TaxTMI 
TaxTMI 
2025 (6) TMI 2105
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.... respondent. 2. This group of petitions are filed challenging the show cause notice issued by the respondents - Additional Director General, Directorate of Revenue Intelligence and the Commissioner of Custom (Export) except in Special Civil Application No. 5447/2016, Special Civil Application No. 6869/2016 and Special Civil Application No. 7281/2016 wherein order- in-original are already passed during the pendency of the petition despite the stay was granted by this Court. The petitioner has amended the said petitions challenging the same. 3. As the issue arising in this group of petitions is common, the same were heard analogously and are being disposed off by this common Judgment and Order. For the sake of convenience, Special Civil Application No. 16691 of 2014 is treated as the lead matter and accordingly, facts are recorded from the said petition. 4. The petitioner had purchased hardware and patented analysis software for advance planning, evaluation and measurement of diamond and gemstone production from M/s. Sarin Technologies Limited, Israel and Galatea Limited which are foreign companies incorporated under the laws of Israel. 4.1 M/s. Sarin Technologies India P....
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....08.07.2014 calling upon the petitioner to show cause as to why the petitioner is not liable to pay the custom duty on the suppressed value of Rs.3,81,02,296/- on account of software valuation which is not included in invoice value of the Hardware disclosed by the petitioner. 4.9 The petitioner filed reply to the show cause notice and also preferred Special Civil Application No.14127 of 2014 challenging the action of the respondent no. 2 for issuing the seizure memo on the goods imported by the petitioner as well as the provisional release order and show cause notice. 4.10 The Commissioner of Central Excise, Customs & Service Tax, Surat-1 passed the adjudication order on 19.08.2014 for levy of service tax on the Software for which respondent no. 2 has issued show cause notice dated 08.07.2014 to recover custom duty. 4.11 The petitioner by letter dated 02.10.2014 addressed to respondent no.3 explained that all Software invoices covered under the impugned show cause notice issued by respondent no. 2 have been already covered by the service tax authority while passing the adjudication order for charging the service tax thereon by treating the same as service covered under the ....
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....has therefore, on legal grounds questioned the penalties in the appeal. Such appeal is pending. At this stage, where the same import of software has been held by one wing of the department as providing of service and also levied service tax on the same, continued attachment by the customs department on the premise that the same was liable to confiscation on the ground of mis- declaration of valuation of the imported goods for the purpose of customs duty, would not be permissible. 5. As noted, the petitioner does not dispute its service tax liability and has accepted the principal component of tax without appeal. 6. Under the circumstances, impugned order dated 11.3.2014 is quashed. The petition is disposed of. This is without prejudice to the department's contention with respect to the nature of the petitioner's imports and declaration made at the time of import. When the order of attachment is quashed, any amount that may have been deposited by the petitioner with the department provisionally for any interim use of such machinery, shall be refunded". 4.13 During the pendency of the Special Civil Application No.14127 of 2014, the petitioner has preferred this p....
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....that the petitioner has already paid the basic service tax without challenge. The petitioner would, however, question the imposition of the penalties. 3. On the basis of such facts, counsel for the petitioner argued that the software is either be categorized as service exigible to service tax or be considered as goods part imported machinery exigible to custom duty but not both. The department, therefore, cannot pursue two conflicting proceedings. 4. Issue Notice returnable on 2nd December 2014. In the meantime, if the petitioner prays for adjournment before the adjudicating authority, the same shall be granted." 4.16 Thereafter following order was passed on 2.12.2014 for admission of this petition while simultaneously disposing of Special Civil Application No.14127 of 2014: "1. Petitioner has challenged a show cause notice dated 8th July 2014,as at Annexure A to the petition. Such notice has been issued by the revenue intelligence calling upon the petitioner why certain custom duty with interest and penalty not to be recovered on the software imported by the petitioner along with the diamond scanning machine. The petitioner, who is engaged in diamond ....
