TaxTMI 
TaxTMI 
2016 (11) TMI 1325
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....rosoft products under certain terms and conditions. The Appellant imported kits containing CDs software from M/s Mediagate, Singapore/ Data Pulse, Singapore and COA from M/s Dealrue, UK. The COA were printed on the labels and all the three were packed in a kit for onwards sale to OEM (Original Equipment Manufacturer) or Distribution Service Partners who has licensing agreement with M/s Microsoft. Upon placing purchasing order with the Appellant and receipt of such report of purchase by M/s Microsoft, the OEM pays royalty to M/s Microsoft which is calculated as per the terms of licensing agreement between such OEMs and M/s Microsoft. The software purchased from the appellant has a product key which is used to activate the software in the computers sold by the OEM to their customers. The recovery CD is used to recover the operating system in case of hard disk crash or system breakdown. The OEM while billing to their customer charges the cost of such software packs purchased from appellant as well as Royalty amount paid by them to M/s Microsoft. Some of the OEM like M/s HCL Infosystems Ltd. and others also directly import replicated packs wher....
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.... Being aggrieved the Appellant has filed the present appeal. 2. Shri. Sridharan, Sr. Counsel with Ms. Srinidhi Ganeshan, Ld. Advocate and Shri. T. Vishwanathan, Ld Advocate appearing for the Appellant submits that the impugned order has been passed without furnishing the basis of demand made in the show cause notice even after specific direction given by the CESTAT in its Order dt. 15.10.2012 and that the request of the Appellant to supply the same was ignored by the adjudicating authority. That though the Commissioner has stated that the documents mentioned in the CESTAT remand order has been supplied and personal hearing was done in comprehensive manner, the same is incorrect. The department has adopted the sale Price of DSPs namely Ingram Micro India (P) Ltd., Redington India Ltd., and Essys Information technology Ltd. and has given 10% deduction as profit and 0.4% approx to arrive at assessable value. However the price of which the above DSPs has been adopted by the revenue is not known. The price list of Redington was not supplied and no supportive documents to establish that the profit margins and cost of expenses deducted from the DSPs Sales Price is fair ....
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....extended period is not invokable. He submits that there is no wilfull misstatement or suppression of fact with intention to evade duty and hence extended period cannot be invoked. He submits that the duty is determinable under Rule 7 of Valuation Rules as the price at which the goods have been sold to OEM and DSP should be taken into account instead of adopting the price at which the goods have been sold by OEM and DSPs to the ultimate customer. He submits that the CDs meant for OEMs are customized and thus exempt from CVD under Notification No. 6/2006 CE. He further submits that confiscation of goods under section 111 (d) is not legal as they were not imported contrary to any prohibition impose under the act or law, nor there is any mis-declaration and hence section 111 (m) is not applicable. That penalty under section 112 (a) is not applicable as goods cannot be confiscated and Section 114 A is not invokable as no mens rea has been established. Alternatively he also submits that it has been held by the Tribunal in case of CCU (Import) Vs. Videomax Electronics that Section 112 and Section 114A are mutually exclusive and hence penalty under both sectio....
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....a and licensor have exclusive ownership rights and to protect their rights various agreements have been entered into by them and restrictions imported by them and therefore the value cannot be determined in terms of Rule 4 of Valuation Rules. The package cannot be sold to any OEM who has is not having agreement with MS during the relevant period. The value for the purpose of assessment should be the value of the media, the cost of replication and cost of software recorded on media. He places reliance on judgments in case of C.C (Import), Mumbai Vs. Excell Products Audio Visuals Pvt. Ltd 2014 (314) ELT 366 (TRI - MUM) and Associated Cement Companies Ltd. Vs. Commissioner of Customs 2001 (128) ELT 21 (SC). He submits that subsequent to detection of case one of the distributor M/s Ingram Micro India started importing these goods directly and cleared the Bill of Entries by adding the royalty amount payable to Micrsoft in assessable value of goods. That in the present case the arrangement was made in such a way that the original licence holder or owner of software is ultimately paid which attracts Rule 9 (1) ( c). The importer has not incl....
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....If the OEM or DSPs has no licensing agreement, the system will not work as it is only after agreement of royalty of OEMs and DSPs that the whole process of software loading can be initiated. Further it is only after CD kit/ software pack is purchased from the Appellant and product key issued by the Appellant is entered that the system works. Thus it is case where M/s MSLI is controlling all the prices and has control over each transaction. Only the sale of the software has been routed and bifurcated in such a way that the Royalty of the software escapes the payment of duty on its importation. We find that in case where the software is purchased directly from M/s MSLI the cost of licence is included in the sale value of CD Kit and there is no need to pay the royalty charges separately to M/s Microsoft by the OEM or the DSPs. In nut shell it shows that the royalty charges are part of the cost of software. If there is no licensing agreement for payment of royalty the software cannot be operated. 6. We find that as per Appellant's Authorized Replication Service (OEM) agreement No. 5000027843 dt. 17.08.2006 Para 2 a MSLI grants company licence to deliver finished goods to c....
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....clear that the royalty which is for a right to use the software is includible in the value of the CD and the price declared by the Appellant cannot be accepted for custom assessment. It is also a fact on record that the transaction value declared by the Appellant is less than USD 1 per piece, the OEMs were charging Rs. 3000 to 4600 per piece after inclusion of royalty amount for the same product. This shows that the selling price of the goods was determined by the Royalty amount which in the instant case has to be added to the value of the imported goods. The goods imported by the Appellant is not blank CD but is consisting of complete software alongwith the product key and no further action is required. The value of CD is not only the value of CD but it must also include the value of the Software and the right to use such software i.e Royalty towards such charges without which the software cannot be operated. We therefore in the light of our above observations and findings hold that the declared assessable value of the imported goods is not correct and required to be re-assessed. 7. The Appellant has also contended that the CDs are exempted from CVD in ter....