TaxTMI 
TaxTMI 
2025 (6) TMI 556
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....s. HP India Sales Private Limited HP India and its employees Shri V. Sridharan and Shri B.S. Ravishankar as well as by the Revenue. 2. In the impugned order, the Principal Commissioner confirmed the demand of duty with interest on HP India, held the seized goods to be liable for confiscation under section 111(m) of the Act and imposed redemption fine of Rs. 1,50,00,000/- under section 125 of the Act and imposed penalty on HP India under section 114A of the Act. He also imposed penalties under section 112 (a) of the Act on Shri Sridharan and Shri Ravishankar. However, he refrained from imposing penalties under section 112 and 114AA on HP and on Shri Venkata R K Nakkina, Plant head of HP India under section 112(a) of the Act. 3. Customs appeal 50203/2021 has been filed by HP India to assail the confirmation of demand of Rs. 23,98,72,726/- on it under the proviso to section 28(1) of the Customs Act, 1962 Act, imposition of redemption fine of Rs. 1,50,00,000/- under section 125 of the Act and penalty of Rs. 23,72,726/- under section 114A of the Act. 4. Customs appeal 50204/2021 has been filed by Shri V. Sridharan to assail the penalty of Rs. 50,00,000/- imposed on him under section ....
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....y Mentor. As per the Agreement between HP, USA and Microsoft, it had to pay, and it paid only for downloading the software. The agreement also allowed HP to copy the Windows OS in QR CDs without paying anything extra. Therefore, the only cost of the CD to HP India was what it had paid to Mentor and it declared this price in the Bills of Entry and paid duty on it. 12. HP India has been filing Bills of Entry and clearing the QR CDs as per its declarations. The officers of DRI, Bengaluru receiving intelligence that the CDs were undervalued and full duty on them had not been paid, initiated an investigation. They searched the factory of HP India and seized QR CDs worth Rs. 7,12,33,603/- but later released them provisionally. DRI recorded statements of various persons, completed its investigation and issued two SCNs both dated 25.5.2010- the first proposing confiscation of the seized goods and imposition of penalty under section 112 of the Act and the second proposing recovery of differential duty under the proviso to section 28(1) of the Act on all CDs which HP had imported from 5.2.2007 to 25.6.2009. The proposals in both these SCNs were decided by the impugned order. 13. We have he....
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....D. (ix) Only the price paid or payable for the imported goods should be considered for determining the value. Reliance is placed on Eicher Tractors Ltd., Haryana versus Commissioner of Customs, Mumbai ( 2001 ) 1 SCC 315 and Ravindra Chandra Paul vs Commissioner of Customs ( Prev ) ( 2007 ) 3 SCC 93. (x) Even if value paid for pre-installed software is includible, it cannot be done under Rule 9(1) (c) of the 1988 Rules or Rule 10(1) (c) of the 2007 Rules. (xi) What cannot be done directly under Rule 9(1) (c) of the 1988 Rules or Rule 10(1) (c) of the 2007 Rules cannot be done indirectly under Rule 8 of the 1988 Rules or Rule 9 of the 2007 Rules. (xii) The software imported on QR CDs is not goods and hence is not liable to Customs duty. Reliance placed in the impugned order on Tata Consultancy Services versus State of Andhra Pradesh 2004 (178) ELT 22 (SC) is misplaced as that judgment was in the context of levy of sales tax. The QR CDs imported by the appellant do not qualify as goods because they are only a backup copy and these are not accompanied by any licence. (xiii) The demand is barred by limitation and therefore, extended period of limitation was wrongly invoked in ....
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....the original operating systems, drivers and application software. (vi) As per condition in para 2(e)(ii) of the license agreement between Microsoft and HP, HP has to distribute to each customer's system with at least one recovery solution which can be a hard disk recovery system, recovery media or both. (vii) At the time of import, HP India had not provided cross reference to the original download of software in the factory. (viii) Since the QR CDs contained the original OS, the value of the software is represented by the licence fee which was not included in the assessable value. The licence agreement is unambiguous but HP India had not produced the licence agreement at the time of import. (ix) Therefore, the submission of HP India that the value of the licence for the software cannot be included in the value of the CD is not correct. (x) The software contained in the CDs is not just a backup but is the original software. (xi) The submission of HP India that the payment of licence fee was not a condition of sale of the imported QR CDs is not relevant because that is not the case of the department. (xii) Once any software is put on a media, it becomes goods as held by....
