TaxTMI 
TaxTMI 
1994 (9) TMI 166
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....r software development for export. He has drawn particular attention to `a Big Package of Incentives' by Government of India at S. No. 6 of the brochure which is as follows :- "6. Duty-free import of capital goods and equipment from preferred sources." He has also drawn attention to the application dated 16th October 1987 in which the applicant stated against the column `items to be manufactured in NEPZ and annual capacity with FOB value exports (yearwise for 5 years) as follows :- "Computer consultancy for the overseas market and Computer Software Development. Annual capacity will be based on contracts received and export man-power availability." This application was approved by the Government of India in the Ministry of Commerce vide its letter dated 16th Dec., 1987 indicating the items of manufacture and the annual capacity as follows :- "Year Item of manufacture Annual capacity (Rs. in lakhs) 1st Computer consultancy and computer software development 195 2nd -do- 228 3rd -do- 262 4th -do- 315 5th -do- 341 He has also drawn attention to the Government of India's Policy on Computer Software Export,....
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....r by the adjudicating authority is against the facts and circumstances of the case. The applicant had clearly stated that his item of manufacture is going to be computer consultancy in the overseas market. This was duly approved, as stated, by the Government of India. In the face of these facts it is not proper for the department to turn back and say that the benefit of Notification 339/85-Cus. does not apply to them because nett foreign exchange earnings on account of computer consultancy cannot be taken as having met the export obligation of the applicant. He has also submitted that there is nothing in the definition of `goods' in Section 2(22) of the Customs Act which expressly excludes `services' from the definition of the said goods. He submits that in view of all the facts being placed before the Government and Government having accorded the approval to export of consultancy among other software the word `goods' should be construed as including `services' and should be given a liberal construction as held in the case of Senior Electric Inspector and Others (Appellants) v. Laxminarayan Chopra and Another (Respondents) [AIR 1962 SC 159]. In the said judgment, submits the learne....
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...., we hold that the expression `telegraph line' is sufficiently comprehensive to take in the wires, used for the purpose of the apparatus of the Post and Telegraph Wireless Station." 2.3. Learned advocate has further submitted that in terms of the Notification 339/85-Cus., the Collector of Customs has no jurisdiction to monitor export obligation which is the duty cast on the Development Commissioner of the NEPZ. Consequently, he cannot demand duty in terms of the said notification. In support of the latter proposition, he also submits that Notification 339/85 envisages only one circumstance under which the applicant is liable to pay duty. That circumstance is set out in condition No. (vii)(a) of the said notification i.e. when the capital goods are not proved to the satisfaction of the Collector of Customs to have been installed or otherwise used within the Zone. He submits that there is no allegation that the capital goods imported by the applicant have not been installed or used within the Zone. He further submits that all the terms of the notification have been satisfied as follows :- (i) the applicant has been authorised to establish a manufacturing unit in the Zone; ....
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....joinder, learned advocate has drawn attention to the details of the contracts which were duly intimated from time to time in submission of the applicant's accounts in terms of the notification to the Development Commissioner which are directly correlated to the goods at NEPZ because the goods Rs. 1100 Platform' in the various Units of the applicant are installed only at NEPZ and these contracts executed abroad and against which net foreign exchange has been earned to the tune of over Rs. 2 crores are, therefore, directly relatable to the goods at NEPZ. 4. We have carefully considered the pleas advanced on both sides. We observe that the full facts regarding their activities had been disclosed by the applicants and the nature of export obligations to be undertaken by them when they had indicated consultancy for overseas market abroad as one of the items to be manufactured by them and was duly approved by the Government of India before establishment of their unit at NEPZ. In these circumstances, it would not be correct for the authorities below to take a view prima facie that services are not goods and therefore, the applicant has not fulfilled export obligation or is not cap....
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....ed in brief the facts of the case and the arguements of both sides. I will be relying on the same and few other facts and documents referred during the arguments. 7. We had heard extensively ld. Sr. Advocate Setalwad and the ld. SDR. We have also gone through in detail the entire facts and circumstances of the case and the evidence on records and also the case law cited before us. 8. The allegations in the show cause notice dated 16-3-1992 are that the applicant had submitted their project report to the Ministry of Commerce alongwith their application for approval to set up an Industrial Unit in NOIDA Export Processing Zone (NEPZ). They had stated in their application among other things that the plant and machinery as well as raw-materials, components etc. imported by them would be used for production in NEPZ of goods wholly for export. The Ministry of Commerce vide letter of approval dated 16th December, 1987 approved their project and authorised them to set up an Industrial Unit at NEPZ for manufacture of computer consultancy and computer software development for export subject to certain conditions. One of the conditions was that the net average value addition ac....
