2004 (12) TMI 644 - Commission - Customs

Valuation Software - Exemption - Settlement of case - Immunity from penalty/fine/confiscation

Summary

Issues Involved:
1. Under-valuation of imported Data Communications Equipment (DCE).
2. Non-declaration and non-payment of duty on hand-carried goods by employees.
3. Admissibility of abatement for embedded software in DCEs.
4. Immunity from interest, penalties, fines, and prosecution under various acts.

Detailed Analysis:

1. Under-valuation of Imported Data Communications Equipment (DCE):
The main applicant company admitted to under-valuing the imported DCEs by declaring only 65% of the actual transaction value. The remaining 35% was paid to the supplier as software invoices, which were exempt from duty. The declared value of Rs. 24,35,83,431/- was revised to Rs. 37,47,43,740/-, resulting in a differential duty of Rs. 6,47,99,089/-. The company initially admitted a duty liability of Rs. 6,46,31,192.35, subject to deductions for embedded software. However, they later revised their admitted liability to Rs. 3,21,85,507/- after proposing a 20% abatement for the software value. The Bench did not agree to reassess the goods after granting any reduction or abatement of the software value, except for an exchange error correction of Rs. 2,73,342/-. The total duty due from the main applicant company was settled at Rs. 6,48,59,259/-.

2. Non-declaration and Non-payment of Duty on Hand-carried Goods by Employees:
The SCN alleged that several items were hand-carried by employees without declaration, involving a duty liability of Rs. 27,78,737/-. The main applicant company contested the duty on items allegedly hand-carried by Shri H. Nandi, which was accepted by the Revenue, resulting in a reduction of Rs. 24,45,225/-. The total duty due was adjusted to Rs. 6,48,59,259/-. The duty liability for goods hand-carried by Shri J. Ramoo (Rs. 15,53,961/-) was not demanded due to time bar, but the Revenue representative contested the prayer for immunity, arguing that the goods were liable for confiscation and penalty.

3. Admissibility of Abatement for Embedded Software in DCEs:
The main applicant company pleaded for the exclusion of the value of embedded software from the total value of the equipment, citing various case laws and notifications. However, the Bench observed that the cited case laws did not specifically address the excludability of firmware/software embedded in hardware. The Apex Court's decision in CCE, Pondicherry v. Acer India Limited held that the value of firmware etched on EEPROM is includable in the assessable value. Additionally, the notifications cited by the applicant exempted software assessed under specific tariff headings, not hardware with embedded software. The plea for abatement was not accepted as it amounted to a claim for reassessment, which is not permissible under the Customs Act.

4. Immunity from Interest, Penalties, Fines, and Prosecution:
The Bench granted partial immunity to the main applicant company and co-applicants from interest, penalties, fines, and prosecution under the Customs Act, 1962. The differential duty was settled at Rs. 6,48,59,259/-, with the company required to pay the balance in three monthly installments. Immunity was granted from interest in excess of 10% per annum, with the Revenue to communicate the interest amount due. A penalty of Rs. 10,00,000/- was imposed on the main applicant company, with immunity granted in excess thereof. Immunity from fine in lieu of confiscation and prosecution under the Customs Act was also granted. However, no immunity was granted from penalties and prosecution under the Foreign Exchange Management Act, 1999, or other Central Acts due to lack of specific references.

Conclusion:
The judgment settled the differential duty at Rs. 6,48,59,259/- and granted partial immunities to the main applicant company and co-applicants. The plea for abatement of embedded software value was not accepted, and the company was required to pay the balance duty in installments along with interest. The judgment emphasized adherence to legal provisions and the limitations on reassessment of already assessed and cleared goods.