TaxTMI 
TaxTMI 
2012 (7) TMI 233
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....or the second appellant against the order of the Commissioner No. 6/2008 dated 30.04.2008. By the above order, a demand of differential duty of Rs. 9,10,94,185/- along with interest stands confirmed against BHL and penalty of equal amount of duty under Section 114A of the Customs Act imposed on BHL. In addition, the imported goods valued at Rs 98,31,12,721/- stand confiscated with option to redeem the same on payment of fine of Rs. 2,35,00,000/-. 1.3. Appeal No. C/575/2008 is by M/s. Ericsson India Pvt. Ltd. hereinafter called EIL or the third appellant against the order of the Commissioner No. 6/2008 dated 30.04.2008 challenging imposition of penalty of Rs. 10 Crores under Section 112(a) of the Customs Act. 1.4. Six appeals Nos. C/613 to 618/2008, [one appeal each corresponding to each of six show-cause notices] filed by the department seek enhancement of penalties imposed under Section 114A of Customs Act, 1962. It is prayed that penalties should be imposed equivalent to the duty demanded plus the corresponding interest accrued under Section 28AB of the said Act instead of penalties equivalent to the duty demanded . 1.5. As all these appeals arise ou....
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....hardware required for transmission under Chapter heading 85.25 and their parts under sub-heading 85.29. The appellants, paid the applicable customs duty on the hardware imported in terms of the Notification No.21/2002-Cus. dated 1.3.2002 (Sl. No.239). (c) EIL, the third appellant is engaged in providing the services of installation and commissioning of telecom equipments supplied by M/s. Ericsson AB, Sweden. BAL and BHL have entered into separate contracts with EIL for the erection, installation and commissioning of the telecom equipment and software imported from Ericsson AB, Sweden. (d) In and around 2004, the Directorate of Revenue Intelligence, Bangalore conducted enquiries regarding the imports of hardware and software undertaken by the appellants for its GSM network. The officials seized documents like supply contracts, technical literature, installation manual, O&M manual, H-module etc. available at the office premises of the appellants at Bangalore, hardware equipment valued at Rs. 9.94 crores and software in CDs/ODs with a declared value of Rs. 113.50 crores lying in their godown . (e) The DRI officers, on 11.10.2004 inspected the hardware pac....
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....laimed to represent the value of software imported. Show-cause notices also alleged that the switch software is an intrinsic part of the hardware and these two cannot be separated. EAB themselves call the functions as hardware and software only for the purpose of having a distinction between the two. It was also alleged that the appellant-assessees, in collusion with Ericsson AB, created an artificial transaction of splitting the cost of the equipment and that the value of equipment was suppressed and mis-declared to the customs at the time of import. It was also alleged that separate import of software was only to camouflage the remittances made towards the under invoiced amounts and evade duty. It was also alleged that EIL colluded with appellant-assessees and Ericsson AB in facilitating the splitting of the equipment price as hardware and software by agreeing to prepare the ODs/CDs. 4.6. The Commissioner of Customs Bangalore, who was appointed as common adjudication authority, passed the impugned order dated 15.04.2008/30.04.2008 confirming demands of duty along with applicable interest under Section 28AB ibid as proposed in the show-cause notices. ....
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....nto effect and not for the earlier period. The amendment carried out w.e.f. 16.09.2011 did not specifically ratify and validate earlier action taken. (e) The explanation 2 to Section 28 makes it very clear that any non-levy, short levy for the period prior to amendment (that is prior to 08.04.2011) shall be governed by the provisions of Section 28 as it was prevailing during that time. Since under the earlier section, the ADG DRI did not have the powers of proper officer , the show-cause notices issued by him are ab initio invalid. (f) The ADG DRI was not invested with the powers of assessment during the relevant period. The proper officer , for issue of the show-cause notices under Section 28 will be only proper officer who made the assessment under Section 17. 6. Learned special counsel Shri P.R.V. Ramanan contested the above arguments on jurisdiction , and made the following submissions: (a) The ADG DRI was duly declared as Collector of Customs by Notification No.19/90-Cus.(NT) dt. 26-04-90. The Board has specifically issued Circular No. 4/99-Cus. dated 15.02.1999 empowering ADG DRI to issue show-cause notices in respect of cases investiga....