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....der the proviso to section 28(1) been correctly invoked in this case? d) Is the confiscation of the seized goods under section 111(m) correct and consequently, if the redemption fine imposed under section 125 fair and proper? e) Were the penalties correctly imposed on HP India under section 114A? f) Did the Commissioner err in not imposing penalty on HP India under section 114AA as asserted by the Revenue? g) Were the penalties correctly imposed on Shri Sridharan and Shri Ravishankar under section 112? h) Did the Commissioner err in not imposing penalty on Shri Nakkina under section 112 as asserted by the Revenue? Value of the imported QR CDs 19. According to HP India, it declared its transaction value honestly and it had not paid any extra amount to Mentor for the CDs. Mentor and HP India are also not related parties. HP India has no written agreement with Mentor; only purchase orders were placed which also matched with the invoices in terms of values. HP India also did not pay any other party any amount as a condition of sale of the CDs by Mentor. Therefore, according to HP India, the CDs must be assessed as per the transaction value. 20. Before we examine section 14....
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.... the value of the imported article: 23. What is evident from the above charging sections is that the taxable event for charging the basic customs duty is either import of goods into India or export of goods out of India and for the additional duty of customs it is the import of goods into India. Thus, if goods are not imported into India, no customs duty is chargeable even if there was a sale of goods. For example, if one imports the goods and before they cross the Customs frontiers, re-exports them, no duty of customs is chargeable. 24. Conversely, if there is an import of goods even if there is no sale, duty of customs is chargeable because the pith and substance of duty of customs is import or export and not sale. 25. The measure of tax can be anything prescribed in the Act. In case of Customs duties, the measure is different for different types of goods- it may be the quantity of the goods imported (if specific rate of duty is prescribed under the tariff), the value of the goods imported (if ad valorem rate of duty is prescribed under the tariff) or tariff value (if ad valorem rate of duty is prescribed under the tariff and the Central Board of Indirect Taxes and Customs no....
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....lared was less than US$1 per CD while (as per the documents produced by the learned counsel for HP India during hearing) the cost of Windows Vista on CD during the relevant period was about US$175. 32. The reason is simple. The software, including the Window Vista OS which was copied on the CDs by Mentor belonged to HP India either being its own software or it having been obtained a licence from Microsoft. The blank CD and the effort in copying the software was the only contribution of Mentor. HP India imported CDs with the software but the transaction value reflected only the value of the blank CDs (and cost of copying) and not the value of the software. Therefore, the transaction value of the CDs in this case is less than 1% of the value of CDs with Windows Vista software in the market. A couple of illustrations will make this situation very clear. The value of any printed book is far greater than the cost of the paper and the ink - the overwhelming portion of the value being the value of its content. If a person who has a copyright to a book gets copies of the book printed, say, in Singapore, and imports them, the printer in Singapore will only invoice him towards the cost of t....
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....ch goods, that is to say, the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation, or as the case may be, for export from India for delivery at the time and place of exportation, where the buyer and seller of the goods are not related and price is the sole consideration for the sale subject to such other conditions as may be specified in the rules made in this behalf: Provided that such transaction value in the case of imported goods shall include, in addition to the price as aforesaid, any amount paid or payable for costs and services, including commissions and brokerage, engineering, design work, royalties and licence fees, costs of transportation to the place of importation, insurance, loading, unloading and handling charges to the extent and in the manner specified in the rules made in this behalf: Provided further that the rules made in this behalf may provide for, - (i) the circumstances in which the buyer and the seller shall be deemed to be related. (ii) the manner of determination of value in respect of goods when there is no sale, or the buyer and the seller are related, or price is not the sol....
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....ed in the Rules. 38. The first proviso to sub-section (1) of section 14 provides for some additions to the transaction value. The second proviso to this sub-section provides for Rules to be made in this behalf to provide for : a) the circumstances in which the buyer and the seller shall be deemed to be related; b) the manner of determination of value in respect of goods when there is no sale, c) the manner of determination of value in respect of goods if the buyer and the seller are related, d) the manner of determination of value in respect of goods where price is not the sole consideration for the sale; e) the manner of determination of value in respect of goods in any other case; and f) the manner of acceptance or rejection of value declared by the importer or exporter, as the case may be, where the proper officer has reason to doubt the truth or accuracy of such value, and determination of value for the purposes of this section. 39. The 1988 Rules and the 2007 Rules were framed as per the second proviso to sub-section (1) of section 14. The 2007 Rules comprise 13 Rules in all. Rules 1 and 2 are Preliminary rules. Rule 3 states that subject to Rule 12, the value sh....
