2015 (9) TMI 317 - AT - Customs

Valuation - Import of Oracle packaged software - condition of sale or condition of use - Whether the licence fee paid by OIPL to its parent company Oracle USA is includible in the assessable value of imported media packs the licence fee has actually been collected from the customers and a part of it (56%) remitted by OIPL to Oracle USA. Ld. counsel has strenuously argued that the licence fee remitted by OIPL to Oracle USA was not a condition of sale and only a condition of use. - Held that - licence fee is includible in the assessable value only if it is paid or required to be paid as a condition of sale. As stated earlier, it is a settled legal position with which both sides also agree and therefore we do not need to refer to each of those judgements/opinions. As it is, whether the licensee fee paid or was required to be paid as a condition of sale is essentially more a question of fact than of law. In every case of commercial imports, Oracle USA and Oracle Ireland were fully aware that the order has been uploaded/scanned into Oracle Order Management System only after the customer agreed to pay the licence fee for the software and this information was available to Oracle USA as well as Oracle Ireland before the shipment was made. OIPL was incorrect when it claimed initially that it was a case of stock and sale and that the software imported from Ireland could be given to any customer, commercial or non-commercial. It comes out clearly that each software which was shipped was in the knowledge of Oracle USA and each shipment came for a particular Indian customer identified by the unique order number generated. - In the wake of the factual matrix of the case, we hold that in respect of commercial imports of media packs, the licence fee remitted by OIPL to Oracle USA was includible in the assessable value. - Decided against the assessee. However, any subsequent (post importation) increase in the number of users of the software imported in the form of physical media packs was neither known at the time of import nor was it a condition of sale and therefore licence fee remitted on that account cannot be said to be a condition of sale and hence would not be includible in the assessable value and customs levy thereon would also be hit by the absence of collection mechanism - Decided in favor of assessee. Non commerical use of Media pack - inclusion of notional licence fee - Held that - Clearly stated in Software Duplication and Distribution Licence Agreement between Oracle and company that Royalty/sub-licence fee shall not accrue on licences put to internal use as trial/ demonstration licences Thus, no licence fee was payable Therefore demand cannot be sustained. - Decided in favor of assessee. Levy of custom duty on softwares downloaded electronically whether software downloaded electronically will be liable to customs duty on same lines as duty leviable on such software imported as media packs Held that - Supreme Court in case of Tata Consultancy Services 2004 (11) TMI 11 - Supreme Court held that software even in its intangible form are goods and therefore electronic download of software from server located abroad would get captured in scope of import of goods From provisions of Customs Act, 1962, it is evident that entire Customs Act provides mechanism/procedure for levy and collection of duty only in respect of tangible goods Software is intangible, can be downloaded anywhere, from anywhere, at any time and none of provisions of Customs Act, 1962 are capable of being applicable/ enforceable in respect of such downloads Thus, electronically downloaded software is not liable to customs duty Decided in favour of assessee. Extended period of limitation - Mis-Statement of facts Whether there was wilful mis-statement of fact on appellants part with intention to evade payment of duty Held that - Company had made complete disclosure regarding its commitment to remit 56% of licence fee to Oracle in its FIPB application is certainly indicative of fact that it did not have any intention to hide this fact Seizure took place when customs could hardly claim that company had not disclosed facts about remittance of licence fee to Oracle Further fact that appellant had followed same system, procedure and practice of declaring assessable value even during prior periods when there was no duty to be evaded at all There is evidence on record that company submitted details about their relationship with Oracle to Customs and so allegation that company suppressed fact stands negated No evidence to sustain charge of wilful mis-statement / suppression of facts, therefore allegation of wilful mis-statement/suppression of facts is not sustainable Impugned demands, redemption fines and penalties on appellants set aside Demand set aside on the ground of period of limitation - Decided in favour of assessee.