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.... clear violation of principles of natural justice. Submissions on merits: 8. Learned advocate Shri Lakshmikumaran made detailed submissions challenging the confiscation, demand of duty, invocation of extended period of limitation and imposition of penalties on the appellants and on related issues as summarized below: 8.1. It was conceded that the required software for equipments like MSC, BSC, BTS were preloaded in the factory at Sweden and were subjected to factory testing . The preloading was done into the hard disc or to the flash memory and not to the integrated chips. Further, the back up of preloaded softwares was taken and kept in the hard disc of the respective hardwares. He claims that such preloading is not the same as etching, embedding or burning. 8.2. Identical copies were made of the preloaded software by recording them in CDs/ODs. The fact that the preloaded software could be recorded in media like CDs/ODs would indicate that the preloaded software cannot be considered as embedded software. 8.3. The cost of blank CDs/ODs/Floppy Discs is insignificant. Only the software has substantial value. The software supplied comes with ....
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....ld to be integral part of STD-PCO unit on the ground that it was in the memory chips. 8.10. It was submitted that the nature of software used in telecom hardware was not properly understood by the adjudicating authority. In support of the same, the Technical opinion dated 16.11.2006 by Shri K.S. Ramanujan faculty member of BITS Pilani which is reportedly based on the technology employed by Ericsson, the periodical reviews published by Ericsson, a comparison of the architecture of the telecommunication system and the engineering involved therein with the systems was relied upon. The following are the submissions made: (a) The essential parts of the software are resident in a non-volatile flash memory and/or RAM instead of the conventional disk drives. (b) AXE-10 hardware technology, provides for hands of operation enabling the subscriber to move from one MSC to another without dropping the call. (c) Ericsson built their own proprietary language for software programming of AXE-system called the Programming Languages for Exchanges (PLEX). (d) Typical AXE-10 exchange control software contains about one million lines of PLEX codes from a global....
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....he form of flash memory cards already stands conclusively decided by the World Customs Organization under Heading 85.23 as unrecorded media and when recorded under Heading 85.24. 8.11.2. Chapter Note 6 to Chapter 85, prior to its amendment in 2002 and after its amendment in 2002 are as under: Pre-amendment: 6. Records, tapes and other media of heading nos. 85.23 and 85.24 remain classified in those headings, whether or not they are presented with the apparatus for which they are intended . Post-amendment: 6. Records, tapes and other media of heading 85.23 or 85.24 remain classified in those headings when presented with the apparatus for which they are intended. This Note does not apply to such media when they are presented with articles other than the apparatus for which they are intended. 8.11.3. By virtue of this chapter note 6 to chapter 85, the media containing the software even if it has formed part of the machine, the media can never be classified under any heading other than Heading 85.24. The operating and application software which are loaded onto the flash memory would require to be independently considered as recorded medi....
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....ction: 8.19. In respect of all the consignments imported and for which the Bills of Entry were filed, the appellants have duly declared the correct description of the products as given in the invoices and the packing lists. At no point of time, in any of the Bills of Entry, the appellants have made any incorrect declaration and that too willfully. The appellants, always entertained a bona fide belief that software imported separately, even though loaded onto the hardware was liable to be assessed separately to duty. At best, the present case is a case of change in the basis of assessment and opinion of the Customs Department. For such a change in the basis of assessment based on a classification dispute, extended period of limitation cannot be invoked. On the same grounds, it was submitted that no penalties could be sustained. On Confiscation 8.20. Goods valued only Rs.9.94 Crores has been seized but goods valued over 2200 crores stand confiscated. Confiscation of goods which are not seized is not justified. In this regard, he relies on the following decisions: a) Commissioner vs. Chinku Exports [2005 (184) E.L.T A36 (S.C.)] b) Shiv Kripa Ispat P....
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....l counsel also gave his understanding of various decisions sought to be relied upon on behalf of the appellants. He submitted that the reliance placed by the Commissioner on the decision in the case of Anjaleem India Pvt. Ltd. was appropriate. 9.3. Relying on the decision of the Hon ble Supreme Court in the case of Harbans Lal Vs. Collector of Central Excise as reported in equivalent citation in [AIR 1993 (SC) 2487], the decision of the Hon ble High Court of Gujarat in the case of J.K. Bardolia Mills Vs. M.L. Khunger, Dy Collector of Customs as reported in [1975 (16) GLR 119] and the decision of the Hon ble High Court of Bombay in the case of Mohanlal Devdanbhaichoksey and others Vs. M.P. Mondkar and others reported in [1988 (37) ELT 528 (Bom.)], he submits that Sections 110 and 124 are independent, distinct and exclusive of each other. Therefore, it is not a must that there should be seizure of offending goods preceding confiscation. In the present case, the impugned goods were found to have been mis-declared in respect of value and therefore, have been rightly confiscated as the goods were available with the appellant/assessees for confiscation. Availability for confisc....