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....c) If the transaction value is rejected as per Rule 12 by the proper officer, valuation has to be done as per the value of identical goods (Rule 4); d) If transaction value is rejected and there is no value of identical goods, then it must be as per the value of similar goods (Rule 5); e) If transaction value is rejected and there is no value of identical goods or similar goods, value must be determined through Deductive method (Rule 7) f) If transaction value is rejected and there is no value of identical goods or similar goods and it is not possible to determine value following deductive method, then value must be determined through computation (Rule 8) g) If the importer so chooses, computational method may be adopted without examining the deductive method first (Rule 6). h) If the transaction value is rejected and there is no value of identical goods or similar goods and if it is also not possible to determine the value through deductive method or computational method, then value may be determined through the residual method by the officer following the above principles (Rule 9). 42. The next question which arises is when and how the proper officer can reject the tra....
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.... fraudulent or manipulated documents. 43. Thus, if the officer has reason to doubt the truth and accuracy of the transaction value, he can call for information including documents and evidence. If the information and evidence is presented and after examining it or if no information or evidence as called for is presented, if the proper office has reasonable doubt, then it shall be deemed that the value cannot be determined as per Rule 3 (i.e., based on transaction value with additions, if necessary). While the officer can, in the first place, call for information and evidence if he has reason to doubt, at the second stage, he should have not just some reason to doubt but a reasonable doubt. If he has such reasonable doubt, then the transaction value can be rejected. The grounds on which the proper officer may raise doubts about the truth and accuracy of the transaction value have been illustrated in Explanation 1 (iii) to Rule 12. The list is inclusive and not exhaustive. 44. If the importer so requests, the proper officer has to give his reasons for rejection of the transaction value in writing after giving him an opportunity of being heard. Rule 10A of the 1988 Rules which provi....
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.... unless an appropriate adjustment can be made in accordance with the provisions of rule 10 of these rules; and (d) the buyer and seller are not related, or where the buyer and seller are related, that transaction value is acceptable for customs purposes under the provisions of sub-rule (3) below. (3) (a) Where the buyer and seller are related, the transaction value shall be accepted provided that the examination of the circumstances of the sale of the imported goods indicate that the relationship did not influence the price. (b) In a sale between related persons, the transaction value shall be accepted, whenever the importer demonstrates that the declared value of the goods being valued, closely approximates to one of the following values ascertained at or about the same time. (i) the transaction value of identical goods, or of similar goods, in sales to unrelated buyers in India; (ii) the deductive value for identical goods or similar goods; (iii) the computed value for identical goods or similar goods: Provided that in applying the values used for comparison, due account shall be taken of demonstrated difference in commercial levels, quantity levels, adjustments in ....
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....paid or payable. Explanation.- Where the royalty, licence fee or any other payment for a process, whether patented or otherwise, is includible referred to in clauses (c) and (e), such charges shall be added to the price actually paid or payable for the imported goods, notwithstanding the fact that such goods may be subjected to the said process after importation of such goods. (2) For the purposes of sub-section (1) of section 14 of the Customs Act, 1962 (52 of 1962) and these rules, the value of the imported goods shall be the value of such goods, for delivery at the time and place of importation and shall include - (a) the cost of transport of the imported goods to the place of importation; (b) loading, unloading and handling charges associated with the delivery of the imported goods at the place of importation; and (c) the cost of insurance: Provided that - (i) where the cost of transport referred to in clause (a) is not ascertainable, such cost shall be twenty percent of the free on board value of the goods; (ii) the charges referred to in clause (b) shall be one per cent of the free on board value of the goods plus the cost of transport referred to in clause (a....
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.... and provide a reasonable opportunity of being heard, before taking a final decision under sub-rule (1). Explanation.-(1) For the removal of doubts, it is hereby declared that:- (i) This rule by itself does not provide a method for determination of value, it provides a mechanism and procedure for rejection of declared value in cases where there is reasonable doubt that the declared value does not represent the transaction value; where the declared value is rejected, the value shall be determined by proceeding sequentially in accordance with rules 4 to 9. (ii) The declared value shall be accepted where the proper officer is satisfied about the truth and accuracy of the declared value after the said enquiry in consultation with the importers. (iii) The proper officer shall have the powers to raise doubts on the truth or accuracy of the declared value based on certain reasons which may include - (a) the significantly higher value at which identical or similar goods imported at or about the same time incomparable quantities in a comparable commercial transaction were assessed; (b) the sale involves an abnormal discount or abnormal reduction from the ordinary competitive pri....