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....ports', which should be deemed to be "goods" exported. However, they did not give the details of their consultancy extracts nor they had furnished any information establishing overseas development of manpower for execution of the contracts (it has to be observed here that after hearing Shri Setalwad for a whole of morning session on 5-3-1993, the Bench felt that the applicant was required to place before us for scrutiny of these contracts, invoices etc. The same had been placed vide application on the date of final hearing of this stay application on 22-4-1993). The show cause notice alleges that the applicant had not intimated the department of the execution of so-called export orders and the same had remained unauthenticated, as they had not submitted any export documents or information to the Customs for verification. Therefore, it has been alleged that the applicants are not engaged in manufacture or production of goods for export and are not utilising the goods imported by them in their unit inside NEPZ for the purposes of manufacture or production of goods for export as required under their Letter of Approval and the said Customs notification. Hence the applicants were allege....
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....sonnel to make them more export worthy. They have also submitted that such goods were used by them for 'strategic business alliances with overseas customers. At page 5 of their reply to the show-cause notice they have denied that their NEPZ unit is primarily engaged in training of personnel whereas in their letters dt. 5-10-1990 and 23-10-1991, they have themselves declared that the goods imported in their NEPZ unit are used for training of personnel. Just after denial, they have submitted in their reply that such training is essential and not prohibited. These two submissions made by them are self-contradictory. They have also declared that their consultancy exports are provided on site abroad' and they send computer engineers trained on the goods imported in the Zone to their clients' locations abroad for execution of export orders at clients' site. Such activity is not covered by the provisions of the aforesaid customs notification which clearly stipulates that production activities should be confined 'within the said zone'. "During the personal hearing, they have submitted that the notification should be given proper interpretation so as to include export of services which a....
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....ntegrated view of both local development of software and software export. The policy is broadly aimed at accomplishing the following basic objectives :- 1.To promote software exports to take a quantum jump and capture, sizeable in international software market. 2.To promote the integrated development of software in the country for domestic as well as export markets. 3.To simplify the existing procedures to enable the software industry to grow at a faster pace. 4.To establish a strong base of software industry in the country. 5. To promote the use of computer as a tool for decision making and to increase work efficiency and to promote appropriate applications which are of development canalising nature with due regard for long term benefit of computerisation of the country as a whole." Para (III) deals with 'import policy for promoting software development and export' and lists out the scheme. Sl. No. 5 reads : "Computer software export will include besides physical export on magnetic media or on paper, also export through satellite data link and consultancy delivered at the location of the foreign client abroad by Indian Computer expertise." The policy g....
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....nveyed. TUL retains the entire right, title and interest in all and to all such proprietary rights." 16. No licence is granted to CUSTOMER to sublicence to others the material furnished under this agreement and CUSTOMER agrees not to disclose or discriminate to others, any of such material without specific written permission of TUL. CUSTOMER understands and acknowledges that the furnishing of computer consultancy service under this Agreement does not convey a licence from TUL to use any program material licensed separately by TUL or any of its affiliated companies under a programme products licence agreement, and CUSTOMER understands that a separate programme product license may be necessary from a company authorised by the owner of programe products to grant such licenses if a licensed programing is to be used. 17.A reading of the terms and conditions of the Contract brings out the following : (i) The computer consultancy services had been in the form of recording of deliverables (computer data etc.) by TUL on computer tapes, and for disks, and/or cassettes and/or cartridges and/or technical literature, manuals/reports etc. (ii)There has been no sale of these i....
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....n the annexure to the notification when imported for the production of the goods for exports out of India or for the promotion of such exports by units within Noida Export Processing Zone at Ghaziabad from whole of duty of customs and additional duty of customs. From among the conditions listed in the notification are listed conditions for execution of a bond binding themselves to fulfil the export obligations and to fulfil the conditions stipulated in the notification and in or under the Import and Export Policy for April 1985 to March, 1988. Clauses (v)(vi)(vii) reads : "(v) The importer agrees :- (a) to bring the goods into the Zone and then use within the Zone for the production of goods for exports out of India or with the promotion of such exports of goods; (b) to export out of India, goods so purchased or packaged or to use such goods for imparting training to workers or to sell such goods (or packages) within the Zone, as the case may be; (c) to export or dispose of in the manner approved by the Development Commissioner of the Zone all remnants arising out of such production or packaging; (vi) the importer shall maintain a proper acco....