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....ss-examination of the group of scientists involved in preparing the CAIR report? (c) What are the nature/characteristics of goods imported by the assessee-appellants as hardware and software separately? What is the true nature of transactions involved in such imports? (d) Whether the value of software preloaded at factory in Sweden before shipment took place requires to be excluded from the value of hardware as claimed by the assessees or to be included as held by the department? (e) Whether decision of the Tribunal in the case of Vodofone is applicable to the facts of the present case or not? (f) Whether all the imported goods are liable to confiscation even though only part of goods were seized? Whether l the imported goods are liable to confiscation even when they were not seized? (g) Whether the quantum of duty has been correctly worked out? (h) Whether extended time limit is applicable and whether penalties are imposable? (a) Whether ADG DRI was competent to issue the impugned show-cause notices? If the ADG DRI had no jurisdiction to issue the show-cause notices under Section 28 of the Customs Act whether amendment dated ....
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....Customs (Prev.) issued the show-cause notice dated 16.4.94 proposing confiscation of the goods and demanding Customs duty in terms of Section 28 (1) of the Act. The Collector confirmed the demand of duty under Section 28(1) of the Act. He also ordered confiscation of the goods and imposed redemption fine. The Collector while adjudicating overruled the objection questioning his jurisdiction. On appeal by the party, the Tribunal vide the order dated 4-1-2005 .. allowed the appeal holding as follows : It is very velar that the Commissioner of Customs (Preventive) does not have jurisdiction to issue the impugned show-cause notice and in view thereof he could not have the jurisdiction to adjudicate the matter when imports have taken place at Bombay Customs House. In the Kripa Shankar case, the show-cause notice was issued by the Commissioner of Customs (Prev.) but the adjudication was done by the Commissioner of Customs. The Tribunal held that the show-cause notice was issued by a proper officer under Section 28 of the Customs Act. The Hon ble Supreme Court in the combined decision dated 18.02.2011 in the case of Syed Ali and Kripa Shankar has held that merely app....
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....toms duty not levied or short levied or erroneously refunded in respect of goods imported are valid, irrespective of the fact that any specific assignment as proper officer was issued or not. It is therefore proposed to amend retrospectively and to validate anything done or any action taken under the said Act in pursuance of the provisions of the Act at all material times irrespective of issuance of any specific assignment on 6th July, 2011. Further, the amendment to Section 28 was by way of inserting sub-section (11) which reads as under: Notwithstanding anything to the contrary contained in any judgment, decree, or order of any court of law, Tribunal or other authority, all persons appointed as officers of Customs under sub-section (1) of Section 4 before the 6th day of July, 2011 shall be deemed to have and always had the power of assessment under section 17 and shall be deemed to have been and always had been the proper officers for the purposes of this section. (b) Whether adjudication of the show-cause notices by the specially nominated Commissioner, who was earlier the ADG DRI and who issued the show-cause notices was in violation of principles ....
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.... literature and documents which are as follows. (a) The import is of telecom equipment system referred to as AXE -10 system. AXE-10 system is based on Programming Languages for Exchanges (PLEX) and an advanced version known as HL-PLEX. It consists of two major sub-systems which are referred to as switching system and control system. (b) The telephone sub-system of AXE is called APT. APT comprises of switches, multiplexers, interface components etc. In other words, APT switching system contains all sub-systems dealing with traffic handling, operation and maintenance, charging and other switching oriented tasks. (c) The control sub-system is called APZ. APZ comprises of microprocessors, application specific circuits designed for switching, logic devices specifically programmed for the concerned equipment etc. APZ system, comprising both hardware and software units, controls not only the operation of APT but the whole system. APZ employs Application Specific Integrated Circuits, memories, programmable logic devices, microprocessors and digital processors to control and monitor the operations of a MSC or BSC or BTS. (d) The equipments imported ha....
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....happen if both the tickets purchased by him were lost or misplaced and thereupon, the overcautious passenger confided that he was already having a monthly pass! (d) The import of software separately in ODs/CDs reminds the comically overcautious passenger. The only difference is that the passenger has spent thrice the money for buying tickets unlike the present appellants who have not paid any excess amount towards purchase of software. The software is undisputedly in the system imported as hardware along with a backup. It was also available for downloading through internet. Under these circumstances, the need for import of such software separately in ODs/CDs has not been satisfactorily explained! (e). This is not the end of the story. In certain cases, EIL has undertaken copying of ODs/CDs in their office in Gurgaon and dispatched the said ODs and CDs to Sweden for re-despatch to India. No valid reason has been given as to why the same could not be copied in Sweden itself. While sending the ODs/CDs, the value declared was very nominal. When the said ODs and CDs came on the return journey, the value declared was very huge though the said CDs and ODs were destined....
