. Briefly stated the facts of the case are that during an investigation, it was found by the Central Excise officers that M/s. O.R.G. Systems (a division of Ambalal Sarabhai Enterprise Ltd., Baroda), holder of a Central Excise L-IV licence from 14-5-1982 were from May, 1979 getting the computers manufactured by supplying raw materials from independent manufacturers namely M/s. Digital International, Baroda (hereinafter referred to as DSI) and M/s. Orbit Elctronics, Baroda (hereinafter referred to as Orbit) and that the computers so manufactured by the above two units and also manufactured by the appellant after 14-5-1982 were sold through M/s. Adprint Services Ltd. (hereinafter referred to as Adprint) and that the assessable value on which the duty was paid by these manufacturers of computers was considerably low in comparison to the value ultimately collected from the companies ....
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....ing one copy of systems software, training customers' personnel, providing technical guidance and maintenance of the computers. Statements of a number of persons were recorded during the course of enquiries which revealed that Adprint and ORG were inter-connected units having interest directly or indirectly in the business of each other. It also appeared that DSI had manufactured computers as per designs and specifications supplied by ORG through Adprint on job work basis for and on behalf of ORG through Adprint who supplied the required raw materials. It also appeared that DSI had not prepared the systems software required for the operation of these computers which in fact appeared to be prepared by ORG. Scrutiny of records of Orbit revealed that they had manufactured computers as per designs and specifications supllied by ORG through Adprint on job work basis for and on behalf of ORG. It, therefore, appeared that Adprint was only a dummy unit created by ORG who were having their own separate wing in operation since 1978 where the computers were being developed and the software for the operation of the computers was prepared. It also appeared that ORG had actually got the computer....
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....terial supplied to DSI and Orbit for the manufacture of computers on job work basis by showing the same in the books of accounts of Adprint; that DSI did not prepare the systems software required for the operation of these computers which in fact was prepared by ORG; that duty was not correctly paid during the relevant period by DSI and Orbit as duty was required to be paid on the value collected by ORG from their customers including the service charges collected by ORG; that ORG were the real manufacturer in relation to computers falling under 33DD; that ORG with a deliberate intent to evade payment of duty suppressed the fact that they have got the computers manufactured from DSI and Orbit on job work basis by supplying raw materials and other items; that they deliberately undervalued the computers by not taking into account the service charges etc. Accordingly, a Show Cause notice was issued to M/s. ORG Systems asking them to explain as to why duty of Excise at the appropriate rate should not be recovered from them on the value of goods namely computers falling under Tariff Item 33DD amounting to Rs. 19,50,07,989.00 manufactured and removed by them during the period from 1979 to....
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....nits by supplying raw materials on job work basis; that these were supplied to DSI and Orbit for manufacture of computers; that these goods were manufactured exclusively for Adprint as per their purchase orders as confirmed by both the units; that ORG was having complete control over Adprint; that it was clearly established that computer division of Adprint was only a dummy unit created by ORG who were having their own separate wing in operation since 1978 where the computers were being developed and software for operation of the computers were prepared and thus ORG actually got the computers manufactured as per the designs and specifications of their own. On the question of assessable value, the ld. SDR, referring to the Order-in-Original submitted that the Collector had held that service charges which included charges on account of installation, maintenance and software for the computers recovered by ORG through Adprint and by themselves and value of peripherals added making fulfledged and complete computers; that systems software is an essential part of the computer without which the same cannot function; that invoices issued by Adprint also show value of peripherals which when ....
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....ts the contention that the peripheral devices are necessarily to be treated as part of computer at the time of assessment; that the fact that some of the peripheral devices are purchased from the market after payment of duty would not make any difference in so far as assessment of computer systems under Tariff Entry No. 33DD is concerned; that the value of the said bought out items which form part of the computer systems has to be included is supported by the decisions in the following cases :- 1. Narne Tulaman - 1988 (38) E.L.T. 566 (SC) 2. Rallis India - 1993 (67) E.L.T. 144 3. Daya Ram Metal Works - 1985 (20) E.L.T. 392 4. Koran Business Systems Ltd. - 1992 (58) E.L.T. 48 (Bom.) = 1992 (43) ECR 291 (Bom.) 5. Pressure Cooker - 1987 (28) E.L.T. 56 6. Referring to the allegations in the Show Cause notice and the findings of the Collector, the ld. SDR submitted that M/s. ORG Systems are the manufacturer of computers in question; that they received different models of computers from DSI and Orbit; that these computers were supplied without any systems software; that mere assembly of some parts cannot be called as a full-fledged computer....
