2016 (2) TMI 614 - AT - Customs

Valuation - Claim of exemption on import of software - Alongwith import of cellular phones the appellants also imported CD ROMS and filed B/Es separately for phones and CD-ROMS claiming phones as hardware portion of FWTs and CD-ROMS as Software Portion of the said FWTs. A dispute arose on the nature of goods imported, mainly with reference to split up of hardware and software portions of FWTs for assessment purposes. Customs duty is payable on phones but exempted on imported software. Revenue conducted detailed follow up investigations and came to the conclusion that the Software claimed to have been contained in the CD ROMS are already pre-loaded in the phones and there is no software as goods to be assessed separately for claiming exemption. Held that - It is the clearly admitted fact that the software/data loaded on the Flash memory is specific to the user/customer. It contains caller ID and caller block software. The phones imported have embedded software with required parameters for its functioning. The present appeals deal with Fixed Wireless phones, with PCB inside, a part of which is claimed as a recorded media for software. As examined with technical literature earlier in the order, the logic/programme loaded in the said memory unit is the fundamental necessity for the function of the FW telephone. It cannot be compared to any optional or identifiable software as a recorded media. Such software as available for computers are nowhere comparable to the programme software pre-loaded in the memory chip of the PCB. The Fixed Wireless phones as imported require to be classified and assessed as phones with no segregation of value assignable to the software separately, as claimed by the importers. - Demand of duty confirmed - however, demand of interest, redemption fine and penalty waived. - Decided partly in favor of assessee.

Issues Involved:
1. Valuation and classification of imported Fixed Wireless Telephones (FWT).
2. Interest liability on differential duty.
3. Imposition of redemption fine.
4. Imposition of penalties on appellants.

Issue-wise Detailed Analysis:

1. Valuation and Classification of Imported Fixed Wireless Telephones (FWT):

The main contention was whether the imported FWTs, which included software pre-loaded in the phones, should be assessed as a single item or if the software should be considered as a separate entity eligible for duty exemption. The appellants argued that the software embedded in the Flash memory unit of the FWT should be classified separately under Heading 85.24, based on Note 6 of Chapter 85 of the Customs Tariff Act, 1975. They cited various case laws to support their claim, including PSI Data Systems Ltd. vs. CCE and CCE, Pondicherry vs. Acer India Ltd.

The Tribunal, however, found that the Flash memory unit, which is part of the internal circuit of the phone, cannot be considered as a separate media for software. The software embedded in the memory unit is essential for the phone's functionality and cannot be segregated for separate assessment. The Tribunal referred to the Hon'ble Supreme Court's decision in Anjaleem Enterprises Pvt. Ltd. vs. CCE, Ahmedabad, which held that software embedded in an EPROM chip is not a recorded media under Heading 85.24 but is classifiable under Heading 85.42. Consequently, the Tribunal upheld the valuation and assessment of the FWTs as single goods without segregating the software value.

2. Interest Liability on Differential Duty:

The appellants contested the interest liability, arguing that prior to 13/7/2006, there was no provision for collecting interest on differential duty arising from the finalization of provisional assessments. They relied on the Hon'ble Supreme Court's decision in Jaswal Neco Ltd. vs. CC, Visakhapatnam, which ruled that interest liability can only be imposed by a substantive provision and cannot be applied retrospectively.

The Tribunal agreed with the appellants, noting that the imports occurred in 2003-2004 and the statutory provision authorizing interest on differential duty (Section 18(3) of the Customs Act, 1962) was introduced only on 13/7/2006. Therefore, the appellants were not liable to pay interest on the differential duty.

3. Imposition of Redemption Fine:

The appellants argued that the imposition of redemption fine was not sustainable as there was no seizure or provisional release of the goods under bond. They cited the Hon'ble Punjab & Haryana High Court's decision in CC, Amritsar vs. Raja Impex (P) Ltd., which held that redemption fine cannot be imposed in the absence of seizure and provisional release under bond.

The Tribunal found that the goods were cleared on payment of provisional duty without any seizure or provisional release under bond. Therefore, the imposition of redemption fine was not justified and was set aside.

4. Imposition of Penalties on Appellants:

The appellants contended that penalties under Section 114A of the Customs Act, 1962, were not applicable as the differential duty was determined under Section 14(1) and not under Section 28. They also argued that the issue involved was one of pure interpretation of statutory provisions, and there was no mis-declaration or suppression of facts.

The Tribunal agreed with the appellants, noting that the penalties were imposed based on detailed investigations and evidences gathered by the Department. However, since the differential duty was not determined under Section 28, invoking Section 114A was not legally tenable. Consequently, the penalties on the main appellants and the individual appellants were found unsustainable and were set aside.

Conclusion:

The Tribunal upheld the valuation and assessment of the imported FWTs as single goods without segregating the software value. The appellants were not liable for interest, redemption fine, or penalties. The appeals were disposed of accordingly.

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