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.... classification/valuation of hardware and software of computers cannot be mechanically applied to hardware and software relating to telecom equipments. (d) Whether the value of software preloaded at factory in Sweden before shipment took place requires to be excluded from the value of hardware as claimed by the assessees or to be included as held by the department? Analysis of Decisions Relied upon: 14.1 Both sides have relied upon a few decisions of the Hon ble Supreme Court and also the decisions of the Tribunal, (some of them relating to computer and its software and others relating to electronic equipments (other than computer) and their software) to canvass their respective points of view on the crucial issue as to whether the value of impugned software should be excluded while determining the value of equipments (hardware). It may be appropriate to discuss the decisions relied upon by both sides at this juncture (by highlighting relevant portions) to understand the ratios of the decisions and also draw guidelines to decide the said issue. a) Hon ble Supreme Court in the decision dated 17.12.96 in the case of PSI Data System Ltd. vs. CCE [ 1997....
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....e Court has also taken note of the fact that computer software could be bought in the form of printed books, picture, manuscripts, and type scripts covered under Chapter 49 and that the same could also be brought either on a floppy or a magnetic tape or in hard disc or in printed form. On the said facts, Hon ble Supreme Court held that the software received in hard disc drives was classifiable under chapter 8524. This is a case wherein the hardware loses its identity and becomes part and parcel of software. d) Hon ble Supreme Court vide the decision dated 24.9.2004 in the case of Commissioner of C. Ex., Pondicherry vs. Acer India Ltd. [2004 (172) ELT 289 (S.C.)] dealt with the case of valuation of computers supplied after loading certain operational software which was meant to enhance the efficiency of the computer and consequently the issue of excluding the value of such software from the total value of computers supplied to the customers, and elaborately dealt with the meaning of certain terms relating to computer: A Computer : 18. Before adverting to consider the rival submissions at the bar, we may notice the meaning of certain terms as also the functioning of a....
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....ly Erasable Programmable Read Only Memory (EEPROM) is called firmware. The firmware provides for interactions with the microprocessor to enable it to access the operating software contained in the hard disc. 25. As is the general practice in the computer industry, the value of the firmware etched on to the EEPROM is always included in the assessable value of the computers. 26. A customer may place a specific order upon the manufacturers of computers for supply of CDs which contain operating softwares like Windows 2000, Windows XP etc. as also the right to use the same under licence. The said softwares indisputably can be purchased separately and loaded in the computer by the purchasers themselves. They can be loaded even at the premises of the purchasers and by persons other than the manufacturers. The computers, however, are also loaded with different types of softwares on to the hard disc along with licence to use, if and when specifically ordered by the customers. Computers and operational softwares admittedly are available in the market separately. For the purpose of this case, however, we would proceed on the premise that all the computers are cleared with the softwares ....
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....ecified becomes part of a Parliamentary Act. Chapter Note 6 of Chapter 85 being the legal text must be taken aid of for the purpose of interpretation of the different headings in preference to the interpretation rules. Suffice it to point out that once no duty is payable on softwares being classified under 8524.20 being a magnetic tape, the recorders whereof is classified under 8520.00, a duty would not be payable only because the informations contained therein are loaded in the hardware. 65. It is not in dispute that operational softwares are available in the market separately. They are separately marketable commodities. The essentiality test or the functional test cannot be applied for the purpose of levy of central excise inasmuch as the tax is on manufacture of goods . The Act being a fiscal legislation an attempt must be made to read the provisions thereof reasonably. Computer comes within the definition of excisable goods. So is a software. They find place in different classifications. The rate of duty payable in relation to these two different goods is also different. 66. In terms of Chapter Note 6 of Chapter 85, as noticed hereinbefore, a software retains its characte....
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....l software, therefore, does not form an essential part of the hardware. Xxx xxxx xxxx 70. The functional test or the essentiality test, thus, had been given a complete go by therein and, thus, it is not possible to agree that without an operating software, the computers would become disfunctional. Xxx xxxx xxxxx 77. Once it is held that the computer is complete without the operating softwares, the question of adding the cost of software therewith would not arise since what is under assessment is only the computer. To the same effect is the judgment in Photopone Industries Pvt. Ltd. v. CCE, Goa, [1999 (108) E.L.T. 523]. Xxxx xxxx xxxx Conclusion : 79. Computer and operative softwares are different marketable commodities. They are available in the market separately. They are classified differently. The rate of excise duty for computer is 16% whereas that of a software is nil. Accessories of a machine promote the convenience and better utilization of the machine but nevertheless they are not machine itself. The computer and software are distinct and separate, both as a matter of commercial parlance as also under the statute. Although a computer may not be capable ....
