2016 (11) TMI 1325 - AT - Customs

Demand - import of kits containing CDs software - royalty - exemption under Notification No. 6/2006- CE - Held that - the exemption under serial No. 27 of said notification is available only to software which are developed from basic building blocks resulting in emergence of new software product. However in this case it is a customized software and not specific software and hence not eligible for exemption under the said notification. Valuation - method to be adopted for re-asssement of the assessable value - Held that - since the identical goods of greatest aggregate quantity are not imported, the recourse to Deductive Value Method i.e Rule 7 of Customs Valuation cannot be taken and therefore recourse has to be taken of Rule 8 (Residual method) of Customs Valuation (Determination of Price of Imported goods) Rules, 1988 by giving reasonable flexibility. The price list of M/s Esys Information technologies and M/s Ingram Micro have been given to the Appellant as relied upon document which acts as a bench mark to calculate the assessable value. We therefore direct the lower authorities that while arriving at assessable value in terms of Rule 8 the appropriate adjustment towards expenses, taxes and profit margins has to be given to the Appellant. Confiscation of goods and Imposition of penalty - Held that - the confiscation has been ordered in respect of only those Bill of Entries which were provisionally assessed. Further penalty under Rule 112 (a) and Section 114 A has been imposed on the ground of misdeclaration of goods. We find that there is no infirmity in the above observation of the adjudicating authority and therefore uphold the confiscation of goods as well as imposition of redemption fine and penalties. We remand the case back to the adjudicating authority only for the limited purpose of re-quantification of duty by determining the assessable value in terms of Rule 8 of Central Excise Valuation Rules, 1988 after taking into consideration the Appellant s submission on appropriate adjustment towards expenses, taxes and profit margins - appeal allowed by way of remand.

Summary

Issues Involved:
1. Valuation of imported CDs containing software.
2. Inclusion of royalty in the assessable value.
3. Applicability of exemption under Notification No. 6/2006-CE.
4. Method of re-assessment of the assessable value.
5. Imposition of penalties and confiscation of goods.

Issue-wise Analysis:

1. Valuation of Imported CDs Containing Software:
The Customs department questioned the valuation of CDs imported by the Appellant, proposing to reject the declared value under Rule 4 (2) read with 10 A of the Customs Valuation Rules, 1988, and to re-determine it under Rule 8. The department argued that the transaction value could not be accepted due to restrictions on the sale of CDs imposed by the agreement between the Appellant and M/s Microsoft Licensing (MSLI). The Appellant contended that the declared value represented the transaction value as per Section 14 read with Rule 4, and the onus was on the department to prove otherwise.

2. Inclusion of Royalty in the Assessable Value:
The department argued that the royalty paid by OEMs and DSPs to M/s Microsoft should be included in the assessable value of the imported CDs. The Appellant countered that the royalty was a separate transaction between Microsoft and the OEMs/DSPs and not related to the importation of CDs. The tribunal found that the royalty was an integral part of the software package and necessary for its operation, thus should be included in the assessable value.

3. Applicability of Exemption under Notification No. 6/2006-CE:
The Appellant claimed that the CDs were exempt from CVD under Notification No. 6/2006-CE. The tribunal held that the exemption was available only to software developed from basic building blocks resulting in a new software product. Since the imported CDs contained customized software, they were not eligible for the exemption.

4. Method of Re-assessment of the Assessable Value:
The Appellant objected to the method of valuation under Rule 8 adopted by the adjudicating authority, arguing that deductions as per Rule 7 were not given. The tribunal found that since identical goods of the greatest aggregate quantity were not imported, Rule 7 could not be applied. Therefore, the assessable value should be determined under Rule 8 with appropriate adjustments for expenses, taxes, and profit margins.

5. Imposition of Penalties and Confiscation of Goods:
The adjudicating authority imposed penalties under Section 112 (a) and Section 114 A, and ordered confiscation of goods under Section 111 (d) and 111 (m). The Appellant was found to have willfully misstated and suppressed facts with the intent to evade duty. The tribunal upheld the confiscation, redemption fine, and penalties, finding no infirmity in the adjudicating authority's observations.

Conclusion:
The tribunal remanded the case back to the adjudicating authority for the limited purpose of re-quantifying the duty by determining the assessable value in terms of Rule 8, after considering the Appellant's submissions on adjustments. The appeal was disposed of by way of remand, and the stay application was also disposed of.