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....e under Tariff Item 33DD, the ld. SDR submitted that the question of assessment under Tariff Item 33DD within the scope of the said Tariff Entry cannot be challenged before the Tribunal. In support of this contention, he cited and relied upon the case law reported in :- 1. U.O.I. v. Ram Lal Mansukhrai - AIR 1971(SC) 2335. 2. Hyderabad Asbestos Cement Products - 1980 (6) E.L.T. 735. 3. New Shakti Dye Works - 1983 (14) E.L.T. 1736 (Bom.) 4. Khandelwal Metal and Engineering - 1983 (12) E.L.T. 292. 10. That M/s. ORG was supplying a different product to their customers from the one procured from DSI and Orbit as an incomplete computer system, which is merely an assembly of parts; that the fact that an excisable commodity in two cases fall under the same tariff item or same sub-heading would not make any difference as to liability of duty with respect to new excisable commodity. In support of his contention, he cited and relied upon the case law contained in the following :- 1. Empire Dye Co. - 1985 (20) E.L.T. 179 (SC) 2.1986 (24) E.L.T. 542 (Larger Bench) 3. Anil Ice Factory - 1984 (15) E.L.T. 333 4.1991 (53) E.L.T. 461. ....
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....he case himself as was held in the case of DCW reported in 1988 (35) E.L.T. 167 = 1988 (16) ECR 277; that the Collector is authorised to exercise powers of a junior officer. 16. On valuation, the ld. SDR cited and relied upon the decisions in the cases of M/s. Sunray Computers and M/s. Wipro and argued that the cost of peripheral and devices is to be included in the assessable value of the goods at the time of assessment. 17. In the written submissions made by the appellant, it has been submitted that Adprint Services Ltd. is a separate company registered in 1973 under the Indian Companies Act and is dealing in the business of computers from October, 1979 in addition to some other products; that it does not have any manufacturing facility; that during the relevant period, Adprint entered into an agreement with ORG to take on rent various services in their field where ORG had necessary expertise; that DSI and Orbit are independent manufcturing units manufacturing computers; that during the relevant period Adprint was procuring orders from customers and was placing orders with DSI and Orbit for supply of computers of certain specifications and designs; that Adprint wa....
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....y the Hon'ble Supreme Court in the matter of Union of India v. Atic Industries Ltd. reported in 1984 (17) E.L.T. 323; that for being related persons mutuality of interest in respect of each other is to be proved first; that no evidence has been brought on record to show that Adprint and ORG had mutual interest in the business of each other and therefore the finding of the Collector is not justified either on facts or on the point of law. 20. On the question of Adprint being a dummy unit of ORG, it was argued that Adprint Services Ltd. is a Public Ltd. Company incorporated in 1973. The emphasis in the arguments was that a separate legal entity registered under the Companies Act cannot be a dummy unit; that the Collector based his decision on the ground that Adprint and ORG have common premises, telephone, telegraphic address, common use of some machines and common partners. As against this, the appellant argued that commonness of partners, common use of certain facilities are not conclusive circumstances to show that they were related persons; that independence of three parties can be judged from the facts that they have separate income tax registrations, separate registrati....