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....chase of the machine and the two values were artificially split, would run counter to the service tax authorities levying service tax on the software. In short, the question would be whether two different units of the revenue can take diametrically opposite stand and proceed against an assessee simultaneously. Perhaps if the proceedings under the service tax regime had not attained finality either at the first stage of adjudication or in appeal, by way of abundant caution, not to miss time limit, it may have been open for the department to issue preliminary show cause notice under the Customs Act. However, once when the service tax authority has already taken a final decision and which decision is not in appeal, we have serious doubt whether the customs authority can then proceed against the assessee in a show cause notice which would essentially challenge the findings of the service tax authority. 4. Under the circumstances, Rule. By way of interim relief, the respondents are prevented from proceeding further with the show cause notice." 5. The issue involved is identical in this group of petitions, hence, facts in rest of the petitions are summarised as under: SCA ....
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....ners, the respondent custom authority cannot proceed further against the petitioner pursuant to the show cause notice which would be in contradiction to the findings arrived at by the Service Tax authority. It was submitted that the impugned show cause notices are liable to be quashed and set aside in facts of the case. 7. Per contra, learned advocate Mr. Ankit Shah elaborately referred to the contents of the impugned show cause notice dated 08.07.2014 to point out that Software was imported by the petitioners along with Hardware and the petitioners in order to save the customs duty fraudulently did not show full value of the imported diamond cutting machines by splitting the value being 1/3rd for Hardware and 2/3rd for Software portion. 7.1 Learned advocate Mr. Shah vehemently submitted that prior to 2008 petitioners were showing full value of machine imported which included value of Software also, however, in view of EPCG Scheme, the petitioners have started modus operandi by splitting value of Hardware and Software separately by obtaining separate invoices from supplier and thereby paying customs duty only on the value of Hardware which is shown as 1/3rd of the total cost ....
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....cause notice. It was therefore, submitted that at the stage of issuance of show cause notice merely because the petitioners have accepted the liability for payment of service tax on the Software on the basis of reverse charge mechanism, further proceedings should not be stalled. 7.6 It was further submitted that the document gathered from the investigation by DRI clearly suggest and show that the petitioners had entered into a contract for value of the diamond cutting machines along with Software and what was imported is machine which was agreed to be purchased by the petitioners and as such, by splitting the value being 1/3rd for Hardware and 2/3rd for Software is nothing but the intention of the petitioners to evade the payment of custom duty. 7.7 In support of his submission, reliance was placed on the following averments made in the affidavit in reply filed on behalf of respondent nos. 2 and 3: "5.3. As per the scheme of things, prior to the year 2008, the importers of diamond scanning machines have obtained one single invoice constituting the entire value (including the hardware and software) and have declared the same to the customs authorities at the time of i....
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....ardware is concerned and grossly overvalued in so far as the software is concerned. Further it is pertinent to note that the software as per the say of the manufacturer comes free of cost. 5.6. The petitioner company has involved in a calculated fraud in evading customs duty by getting split the value of the various diamond scanning machines imported by them from M/s. Sarin Technologies Ltd., Israel, into two parts viz. one for the hardware and one for the software portions. The value of the hardware was deliberately for a lower value i.e. 1/3rd of the total cost of the diamond scanning machines and the value of the software was for a higher value i.e.2/3rd of the total cost of the diamond scanning machines. 5.7. The Petitioner company had deliberately requested for two quotations and two separate invoices with a view to systematically evade payment of appropriate customs duty by declaring only the invoice issued for the hardware portion for a lower value which was received along with the machine at the time of import while suppressing the invoice issued for the software portion from the department, which was subsequently received by courier. 5.8. The evi....
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....cation of the impugned show cause notice as the custom duty is to be paid on Hardware/machine which is imported by the petitioners which included the Software also and therefore, the petitioners are liable to make payment of value of custom duty on the valuation of Software which is embedded in the machine which is imported. 7.9 In support of his submission, reliance was placed on the decision of Hon'ble Apex Court in case of Tata Consultancy Services v. State of A.P. reported in (2005) 1 Supreme Court Cases 308, wherein in the Apex Court in facts of the case before it, has explained what is Software as under: "78. A software may be intellectual property but such personal intellectual property contained in a medium is bought and sold. It is an article of value. It is sold in various forms like floppies, disks, CD-ROMs, punch cards, magnetic tapes, etc. Each one of the mediums in which the intellectual property is contained is a marketable commodity. They are visible to senses. They may be a medium through which the intellectual property is transferred but for the purpose of determining the question as regards leviability of the tax under a fiscal statute, it may not mak....
