2005 (5) TMI 157 - AT - Customs

Import of Software - Valuation (Customs) - Clearance of goods declared as computer software/electronic goods - Demand - Assessment - Whether the appellant paid money for two systems and declared the value of only one system - HELD THAT - After going through those submissions and also the description of the items imported we are satisfied that the items imported cannot be called as telephony systems, classifiable under CTH 8517.00. The items imported are for the functioning of prepaid system and not for telephony. Even without prepaid system, RPG Cellular system was functioning. Hence, the classification declared originally by the appellants appears to be correct. As regards the question of import of two systems, in our view, this issue is not very relevant. The goods, which have been imported are in accordance with the quantities mentioned in the packing list. The DRI officer visited UK for investigation. That investigation has not revealed that, the appellants paid an amount in excess of what has been declared by them in the Bill of Entry. Hence there are no grounds to reject the transaction value. We are also not in full agreement with the findings of the adjudicating authority that the appellants imported two systems. There is no proof that they had remitted more money than what was declared in the Bill of Entry for assessment. Under these circumstances, the finding of the adjudicating authority that they had imported two systems is set aside. We are also of the view that there is absolutely no evidence to show that the price of software has been inflated and the hardware under-invoiced. The contention of the learned JCDR that the software in the CD had not been used by RPG is not a very strong point, since the software was already loaded in the equipment. Normally when we purchase computer systems the operating system is sometimes loaded in the system itself. Even then, the licenced software is supplied in a CD for a consideration. There is also no rule that software should cost less than that of Hardware. The cost of software depends on its complexity and utility. Suppose there is a crash in the system, then the licenced software in the form of CD would enable us to load the software again. We need not doubt that the appellants had paid for licenced software. The fact that software costs more than the Hardware does not surprise us. Thus, the Order-in-Original has absolutely has no merits. Therefore we allow the appeals with consequential relief.

Summary

Issues Involved:
1. Validity of the second Bill of Entry and subsequent assessment.
2. Classification of imported goods.
3. Determination of transaction value.
4. Allegation of mis-declaration and confiscation.
5. Imposition of penalties on individuals and enforcement of bank guarantee.

Detailed Analysis:

1. Validity of the Second Bill of Entry and Subsequent Assessment:
The appellant argued that the initial Bill of Entry assessed on 3-6-1998 for a duty of Rs. 15,34,070/- was final and binding, as per Section 17 read with Section 47 of the Customs Act. The department's insistence on filing a second Bill of Entry with the same number and date was deemed irregular. The tribunal agreed, citing the principle that an assessment order must be reviewed or appealed to be modified, referencing Priya Blue Industries Ltd. v. CC, 2004 (172) E.L.T. 145 (S.C.). Thus, the proceedings based on the second Bill of Entry were invalid.

2. Classification of Imported Goods:
The department classified the goods under CTH 8517, treating them as telephony systems. The appellant contended that the goods were computer systems and software, not telephony systems. The tribunal reviewed technical descriptions and an expert opinion from the Indian Institute of Science, concluding that the imported items were not telephony systems and should be classified as per the original declaration. The adjudicating authority's reclassification was thus set aside.

3. Determination of Transaction Value:
The department alleged that the declared value was incorrect, proposing an enhancement based on a proforma invoice. The appellant argued that the actual transaction value was as per the purchase order dated 15-4-1998. The tribunal found no evidence of payment beyond the declared value, even after an investigation in the UK. It was held that the declared transaction value was correct and should not be rejected.

4. Allegation of Mis-declaration and Confiscation:
The department claimed mis-declaration of the value and quantity, suggesting the import of two systems instead of one. The tribunal found that the goods matched the packing list and there was no evidence of payment for two systems. The tribunal dismissed the allegation of mis-declaration and set aside the confiscation under Section 111(m) of the Customs Act.

5. Imposition of Penalties on Individuals and Enforcement of Bank Guarantee:
Penalties were imposed on individuals under Section 112(a) and the bank guarantee was to be enforced. The tribunal found no evidence of personal involvement in the alleged mis-declaration or manipulation of prices. The penalties and enforcement of the bank guarantee were thus not justified.

Conclusion:
The tribunal allowed the appeal, setting aside the Order-in-Original. The initial assessment on the first Bill of Entry was upheld, and the department's actions based on the second Bill of Entry were deemed invalid. The classification of goods as declared by the appellant was accepted, and the transaction value was affirmed. Allegations of mis-declaration were dismissed, and penalties and enforcement actions were nullified. The appeal was allowed with consequential relief.