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2019 (3) TMI 1532 - AT - CustomsValuation - Import of software - mode of import of software - inclusion of value in the assessable value - Held that - The appellants have imported equipment wherein the software was preloaded. There was no separate mode in which software was imported. Therefore, as held by the Tribunal in Bhagyanagar Metals Ltd. 2016 (2) TMI 614 - CESTAT HYDERABAD , the Customs authorities have included the value of the same in the assessable value and the appellants have paid duty on the same and have availed credit of CVD on the same. As per the process undertaken by the appellant, it is seen that they are not making any changes in the chip that is imported. As per the submission of Shri. B. Sreenivasappa, the basic software was along with complete hardware on a separate CD. However, the facts of the case also indicate that no separate CD‟s/media were supplied and the software was loaded on the flash memory of the chip and IC. No other mode function software was imported and no other mode is being supplied to their customer that is BSNL separately. Therefore, whatever software that has been imported is remained in the system and is not separated before delivery of the equipment to M/s. BSNL. Therefore, the transaction is inclusive of the software that is loaded by ZTE Corporation prior to supply of goods to the appellants for import. The appellants have contested the use of words firmware by the learned Commissioner. Whatever be the connotation of the software the important point to be seen is whether or not the same is preloaded, embedded etc in the equipment. Such a system with preloaded software has certainly more intrinsic value then a system which is not loaded with the same. Therefore, the essentiality test is to see the condition in which the system or equipment is cleared from the factory - In the instant case, the equipment were preloaded with the software and CVD was paid on the value which included the value of software. Therefore, such software irrespective of its nomenclature has become integral part of the system or equipment and has enhanced the intrinsic value of the system or equipment. The appellants are under a contract with the Government company i.e., BSNL. They have claimed that in terms of the contract, they were billing the hardware and software separately. The Customs authorities have rightly held that the splitting up of value between hardware and software was not correct and the goods must be valued as per the transaction value - BSNL being a Government Company, which cannot be alleged that they have colluded with the appellant in erroneously splitting the value of the hardware and software component. Time limitation - Held that - The impugned show-cause notice was issued to the appellant on 01.12.2005 after a lapse of long time. In view of this we find that the appellants‟ submissions on limitation are valid. Penalty - Held that - No suppression or intent to evade duty can be inferred from the case records and circumstances - Consequently, the penalty imposed under Section 11AC is not maintainable. Appeal allowed in part.
Issues Involved:
1. Imposition of penalty under Section 112 of the Customs Act, 1962. 2. Inclusion of software value in the assessable value of imported goods. 3. Validity of splitting the value of hardware and software for excise duty purposes. 4. Penalty under Section 11AC of the Central Excise Act, 1944. 5. Limitation and suppression of facts. Issue-wise Detailed Analysis: 1. Imposition of penalty under Section 112 of the Customs Act, 1962: The Commissioner of Customs imposed a penalty of ?50,00,000/- under Section 112 of the Customs Act, 1962, due to the differential customs duty confirmed on the WLL CDMA equipment and other imported items. The appellants challenged this imposition, arguing that the splitting of hardware and software value was in accordance with their agreement with BSNL and not intended to evade duty. The Tribunal acknowledged that the goods were meant for BSNL, a government entity, and reduced the penalty to ?25,00,000/-. 2. Inclusion of software value in the assessable value of imported goods: The Customs authorities found that the imported goods included software preloaded on the hardware, thus forming an integral part of the equipment. Despite the separate billing for hardware and software, the authorities concluded that the software was not treated separately and charged duty on the combined value. The Tribunal upheld this decision, referencing the Supreme Court's ruling in Anjaleem Enterprises Ltd. vs. CCE, which emphasized that embedded software should be included in the hardware's value. 3. Validity of splitting the value of hardware and software for excise duty purposes: The appellants argued that the value split was per their agreement with BSNL and not intended to evade duty. However, the Commissioner of Central Excise determined that the software was firmware embedded in the hardware and should be included in the excisable goods' value. The Tribunal supported this view, noting that the software was preloaded and not supplied separately, thus forming an integral part of the equipment. The Tribunal cited the Larger Bench decision in Bhagyanagar Metals Ltd., which held that preloaded software should be included in the hardware's value. 4. Penalty under Section 11AC of the Central Excise Act, 1944: The Commissioner imposed a penalty equal to the confirmed Central Excise duty of ?2,89,62,572/- under Section 11AC. The appellants contested this, arguing there was no intent to evade duty and that the department was aware of their billing practices. The Tribunal found merit in the appellants' argument, noting that BSNL, a government entity, was involved, and there was ongoing correspondence with the department. Consequently, the Tribunal set aside the penalty under Section 11AC, confirming only the duty demand. 5. Limitation and suppression of facts: The appellants contended that the department was aware of their practices and that there was no suppression of facts. The Tribunal agreed, noting that the department had conducted audits and was in communication with the appellants. The show-cause notice was issued after a significant delay, supporting the appellants' claim of no intent to evade duty. The Tribunal concluded that the penalty under Section 11AC was not maintainable due to the lack of suppression or intent to evade duty. Conclusion: The Tribunal partially allowed the appeals, reducing the penalty under Section 112 of the Customs Act to ?25,00,000/- and setting aside the penalty under Section 11AC of the Central Excise Act. The duty demands in both appeals were confirmed. The decision emphasized the inclusion of preloaded software in the hardware's value and recognized the appellants' compliance with their agreement with BSNL.
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