Summary

Issues Involved:
1. Inclusion of license fee in the assessable value of imported media packs.
2. Custom duty on electronically downloaded software.
3. Inclusion of notional license fee in the assessable value.
4. Invoking extended period of limitation.
5. Applicability of confiscation, interest, and penalties provisions.
6. Mutual exclusivity of customs duty and service tax.
7. Imposition of redemption fine on goods not available for confiscation.
8. Justification for confiscation and penalties on seized goods.

Detailed Analysis:

1. Inclusion of License Fee in Assessable Value:
The tribunal examined whether the license fee paid by Oracle India Pvt. Ltd. (OIPL) to Oracle USA should be included in the assessable value of imported media packs under Rule 9(1)(c)/10(1)(c) of the Customs Valuation Rules, 1988/2007. It was concluded that for commercial imports of media packs where the license fee was collected from customers and remitted to Oracle USA, the license fee was a condition of sale and thus includible in the assessable value. The tribunal noted that each commercial shipment was for an identified customer, and the unique order number was generated only after the customer agreed to pay the license fee, making it a condition of sale.

2. Custom Duty on Electronically Downloaded Software:
The tribunal held that electronically downloaded software is not liable to customs duty. It was reasoned that the Customs Act, 1962, in its present form, lacks the mechanism to levy and collect duty on electronic downloads. The tribunal referred to the Supreme Court's judgment in Tata Consultancy Services vs. State of Andhra Pradesh, which recognized software as goods but emphasized that the Customs Act does not provide a mechanism for taxing electronic downloads.

3. Inclusion of Notional License Fee in Assessable Value:
The tribunal rejected the inclusion of notional license fees in the assessable value for non-commercial transactions where no license fee was paid or required to be paid. It was found that there was no evidence that any such license fee was due from the customers or payable by OIPL to Oracle USA for non-commercial transactions. The tribunal emphasized that only actual license fees paid or required to be paid as a condition of sale could be included in the assessable value.

4. Invoking Extended Period of Limitation:
The tribunal held that the extended period of limitation was not invokable as there was no evidence of wilful mis-statement or suppression of facts by OIPL. It was noted that OIPL had disclosed its relationship with Oracle Ireland and the remittance of license fees to Oracle USA during the Special Valuation Branch (SVB) investigations. The tribunal found that the issue was interpretational and there was no intention to evade duty.

5. Applicability of Confiscation, Interest, and Penalties Provisions:
The tribunal concluded that the provisions of the Customs Act, 1962, relating to confiscation, interest, and penalties are applicable to the countervailing duty (CVD) levied under Section 3 of the Customs Tariff Act, 1975. It was noted that Section 3(8) of the Customs Tariff Act, 1975, expressly makes the provisions of the Customs Act, 1962, applicable to CVD.

6. Mutual Exclusivity of Customs Duty and Service Tax:
The tribunal rejected the contention that the value of the license fee could not be added to the assessable value of the media packs because service tax was paid on the license fee. It was held that the Supreme Court's judgment in Imagic Creative Private Ltd. did not imply mutual exclusivity between customs duty and service tax. The tribunal emphasized that the same transaction could be subject to different taxes under different statutes.

7. Imposition of Redemption Fine on Goods Not Available for Confiscation:
The tribunal held that redemption fine cannot be imposed on goods that were cleared without any bond and are not available for confiscation. It was reasoned that confiscation of goods requires their physical presence, and imposing redemption fine on goods not available for seizure is an empty exercise. The tribunal referred to several judicial precedents supporting this view.

8. Justification for Confiscation and Penalties on Seized Goods:
The tribunal found that the case involved a bona fide interpretational issue and was devoid of mens rea (intent to evade duty). It was held that penalties and confiscation were not justified in such cases. The tribunal emphasized that the issue was purely interpretational, and OIPL had made an arguable case that the license fee was not includible in the assessable value. Consequently, the confiscation and penalties on seized goods were set aside.

Order:
The extended period of limitation is not invokable. No customs duty is chargeable on electronically downloaded software. License fee on notional basis is not includible in the assessable value where no license fee was actually paid or required to be paid. The demand of differential duty for seized goods where license fee was actually charged from customers is sustainable. Rest of the demands, redemption fines, and penalties are set aside.