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....ext contained in Chapter 84, as explained in Chapter Note 6, clearly states that a software, even if contained in a hardware, does not lose its character as such. When an exemption has been granted from levy of any excise duty on software whether it is operating software or application software in terms of heading 85.24, no excise duty can be levied thereupon indirectly as it was impermissible to levy a tax indirectly. In that view of the matter the decision in PSI Data Systems (supra) must be held to have correctly been rendered. (e) Hon ble Supreme Court in the decision dated 16.01.2006 in the case of Anjaleem India Pvt. Ltd. Vs. CCE, Ahmedabad considered the issue as to whether a programmed or designed EPROM was an integral part of STD-PCO unit and held that the said chip was classifiable as an integral part of STD-PCO unit under heading 85.17 and that the value of the same was includible in the assessable value of STD-PCO unit. The submission of the assessee was noted that the said STD-PCO unit was a computer based equipment. The blank EPROMs were classifiable under chapter heading 8542 as an integral circuit; they were purchased from the market at Rs. 149/- each; the....
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....hips are not volatile. The expression, Read Only means that CPU can read or retrieve the programmes written on the ROM chips. ROM chips contain special instructions for detailed computer operations. For example, ROM instructions may start the computer, give keyboard keys their special control capabilities, and put characters on the screen. ROMs are generally called as Firmware [See: Computing Essentials by Timothy J. O Leary & Linda I. O Leary - 2002 Edition]. According to the Illustrated Dictionary of Computing by Jonar C. Nader - 3rd Edition, ROM is a hardware which is used to store permanent instructions for the computer s general housekeeping operations. A user can read and use the data stored in ROM, but cannot change them. When a computer is turned on, ROM supplies a series of instructions to CPU which in turn performs a series of tests. EPROM, on the other hand, according to the same dictionary, is an erasable programmable ROM. Initially, users had to supply ROM vendor with an inter-connected program so that the vendor could build the ROM. To avoid this high set-up charge, manufacturers developed a user-programmable ROM (PROM). A PROM is just like a ROM. Similarly, as an alt....
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....ed to RAM when the system gets started. The input/output routines are written into the IC at the factory. The point to be noted is that the ICs which contain semiconductor components like diodes etc. have got to be embedded in the mother board. The ROM chip is fixed at the factory. The chip is fixed in the computer and only then the programme works. Hence, this is basic difference between a mere floppy which is a recorded media under CH 85.24 and the IC under CH 85.42. In the former case, the program is a software because a floppy is a storage in which software plays the dominant role whereas in the case of IC the programme is embodied in the IC which can perform various functions only when fixed to the mother board and is not removable like a floppy from VCR. According to Encyclopaedia of Technology Terms by Whatis.com, an IC can function as an amplifier, oscillator, timer, microprocessor etc. On the other hand, a floppy disk is only a storage. Moreover the essential character of IC does not change with the programme being embedded in the IC and hence the IC remains classifiable under CH 85.42. This distinction is also brought out by tariff items referred to above (See: Dictionary....
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....eference to their specific function. Therefore, devices like ICs, as in the present case, which help the processor to function can only fall under 85.42 (in cases where such ICs are the final products) and where they form an integral part of a machine like STD-PCO unit, they have to be classified under heading 85.17, hence, it will not fall under heading 85.24 as claimed by the appellant (See: page 1408 of HSN -2nd Edition, 1996). As stated above, a disk with a programme is a software. However, a ROM with a particular circuit in which a programme is structured remains an IC. .. 30. Before concluding, we reiterate that in the present case, the levy is on a computer based embedded system. The software embedded in the programmed EPROM, which is an IC chip, constitutes the brain of the system. The programmed EPROM is an integral part of the system. The levy is on the unit. The levy is not on the programmed EPROM. The programme embedded is not an easily removable. Hence, it will not fall in the category of recorded media under tariff item 85.24 and remains an IC under tariff item 85.42. (f) Hon ble Supreme Court in the decision dated 30.08.2007 in the case of Commissioner o....
