2014 (9) TMI 946 - AT - Customs

Waiver of pre deposit - Classification of CDs containing software which were imported along with relays by the appellants - Classification under Customs Tariff sub-heading 8523 80 20/8523 80 90 or under 8538 90 00 - benefit of exemption under Notification Nos. 21/2002-Cus and 12/2012-Cus. - Penalty u/s 114A - Held that - only when information technology software is imported along with the hardware in which it is to be used, it would be classifiable under the same heading. When information technology software is imported which is not imported as part of hardware or some other equipment, Note 2(a) would be applicable. In this case, there is no dispute that information technology software has a separate tariff heading and therefore it has to be classified separately. The software imported by the appellant is the software which is to be installed in computer and which ensures that the whole sub-station works smoothly. What happens in reality is various software packages in the equipments and relays in the sub-stations communicate with the software installed in the sub-stations imported by the appellants and the sub-station ensures smooth functioning of the sub-station. Therefore it is quite clear that the software which has been imported by the appellants is not part of the relay software or is not to be used with the relays imported by them and therefore it has to be considered as an item independently imported. If that is the case, Note 2(a) would cover the situation. Therefore we consider that prima facie the appellants have made a case for waiver of predeposit and stay against recovery - Stay granted.

Summary

Issues involved:
Classification of CDs containing software imported along with relays by the appellants under Customs Tariff sub-heading 8523 80 20/8523 80 90 vs. reclassification under 8538 90 00 leading to a differential duty demand, exemption under Notification Nos. 21/2002-Cus and 12/2012-Cus, Service Tax, interest, and penalty under Section 114A of Customs Act, 1962.

Analysis:
The key issue in this case revolves around the classification of the imported software contained in CDs by the appellants. The CDs contain "CSC 2000 (V2) ES Software" and "CSC 2000 (V2) HMI Software" described as 'IT software' for manufacturing purpose/use. The appellants claimed classification under sub-heading 8523 80 20/8523 80 90, while the Department reclassified it under 8538 90 00, resulting in a significant differential duty demand of Rs. 57,38,490 due to the non-availability of exemption benefits under specific Notification numbers. Additionally, Service Tax, interest, and penalty under Section 114A of the Customs Act, 1962 were imposed. The dispute required a detailed examination to determine the correct classification of the imported software.

The relevant tariff headings in question were 8523 90 20 for Information Technology software, 8523 80 90 for 'Other', and 8538 90 00 for parts suitable for use with specific apparatus. The appellant's counsel relied on Note 2 of Section 16 of the Customs Tariff Act to support their argument. Note 2 provides guidelines for the classification of parts of machines, emphasizing classification based on suitability for use with specific machines or headings. The appellant contended that the imported software, intended for use in sub-stations, was not part of the relays imported and should be considered independently. This argument was supported by the communication between various software packages in the sub-station equipment and the software imported by the appellants, ensuring smooth sub-station operation. Therefore, the software imported by the appellants should be classified separately under Note 2(a) as it is not part of the relay software.

In light of the arguments presented, the Tribunal found that the appellants had made a prima facie case for waiver of predeposit and stay against recovery. The software imported by the appellants was deemed to be independently imported and not part of the relay software, justifying its separate classification. Consequently, the requirement of predeposit of dues was waived, and recovery was stayed until a final decision on the classification issue was reached.

This detailed analysis of the classification dispute highlights the importance of correctly determining the classification of imported goods under the Customs Tariff Act to avoid differential duty demands and ensure compliance with relevant notifications and regulations. The Tribunal's decision to grant a waiver of predeposit and stay against recovery reflects a careful consideration of the arguments presented by the appellants regarding the independent nature of the imported software in relation to the relays, emphasizing the need for a thorough examination of the facts and legal provisions in such cases.