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....ints raised by the ld. SDR during the course of his oral submissions which comprised that software and peripherals alongwith the computers were supplied by ORG and therefore ORG was the manufacturer; that the computers manufactured and cleared by DSI/Orbit were incomplete computers; that they were only parts or equipments and not computers falling under Tariff Item 33DD; that they became computers only when software and peripherals were supplied by ORG. On behalf of the appellants, it was argued that it was never the case of the department in the Show Cause notice that what was manufactured by DSI/Orbit was not a computer; that the department all through was relying that what was manufactured and cleared by DSI/Orbit was computers; that the Collector in his order has not held that ORG/Adprint is the manufacturer of computers on the ground that they have supplied peripherals and software. The conclusion of the Collector that ORG/Adprint is the real manufacturer was on the ground that ORG through Adprint purchased raw materials for computers from the open market and supplied the same to DSI/Orbit; that DSI/Orbit manufactured the computers as per the specifications and designs and out....
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....r than removing the name DSI/Orbit and putting the name of ORG was undertaken; that ORG/Adprint merely supplied peripherals, systems software or application software if so required by the customer; that since supply of these items did not bring into existence any new commodity known to the market as having a distinct name, characteristic, use and form and therefore no manufacturing activity can be said to have taken place which may make Adprint/ORG the manufacturer. Arguing further it was pleaded that no commodity can be subjected to duty twice under the same Tariff Item, that the configuration of CPU, VDU and Key board as supplied by DSI/Orbit were assessed to duty under Tariff Item 33DD they cannot be subjected to further duty if fitted with peripherals and software; that the department had not brought any evidence on record to prove that ORG/Adprint had brought in any new goods into existence; that the Hon'ble Supreme Court in the cases reported in 1990 (49) E.L.T. 326 and 1991 (51) E.L.T. 182 (SC) = 1991 (33) ECR 7 had held that to attract the levy again, the article must be transformed into another distinct commodity so known in the market; that the contention of the ld. SDR t....
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....ther case it can be said to have no nexus with the manufacture or marketability and therefore the same should be excluded while arriving at the asessable value. The ld. Counsel pleaded that the Tribunal had further held that expenses regarding installation and commissioning of computers at customer premises are post-removal expenses and this activity has no nexus with manufacturing and marketability of the company; their cost is, therefore, not includible in the assessable value of the computer. Arguing further, the ld. Counsel submitted that the contract is an optional service and that these activities were clearly post-removal expenses and not connected with manufacture or marketability of the machines. 24. Department's contention is that charges for supply of systems software have to be included in the assessable value as systems software were basic to the functioning of the computer and that without such software the computer is a dumb box. In reply to this, the ld. Counsel submitted that Orbit and DSI while manufacturing the computer had included in the price of the computer the value of the systems software; that this can be confirmed from the evidence of Shri M.N. Da....
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....the above circular was binding on the department in regard to bought out items and exclusion of the value of these items from the assessable value. 26. Relying on the judgement of the Hon'ble Supreme Court in the case of Union of India v. Godphrey Phillip reported in 1985 (22) E.L.T. 306 (SC), it was pleaded on behalf of the appellant that the Hon'ble Supreme Court had held that the CBEC was clearly bound by promissory estoppel in view of issuance of circular. It was, therefore, pleaded that this decision is binding on the department in this case also; that in spite of the above circular even if the value of the peripheral were decided to be includible credit should have been given for the duty paid thereon. In support of their contention they relied on the ratio of decisions reported in 1984 (16) E.L.T. 294, 1984 (16) E.L.T. 360 and 1989 (42) E.L.T. 154 wherein it has been held that set off benefit of credit for procedural lapses not deniable if conditions of notification have been substantially complied with; that in their Orders-in-appeal Nos. 404-431/91, dated 30-5-1991 and KVV-12/92 dated 28-1-1992, the Collector (Appeals) held that value of peripherals should not be i....
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.... case, these expenses have no nexus with the manufacture or marketability of computers and therefore, should not be included in the assessable value. 28. On the point of limitation, the ld. Counsel submitted that the Show Cause notice covers the period 1979 to May, 1984; that the entire period could be divided into two sub-divisions, i.e., 1979 to May, 1982 and May, 1982 to May, 1984; that from 1979 to May, 1982, both DSI and Orbit had manufacturing licence and computers on payment of requisite duty were removed from their premises; that the department was aware of the contracts between DSI and Adprint on the one hand and Orbit and Adprint on the other. Therefore, there was no suppression of facts or mis-statement on the part of Adprint/ORG to disclose any material facts on behalf of Orbit/DSI; that Adprint was involved in trading of computers and ORG was merely offering its services that the equipments manufactured by DSI/Orbit were properly removed on payment of duty under Part I/II; that between the period May, 1982 to 1984, ORG manufactured and cleared the computers under Tariff Item 33DD after payment of duty on goods similar to those manufactured by DSI and Orbit. The....