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....s a computer would be classifiable as a machine tool, not as a computer. Similarly a navigational apparatus for an aircraft which is computer controlled would be classified as such apparatus and not as a computer. 6. However, that does not detract from the very fact that the data processing machines which are incorporated, in or used with such machines, are by themselves data processing machines. If they were separately imported, for example, such data processing machines would be classifiable as data processing machines and not with reference to the machines in which they may be incorporated on in conjunction with they may work. The software for such machines would be in any case be software for data processing machines. We must also note that the tariff nowhere provides for classification of computers . The terms it uses are data processing machines and equipment therefor. In construing the meaning of the term in notification which is not found in the tariff, we must apply its meaning as generally understood. That is what we have done. This is made clearer by the fact that the notification was amended by notification 103/98. After the amendment software required for operation ....
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.... relied upon by both sides, in matters relating to classification/valuation, the following important guidelines/principles emerge apart from the meanings of various relevant technical terms: (a) In classification of products, the commercial understanding is more relevant than technical specifications except in respect of commodities for which such specifications are prescribed requiring the assistance of experts in the respective fields. In other words, the method to be adopted for classification is to be based on easily understandable parameters. (b) The decisions in respect of software and hardware in relation to computer are to the effect that if any software is embedded/etched/burnt then it has to be included as part of the hardware and cannot be treated as stand-alone software and that the value of such embedded software should be part of the value of computer. However, it cannot be concluded that only the value of software which is embedded/etched/burnt is to be included in the value of the computer. (c) It is not as if essentiality is an irrelevant criterion for determining the classification/valuation and at the same time essentiality is not the sole ....
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....nd the purpose for which the software is to be used, whether the said software is marketable separately, whether the software is so essential to give the identity to the computer and without which the same becomes dysfunctional or whether the software is meant to enhance its utility. With the above in mind, we may proceed to consider the ratio of case law relating to computers. (a) Basic Input Output Software (BIOS) which is etched onto the memory chip or burnt into EEPROM and is called a firmware is treated as integral part of computer and there is no question of separate classification or excluding the value of the same from the computer (as could be inferred from para 24 & 25 of the judgment in the case of Acer). This is a case where the software loses its identity and becomes part of hardware. (b) However, the software in the form of disks, floppies, CDs sold along with the computer is not to be included in the assessable value of the computer as such software is distinct and separate from the computer and is also being sold independently in the market (as held in the case of PSI Data Systems). (c) Hard disc loaded with software installed in a lapt....
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....the same is clearly meant for specific performance of the said machine and forms integral part of the washing machine. The question of excluding the value of such software does not arise. Similarly, Cell Phone contains certain basic software, without which it cannot be considered as cell phone. Such software has to be considered as part and parcel of the cell phone. A cell phone can also have added facility like camera, etc. There can be doubt about software relating to such add -on functions as to whether they are part and parcel of cell phone, but not about the software which gives the cell phone its identity. 16.1. Scientists and engineers work hard to invent more and more complicated systems and devices so that the life of customers who use them become more and more simple. 16.2. In particular, improved versions of crucial storage device ROM (read only memory) namely PROM, EPROM, EEPROM and flash memory have been invented. ROM stands for read only memory . ROM became programmable by the user himself leading to the emergence of PROM which stands for programmable read only memory . Further development led to discovery of method for erasing the programme in ROM....
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....resented with the equipments . On the other hand, what was preloaded was not even declared and claimed for separate classification. 17.5. In the above circumstances, there is absolutely no justification to pull out or disintegrate the preloaded software from the imported equipment and grant it separate status and to classify it under Chapter sub-heading 85.24 and to exclude its value (which was artificially split from the composite value of the equipment) to arrive at the value of the equipment. 17.6. As already held, this is not a case where the equipments have been presented with software. On the other hand, it is a case of importing equipments which contained essential software/intrinsic software giving the functional identities to the imported equipments. In view of the above, the chapter note 6 to Chapter 85 of the Indian Customs Tariff has no relevance to the present case. (e) Whether the decision of the Tribunal in the case of Vodafone is applicable to the facts of the present case or not? 18.1. It is the contention of the appellants that the facts of the case in the present appeals are substantially the same as the facts of the Vodafo....
