TaxTMI 
TaxTMI 
2014 (4) TMI 465
X X X X Extracts X X X X
X X X X Extracts X X X X
....n a fairly detailed manner. 3. Both the applicants are providers of mobile telecom services. They imported certain equipment and software for running such equipment. The equipment imported by the applicants can be broadly described as follows:- S. No. Name of Equipment Tariff Heading 1. Mobile Switching Centre (MSC) 85.17 2. Base Station Controller (BSC) 85.25 3. Base Transceiver Station (BTS) 85.25 4. Parts of the above equipment classifiable under 85.25 85.29 4. The first three equipment needed software for its functioning and such software was preloaded in the equipment. The applicants also imported media said to contain such software, in some cases in the same consignment as the equipment and in some cases in separate consignments. They declared separate values for each equipment and each software. At the relevant time computer software was exempted from customs duty. So the applicants did not pay any customs duty on the value said to be that for the software and paid customs duty as applicable for the value declared to be that of the hardware. After payment of duty and clearance of the e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dia which was residing inside a hardware should still be classified separately under CTH 85.24 and should not be classified along with hardware in view of Chapter Note 6 which was in existence during the time of import. They rely on the following decisions:- (i) PSI Data Systems Ltd. Vs. CCE - 1997 (89) ELT 3 (SC) (ii) Digital Equipment (I) Ltd. Vs. CCE - 1997 (70) ECR 326 (Tri. - LB) (iii) Acer India Ltd. Vs. CCE 2003 (161) ELT 926, affirmed by Supreme Court in CCE Vs. Acer India Ltd. - 2004 (172) ELT 289 (SC) 8. It is canvassed that as per the above decisions the value of software, even if sold along with the computer, cannot form part of assessable value of computer. In the case of Acer India (supra), the assessee was engaged in the manufacture of computers, servers etc. The computers were invariably preloaded with operational software before removal from the factory of the assessee, as it was obligatory on the assessee to do so as per the arrangement between the assessee and the company producing the software. It was the case of the Department that the value of such software must be included in the value of the computers as it was preloaded in the computers pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nble Supreme Court in the case of Anjaleem Enterprises Ltd. Vs. CCE - 2006 (194) ELT 129 (SC). The learned Senior Advocate submits that the reliance placed on the decision of Anjaleem Enterprises (supra) in the case of Bharti Airtel (supra) is not correct for the following reasons:- (i) The case of Anjaleem Enterprises was not on the aspect of application of Note 6 of Chapter 85. The media which was involved in the case of Anjaleem Enterprises was "Erasable Programmable Read Only Memory" or "EPROM" classifiable under CTH 8542 and its classification is governed by Note 5 of Chapter 85. As per note 5 to Chapter 85, Heading 8542 shall take precedence over all other headings for the purpose of classification of EPROM. Therefore, the Hon'ble Apex Court rejected the contention that EPROM changes its classification when loaded with software. (ii) It is submitted that Note 6 was not applicable to the factual matrix of Anjaleem Enterprises. Rather Note 5 was relevant. It is submitted that in the case of Vodafone Essar, the Tribunal was not concerned with Note 5 but with Note 6. Therefore decision of Supreme Court in Anjaleem Enterprises was rightly not relied upon by the Departme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) 14. According to him, when these decisions are read along with Note 6 of Chapter 85, there is no way in which the value of the software as imported can be considered as zero and the entire value of software can be considered as that of hardware. The learned Advocate further submits that at the time of import the applicant had declared in most of the cases hardware and software in the same Bills of Entry. The Department found it appropriate to assess these goods as separate goods with separate rates of duty and after considerable time they cannot make a case that the applicant had suppressed the information that the value of software was declared separately in a fraudulent way. 15. Since the impugned order takes a line of argument that software in dispute is used in telecom equipment it cannot be considered as computer software because telecom equipment are vastly different from computers and the telecom equipment do not fit in the definition of an automatic data processing machines as defined in Chapter Note 5 of chapter 84. In this context he has taken us through the legislature history of levy of customs duty on computer software and telecom software and has canvassed the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ware. Such a situation was not covered by Note 6 of Chapter 85 as was in existence at the relevant time. It is this aspect which is considered by Hon. Apex Court in the case of Anjaleem Enterprises (Supra) and decided against the assesse. 19. He further states that when the case of Vodofone Essar Gujarat (Supra) was argued the case of Anjaleem Enterprises was not placed before the Tribunal. Further the type of strong evidences demonstrating the fraudulent nature of transaction as was unearthed by Revenue in the case of Bharati Airtel Ltd could not be unearthed and placed before the Tribunal and these factors resulted in a decision against Revenue. He submits that the outcome of the said decision as it stands now, though appealed against, cannot be applied in each and every case without considering the relevant aspects and decisions of the Hon Apex Court. 