TaxTMI 
TaxTMI 
2000 (1) TMI 177
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....ld not have been levied in view of the provisions of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 (for short, the 'Rules') framed thereunder and the Press Note dated March 17, 1992 of the Department of Electronics, Government of India. 2. SBI imported a consignment of Computer Software and Manuals from Kindle Software Ltd. Dublin, Ireland ('Kindle' for short) of the value of US $ 4,084,475.00 (equivalent to Rs. 10,75,70,267.25). SBI filed a Bill of Entry No. 5209, dated July 19, 1991 along with the Invoice of Kindle bearing No. 910701, dated July 3, 1991 for the aforesaid amount and after paying custom duty of Rs. 12,04,78,699/- on July 25, 1991 cleared the goods for home consumption. On August 7, 1991 SBI filed an application before the Additional Collector of Customs, Bombay claiming refund of custom duty of Rs. 10,86,49,119/-. It said that it had since received a detailed invoice which gave the particulars of imported Software and Manuals as under : "Particulars Cost 46 Diskettes and 82 Manuals US $ 14,300 Licencing fee for use of the software at single site US $ 386,747 Total Cost of the software fo....
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....1  BRANCHPOWER 7  EASIXFER 1  BANKMASTER QUERY 1  GATEWAY 1  CENTRAL BANKMASTER TRAINING MODULE 15  IBSNET MODULE 9  DOS BOOT DISK 1  QUANTITY OF GOODS:  DISKETTES 46  MANUALS 82  INSURANCE PAID 1R GBP 76.50  FREIGHT PAID IR GBP 429.40 THE COST OF ALL MANUALS IS INCLUDED  IN THE COST OF THE SOFTWARE  Sub Total US $ 4,084,475.00 VAT Total CIF BOMBAY US $ 4,,084,475.00 "Invoice STATE BANK OF INDIA, CENTRAL OFFICE, NEW ADMINISTRATIVE BUILDING, MADAME CAMA ROAD, BOMBAY 400 021. INDIA. Invoice No. 910701 Credit No. Date 03/07/91 Your Order No. DETAIL INVOICE TO SUPPLY OF COUNTRYWIDE LICENCE FOR INDIA FOR BANKMASTER WITH THE FOLLOWING MODULES : 7 CENTRAL BANKMASTER 1 FOREIGN EXCHANGE 1 COMMERCIAL LENDING 1 LIMITS MONITORING 1 EXTENDED FINANCIAL RETURNS 7 BRANCHPOWER 1 EASIXFER 1 BANKMASTER QUERY 1 GATEWAY 15CENTRAL BANKMASTER TRA....
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....1, 1993 dismissed the claim of the SBI for refund. Appeal was taken to the Collector (Appeals) who by order dated July 7, 1994 upheld the order of the Assistant Collector. Further appeal was taken to the Tribunal which, by the impugned judgment dated September 29, 1995 dismissed the same. That is how the matter is before us. 7. Section 14 of the Customs Act provides for valuation of goods for purposes of assessment. Sub-section (1) of Section 14 provides : "For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force whereunder a duty of customs is chargeable on any goods by reference to their value, the value of such goods shall be deemed to be the price at which such or like goods are ordinarily sold, or offered for sale, for delivery at the time and place of importation or exportation, as the case may be, in the course of international trade, where the seller and the buyer have no interest in the business of each ether and the price is the sole consideration for the sale or offer for sale. Provided that such price shall be calculated with reference to the rate of exchange as in force on the date on which a bill of entr....
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....ed goods. 10. The purpose for the Press Note is two fold : (1) to bring down the prices of the imported software and (2) to save precious foreign exchange outflow on several copies of imported software. With this object in view, Central Government decided to allow duplication/reproduction of imported software in India. That being so duplication will not attract any excise duty. The royalty payable on duplicate copies of the software will be paid with the foreign exchange arranged by the party. No custom duty will be leviable on the royalty paid. But then the Indian party will ensure that the royalty paid for each copy is not more than what is being charged by the manufacturer/owner from other customers elsewhere in the world. Master copy imported for duplication purposes will be assessed to customs duty as per existing procedure. From the reading of the press note, it is apparent that it would apply when there is commercial exploitation of the imported software. 11. What we have now to see is if under the agreement SBI has right to reproduce the imported software and for that purpose SBI has paid "royalties and licence fee" which have been added to the price actuall....