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.... and of export, made by them. Clause VII grants power to the Collector of Customs to demand an amount equal to the duty as specified in the said clause. Shri Setalvad, ld. senior advocate has argued that the Collector of Customs has no jurisdiction to invoke clause VII and even if so, there has been no breach of the same and hence no duty is demandable. He argued that the imported machinery had been installed in the NOIDA and the Collector of Customs could demand duty only if the machinery had not been installed. As they had been installed, the question of Collector demanding duty did not arise and that the question of re-export did not arise at all and the post-importation condition regarding minimum value addition is not a requirement of the said notification and that the Collector had acted beyond his jurisdiction. With due respect to the ld. senior advocate, I do not agree with this argument. It is totally devoid of any merits. The applicant had not produced any goods for export nor they had maintained accounts and no goods had been exported and thus there had been a clear violation of the Import Export Policy, Import Export (Control) Act, Customs Act and there had been a cl....
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....est laid down can be seen in DCM's case at paras 14 to 19 of the report. 14. The other branch of Mr. Pathak's argument is that even if it be held that the respondents do not manufacture 'refined oil', as is known to the market they must be held to manufacture some kind of 'non-essential vegetable oil' by applying to the raw material purchased by them, the processes of neutralisation by alkali and bleaching by activated earth and/or carbon. According to the Id. Counsel, "manufacture" is complete as soon as by the application of one or more processes, the raw material undergoes some change. To say this is to equate "processing to manufacture" and for this we can find no warrant in law. The word "manufacture" used as a verb is generally understood to mean as "bringing into existence a new substance" and does not mean merely "to produce some change in a substance", however minor in consequence the change may be. This distinction is well brought about in a passage thus quoted in Permanent Edition of Words and Phrases, Vol. 26 from an American Judgment. The passage runs thus :- "Manufacture implies a change, but every change is not manufacture and yet every change of an articl....
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....f inserting this definition is to make it clear that at certain places in the Act the word "manufacture" has been used to mean a process incidental to the manufacture of the article. Thus in the very Item under which the excise duty is claimed in these cases, we find the words " in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power". The definition of "manufacture" as in S. 2(f) puts it beyond any possibility of controversy that if power is used for any of the numerous processes that are required to turn the raw material into a finished article known to the market, the clause will be applicable; and an argument that power is not used in the whole process of manufacture using the word in its ordinary sense, will not be available. It is only with this limited purpose that the legislature, in our opinion, inserted this definition of the word `manufacture' in the definition section and not with a view to make the mere "processing" of goods as liable to excise duty". 21. In Bhor Industries case the Supreme Court again reiterated basing on the above ruling and other rulings as follows : "Therefore, the marketability in the sen....
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....he expression "goods manufactured or produced" must refer to goods which are capable of being sold to the consumer. This Court observed as follows : "It does not seem to us that in order to attract excise duty the article manufactured must be capable of sale to a consumer. Entry 84 of List 1 of Schedule VII to the Constitution specifically speaks of "duties of excise on tobacco and other goods manufactured or produced in India" and it is now well accepted that excise duty is an indirect tax, in which the burden of the imposition is passed on to the ultimate consumer. In that context, the expression "goods manufactured or produced" must refer to articles which are capable of being sold to a consumer. In Union of India v. Delhi Cloth & General Mills, this Court considered the meaning of the expression "goods" for the purposes of the Central Excises and Salt Act, 1944 and observed that "to become "goods" an article must be something which can ordinarily come to the market to be brought and sold", a definition which was reiterated by this Court in South Bihar Sugar Mills Ltd. v. Union of India." It is necessary in this connection to reiterate the basic fundamental principles of e....
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....cquisition of skills or knowledge on which tax is proposed. The acquisition of knowledge through training from the imported goods should result in production of products, which are saleable at a market price. In this case, the applicant did not produce any goods at Noida. The Engineers were trained only and their "services" rendered abroad cannot be goods. They had developed software abroad, which they did not sell at market price but only rendered training with it, by retaining the right, title and interest over it. Therefore, the concept of `goods' does not fit in the concept of `services', which ld. Senior Counsel had persuaded us to accept. 23. The imported goods are tangible ones. The same are liable to customs duty and additional duty of customs. But Govt. of India granted conditional exemption as per the notification. The notification makes it clear that the same should be utilised for production of goods. Hence what is required to be exported is tangible goods, which should have a market and ascertainable price. The definition of market price as per Section 2(3) of the Customs Act is "market price" in relation to goods, means the wholesale price of the goods in t....
