2004 (4) TMI 223 - AT - Central Excise

Summary

Issues:
1. Whether duty should be imposed on the value of software along with computers.
2. Whether the distinction between computers and software affects the assessable value for central excise duty.
3. Whether the transaction value should include the value of both computers and software for excise duty assessment.

Analysis:
1. The appellants, as computer manufacturers, were subjected to duty by the Commissioner on the value of computers, including the value of software supplied with them. The Commissioner's order implied that the assessable value of the computer system should include the value of the operational software. This decision led to a demand for differential duty, penalty imposition, and interest charges. The contention raised by the appellants was that duty imposition was contrary to established legal principles, citing the distinction between computers and computer systems. They argued that only computers, not computer systems, are subject to duty under the relevant tariff heading.

2. The appellant's argument emphasized that a computer is distinct from its software, with the software being an additional component that does not form an integral part of the computer itself. They highlighted that certain software, like Windows, is optional and loaded based on buyer preference. The Commissioner's error was in treating the transaction value as the assessable value of excisable goods, even when only a part of the items sold constitute excisable goods. The legal counsel relied on precedents, including the PSI Data Systems Ltd. case, to support the argument that software should not be included in the assessable value for excise duty purposes.

3. The Tribunal, after considering the submissions from both parties, found that the Commissioner's decision to include the value of operating software in the assessable value of computers was incorrect. Referring to the PSI Data Systems Ltd. case, the Tribunal reiterated the distinction between a computer and its software. The judgment highlighted that software, when sold along with a computer, should not be considered part of the assessable value for excise duty. Additionally, the Tribunal clarified that for excise duty purposes, only the transaction value related to the sale price of the computer should be considered, not the entire consideration for the sale. Therefore, the appeal was allowed, providing relief to the appellants based on the legal principles discussed.