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....strates that the declared value of the goods being valued, closely approximates to one of the following values ascertained at or about the same time(i)the transaction value of identical goods or of similar goods in sales to unrelated buyers in India;(ii)the deductive value for identical goods or similar goods(iii)[ the computed value for identical goods or similar goods. Provided that in applying the values used for comparison, due account shall be taken of demonstrated difference in commercial levels, quantity levels, adjustments in accordance with the provisions of rule 9 of these rules and cost incurred by the seller in sales in which he and the buyer are not related; (c) substitute values shall not be established under the provisions of Clause (b) of this sub-rule. 9. Costs and services. (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods, - (a) the following cost and services, to the extent they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods, namely : (i) commissions and brokerage, except buying commissions; (ii) the cost of conta....
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....e of the goods plus the cost of transport referred to in Clause (a) plus the cost of insurance referred to in Clause (c); (iii) where the cost referred to in Clause (c) is not ascertainable, such cost shall be 1.125% of f.o.b. value of the goods: Provided further that in the case of goods imported by air, where the cost referred to in Clause (a) is ascertainable, such cost shall not exceed twenty per cent of the f.o.b. value of the goods: Provided also that where the f.o.b. value of the goods is not ascertainable, the cost referred to in Clause (a) shall be twenty per cent. of the f.o.b. value of the goods plus cost of insurance for Clause N above and the cost referred to in Clause (c) shall be 1.125% of the f.o.b. value of the goods plus cost of transport for Clause (iii) above. (3) Additions to the price actually paid or payable shall be made under this rule on the basis of objective and quantifiable data. (4) No addition shall be made to the price actually paid or payable in determining the value of the imported goods except as provided for in this rule. 10A. Rejection of declared value. - (1) When the proper officer has reason to doubt the truth or accuracy of the....
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.... impugned order as well as in the SCN. Therefore, the determination of value under any Valuation Rule other than Rule 3 of the 2007 Rules (or Rule 4 of the 1988 Rules) cannot be sustained. Limitation 50. Although we have decided the question of valuation in favour of the appellant, we also proceed to decide the question of limitation. Demand of duty not paid or short paid or not levied or short levied can be raised under section 28 of the Act within the normal period of the limitation. Undisputedly, the entire demand in this case was raised beyond the normal period of limitation. The proviso to section 28(1) of the Act provides for raising a demand invoking extended period of limitation if the duty was not paid or short paid by reason of collusion, wilful mis- statement or suppression of facts. The entire period of demand is under the extended period of limitation. This proviso was invoked in issuing the SCN and in confirming the demand on the ground that the appellant had not disclosed the agreement which it had with Microsoft. 51. We have seen copies of the CDs and also their pictures in the file. They clearly indicate that they are meant for restoration and also indicate all....
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....tion notifications. Based on this data, the system calculates the duty which completes the self-assessment by the importer. The proper officer can re- assess the Bill of Entry. Thus, the remedy against self- assessment is the re-assessment by the proper officer (before clearance of the goods) or an appeal to the Commissioner (Appeals). 54. Evidently, the Bill of Entry includes many facts such as the nature of the goods and quantity and also includes elements which are matters of opinion of the importer such as the classification of the goods and the exemption notifications which would apply. Matters of opinion cannot be said as true or false. The importer may hold some opinion and self-assess the duty and the proper officer may hold a different opinion and re-assess the duty. On appeal, any decision can further be modified at any stage of appeal. Goods will not become liable to confiscation under section 111(m) simply because of entries in the Bills of Entry which are matters of opinion such as the classification and exemption notification do not correspond to the views taken by the proper officer during re-assessment or by an adjudicating authority or an appellate authority in th....
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.... who acquires possession of or is in any way concerned in carrying, removing, depositing, harbouring, keeping, concealing, selling or purchasing, or in any other manner dealing with any goods which he knows or has reason to believe are liable to confiscation under section 111, shall be liable, - (i) in the case of goods in respect of which any prohibition is in force under this Act or any other law for the time being in force, to a penalty not exceeding the value of the goods or five thousand rupees, whichever is the greater; (ii) in the case of dutiable goods, other than prohibited goods, subject to the provisions of section 114A, to a penalty not exceeding ten per cent. of the duty sought to be evaded or five thousand rupees, whichever is higher: ......" "Section 114A. Penalty for short-levy or non-levy of duty in certain cases. - Where the duty has not been levied or has been short-levied or the interest has not been charged or paid or has been part paid or the duty or interest has been erroneously refunded by reason of collusion or any wilful mis-statement or suppression of facts, the person who is liable to pay the duty or interest, as the case may be, as determined u....