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....would be designated as computer systems indicating a different commodity; (iv) Whether notification allowing set off of duty on peripherals was indicative that adding of peripherals created a new product; (vii) Whether the conditions of purchase order in anyway were indicative that ORG/Adprint was the manufacturer. (c)   Whether the service charges collected by ORG would in toto should be added to value or only certain expenditure should be added; (d) Whether the Collector had travelled beyond the Show Cause notice; (e) Whether the demand was time barred. 30(a) On the question whether Adprint on the one hand and DSI and Orbit on the other were dummy units of ORG. We may examine the issue in two parts as under : (i) Whether Adprint was a dummy unit of ORG and (ii) Whether DSI and Orbit are dummy units of M/s. ORG. (i) On the question whether Adprint was a dummy unit of ORG the department has relied on the fact that ORG was having complete control over Adprint in as much as Adprint was located in one of the rooms of the building of ORG; that Adprint was not carrying out any manufacturing activity; that preparation of systems software as well a....
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....Agency reported in 1977 (1) E.L.T. (J 168) and Bajrang Gopilal Gajabi reported in 1986 (25) E.L.T. 609. As against this, the appellant submitted that Adprint was registered as a separate entity in 1973 and was dealing in computers since 1979; that there was an agreement between ORG and Adprint to take on rent the expertise of ORG; that Adprint was processing orders for computers and supplying the raw materials to DSI and Orbit; that Aprint does not have manufacturing facility. Examining all these contentions of both sides and also the case law cited and relied upon by both sides, we find that Adprint was not a separate entity but was a dummy unit of M/s. ORG Systems. As it did not have any staff of its own and all the work was being managed and done by the people of ORG/ASE. The purchase and sale of raw materials to DSI and Orbit was also actually being controlled by ORG and only entered in the books of Adprint by the Accountants employed either by Sarabhai Enterprises or by ORG. We also see that there is clear indication that all the financial dealings were linked up between the two, right from purchase of raw materials to receipt of computers. It is, thus, very clear that A....
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....it, let us examine and decide on the issues raised by both sides on the counts referred to in the preceding paragraphs. 30(b)(i) Whether supply of raw materials is a factor for determination    of manufacturing activity : The department by citing and relying on the judgments of the Tribunal in the cases reported in 1977 (1) E.L.T. 168, AIR 1965 (Guj) 215, 1986 (25) E.L.T. 609 and H. Guru Instrument v. CCE reported in 1987 (27) E.L.T. 269 submitted that supplier of raw materials is the manufacturer. The Hon'ble Tribunal in the H. Guru Instruments' case had held :- "We find from the order-in-appeal that the appellants had taken the first plea before the CBEC also. On this point, paragraph 6 of the Board's order-in-appeal reads as under:- "When it was pointed out that the law in this regard has been settled by the judgment of the Supreme Court in Shree Agencies case (AIR 1972 SC 78) the argument was not pursued." The plea has, however, been raised again before us. We observe that it is the admitted position by the appellants that they supplied case Aluminium cases, Aluminium Rods, Mild Steel Rods, Stainless Steel rods, Stainless Steel Brass and German Silve....
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....ing another unit on hired labour basis. To the facts of appellants' case, ratio of the Supreme Court judgments at (1) 1977 (1) E.L.T. (J 168) - Shree Agency v. S.K. Bhattacharjee (2) 1986 (25) E.L.T. 609 - Bajrang Gopi Lal Gajabi v. M.N. Balkundri are applicable and they have to be held manufacturers of the instruments which they got fabricated from M/s. I.E.C. " The department also relied on the ratio of the judgment in the case of Pressure Cookers in which the Tribunal held that : It is a matter of what one makes rather than how one makes it. A goods that requires little or no skill to produce it, is not less a product than one that took much skill and labour. It is a mistake to see manufacture only as conventionally understood and as meaning manipulations, treatment, shaping and forming of some materials into different products. The process can be simple one of bringing different parts together to create a product that had not existed before. On the other hand, it can be a product that had not existed before. On the other hand, it can be a complicated process that depends not so much on bringing together different parts, as taking a material and shaping ....
