TaxTMI 
TaxTMI 
2019 (3) TMI 1092
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....tems; that during the period from April 2010 to September 2010, appellants did not pay duty on the value of such software pre-loaded for the reason that software was not pre-loaded, but sold separately. Appellants had also argued that on the re-sale of such software they had paid service tax under the category of "Information Technology Software Service" (ITSS). The Department however took the view that appellants are liable to pay Central Excise Duty of Rs. 6,60,278/- on the value of such pre-loaded operational software since after 01.01.2017, software pre-loaded on the CPU became assessable to duty as part of CPU. 2.2.1 Accordingly, a Show Cause Notice dated 14.05.2010 was issued inter alia proposing demand of Central Excise Duty of Rs. 77,55,148/- for the period from September 2006 to March 2010 with interest thereon as also imposition of penalty. In adjudication, the Commissioner vide Order impugned dated 25.05.2011 confirmed the demand only for the normal period of limitation, i.e., Rs. 19,12,633/- for the period from May 2009 to March 2010 with interest thereon and penalty of Rs. 5,000/- under Rule 25(1)(a) of the Central Excise Rules, 2002. Hence, Appeal No. E/434/2011. 2.....
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....ding interactivity to a user, by means of a computer or automatic data processing machine or other device or equipment. Section 65(105)(zzzze) defines 'Taxable Service' to mean any service provided to any person, by any other person in relation to information technology software, including : a. Development of information technology software; b. Study, analysis, design and programming of information technology software; c. Adaptation, upgradation, enhancement, implementation and other similar services related to information technology software; d. Providing advice, consultancy and assistance on matters related to information technology software, including conducting feasibility studies on implementation of a system, specification for a database design, guidance and assistance during the start up phase of a new system, specifications to secure a database, advice on proprietary information technology software; e. Providing the right to use information technology software for commercial exploitation including right to reproduce, distribute and sell information technology software and right to use software components for the creation of and inclusion in other information techn....
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....y Central Excise Duty/CVD on the portion of the value representing the value of the medium on which it is recorded along with freight and insurance; (vii) In any case, appellants had paid service tax on the total value of the software along with Royalty amount. He submits that for the period from May 2009 to March 2010, even if excise duty had to be paid, the liability would only amount to Rs. 19,12,633/- whereas for the same period they have discharged service tax liability of Rs. 23,55,402/-. So also, for the period from April 2010 to January 2011, they have discharged service tax of Rs. 15,13,920/- which, in effect, would also amount to the exact Central Excise Duty in case the latter only had to be paid. In such circumstances, the entire exercise is revenue neutral. (viii) Ld. Advocate draws our attention to the Statement of Shri. Dinesh Baboo Maheshwari, President Operation of the appellant (M/s. PCS Technology Ltd.). It is clarified that as per the agreement with Microsoft, M/s. PCS need to pay Royalty to Microsoft for licence to use, which gets added to sale price; that M/s. PCS do not manufacture software; that reloading from evaluation copy supplied by Microsoft is merel....
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....as to be included in the assessable value for payment of Central Excise Duty on the computer sets cleared by the appellants. 6.2 On the other hand, the first contention of the appellants is that the software was not preloaded, but sold separately. Secondly, that they have already paid service tax on Information Technology Software Services during the disputed period and would be eligible for CENVAT Credit on the service tax paid. Hence, the situation is revenue neutral. The ensuing dispute has resulted in the issuance of three Show Cause Notices resulting in the impugned Orders confirming demands of Rs. 19,12,633/- (Appeal No. E/434/2011) for the period from May 2009 to March 2010, Rs. 6,60,278/- (Appeal No. E/40260/2018) for the period from April 2010 to September 2010 and Rs. 8,53,642/- (Appeal No. E/40260/2018) for the period from October 2010 to January 2011. 7. The basis for the proceedings initiated by the Department is that Chapter Note 6 of Chapter 85, which provided for separate assessment of preloaded software, was deleted and hence, the classification of software changed to Heading 8523 of the Central Excise Tariff Act, 1985 with effect from 01.01.2007. Thus, after 01.....
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....The product key is pasted on computer case while shipping. 9.2 From the evidence tendered by the above witness as well as from the invoices, it is seen that the software is preloaded. The Ld. Counsel for the appellants has made a frail effort to argue that these are only testing software. Undisputedly, for activation and use of the computer this software is essential. The software is thus an integral part of the computer systems, though shown separately in the invoices. The value of the software has to be included in the assessable value for payment of Excise Duty. 10.1 In the circumstances, we are unable to find any infirmity in the conclusions drawn in the impugned Orders relating to these appeals that the value of software which was loaded and cleared along with the computer would have to be included in the value of the computers cleared by the appellant. 10.2 The second defence taken by the appellant against confirmation of demand is that of revenue neutral situation. It is the case of the appellant that ITSS became taxable services with effect from 16.05.2008. For the period from May 2009 to March 2010, the appellants paid service tax of Rs. 23,55,402/- as against the confi....
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....upplied electronically." (Emphasis supplied) 10.3.2 In clause (v) of the above definition, providing ('acquiring' prior to 19.08.2009) the right to use information technology software for commercial exploitation including right to reproduce, distribute and sell information technology and right to use software components for the creation of and inclusion in other information technology software, is taxable. Here, only the right to use activity falls under the levy of service tax. Such right to use for the purpose of sale is taxable. The consideration for right to use is usually termed as 'Royalty'. Undisputedly, appellant is paying Royalty for licence to use software to Microsoft. 10.3.3 It is submitted that appellants have discharged service tax under ITSS for the period from May 2009 to March 2010. As against the confirmed demand of Excise Duty of Rs. 19,12,633/-, they have paid service tax of Rs. 23,55,402/-. Again, for the period from April 2010 to January 2011 as against confirmed Excise Duty demand of Rs. 15,13,920/-, the appellant has paid service tax of Rs. 15,13,920/-. 10.3.4 The President of Operation Shri. Dinesh Baboo Maheshwari, in his statement dated 23.02.2007, h....