2008 (2) TMI 717 - AT - Central Excise

Summary

Issues:
1. Duty demanded under proviso to Section 11A(1) of the Central Excise Act, 1944.
2. Penalty imposed under Section 11AC.
3. Interest under Section 11AB.
4. Inclusion of software value in the value of imported equipment.
5. Classification of software as firmware or application software.
6. Justification for imposing penalty.

Analysis:
1. The appellant was required to pre-deposit duty, penalty, and interest as per the impugned order by the Commissioner of Central Excise, Bangalore-I Commissionerate. The appellant, an approved supplier of Telecom Equipment to BSNL, faced legal proceedings due to the inclusion of software value in the imported equipment's value, leading to duty demand and penalty imposition.

2. The appellant argued that the split of value between hardware and software was not artificial and was in compliance with the bid document issued by BSNL. They contended that the software in question was application software, not firmware, and should not be included in the hardware value for duty purposes. The appellant emphasized that the software's nature and the industry practice supported their position.

3. The Departmental Representative countered by stating that the software was integral to the equipment and should be considered part of the hardware for duty calculation. They highlighted that the appellant had paid Customs duty for the entire equipment, including hardware and software, and had split the value to benefit from an exemption notification.

4. The Tribunal analyzed the issue and referenced the Acer India case, emphasizing that excise duty is chargeable only on excisable goods. They cited the Supreme Court's ruling that non-excisable goods transplanted into excisable goods do not make the combined product excisable for duty purposes. The Tribunal concluded that the software, being non-excisable and covered by an exemption, should not have its value included in the hardware for duty calculation.

5. Ultimately, the Tribunal found merit in the appellant's arguments, ruling in their favor by granting a full waiver of the duty demanded, penalty imposed, and interest. The Tribunal stayed further recovery proceedings until the appeal's disposal, acknowledging the complexity and significance of the case. The judgment was pronounced on 26-2-2008, with a future hearing scheduled for 1st May, 2008.