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....ar other computers manufactured in their own factory by M/s. ORG. Thus the status of M/s. Orbit and DSI was not better than that of a hired labourer and in fact also they received only the job charges. Referring to the judgment of the Hon'ble Supreme Court in the case of Shree Agencies v. S.K. Bhattacharya, reported in 1977 (1) E.L.T. 168, the department had contended that on the ratio of that judgement when applied to the present case, it was crystal clear that ORG used to supply raw material to M/s. Orbit and DSI; that an attempt was made by M/s. ORG to give to this simple business deal a complicated shape so as to make it look like two independent and inter-connected transactions of sale of raw material to M/s. Orbit and DSI and purchase of computers from them. Their lordships in this case had held that "The conclusions of the Asstt. Collector and of the Collector which are identical are amply supported by evidence on record and have not been shown to be vitiated by any legal error nor has any grave injustice been shown to have resulted thereby to the appellant. Supporting their contention further, the department referred to the case of McDowell & Co. reported in 1985 ECR 259 wh....
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....er' is one who hires himself out to work for and under the control of another for wages; that the Hon'ble Bombay High Court in the case of Chetan B. Thadani v. UOI reported in 1987 (30) E.L.T. 287 had held that the mere fact that the goods manufactured bear the trade mark of the customer and the entire production is supplied to such customers and the manufacturer has no interest in the commercial scale of product. The appellant relied on the ratio of the decision in the case of CCE Madras reported in 1985 (21) E.L.T. 187 wherein it was held that : "Following the decisions of Allahabad High Court in Ganga Dhar Ram Chandra (supra), Phillips India Ltd. and Others (supra) and that of Special Bench-B of this Tribunal in Lucas India Services Ltd. Madras (supra), we hold that the respondent i.e., Modoplast (P) Ltd. are the manufacturers of these goods i.e. Urea Formaldehyde Moulding Powder within the meaning of Section 2(f) of the Central Excises & Salt Act, 1944 but we would like to observe that they are liable to pay duty on the manufactured goods, i.e. Urea Formaldehyde Moulding Powder if the benefit of Notification No. 80/80 is extended to them. Charging only job work charges fr....
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....function of a computer cannot be done without the systems software. The appellant as against this, contested that a person cannot be treated as a manufacturer simply because the goods are manufactured according to his specifications and designs. In support of his argument, the appellant submitted that in the case of CCE v. Modoplast, the Tribunal held that mere supplying the raw materials to another for manufacture of goods will not make the supplier of the raw material as a manufacturer; that in the case of Metal Box v. CCE, the Tribunal had held that goods manufactured out of customer's raw material cannot be said to have been manufactured on behalf of customer when the licence for manufacture of computers was taken by the actual manufacturer. In the case of Lucas Indian Services v. CCE reported in 1984 (16) E.L.T. 415 the Tribunal held that customer supplying raw materials to another for manufacture of goods in accordance with his drawings and specifications is not a manufacturer. Further in the Kerala State Electricity Board v. CCE reported in 1990 (47) E.L.T. 62, the Tribunal held that the mere fact that raw materials were being supplied by the customer and that the same we....
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....at merely collecting the various component parts at site partly by manufacture from one's own factory and partly buying some components from the market will not mean manufacture; that in the case of Ashok Leyland v. CCE, the Hon'ble Madras High Court held that "On an application of the decisions of the various High Courts and also the law laid by their Lordships of the Supreme Court in the case of Ujagar Prints and having regard to the facts, I have no hesitation in coming to the conclusion that on the facts and circumstances of this case the petitioners cannot be considered as manufacturer as the respondent concern is an independent concern and there is nothing to suggest that the arrangement entered into between the petitioner and 2nd respondent was not a genuine one or a camouflage"; that the activity of manufacturing connotes an activity which brings about transformation and brings into existence a new commodity having distinct name, characteristic, form and use. Arguing further, the appellant also submitted that manufacture implies a change, but every change is not a manufacture, yet every change of an article is the result of treatment, labour and manipulation. But something ....
