2004 (3) TMI 165 - AT - Central Excise

Summary

Issues:
- Whether the imported software should be included in the value of the telecom equipment for Central Excise duty assessment.
- Whether the software imported separately can form part of the value of the telecom equipment manufactured.
- Whether the software supplied along with hardware should be treated as part of the hardware for excise duty purposes.
- Whether the software is integral to the telecom equipment and should be included in the assessment of hardware.
- Whether the classification of software under Heading 8524 is correct in the given scenario.

Analysis:
1. The case involved a manufacturer of telephone exchange equipment supplying equipment to telecom service providers, including imported software separately. Central Excise Authorities alleged that the price of imported software should be included in the value of the equipment supplied for duty assessment.

2. The appellant contended that excise duty is attracted only on goods manufactured in India and that imported software supplied separately cannot be considered part of the telecom equipment's value. They argued that software and hardware are distinct, citing relevant legal precedents.

3. The Commissioner held that the software was integral to the telephone exchanges supplied, and its value should be included in the assessment. The Commissioner viewed the transaction as supplying a computerized telephone exchange, where all items forming part of it should be assessed, regardless of their origin.

4. The appellant argued that excess duty applies only to goods manufactured in India, and since the software was not brought to the factory and was supplied separately, it should not be subject to excise duty. They relied on various court decisions supporting their position.

5. The appellants emphasized that software should be classified separately under Heading 8524, not as part of the telecom equipment. They argued that the software's use in the telephone exchange does not warrant its inclusion in the hardware assessment, as the exchange is assembled at the service provider's premises.

6. The Tribunal examined the records and concluded that the revenue's claim was not sustainable. They clarified that duty applies only to goods manufactured in India, and the import and supply of software were separate transactions not subject to excise duty in this case.

7. The Tribunal referenced the Apex Court's decision in PSI Data Systems Ltd. v. CCE, emphasizing that software and hardware are distinct entities, and the value of software should not be included in the assessable value of the hardware for excise duty purposes.

8. It was noted that software should be classified under Heading 8524, as per Note 6 of Chapter 85, while the telecom equipment fell under a different classification. The Tribunal found the impugned orders contrary to the Central Excise classification scheme and ruled in favor of the appellant, setting aside the orders and allowing the appeals.