TaxTMI 
TaxTMI 
2005 (5) TMI 207
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (iii) developing software to suit the needs of the individual customers who require the software and place orders for the same. 2.2 He, further, mentioned that during the early eighties, when hardware production in India was at its primitive stage the customers preferred composite services to be rendered by computer hardware manufacturers; that these services were like installation of the computer system advice on the facilities and install the computer system/office machine, advice on any ancillary equipment, assembly and installation training the personnel for operating the system etc.; that thus the supply orders specifically provided separately for technical services; that the Appellants were issuing separate invoices in respect of technical service charges known as 'T' series invoices, in respect of peripherals known as 'P' series invoices and in respect of software development known as 'S' series invoices. 2.3 He, further, mentioned that show cause notice was issued to them proposing to include the charges towards cost of software, technical services and peripheral, that the Collector, Central Excise, vide Order-in-Original No. 3/....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 4. The learned Consultant, further, submitted that the only finding given by the Commissioner is that they had not rendered any technical services to their customers; that, however, the Commissioner had observed that if at all any service had been rendered, it pertains to installation of the computer at the customers' premises; that the Commissioner has relied on the statements of various customers; that the Appellants had specifically requested for cross-examination of the customers which had not been granted to them and thus the impugned Order had been passed in violation of the principles of natural justice; that when the allegation of under-valuation in respect of non-inclusion of technical service charge is based on statements of their customers, it is not correct to say that the request for cross-examination is general and vague and without any basis; that the Commissioner had also not taken note of the various Purchase Orders filed by them along with reply to show cause notice, which clearly established that the customers specifically required them to provide technical service. In support of his contention, the learned Advocate referred to the Purchase Order of M/s. Nation....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on the judgment in PSI Data Systems. He contended that the said judgment has very clearly and categorically laid down that the value of the software supplied along with the hardware is not includible in the value of the computer; that the Supreme Court has observed as under : "Secondly, that a computer and its software are distinct and separate is clear, both as a matter of commercial parlance as also upon the material on record. A computer may not be capable of effective functioning unless loaded with software such as discs, floppies and C.D. roms, but that is not to say that these are part of the computer or to hold that, if they are sold along with the computer, their value must form part of the assessable value of the computer for the purposes of excise duty. To give an example, a cassettee recorder will not function unless a cassette is inserted in it; but the two are well known and recognised to be different and distinct articles. The value of the cassette, if sold along with the cassette recorder, cannot be included in the assessable value of the cassette recorder. Just so, the value of software, if sold along with the computer, cannot be included in the assessable value....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... from the factory, the characteristic of the software cannot be said to have transformed into a hardware so as to make it subject to levy of excise duty along with computer while it is not under the Tariff Act." 5.3 The learned Consultant also submitted that the demand of duty on software is clearly time-barred since the period of demand is from 27-9-1980 to 30-11-1984 and the show cause notice was issued on 27-10-1986; that for the period 1-4-1981 to 31-10-1983, a demand had already been raised by the Commissioner on software charges and as such the Department had knowledge of these charges; that in their letter dated 10-11-1983, the Appellants had furnished the information to the Department about software and they had also mentioned that software has no relationship whatsoever to the hardware and is related entirely to the complexivity, variety and quantitative and qualitative requirements of the customer; that in view of this, extended period cannot be invoked. 6. Finally, he submitted that the entire duty demand is time-barred since the authorities were well informed of the invoicing pattern of the Appellants as the Enquiry Committee had visited their factory and minutely....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... considered for giving depreciation included the amount of basic price as well as technical service charges; that this goes to show that technical service charges are nothing but part of the price of the computers. 8. We have considered the submissions of both the sides. As far as the issue regarding inclusion of the cost of software in the assessable value of the computer is concerned, we observe that recently the Constitutional Bench of the Supreme Court has dealt with this issue in the matter of Commissioner of Central Excise, Pondicherry v. Acer (India) Ltd., 2004 (172) E.L.T. 289 (S.C.). The Supreme Court has held therein that "although a computer may not be capable of effective functioning unless loaded with softwares, the same would not tantamount to bringing them within the purview of the part of the computer to hold that if they are sold along with computer, their value must form part of the assessable value for the purpose of excise duty." The benefit of this decision was not available to the adjudicating authority as the impugned Order has been passed before the pronouncement of the judgement in the case of Acer India Ltd. (supra). We also observe that the appellants ....