2017 (7) TMI 406 - AT - Central Excise

Valuation - clearance of manufactured computers after pre-loadingh with Application Software - misdeclaration of value - Department took the view that appellant actually preloaded the software into the computer and cleared the same; that they had made a wilful misstatement that they were deducting from the value of (of the computers) the actual cost of software; that however they had deducted more than such actual cost with the intent to evade duty of excise on the computers - time limitation - Held that - the period between the appellant s letter dt. 25-08-2000 (referred to in the SCN) or for that matter, the date of recording of statement from Shri Ravishankar namely, on 20-06-2001, and issue of SCN is well beyond normal period of limitation. We are unable to fathom the reasoning for this inexplicable delay on the part of the department to initiate adjudication proceedings, especially when no new material or facts have been unearthed by them other than the said letter of the statement. Such delay cannot sought to be covered up by invoking suppression when there was no suppression, or while invoking misstatement, of which also we do not find any evidence. This being so, the proceedings initiated against the appellant are clearly hit by limitation and the appellant will succeed on this ground alone - the impugned order will have to be set aside on the ground of limitation proceedings being hit by limitation. On merits also, Deduction of software cost has to be on the basis of amount equivalent to market prices of the comparable product, that the cost of operating software was not the cost of CD alone but other costs such as royalty, warranty, after-sales service etc. are to be taken into account, that the intrinsic value of software is to be calculated by taking into account not only the purchase price but other costs, and that department charged that appellant overstated the value of software in undervalue the computer do not stand on firm ground. Reliance was placed in the case of Birla Corporation Ltd. Vs CCE 2005 (7) TMI 104 - SUPREME COURT OF INDIA . Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Inclusion of software value in the assessable value of computers.
2. Justification for deductions claimed by the appellant for software costs.
3. Applicability of extended period of limitation due to alleged suppression.
4. Consistency of departmental stance on similar issues previously adjudicated.

Issue-wise Detailed Analysis:

1. Inclusion of Software Value in Assessable Value of Computers:
The appellant contended that, as per the Supreme Court judgment in CCE Pondicherry Vs Acer India Ltd., the value of operating software should not be included in the assessable value of computers. They argued that they deducted the market value of the software (less 30%) from the consolidated price of the computer to arrive at the assessable value. The department, however, alleged that the appellant preloaded the software into the computers and deducted more than the actual cost of the software to evade excise duty.

2. Justification for Deductions Claimed by the Appellant for Software Costs:
The appellant justified the deductions by stating that the software costs included not just the cost of CDs but also royalties and warranties. They provided detailed royalty amounts and additional warranty costs to support their claim. The department, on the other hand, argued that the software was purchased at much lower costs and that the appellant's deductions were disproportionately high. They contended that the appellant did not provide sufficient evidence to substantiate their claims of additional costs for royalties and warranties.

3. Applicability of Extended Period of Limitation Due to Alleged Suppression:
The appellant informed the department about their deductions for software costs as early as 25.08.2000 and filed a Classification Declaration. Despite this, the department issued a Show Cause Notice (SCN) only on 28.04.2005, alleging suppression. The Tribunal found no evidence of suppression or misstatement by the appellant and noted the delay in the department's response. Consequently, the proceedings were deemed to be hit by limitation, and the appeal succeeded on this ground alone.

4. Consistency of Departmental Stance on Similar Issues Previously Adjudicated:
The Tribunal noted that an identical issue involving the appellant's Bangalore factory had been previously adjudicated. The Commissioner, in de novo proceedings, had dropped the entire case against the appellant, holding that the deductions for software costs were justified. The department did not appeal this decision. The Tribunal cited various Supreme Court rulings, emphasizing that the department cannot take a different stand in similar cases once a principle has been accepted. Therefore, the appeal succeeded on merits as well.

Conclusion:
The Tribunal concluded that the proceedings against the appellant were hit by limitation and that the deductions claimed for software costs were justified based on previous adjudications involving the same appellant. The appeal was allowed with consequential relief as per law.