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....ware' in computer technology is used in contraposition to hardware Hardware in itself cannot think about problems and figure out how to solve them. The hardware has to be told as what to do with the data and other input it receives. The material, in the form of instructions, for a computer to follow is called a programme. This instructional material necessary to run the computer is the software. With the help of this material called software, the computer is able to perform the desired tasks. Without programme, a computer could not solve any problem or deliver any desired result. The software is also of two types : systems software and application software. In addition there is also a type of software known as 'firmware' for basic instructions which is generally burnt into the chips of the hardware itself. Systems software is designed to use a computer for its basic functions. This 'systems software' is further comprised of operating systems and utilities. Operating system is a type of software that controls the operation of a computer system. It controls the input and output devices and it reads and responds to user's commands. It also places programmes and data into the memory....
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....ch purpose they classify diverse products, articles and substances resort should be had not to the scientific and technical meaning of the terms or expressions used but to their popular meaning, that is to say, the meaning attached to them by those dealing in them. If any terms or expression has been defined in the enactment then it must be understood in the sense in which it is defined but in the absence of any definition being given in the enactment the meaning of the term in common parlance or commercial parlance has to be adopted"; that the Tribunal in the case reported in 1990 (45) E.L.T. 490 held that Tariff definition is to be preferred over the trade parlance; that in the case of Narne Tulaman v. CCE reported in 1988 (38) E.L.T. 566 (SC), the Apex Court held : "3. The appellant's contention before the Tribunal was that it was only preparing a part and that part is dutiable as a separate part. The appellant, however, did the work of assembling. As a result of the work of the appellant a new product known in the market and known under the excise item 'weigh-bridge' comes into being. The appellant will become a manufacturer of that product and as such liable to duty. T....
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....er and then duty charged on the entire items. After considering all the arguments and the case law relied upon and cited by both sides, we find that Tariff Entry 33DD shows that addition of peripherals and add-ons no doubt created a new item which will be liable to duty. One point that was vigorously agitated by the appellant was that how on the same item duty can be charged twice. It was contended on behalf of Adprint/ORG that whatever they purchased from DSI/Orbit or ORG was a computer. What they were selling was also a computer; that the supply of add-ons was optional. This contention of the appellant does not appear to be correct that whatever was being purchased by them from DSI/Orbit or ORG was a computer and what they were supplying was also a computer. However, we find that on addition of some add-ons it does not remain a simple computer but it takes the form of a computer system which is known to the users and the market as such and therefore even for the purpose of Tariff Entry 33DD whatever is sold by ORG is a computer system which is different from the computer purchased by them from DSI/Orbit or ORG. In this view of the matter, we hold that addition of peripherals no d....
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....ssable value and if yes, to what extent; 30(c)(i) The Revenue argued that in the case of Rallies India v. CCE reported in 1993 (67) E.L.T. 144 it was held that value of essential parts should be added, as peripheral devices are essential part of computer and therefore value thereof shall be added; that in the case of Dayaram Metal Works v. CCE it was held that value of bought out items should be included in the value of the main frame computers; that in the case of Sunray Computers reported in 1988 (33) E.L.T. 787, the Tribunal held : "In the light of these general principles, we shall now deal with the individual items of dispute in this case : (1) Technical Consultancy Fee : The nature of the technical consultancy given by the respondents to their customer is not clear from the record. We have already stated in para 3 above that pre-manufacturing research, planning and designing are a part of the manufacturing activity itself and their cost would form a cost of the machine produced. Therefore, if the service rendered by the respondents was for assessing the specific needs of a particular customer so that a computer could be tailor-made for him the cost of service....
