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2008 (10) TMI 75 - AT - Central ExciseAllegation of department is that the value of software is includible in A.V. of the OCB Exchange since software is supplied separately as per purchase orders, value of the software can not be included in the value of the OCB Exchanges on ground that the OCB Exchanges cannot function without the software since software is separately identified as an excisable commodity in Central Excise Tariff, value of software is not required to be included in the value of the hardware
Issues Involved:
1. Includibility of software value in the assessable value of OCB Exchanges. 2. Provisional nature of assessments during the relevant period. 3. Invocation of the longer period for demand and imposition of penalty under Section 11AC. Detailed Analysis: Issue 1: Includibility of Software Value in the Assessable Value of OCB Exchanges The appellants, manufacturers of Telecommunication Equipment, were accused of evading duty by not including the value of software in the assessable value of OCB Exchanges cleared between 1-3-1997 and 30-11-1999. The Commissioner confirmed a demand of Rs. 8,56,97,114/- and imposed an equal penalty under Section 11AC. The department argued that software is integral to the functioning of OCB Exchanges and its value must be included as per Section 4 of the Central Excise Act, 1944. The appellants contended that the software should be classified separately under heading 85.24.20 at a 'Nil' rate of duty, citing several case laws including the Supreme Court's decision in CCE, Pondicherry v. ACER (Ind.) Ltd. The Tribunal agreed with the appellants, stating that software, being separately identifiable and liable to a different rate of duty, cannot have its value included in the hardware's assessable value. It was noted that the software was imported and loaded in situ, not embedded in the hardware. Issue 2: Provisional Nature of Assessments The appellants argued that the assessments during the period were provisional, supported by a previous Tribunal order confirming provisional assessments from 1994-95 onwards. The Tribunal reiterated that the assessments continued to be provisional and thus the show cause notice was premature. Therefore, the assessments needed finalization under Rule 9B (5). Issue 3: Invocation of the Longer Period and Penalty under Section 11AC The Commissioner invoked the longer period, alleging suppression of facts. However, the Tribunal found that the appellants had declared the classification of software separately in their Rule 173B declaration, negating suppression. Consequently, the invocation of the longer period and the imposition of penalties were deemed unjustified. The Tribunal emphasized that the appellants' actions were based on a bona fide belief, supported by established case laws, that the software value was not includible in the hardware's assessable value. Conclusion: 1. The value of the software cannot be included in the value of the OCB Exchanges as per decided case laws. 2. The software is not considered embedded software based on the records. 3. There was no suppression of facts, and thus the longer period for demand is not invokable. The penalty imposed is also unjustified. The appeal was allowed with consequential relief, setting aside the duty demand and penalties.
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