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....djudicating authority on the question of treating SKD/CKD packs of the copiers imported comprised of all the 100% components of copiers. The company had tried to practise a fraud in defeating the import policy itself. The intention and purpose of the import policy was to give incentive and encouragement to the new entrepreneurs establishing small scale industries and in the first phase to import 62% of the components of the copiers and the balance of 38% - was to be manufactured by them indigenously. According to the import policy this percentage of 62% was to be reduced in the subsequent years. The import policy was not meant for such entrepreneurs who instead of importing 62% of the components, imported 100% of the components of a fully finished and complete goods manufactured by a foreign country. It is an admitted position that fully finished plain paper copiers were a prohibited item for import and thus the device adopted by the company in the present case was a complete fraud on the import policy itself. Apart from the above circumstances in our view the Tribunal was not right in setting aside the finding of the adjudicating authority and in taking the view that one has to lo....
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....r the applicant has not made a prima facie case on merits for grant of waiver of duty demand in the impugned order and as such to deposit the entire duty and penalty of Rs. 5 lakhs as held by ld. Member Judicial in his opinion. Dated 11-5-1993 Sd/- (P.C. Jain) Member (T) Sd/- (S.L. Peeran) Member (J) 30. [Order per : K.S. Venkataramani, Member (T)]. - Addressing arguments on the point of difference, the Learned Sr. Counsel, Shri A.M. Setalvad, submitted that the appellants, herein, had obtained approval of the Government of India in terms of the export policy for the development of computer software and computer consultancy services overseas. The Ld. Sr. Counsel referred to the Government of India Policy of computer software export as in the communication dated 18-12-1986. The Ld. Sr. Counsel emphasised that these documents give an extended definition to the concept of export to take in the value of conusltancy services rendered abroad within the ambit of computer software export. In this context the Ld. Sr. Counsel pointed out that there is a Public Notice No. 10/1993 dated 24-6-1993 issued by the Collector of Customs, which inter ali....
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....tmental authorities, as revealed by the Public Notice and subsequent notification, is also indicative to the fact that goods for the purpose of Notification 339/85 would have a larger meaning to include consultancy services. The conclusion in the proposed order of the Hon'ble Member (Technical) now stands supported by the Public Notice and the notifications, referred to above and the view contra that goods are invariably tangible material, cannot also stand in this context. The ld. Sr. Counsel, further, relied upon the Orissa High Court judgment in the case of Greaves Cotton and Co. Ltd. v. Sales Tax Officer and Another, Sales Tax Cases Vol. 67 1987 364, for the proposition that in a case where there is a difference of opinion between two judges and where one of the Members in a stay application has taken a view that prima facie case has been made out, then on that ground alone stay in favour of the assessee can be granted. This decision of the Orissa High Court was on a difference of opinion between two judges on a stay matter in Sales Tax Case. 31. Shri B.K. Singh, ld. SDR, opposing the stay, submitted that the point of difference has been drafted by the Bench only bas....
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....in. This notification is for exempting goods imported for the production of goods for export in NEPZ. The ld. SDR relied upon para 13 of the Collector's order which is extracted in the proposed order by the Hon'ble Member (Judicial). Notification 154/93, the ld. SDR, contended, cannot be given retrospective effect unless it specifically contains such a provision. 32. The submissions made by both the sides, have been carefully considered. The question is whether export of consultancy service can be regarded as export of goods for the purpose of Notification 339/85. In this context, the department's own understanding of the scope of the notification is important. This is revealed in the Public Notice 10/1993, dated 24-6-1993 issued by the Collector of Customs, which is reproduced below : "It has been observed that software units in the N.E.P.Z. are providing computer consultancy services to their overseas clients at client's overseas location, in addition to software development in N.E.P.Z. with the help of the goods imported free of duty under Customs exemption Notification No. 339/85 dated 21-11-1985. Since, the export of said consultancy services is not in the physical ....
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....ification 154/93, dated 13-8-1993 inserted a fresh para 3C with an Explanation in Notification 339/85 in the following manner : "In exercise of the powers conferred by sub-section (1) of Section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby directs that each of the notifications of the Government of India in the Ministry of Finance (Department of Revenue), specified in column (2) of the Table annexed hereto, shall be further amended by inserting after the paragraph number of each of the said notifications as specified in the corresponding entry in column (3) of the said Table, the following paragraph with the paragraph number specified in the corresponding entry in column (4) of that Table namely :- "Notwithstanding anything contained in paragraph (1), in the case of units engaged in the development of computer software, the exemption contained therein shall also apply to goods imported by such unit for the development of software for export and for providing consultancy services for development of software `on site' abroad : Provided that - (a)the conditions stipulated in t....