TaxTMI 
TaxTMI 
2016 (2) TMI 614
X X X X Extracts X X X X
X X X X Extracts X X X X
....order 1. C/573/2006 M/s Bhagyanagar Metals Ltd. Appeal rejected 2. C/574/2006 Shri NarenderSurana, M.D. of appellant at Sl. No. 1 Penalty reduced 3. C/575/2006 Shri Balasubramanian, V.P. of appellant at Sl. No. 1 Penalty reduced 4. C/487/2006 M/s Surana Telecom Ltd. Appeal rejected 5. C/488/2006 ShgriBalasubramanian, V.P. of appellant at Sl. No. 4 Penalty reduced 6. C/489/2006 Shri NarenderSurana, M.D. of appellant at Sl. No. 4 Penalty reduced 7. C/491/2006 M/s L.G. Electronics Penalties set aside 8. C/556/2006 M/s L.G. Electronics Penalties set aside 9. C/473/2006 M/s Huawai Technologies Co. Ltd. Penalty set aside Mumbai Bench of the Tribunal decided appeal No. C/463/2004 filed by M/s Bhagyanagar Metals Ltd. by final order No. A/131/WZB/2007/CSTB/C.I. dated 22/02/2007. The Tribunal allowed the appeal in full. Revenue filed civil appeal No. 5007/2007 in the Hon'ble Supreme Court against the final order of the Mumbai Bench of the Tribunal. The appellant - assessee filed six civil appeals Nos. 6718-6720/ 2008 and 6722-6724/2008 against the final order dated ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e value of the software in the value of the telephones imported by the appellants herein cannot be sustained. The Bangalore Bench, which decided another set of appeals separately, however came to the conclusion that the software necessary for functioning of the telephone is already embedded in it. Hence, there is no separate software for assessment and valuation adopted for the phones. The adjudication order passed by the Commissioner was upheld. It is to be noted that the material evidence collected during detailed investigations by Revenue were available only during proceedings before Bangalore Bench. As directed by the Hon'ble Supreme Court, while disposing of the civil appeals, the evidence on record must be considered to decide all the appeals, by us. Submissions on behalf of appellants :- Learned Senior Advocate Shri V. Sridharan, appearing on behalf of all the appellants explained the nature of WLL Cellular telephones and the argued that appellants are right in their claim for exemption of software imported by them. The whole thrust of the argument of the learned Counsel is based on applicability of Note 6 of Chapter 85 of the First Schedule to the Customs Tarif....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld that Chapter notes are relevant for the purpose of classification alone and not for valuation. This decision also was reversed by the Hon'ble Supreme Court in PSI Data Systems Ltd. (supra); (b) The Hon'ble Supreme Court in CCE, Pondicherry vs. Acer India Ltd. reported in 2004 (172) E.L.T. 289 (S.C.) specifically rejected the 'essentiality test' and held the software installed inside Computer should be separately classified under heading 85.24 and not alongwith the Computer. As per HSN Explanatory Notes recorded media (Software) assembled with constituent part of machine of Heading 84.69 to 84.72 fall under heading 85.24 ; (c) Sprint R.P.G. India Ltd. vs. CC-I, Delhi reported in 2000 (116) E.L.T. 6 (S.C.) held that the software contained in hard disk will fall in Heading 85.24 even if such hard disk is a unit of Computer. The software retains its identity as a software in such situation also. The classification of software under Heading 85.24 even if installed in the hard disk within the Computer was affirmed in Commissioner vs. Barber Ship Management (I) Pvt. Ltd. reported in 2002 (144) E.L.T. A293 (SC); (d) CC, Chennai vs.Hewlett Packa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s proposition was never urged either before the Adjudicating Authorities, different Benches of the Tribunal or even before the Hon'ble Supreme Court when these cases were examined and decided. When bills of entry were filed in respect of the imported CDMA mobile phones, the appellants never claimed that the separate goods is software falling under Heading 85.24. Only CDMA mobile phones were declared with a split up value for "hardware portion" and "software portion" of the phones. The learned AR urged that the claim of the appellants is a wholly fresh assertion i.e., that there were two kinds of goods falling under different headings with separate description for assessment. This claim is made for the first time. He pleaded that this claim requires to be rejected outright. On the merits of the case, the learned AR made elaborate submissions. His submissions are summarized as below :- (a) Note 6 of Chapter 85 requires that the media as goods to be presented with the apparatus. In the present case, the Cell Phones were not presented with any separate media. The appellants earlier claimed that the software was in CD-ROMs. Now they are claiming that the software is in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... respect of goods which are not available for confiscation, reliance was placed on the Hon'ble Supreme Court's decision in Weston Components Ltd. vs. CC, New Delhi reported in 2000 (115) E.L.T. 278 (S.C.). Points for decision:- We have heard both the sides at considerable length. On a careful consideration of the factual, legal and technological issues, the main point for decision is whether there are two distinct goods - hardware part of fixed wireless phone and the software part of the