2018 (4) TMI 1308 - AT - Central Excise

Valuation - non-inclusion of certain amounts recovered by the appellant - whether the value of software supplied separately at the option of buyer is includible in the assessable value of goods? - extended period of limitation - Held that - it is apparent that the matter is not free from doubt and one could hold a bona fide view that the said value of optional software is not includible - In the instant case extended period of limitation has been invoked. It is apparent from the history of this issue that the extended period cannot be invoked, in view of doubt persisting - appeal allowed on the ground of limitation.

Summary

Issues:
Confirmation of demand and imposition of penalty on account of non-inclusion of certain amounts recovered by the appellant.

Analysis:

1. Inclusion of Optional Software in Assessable Value:
The primary issue in dispute was whether the value of optional software supplied separately at the buyer's option should be included in the assessable value of goods. The appellant argued that the optional software supplied to customers was distinct from the software built into the Distributed Control System (DCS) they manufactured. The Tribunal referred to the decision in the case of PSI Data Systems Ltd. vs. Collector of Central Excise, where it was established that the value of software sold with computers, if ordered by purchasers, should not be included in the assessable value. The Hon'ble Apex Court in the case of ACER India Ltd. further clarified that computers and software are distinct goods classified differently, and no excise duty should be levied on the combined value of the computer and software. The issue was referred to a Larger Bench for consideration due to conflicting decisions, indicating uncertainty on the inclusion of optional software in the assessable value.

2. Historical Background and Legal Proceedings:
The appellant had faced previous show cause notices on similar allegations, with one notice being dropped in 2004. The subsequent show cause notice led to the current appeal, where the appellant argued that the penalties under Section 11AB and 11AC were not applicable for the period prior to their introduction in 1996. The appellant had also filed necessary registrations and returns. The Department contended that the charges for software were included in supplementary invoices but not disclosed to the authorities. The valuation report was disputed, and it was argued that design and engineering services were not software, as indicated in the invoices.

3. Conclusion and Judgment:
After considering the arguments and legal precedents, the Tribunal found that the issue regarding the inclusion of optional software in the assessable value was not free from doubt. Given the conflicting decisions and the uncertainty surrounding the matter, the Tribunal allowed the appeal on the ground of limitation without delving into the merits of the case. The extended period of limitation was deemed inapplicable, leading to the allowance of the appeal. The judgment was pronounced on 10/04/2018.

This detailed analysis of the legal judgment highlights the key arguments, legal principles, and the ultimate decision reached by the Appellate Tribunal CESTAT MUMBAI in the case concerning the inclusion of optional software in the assessable value of goods.