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....unal, in the Vodafone case has held that importing software in CDs separately besides being preloaded on hardware was not something unusual and the same was a trade practice. The evidence relied upon in the present case would show that it was a case of manipulation to show as if software was being imported in ODs/CDs. (i) In Vodafone case, in view of Chapter Note 6 to Chapter 85 of Indian Customs Tariff, it has been held that the software for MSC/BSC/BTS would be classifiable under heading 8524. The machines/equipments under import are undisputedly classified under heading 85.17/85.25, and the software for the same is closely integrated and assembled with the constituents of the machines/equipments, more tightly than even the laptops. 18.3. We have carefully considered the submissions from both sides on the issue as to whether the facts of Vodafone case and the present case are substantially the same or different. No doubt, in the Vodafone case also, the equipments imported are MSC classifiable under Chapter Heading 85.15, BSC and BTS classifiable under Chapter Heading 85.25. They came with preloaded software required for operating the said equipments. They also....
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....sion of the Hon ble Supreme Court in the case of Anjaleem was not before the Tribunal in the Vodafone case. The Tribunal also came to the conclusion that the import of software in CDs separately was nothing unusual and was a trade practice. Such findings have been given on the ground that no evidence has been cited by the revenue to show that this is not a trade practice . However, in the present case, we have been shown enough evidence of planned deception in making the CDs/ODs of proprietary software in India without specific authority and dispatching the same to Sweden and getting the same back as if a genuine import and allowing the same to gather dust as e-waste. Further, we find that the Tribunal in the case of Vodafone came to the conclusion that the software was contained only in Winchester hard disc and therefore, could not be considered as embedded or etched software. In the present case, we find that the software meant for BTS is contained in the flash memory which is a form of EEPROM. Therefore, in the light of evidence produced, we find, the facts of the present cases are different from the facts of Vodafone case. Similarly, the Tribunal i....
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....11 of the Customs Act deals with confiscation of the offending goods on the import side after issue of show-cause notice under Section 124 of the Customs Act. Section 125 of the Customs Act provides for grant of option of redemption of the confiscated goods. At this juncture, it would be appropriate to reproduce the relevant portions of Sections 110, 111, 124, and 125 of the Customs Act: SECTION 110: Seizure of goods, documents and things. (1) If the proper officer has reason to believe that any goods are liable to confiscation under this Act, he may seize such goods: Provided that where it is not practicable to seize any such goods, the proper officer may serve on the owner of the goods an order that he shall not remove, part with, or otherwise deal with the goods except with the previous permission of such officer. . SECTION 111: Confiscation of improperly imported goods, etc. The following goods brought from a place outside India shall be liable to confiscation: (a) to (l) .. (m) any goods which do not correspond in respect of value or in any other particular with the entry made under this Act or in the case of baggage with the declaration made under se....
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....goods. It is not necessary that every case of takeover of the ownership should be preceded by takeover of possession as taking possession is by way of precaution to avoid disposal of the goods. 19.6. There could be different situations as follows: (a) The whereabouts of the goods imported is not known having changed more than one hand and, therefore, investigators have not found and seized the offending goods. In such a situation, the question of confiscating the said goods does not arise as the provision for grant of option of redemption under Section 125 will be rendered meaningless. (b) The offending goods are in the safe custody of agencies like Port Trust, Airport Authority of India or like custodians and such goods shall not be allowed clearance even in the normal course without grant of out of charge by the customs authorities. In such a situation, the offending goods can be confiscated without effecting seizure but after issuing show-cause notice under Section 124. (c) The offending goods are seized and provisionally released on execution of bond with security like bank guarantee, etc. In respect of goods which were seized and provisi....
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.... under Section 111 applies to any goods in respect of which offences have been established and not necessarily to all goods which have been seized; (b) that there is no restriction under Section 124 to issue show-cause notice proposing confiscation of only the seized goods; and (c) that the provisions of Sections 110 and 124 are independent, distinct and exclusive of each other. 19.10. In view of the above, inasmuch as the imported goods are offending in nature due to deliberate misdeclaration of value of the goods, they are liable to confiscation. Therefore, the order of confiscation requires to be upheld. 19.11. While upholding the confiscation, however considering that the goods were imported over a long period August 2001 to April 2006 and that the order of confiscation was made in April 2008, and that the goods were meant for the importers own use for rendering services and not for sale, we are of the view that there is some scope for reducing the quanta of redemption fines imposed by the Commissioner. 19.12. It was pointed out during arguments that, out of the seized equipments of value Rs. 9.94 Cr., approximately Rs. 3.30 Cr related to Microwave....