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....ce Charges : The machines may require servicing and maintenance even after the expiry of the warranty period. Even during the warranty period, the need for certain repairs or replacements may arise which may not be covered by the terms of the warranty, such as damage or defect occurring to the machine because of some accident. The manufacturer and his buyers may find worthwhile to enter into service arrangements in such situations also. These would be clearly post-removal expenses not connected with the manufacture or marketability of the machines. In the case of computers, certain buyers may require some special types of services, such as assistance of the manufacturer's experts for recruiting skilled labour to operate the computer and its peripheral devices. Some customer may require specific on-site programming to be done in their premises. These activities also are not connected with manufacture and marketability of the computers and are provided by the manufacturers or specialised consultancy companies on optional basis. The charges for such services are not includible in the assessable value. However, here too, if any goods are cleared from the manufacturer's factory in pu....
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....omplete, a mere dumb box and of no use at all to the customer. Hardware, software and peripherals, together make a wordable computer. All three of them are, therefore, a part and parcel of the computer. If there is a single contract for the supply of computer, including software, the total value of the computer, including that of the software, would have to be assessed to duty, irrespective of the fact whether the software part is supplied alongwith the hardware or in a separate lot and irrespective of the fact whether a single invoice is made for both hardware and software or a separate invoice is made for the software. (vi) Once a complete computer system has been delivered to the customer, the customer can yet need supply of software later on just as a user of a motor car would require spares throughout the life period of a car. If there is a separate contract for supply of the software alone, the goods, through the medium of which the software is delivered, would have to be assessed on their own merit under the appropriate tariff item unless otherwise exempt from duty. If the supply of software involves only a service activity, and no goods are delivered at all, such as....
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....efore, to examine the service charges in this background. (a) On the question of service charges, the appellant contended that technical services are provided by professionals and no goods are supplied; that these services are not related to manufacture; that technical service charges comprise of installation charges, maintenance charges, development of software, selection and training of personnel, assistance in system designing and programming, problem solving etc; that these charges are collected under a separate contract. The department submitted that the decision of the Tribunal in the case of Sunray Computers is very clear on the question which of the charges will be included and which not. (b) It was argued by the appellant that maintenance operations are necessary for the purpose of keeping the computers in a state of good repair and also for the purpose of repairing it as and when any problems or malfunctions occur. We find that the computer is highly sophisticated, complex machine. New ideas and concepts are evolved almost every day and unlike other fields where a study of technology remains current for many years, in the field of computer technology, d....
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....er expert service. Computers are very delicate machines and most sophisticated items commanding a very high price. No doubt every customer shall request for a warranty for perfect functioning of the computer. Service charges collected by ORG appear to form a part of the warranty cost. As no break-up of these charges as to how much of them were for warranty and cost of systems software and how much were for other operations which may legitimately be treated as post-clearance operations we hold that the entire amount; collected as service charges shall be includible in the value. There are other points which have been contested by the appellant sta- ting inter alia that the appellant may be given deduction of Central Excise duty. The Id. Collector in his order in regard to deduction of duties paid has rendered a finding that duty paid by DSI and Orbit amounting to Rs. 67,03,183.18 basic duty and Rs. 2,54,298.69 as special duty has already been deducted before quantifying the additional duty liability of ORG. It was also argued by the appellant that countervailing duty on the items imported by them has not been allowed to be deducted from the assessable value calculated by the d....
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....on about service charges collected by them. The appellant submitted that there were contracts between Adprint and Orbit and Adprint and DSI; that the deptt. was aware of these contracts, therefore, there was no suppression of facts or mis-statement; that Adprint was invol ved in the trading activity and ORG was merely offering its services for a price. We have carefully considered the submissions of both sides and find that what was suppressed was first the relationship between M/s. ORG and Adprint and the second was the suppression of service charges being collected by ORG. As both questions have come to notice only during investigation we hold that there was suppression of facts with an intention to evade payment of duty. In the circumstances, the demand beyond six months under the provision of Section 11A of the Central Excises and Salt Act, 1944 is maintainable. In view of the fact that the information was not supplied therefore the demand was not time-barred and we hold accordingly. 31. On the question of imposition of penalty, we find that the information regarding charging of service charges, supply of peripherals and systems software was held back and was n....