said phone - for Customs duty assessment. In other words, is there, as claimed by the appellants, an identifiable goods as software in a media falling under Heading 85.24 of the Customs Tariff, in the imports by the appellants for the purpose of Customs Valuation and assessment. There are other connected points also for decision, namely, interest liability of the appellants, sustainability of redemption fine and penalties imposed in these cases. Discussion and findings :- Before proceeding with examination of the merits of the case, it is necessary to address the preliminary objection raised by Revenue regarding admissibility of a totally new plea which was never raised in an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....edings is to look at all the available evidences and legal provisions applicable afresh, it is necessary to consider this plea, for a proper resolution of the dispute. In order to examine appellant's plea regarding eligibility of software component for separate assessment, it is necessary to understand the nature and functionality of the imported goods - fixed wireless telephones. CDMA Fixed Wireless Telephone :- It is necessary to understand the actual nature and functioning of the FWTs (WLL Phones) relevant to this case. We have seen the instrument, perused the user manual and service manual. FWT is supplied with main unit with handset, dipole antenna, back up battery, AC/DC Power adopter and power cord. FWT and WLL are generic terms for radio based telecommunication technologies. The CDMA WLL network consists of WLL system, BTS (Base Station Transmission sub-system) and FWT (Fixed Wireless Telephone). The WLL system is directly connected with LE (Local Exchange). Relevant to decide the claim made by appellant regarding nature, tariff classification and thereby the exemption as available to software contained in "other media" (Note 6 of Chapter 85) is the natur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce related data and RFcaliberation data. Normally, there are two categories of non-volatile data storage - electrically addressed systems (read-only memory) and mechanically addressed systems (hard disks, optic discs, magnetic tapes etc.). In respect of FWT circuit as in the present case, this non-volatile memory (Read Only Memory) stores data which is hard-wired as a Firmware. Such software is closely tied to specific hardware. From the above technical details it is clear that the memory unit, which is a part of ARM7TDI Micro processor sub-system, is clearly an integral part of the internal circuit of the telephone. This contains both volatile (temporary) and non-volatile (permanent) data, without which activation of the phone is not possible. It is not correct to call such memory unit as a storage media for software. The applicability of Note 6 depends on availability of a identifiable, separate media. From the technical analysis above it cannot be said that there is any identifiable, separate media in the present case. Relevance and applicability of Note 6 to Chapter 85 of the Schedule to Customs Tariff Act, 1975 . Note 6 to Chapter 85 of the Schedule to Customs Tariff ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the time of import. Now, for the first time they have made this claim that the memory unit is in built and part of the main circuit inside the phone; should be considered as a media for classification and consequently eligible for exemption available to software. We have critically examined this claim. The technical literature, nature of the said memory unit and nature of the software contained in the memory unit clearly rule out the possibility of calling this part of the printed circuit board separately as a media for software. It is also not the claim of the appellant that such media carrying the software for FWT phones is anywhere available separately for trading. It is the clearly admitted fact that the software/data loaded on the Flash memory is specific to the user/customer. It contains caller ID and caller block software. The phones imported have embedded software with required parameters for its functioning. Analysis of case laws : Learned Senior Counsel as well as Revenue relied on various case laws in support of their submissions. We are conscious of the fact that the present dispute involves highly dynamic technological issues relating to the nature of softwar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....C 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 of Computing by Prentice Hall). 24. An embedded system is a programmed hardwa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ard disk within computer. These decisions are not applicable to the facts of the present case as already explained above with specific reference to Hon'ble Supreme Court's order in Anjaleem Enterprises Pvt. Ltd. vs. CCE, Ahmedabad (supra). We are dealing with a memory unit which is part of the main PCB of the telephone, not a hard disk as a storage device/recorded media in a computer. The decision of the Tribunal in Vodafone Essar Gujarat Ltd. vs. CC (Imports), Mumbai (supra), relied upon by the appellant, is regarding software presented in a recorded media in the form of tapes/CDs as well as in the hard disk contained in the hardware. The software in that case is not embedded or contained in ROM or EEPROM or in the microprocessor chips. The reasoning given in the said decision is therefore inapplicable to the facts of the present case. As held by the Tribunal in Bharti Airtel Ltd. vs. CC, Bangalore (supra) and by the Hon'ble Supreme Court in Anjaleem Enterprises Pvt. Ltd. vs. CCE, Ahmedabad (supra), in the matter of valuation, one of the important aspects to be taken into account is the condition of the goods at the time they leave the factory. The memory unit/ch....