2012 (11) TMI 519 - AT - Customs

Classification manufacture of Automation Products, Distribution Control Systems etc. and imported materials required for manufacture of such final products - appellants claimed the classification of the licences under the category of CTH 8538 80 20 - Assistant Commissioner reclassified the said licences under CTH 8538 90 00 Held that - Software licence certificates are part and parcel of the hardware imported by the appellants. - the software licence certificates, prima facie, related to software pre-loaded into the hardware and the cost of pre-loaded software undisputedly stands included in the assessable value of hardware. - submission of the appellant that the software licence certificate should fall under CH 4907 as Documents of title conveying the right to use Information Technology Software cannot be accepted

Summary

Issues: Classification of imported software licences under Customs Tariff, inclusion of licence fee in the value of hardware, applicability of Customs Valuation Rules, financial hardship plea for waiver of pre-deposit.

Classification of imported software licences under Customs Tariff:
The case involved the classification of imported software licences by the appellants under the Customs Tariff. The appellants claimed the classification of the licences under CTH 8538 80 20, but the Assistant Commissioner reclassified them under CTH 8538 90 00. The appellants argued that the licences should be classified under chapter sub-heading 4907 00 30 as "documents of title conveying the right to use Information Technology Software" or alternatively under Chapter heading 8523 80 20. They also contended that the licences could not be treated as part of hardware and should be exempted by Notification No. 21/2002-Cus. The Tribunal examined the submissions and found that the software licence certificates were part of the hardware imported by the appellants, as the value of pre-loaded software was included in the assessable value of the hardware. The Tribunal held that the software licence certificates did not independently convey any title and were for activating specific functions of the hardware.

Inclusion of licence fee in the value of hardware:
The appellants argued against the inclusion of the value of the software licence in the value of hardware, stating that it was not justified. They referred to Rule 10(1)(c) of the Customs Valuation Rules, contending that the inclusion of the licence fee is permissible only when it is a condition of sale of the imported goods. The Tribunal noted the submissions and held that the cost of the licence certificate was for activating specific functions of the hardware, and the value of the hardware included the value of pre-loaded software. The Tribunal found the argument of the appellants regarding the inclusion of the licence fee not acceptable, as the software licence certificates were deemed integral to the hardware imported.

Applicability of Customs Valuation Rules:
The appellants also raised arguments related to Rule 10(1)(c) of the Customs Valuation Rules, emphasizing that any licence required as a condition for use subsequent to import cannot be treated as a condition of sale. The Tribunal examined the provisions of Rule 10(1)(c) and the submissions made by the appellants, ultimately holding that the cost of the licence certificate was for activating specific functions of the imported hardware, and therefore, the value of the pre-loaded software was rightly included in the assessable value of the hardware.

Financial hardship plea for waiver of pre-deposit:
The appellants did not make any plea of financial hardship before the Tribunal. The Tribunal, considering the circumstances, held that the appellant had not made out a case for full waiver of pre-deposit as per the impugned order. The Tribunal directed the appellant to deposit a sum of Rs. 75 lakhs within six weeks and waived the pre-deposit of the balance of dues as per the impugned order, staying the recovery thereof till the disposal of the appeal.

In conclusion, the Tribunal dismissed the miscellaneous application for early hearing of the stay application, upheld the reclassification of the software licences under the Customs Tariff, affirmed the inclusion of the licence fee in the value of hardware, and directed the appellant to make a specified deposit while waiving the pre-deposit of the balance of dues.