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....luded both Hardware and Software and from 2009 till 2013, the petitioners have imported the machines showing value of only Hardware and separate invoice for Software is obtained from the supplier for which separate payment is made which is the subject matter of levy of service tax under the provisions of Finance Act, 1994. 9. The adjudicating authority under the provisions of the Service Tax i.e. The Commissioner of Central Excise, Customs & Service Tax, Surat by the order-in-original dated 19.08.2014 has confirmed the levy of service tax on the invoice of Software obtained by the petitioners on the ground that the same would be covered under the category of taxable service i.e. "Information Technology Software Services" as specified in section 65(105)(zzzze) of the Finance Act, 1994 read with the provision of Rule 3 of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, Rule 2(1) (d)(iv) of the Service Tax Rules 1994, Rule 2(1)(d)(i)(G) of the Service Tax Rules, 2012 and Rule 3 of Provision of Services Tax Rules, 2012 read with provisions of section 66A of the Finance Act, 1994. The adjudicating authority while coming to the conclusion that....
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.... M/s JB, the recipient of such service, are in possession of their place of business, fixed establishment, permanent address or usual place of residence in India. Therefore, in view of provisions of Rule 3 of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006; Rule 2(1)(d)(iv) of Service Tax Rules, 1994, Rule 2(1)(d)(i)(G) of Service Tax Rules, 2012; Rule 3 of the Place of Provision of Services Rules, 2012 and the provisions of Section 66A of the Finance Act, 1994, which are discussed at length in the impugned notice and not repeated here for the sake of duplication, I hold that M/s JB, as a recipient of taxable service of "Information Technology Software Services" as defined under Section 65(105)(zzzze) of the Finance Act, 1994, is liable to pay Service Tax under reverse charge mechanism. M/s JB owns the manufacturing/ processing unit at Surat and has utilized the said Information Technology Software Services at their Surat premises and they, therefore, after initiation of inquiry by DGCEI, obtained Service Tax Registration at their Surat address as mentioned above and paid amount of Service Tax is, therefore, rightly required to be demanded from ....
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....d from 16.05.2008 to 31.07.2013, under reverse charge mechanism: (i) Section 67 of the Finance Act, 1994 read with Rule 7 of the Service Tax (Determination of Value) Rule, 2006 in as much as they have failed to determine the value of the aforesaid taxable services received from above companies based outside India. (ii) Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rule, 1994 in as much as they failed to pay appropriate Service Tax on the due dates. (iii) Section 69 of the Finance Act, 1994 read with Rule 4 of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 and Rule 4 of the Service Tax Rules, 1994 in as much as they, as a recipient, have failed to make an application to the jurisdictional officer for registration under the service categories of "Information Technology Software Services" within the period prescribed. (iv) Section 70 of the Finance Act, 1994 read with Rule 7 of the Service Tax Rules, 1994 in as much as they, as a recipient, have failed to furnish proper periodical returns in form ST-3 mentioning the particulars of the aforesaid taxable services received by them from abr....
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.... to non- payment of Service Tax on receipt of taxable services. As regards Mumbai and Bengaluru Commissionerates views referred, I find that based on this, no final conclusion can be arrived at vis- à-vis the issue on hand." 11. The adjudicating authority under the service tax has also taken into consideration the decision of Tata Consultancy Services & Infosys Technology Ltd.(supra) relied upon by the petitioner in support of the defence that the Software purchased by the petitioners is a Tailor Made Software and cannot be considered as canned Software so as to attract the service tax but the same has been distinguished by the adjudicating authority to hold that the said decisions relate to sale of computer software whereas in the facts of the case, the issue is with regard to payment of service tax on receipt of taxable services. 12. The Hon'ble apex Court in case of Tata Consultancy Services(supra) has arrived at the conclusion that the canned software which is available for sale and to be used by any person who owns such Software having license to use is an article of goods and not service liable to sales tax. Same analogy cannot be applied to the Software purchase....