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2021 (10) TMI 889 - AT - Central ExciseValuation - inclusion of value of software in the assessable value during clearances of telecom equipment or not - want of necessary evidences - period involved is from March 2005 to January 2006 - HELD THAT - The Commissioner (Appeals) has not gone into the details as to whether the software is only an operational / application software, as contended by the respondent, whether the software is an integral part of the telecom equipment/hardware without which the telecom equipment cannot function. In paragraph 4.2 of the impugned order, it is merely stated that the telecom equipment can function without the usage of said Network Management Software . This finding is not seen supported by discussion of necessary evidence. If the software is operational / application software, the decision in COMMISSIONER OF CENTRAL EXCISE, PONDICHERRY VERSUS ACER INDIA LTD. 2004 (9) TMI 106 - SUPREME COURT would apply and the value need not be included. If the software is integral to the hardware and the said equipment cannot function without the use of such software, the value of the software has to be included in the assessable value of the hardware and it is immaterial whether it is embedded/etched software or not. The Commissioner (Appeals) has not considered in detail any of these facts with regard to the functionality of the software. At the time of hearing, the Bench had directed the parties to furnish further details of the equipment as well as the software to understand the issue. However, both the parties were not able to furnish facts regarding the finished product. The description of the product in the form of brochures, pamphlets, photographs, etc., would help to bring out the nature of the software used in the telecom equipment. Though the Department has put forward contentions explaining the function of COT, RT, NMS, etc., and argued that without the software the hardware cannot function, there is no reliable evidence placed before us by the Department to support the above arguments. On such score, we have no other option but to remand the matter to the Adjudicating Authority. The matter is remanded to the Adjudicating Authority for reconsideration of the issue. The appeal is allowed by way of remand.
Issues Involved:
1. Inclusion of software value in the assessable value of telecom equipment. 2. Reversal of CENVAT credit on ADSL modems. 3. Classification of software under appropriate tariff headings. 4. Applicability of Notification No. 06/2006-C.E. for software exemption. Issue-wise Detailed Analysis: 1. Inclusion of Software Value in Assessable Value of Telecom Equipment: The Department appealed against the Commissioner (Appeals) order, which excluded the software value from the assessable value of telecom equipment. The respondents, engaged in manufacturing telecom equipment and developing software, cleared both items together but paid duty only on the hardware. The Assistant Commissioner, during the finalization of provisional assessment, opined that the software was essential for the equipment's functioning and included its value in the assessable value, leading to a demand of ?1,04,65,400/- as differential duty. The respondents contended that the software, classified under Tariff Heading 8524 and later 8523, was exempted under Notification No. 06/2006-C.E. 2. Reversal of CENVAT Credit on ADSL Modems: The respondents availed CENVAT credit on imported ADSL modems but cleared them without manufacturing processes, prompting the Department to demand reversal of the credit under Rule 3(5) of the CENVAT Credit Rules, 2004. The respondent argued that the modems were still under provisional assessment, and recovery should occur only post-finalization. The Order-in-Original confirmed the recovery and imposed a penalty, which was upheld by the Commissioner (Appeals). The Tribunal remanded the matter for de novo adjudication. 3. Classification of Software Under Appropriate Tariff Headings: The Department argued that the software, integral to the hardware, should be classified under Chapter Heading 8517, not 8524, as it was essential for the equipment's operation. The respondents classified the software under 8524, claiming it as operational/application software exempted under Notification No. 06/2006-C.E. The Tribunal noted that the software provided additional functionalities and was not integral to the hardware, thus supporting the respondent's classification. 4. Applicability of Notification No. 06/2006-C.E. for Software Exemption: The respondents claimed exemption on software under Notification No. 06/2006-C.E., arguing that hardware and software were distinct commodities classified under different headings. The Tribunal noted that if the software was operational/application software, its value should not be included in the hardware's assessable value, referencing the Supreme Court decision in M/s. Acer India Ltd. However, if the software was integral to the hardware's operation, its value should be included, regardless of its form. Conclusion: The Tribunal remanded the matter to the Adjudicating Authority for reconsideration, emphasizing the need for detailed evidence on the software's functionality and its necessity for the hardware's operation. The appeal was allowed by way of remand for fresh consideration.
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