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....(a) In respect of show-cause notice dated 29.03.2005 issued to MSC, BSC, BTS and seized equipment, it is claimed that assessable value of hardware is Rs.1,64,43,47,499; assessable value of software is Rs.1,40,05,66,542 and thus the combined assessable value to be Rs.3,04,49,14,041. (b) In respect of show-cause notice dated 09.03.2006 issued to MSC, BSC, BTS, it is claimed that assessable value of hardware is Rs.2,63,68,56,112; assessable value of software is Rs.2,60,21,92,946 and thus the combined assessable value to be Rs.5,23,90,49,058. (c) In respect of show-cause notice dated 29.05.2006 issued to MSC, BSC, BTS, it is claimed that assessable value of hardware is Rs.36,61,08,454; assessable value of software is Rs.35,98,45,026 and thus the combined assessable value to be Rs.72,59,53,480. (d) In respect of show-cause notice dated 29.05.2006 issued to MSC, BSC, BTS, it is claimed that assessable value of hardware is Rs.4,05,85,06,183; assessable value of software is Rs.1,44,20,48,167 and thus the combined assessable value to be Rs.5,50,05,54,350. (e) In respect of show-cause notice dated 31.05.2006 issued to MSC, BSC, BTS, it is claimed that ....
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....of PSI Data Systems (supra); Sprint RPG India Limited vs. CC (supra); Sprint India Ltd. vs. CC (T); and Barber Ship Management (I) Pvt. Ltd. vs. CC (supra) and Acer India (supra). Therefore, they were under a bona fide belief that the value of software was not includable in the value of hardware as they were two distinct commodities and that software was fully exempted. This plea of bona fide belief is not acceptable. The conduct of the assessees does not show that they were under any such bona fide belief. The hardware of telecom equipment imported by them contained the required software either in the hard disk or in the flash memory. If they felt that such preloaded software was a separate commodity, it was incumbent on them to declare the same as software and claim separate classification and claim the benefit of nil rate of duty/exemption notification. This was not the case. They have not declared the fact of importing the equipments with preloaded software. On the other hand, they have followed a highly deceptive practice of importing software in CDs/ODs declaring high values and then dumping them as waste . The said CDs/ODs were lying in original packing, unopened and unused ....
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....the show-cause notices specifically indicated only amounts of duty proposed to be demanded but did not (and could not) indicate the quantum of interest proposed to be demanded. Apparently, the duty demand itself was to be determined subject to the outer limit of amounts mentioned in the show-cause notices. The interest payable depends not only on the duty so determined but also the actual date of payment of the duty so determined. Only then, the actual interest payable will be ascertainable. Obviously, in the present cases, the Commissioner at the time of adjudication of the case could not have determined the actual amounts of interest to be included in penalties under Section 114A. Further Section 114A envisages penalty on the person who is liable to pay the duty or interest, as the case may be, as determined under sub-section 8 of Section 28 . The Commissioner was not in a position to determine the interest amount at the time of passing the impugned order. Therefore, his imposing penalties equal to the duty determined is in order. 21.4. The role of EIL, as per the show-cause notice and the order-in-original is limited to copying of ODs/CDs in their office at Gurgaon and....
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....n by the assessee stands replied on behalf of the group of scientists. Further, the reports of two experts produced by the appellants stand admitted and examined by the Commissioner. (d) The appellants (1) and (2) imported telecom equipment systems and declared the same as MSC classifiable under Chapter Heading 85.15, BSC and BTS classifiable under Chapter Heading 85.25. They did not disclose preloading of software in the factory in Sweden. There was a single contract for purchase of equipments; there was no option but to buy the so-called hardware and software only as a package; and no separate fixed price was available for the software component. In fact, no price for BTS software was indicated for period prior to September 2001. (e) The programs that make the switching equipment function are not independent software and cannot be marketed separately. Similarly, the programs required to make the BTS functional are loaded on to flash drive and are integral part of BTS equipment. (f) The separately imported softwares are found to be dupes copied in EIL, Gurgaon. Undisputedly, the impugned software is proprietary software. It has not been explained as t....
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.... the machine and given a separate status and should be classified under 85.24 and its value should be excluded for determining the value of the imported equipments. It is not the case that the appellants brought the software in CDs/ODs and presented the same along with the hardware and sought classification of both hardware and software separately. (j) The final cost of equipment included the cost of the programs in the form of software. Equipment was imported by the assessees declaring it as hardware and declaring its value less to the extent of the corresponding software price indicated for the software. (k) The programs in the software define and characterize the particular hardware and elevate the same to the functional apparatus/equipment. The software is written in a specialized language PLEX which is proprietary in nature. The software is machine-specific and the same is mandatorily required for working of the said machine. It has not been shown that there is separate identity for the impugned software marketable as a separate commodity. We have not been shown that there was an option to buy the impugned software separately. (l) There is no just....