2005 (3) TMI 603 - AT - Central Excise

Summary

Issues:
- Inclusion of the value of software in the value of Distributed Control Systems (DCS) cleared
- Imposition of duty, penalty, and interest under relevant sections
- Applicability of the decision in the case of CCE v. Acer India Ltd.
- Justification for invoking the extended period

Analysis:

The appeal in this case was filed against Order-in-Original (OIO) No. 11/2004 passed by the Commissioner of Central Excise, Bangalore - III Commissionerate. The issue revolved around whether the value of the application and system software should be included in the value of the DCS cleared by the appellants. The original authority had demanded duty, penalty, and interest under specific sections, which led the appellants to approach the Tribunal seeking relief.

During the proceedings, the appellant's advocate argued that software supplied separately is a distinct commercial commodity with nil duty. They emphasized that even if the software is loaded during Factory Acceptance Test, it remains uninstalled and does not become an integral part of the hardware. Reference was made to the decision in the case of CCE v. Acer India Ltd., which established that the value of software cannot be added to the hardware's value. The advocate also contested the reasons provided by the original authority, such as marketability and indispensability of the software, citing the Acer India Ltd. judgment.

On the other hand, the Revenue representative reiterated the findings of the original authority during the hearing. The Tribunal carefully considered the arguments presented by both sides. It acknowledged that the appellants supply both hardware and software, noting that software is a distinct commercial commodity classified under a specific tariff act. By applying the precedent set by the Apex Court in the Acer India Ltd. case, the Tribunal concluded that the value of software, including application and system software, should not be included in the DCS value.

Furthermore, the Tribunal found no justification for invoking the extended period or imposing penalties in this case. It was highlighted that the department was already aware of the software supply, rendering the extended period unnecessary. Consequently, the Tribunal ruled in favor of the appellants, allowing the appeal and providing consequential relief. The judgment was pronounced in open court on 31-3-2005.