2007 (3) TMI 30 - AT - Central Excise

Valuation(Central Excise) Value of basic software includible in the assessable value but excluded the value if application of software Matter remanded to requantify the duty

Summary

Issues:
1. Demand of duty on basic software in telecom equipment.
2. Classification of software under excise duty.
3. Interpretation of software as an integral part of equipment.
4. Application of Supreme Court judgments on excise duty.

Analysis:
1. The appeals dealt with the demand of duty on basic software in telecom equipment for different periods. Appeal No. E/1996 of 2005 related to a demand of Rs. 21,27,128/- for the period 1991-92 to 1996-97, while Appeal No. E/2988 of 2005 covered 20 show cause notices confirming a demand of Rs. 10,64,653/- for the period September 1996 to March 2001. The Commissioner held that basic software integral to the equipment is includible in the assessable value.

2. The appellant contended that software, being a bought-out item, should not be subject to duty as it falls under Heading 85.24 with a nil rate of duty. The Commissioner found that basic software, essential for the equipment to function, should be included in the assessable value. The judgment of the Hon'ble Supreme Court in C.C.E., Pondicherry v. ACER India Ltd. was cited to support the distinction between excisable and non-excisable goods.

3. The Commissioner determined that basic software, constituting the intelligence of the equipment, is an integral part of the consoles. The software, residing in EPROM, was considered essential for the equipment to operate. The Commissioner concluded that duty should be charged on the equipment, including the value of basic software, which is not a case of levying duty on software itself but on the equipment incorporating the software.

4. The judgment referred to the case of Anjaleem Enterprises Pvt. Ltd. v. C.C.E., Ahmedabad to differentiate the present case from ACER India Ltd. The Supreme Court's decision emphasized that the levy is on the equipment incorporating embedded software, not on the software itself. The judgment supported the inclusion of basic software value in demanding duty on the equipment.

In conclusion, the Tribunal rejected Appeal No. E/2988 of 2005 and Appeal No. E/1996/05 on merits and limitation. However, the matter was remanded to requantify the duty in the latter case. The decision to include the value of basic software in demanding duty on the equipment was upheld based on legal and proper grounds, as per the Commissioner's findings and legal precedents cited.