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....would be for a period of five years. Thereafter, it is the annual recurring licence fees as described in the agreement. Schedules I and II in relevant parts, may be set out : "SCHEDULE I Licensed Software Modules Single Site Licence Fees BANKMASTER FEE $ Central BANKMASTER # 102,000 Foreign Exchange # 51,000 Commercial Lending # 18,360 Limits Monitoring # 18,360 Extended Financial Returns # 15,300 BRANCHPOWER # 79,782 Easixfer # 10,948 BANKMASTER Query # 26,772 Gateway # 18,400 BRANCHNET # 41,400 Central BANKMASTER Training Module # 20,000 BRANCHPOWER Training Module # 20,000 422,322" "SCHEDULE II 1. Initial Licence Fee and Recurring Licence Fees. 1.1 The Initial Licence Fee for a countrywide licence for India for the Software Modules specified in schedule I (excluding the IQ Module) for use under the provisions of the Agreement shall be US $4,710,000. The Initial Licence Fee for the IQ Module shall be US $125 per site. 1.2 From 1st October, 1991 until the expiry of fi....
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....cluding the IQ Module) and the copies of the Documentation supplied to the Support Centre (single site) and charges payable by SBI making/reproducing any further copies thereof as per the terms of the said Agreement to be used by SBI at any of the licensed site in India (countrywide licence) as per the terms of the said Agreement". Mr. Nariman also stated that with the Bill of Entry dated July 17, 1991 a declaration of the following effect was also filed : "DECLARATION We hereby declare that the break up of the value (as shown in column 9) of the consignment imported under B/E No. "5209/19-7-1991, AWB No. 618-12310200, dated 12-7-1991 as under Particulars Cost Indian Rs. 46 Diskettes and 82 Manuals US$ 14,300/- Rs. 376610.17 licencing fee for use of the software at single site U6 $ 386,747/- Rs. 10185514.20 Total cost of the software for use at one site (including Diskettes and Manuals) US $ 401,047/- Rs. 10562124.37 Licencing fee for use of software countrywide US $ 3,683,428/- Rs. 97008142.89 Total ....
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....f US $ 4,084,475.00 on account of countrywide licence for use of the software. In this letter, they have not stated that they have paid reproduction charges but have clearly stated that their invoice value for use of the software as per invoice value is US $ 4,084,475.00. They have been given an Annexure of split-up of values in this letter. They again wrote another letter dated 19-7-1993 to the Asstt. Collector of Customs, wherein also they have requested for granting permission of re-export BM Query Module. This letter also speaks about the detail break-up of the various modules to RBI. They have stated that they estimate that the present market value will be definitely at least 10% more than the cost at which they had procured from the supplier as they had obtained special concession for the countrywide licence and that two years have elapsed since then. They filed their claim for duty drawback under Section 74 of Customs Act. By their letter dated 20-6-1994 wherein also they have stated that they paid the said Customs Duty under the said invoice amount of US $4,084,475.00 on account of countrywide licence for use of the software in respect of the software modules received. In t....
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....ms Act has been shown as Rs. 10,75,70,267/-. There is no indication whatsoever that any other document towards declaration was filed showing different charges - one for the use of the software at single site and the other for use of the software countrywide. This certainly appears to us to be an after thought. At the time when Bill of Entry was filed there is no doubt that what was mentioned in column 9 was the transaction value which is covered by the definition given in clause (f) of Rule 2 of the Rules. 18. The question that arises for consideration is if licence fee charged towards countrywide use of software in the second invoice could be the charges for the right to reproduction and were these added to the price actually paid or payable for the imported goods. If we refer to the agreement, software is not sold to the SBI as such but it was to remain the property of Kindle. There is no other value of the software indicated in the agreement except the licence fee. Price is payable only for allowing SBI to use the software in a limited way at its own centres for a limited period and that is why the amount charged is called the licence fee. After five years SBI is require....
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.... of putting the programme to countrywide productive use. The term productive use has been defined in clause 18 of the agreement which means use of software or any part thereof to process all or part of SBI's actual business transaction in parallel or live mode. The amount of US $ 3,683,428 has been paid as licence fee for countrywide use of software to process all or part of SBI's actual business transaction and not for acquiring the right to use the software programme. 21. Kindle supplied to the SBI countrywide licence for India of software package containing various modules as given in the invoice and consisting of 46 diskettes and 82 manuals (including cost of insurance and freight) for US $ 4,084,475.00. This amount in the subsequent invoice was bifurcated into (i) Licence Fee for use of software package at single site (including cost of 82 manuals and 46 diskettes of US $ 14,300) - US $ 401,047 and (2) Licencing Fee for right to use countrywide - US $ 3,683,428.00 (totalling US $ 4,084,475). 22. Reproduction and use are two different things. Now under the agreement user is specifically limited to licence sites. Transaction as a whole is to be seen. Press Note i....