2005 (5) TMI 207 - AT - Central Excise

Issues Involved:
1. Inclusion of cost of software in the value of computers.
2. Inclusion of cost of peripherals in the assessable value of computers.
3. Inclusion of technical service charges in the assessable value of computers.
4. Legality of enhanced penalty and confiscation in remand proceedings.
5. Time-barred nature of the duty demand.

Detailed Analysis:

1. Inclusion of Cost of Software in the Value of Computers:
The primary issue was whether the cost of software should be included in the assessable value of computers. The Tribunal referred to the Supreme Court's judgment in the case of PSI Data Systems Ltd. and the recent Constitutional Bench decision in Commissioner of Central Excise, Pondicherry v. Acer India Ltd., which clarified that software and computers are distinct and separate commodities. The Supreme Court held that the value of software, even if sold with the computer, should not be included in the assessable value of the computer for excise duty purposes. The Tribunal noted that the adjudicating authority did not consider whether the software was sold in CDs and floppies or as etched software. Consequently, the matter was remanded to the adjudicating authority to reassess this issue in light of the Supreme Court's decision.

2. Inclusion of Cost of Peripherals in the Assessable Value of Computers:
The Commissioner had ruled that the cost of peripherals is not includible in the value of the computers and office machines. This decision was not contested further, and thus, it stands as determined by the Commissioner.

3. Inclusion of Technical Service Charges in the Assessable Value of Computers:
The Tribunal found that the principles of natural justice were violated as the appellants were not given the opportunity to cross-examine the customers whose statements were relied upon by the Commissioner to conclude that no technical services were provided. The Tribunal emphasized that the adjudicating authority must consider the purchase orders submitted by the appellants, which indicated that customers specifically requested technical services. This issue was also remanded for reconsideration, ensuring the appellants are allowed to cross-examine the customers and present further evidence.

4. Legality of Enhanced Penalty and Confiscation in Remand Proceedings:
The Tribunal agreed with the appellants that neither the penalty amount could be enhanced nor new orders regarding the confiscation of land, building, machinery, etc., could be passed during remand proceedings. This was settled by the Tribunal in Atul Glass Industries Ltd., which held that the duty or penalty amount could not be increased in remand proceedings. Thus, the Tribunal set aside the confiscation ordered by the Commissioner.

5. Time-Barred Nature of the Duty Demand:
The appellants argued that the entire duty demand was time-barred as the authorities were well aware of their invoicing pattern, and the Enquiry Committee had examined their operations. The Tribunal allowed the appellants to raise the issue of the demand being time-barred in the remand proceedings. The Tribunal noted the appellants' contention that the Department had prior knowledge of the software charges and that the extended period for demand could not be invoked.

Conclusion:
The Tribunal set aside the impugned order and remanded the matter to the adjudicating authority for fresh adjudication, considering the directions in this order. The adjudicating authority was instructed to reassess the inclusion of software costs in light of the Supreme Court's judgment and to reconsider the inclusion of technical service charges after allowing cross-examination of the customers. The penalty, if imposed, should not exceed the initially imposed amount, and the appellants were permitted to furnish additional evidence and raise the issue of the demand being time-barred.

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