2005 (2) TMI 394 - AT - Central Excise

Issues Involved:
1. Classification of software for Distributed Control System (DCS) as 'Computer Software' for Central Excise purposes.
2. Inclusion of Factory Acceptance Test charges and Systems Engineering charges in the assessable value of DCS.
3. Allegations of evasion of Central Excise duty and applicability of extended period of limitation.
4. Imposition of penalties and interest under various sections of the Central Excise Act and Rules.

Detailed Analysis:

1. Classification of Software for DCS as 'Computer Software':
The primary issue was whether the software for DCS manufactured and cleared by the appellant could be classified as 'Computer Software' for Central Excise purposes. The appellant argued that the software supplied along with DCS was indeed Computer Software, as it was loaded onto workstations (computers) at the customer's site and operated in conjunction with these computers. The appellant emphasized that the Central Excise Tariff did not distinguish between different types of software and that the software in question should be understood in common parlance as Computer Software. The Tribunal agreed with the appellant, noting that the term 'Computer Software' was not defined in the Central Excise Tariff and that the software supplied was indeed used with computers, thus qualifying for the exemption under Notification No. 48/94-C.E., dated 1-4-1994.

2. Inclusion of Factory Acceptance Test Charges and Systems Engineering Charges:
The Adjudicating Authority had included Factory Acceptance Test charges and Systems Engineering charges in the assessable value of the DCS. The appellant contended that the Systems Engineering charges were related to activities undertaken at the site and were not connected with the manufacture of the DCS. The Tribunal found merit in this argument, concluding that the Systems Engineering charges should not be included in the assessable value as they were not related to the manufacturing process of the DCS.

3. Allegations of Evasion of Central Excise Duty and Applicability of Extended Period of Limitation:
The Revenue alleged that the appellant had evaded Central Excise duty by misdeclaring the software as 'Computer Software' and by not including certain charges in the assessable value. The appellant countered that they had filed all necessary declarations and technical literature with the department, which had been approved without objection. The Tribunal noted that both the appellant and the department were under the bona fide belief that the software was eligible for exemption, and the charge of misdeclaration could not be sustained. Consequently, the extended period of limitation under Section 11A(1) was not applicable.

4. Imposition of Penalties and Interest:
The Adjudicating Authority had imposed penalties under Section 11AC and demanded interest under Section 11AB. The appellant argued that the entire demand was barred by limitation and that the exercise was revenue neutral as the duty, if paid, would have been taken as Modvat credit by the buyers. The Tribunal, having set aside the Order-in-Original (OIO), found that the Revenue's appeal for the imposition of mandatory penalties and interest was rendered infructuous.

Conclusion:
The Tribunal allowed the appellant's appeal, holding that the software for DCS was indeed 'Computer Software' eligible for exemption under the relevant notification. The Systems Engineering charges were not to be included in the assessable value of the DCS. The charge of misdeclaration was not substantiated, and the extended period of limitation was not applicable. Consequently, the penalties and interest imposed were set aside, and the Revenue's appeal was dismissed as infructuous.

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