20. Coming to the present case the Special Counsel emphasized that the supply contract was for the supply of all GSM equipment and its spares required for providing mobile telecom service. Under the contract, M/s Ericson AB, Sweden (EAB) were required to supply systems consisting of hardware along with software of Gateway Mob....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sub heading 'AXE in General', it states that the entire AXE system is a set of specified functions implemented in function blocks, that these blocks are combined to form sub-systems which, in turn, are combined to form the switching system called APT and the control system called APZ, that each subsystem or function block is comprised of both hardware and software, or entirely of software, that each function is defined in terms of its interface to other functions, that it is not important if the function is implemented in hardware or software, that the function itself will stay the same, regardless of what hardware or software changes or modifications made, that somewhere, there must be a distinction between hardware and software. It can be clearly understood from this that in this AXE system, there are various functions that are to be performed and these functions can be implemented either in hardware or software and EAB is distinguishing between these functions as hardware or software only for purpose of nomenclature. 22. This document clearly states that in the switch, all the processes which need to be performed are considered as function blocks. The functions are executed e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the Switch SW (MSC/BSC) is non-interactive and are found in ICs. This confirmed the fact that such software was embedded in nature. * Technical literature reveals that BTS software resides in non-volatile 'flash memory' in both cases * Both equipment work on AXE10/B10 architecture and use Plex / HL Plex language * Both the hardware and software are proprietary in nature. Software in both cases can be used only on the Hardware provided by EAB. * Report obtained from Centre for Artificial Intelligence and Robotics (DRDO) indicated that the GSM equipment supplied by EAB i.e. MSC/BSC equipment have embedded software. This report has been relied upon in both cases. * According to Shri G. Venkatesan, Senior Tester, EIPL the technology employed is common for both the operators; that the Centre for Artificial Intelligence and Robotics (DRDO) report obtained for Bharati Airtel is applicable to the present applicants also. * In both cases, software imported separately in CDs was never used till date. In ACLs case, quite a few consignments were not even cleared from customs. In both cases the software packages were not fully matching with the description or not bearing c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lit price was imported. 26. As a rejoinder the learned Senior Advocate for the applicants submits that all these arguments especially the one relating to the meaning of the expression when presented with the apparatus was argued in the case of Vodafone Essar Gujarat and after considering the arguments only the Tribunal took the decision in that case. He read out the relevant paragraphs. 27. We have considered arguments on both sides. One of the key dispute is about the scope of the expression when presented with the apparatus in chapter note 6 of Chapter 85 of Customs Tariff. Does this note result in severing software which is embedded in hardware? To take a simple example every mobile telephone hand set has its software embedded in it which makes it work. Such software was till recently proprietary software of the equipment manufacturer, though in recent years the trend is changing. But this example can be taken for illustrating the issue at hand. (Examples of CNC machines, washing machines etc. also can be considered). Normally a mobile hand set is sold along with embedded software. When a hand set is imported can a separate value be declared for software and exemption ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the same as can be seen from para 11 of the decision in Acer India Ltd, reading as under 11. Mr. Subba Rao would submit that a bare perusal of the judgment of this Court in PSI Data Systems Ltd. (supra) would indicate that therein this Court was not concerned with any software, which was implanted into a computer and was only concerned with a software which is a tangible one being of the nature of discs, floppies and CD-ROMs. It was also not concerned with intellectual property also called software, that is recorded or stored thereon. 31. Further we are prima facie not able to agree with the argument of the Counsel for appellant that the Hon. Apex Court was interpreting scope of Note 5 of Chapter 85 and not Note 6 of Chapter 85 while coming to the decision in the case of Anjaleem Enterprises (Supra). Prima facie position is to the contrary and the judgment has discussed Note 6 which was argued by both sides and not Note 5. The equipment involved in that case was also telecom equipment namely 'STD PCO unit'. The dispute was about embedded software in EPROM, on which software was recorded, forming part of the equipment. 3....