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rises Pvt. Ltd. by the Hon'ble Apex Court where the software was recorded on an EPROM. The Hon'ble Apex Court held that EPROM cannot be compared to a floppy which is only a dump box. EPROM is basically an integrated circuit or chip and classifiable under CETH 8542. Accordingly, it was held that the value of software embedded in the programmed EPROM, which is an integral part of the system is includible in the value of the goods supplied. In the case before us, the flash memory is not the goods under clearance but it is the STB. The memory chip has been soldered onto the PCB of the STB and is not easily removable. The programme embedded in the flash memory is also not removable. Therefore, it will not fall under the category of recorded media under CETH 8424. In view of the above position, the ratio of the decision of the Hon'ble Apex Court in the case of Anjaleem Enterprises Pvt. Ltd. would be more appropriate and correct in the facts of the case before us. This ratio of the Apex Court was followed by this Tribunal in the case of Avaya Global Connect Ltd. (supra) wherein also it was held that software supplied along with system, namely, EPROM, as embedded in the system ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eme Court in Commissioner of Trade Tax, Lucknow vs. Kanhai Ram Thekedar (supra) and Hon'ble Allahabad High Court decision in BHEL vs. CC & CE, Kanpur (supra) and Hon'ble Karnataka High Court decision in CC, Bangalore vs. Pierre Colsun Inc. (supra). We find that the impugned goods in both the sets of appeals were released on payment of provisionally assessed duty in terms of Section 18 of the Customs Act, 1962. Sub-Section (3) of the said Section was incorporated by Section 21 of the Taxation Laws (Amendment) Act, 2006. The said sub-Section reads as under :- Section 18 (3):- The importer or exporter shall be liable to pay interest, on any amount payable to the Central Government, consequent to the final assessment order [or re-assessment order] under sub-section (2), at the rate fixed by the Central Government under Section 28AB from the first day of the month in which the duty is provisionally assessed till the date of payment thereof". We find that the Hon'ble Supreme Court decision in JaswalNeco Ltd. vs. CC, Visakhapatnam (supra) ruled that levying interest can only be by a substantive provision, thereby making it clear that such levy can only be prospe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e provision which was introduced w.e.f. 13/07/2006) there is no interest liability in these cases. Redemption fine :- Learned Senior Counsel for the appellants contested confiscation of impugned goods and imposition of redemption fine on the same. He submitted that there was no seizure at all or ever, either of the phones or the CD-ROMS imported by the appellants. Appellants had not executed any bond for provisional release of any goods in terms of Section 110A of the Customs Act, 1962. He further submitted that the bond mentioned by the Original Authority in his order dated 18/8/2006 is for the clearance of goods on payment of provisional duty. In the present case in the absence of any seizure thereafter provision release of goods under bond, confiscation or imposition of redemption fine are not sustainable. We find that reliance placed by Revenue on the decision of Hon'ble Supreme Court in Weston Components Ltd. vs. CC, New Delhi (supra) is misconceived. In the said case, there was a seizure and provisional release against a bond, undertaking to produce the goods when called for. In such situation, the Hon'ble Supreme Court held that redemption fine can be imposed i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment of redemption fine either to release the goods or in terms of the bond does not arise. We find that there can be no redemption fine in the absence of any seizure or provisional release of such seized goods under proper bond. In the present case in the absence of such events, redemption fine imposed is not sustainable. Penalties :- Learned Counsel contested imposition of various penalties on different appellants. He submitted that no penalty can be imposed under Section 114A of the Customs Act, 1962 as the present impugned orders can only be considered as relatable to Section 18. Section 114A can apply when there is a demand under Section 28. He further submitted that the issue involved is one of pure interpretation of statutory provisions and as such there could be no ground for imposing penalty. Learned Counsel mentioned that the Commissioner of Central Excise, Goa in his order dated 27/4/2004 did not impose any penalty, as the issue involved was only regarding classification of software and assessment thereof. We find that at the time of original proceedings before the Commissioner, Goa or during further appellate proceedings before the CESTAT, Mumbai, the detailed ....