2009 (10) TMI 261 - AT - Customs

Exemption from ACD- Notification No. 6/2006-C.E., dated 1-3-2006 - The appellant has imported Performance Analysis and Diagnostic Optimization System (PADO) software package and Boiler Performance Optimization System software package (BPOS) vide four Bills of Entry for use in coal based power plants run by BHEL. The appellant claimed exemption from Additional Customs Duty and Education Cess (totalling Rs.1,04,58,534/-) in lieu of Central Excise duty, based on Notification No. 6/2006-C.E., dated 1-3-2006 classifying the same as customized software. The Department s view that the same is not custom designed software and hence ineligible for the exemption under the said notification was confirmed by the adjudicating authority and upheld by the Commissioner (Appeals). Held that- the software has to be developed from the basic building blocks, whereby a new software product should emerge as per the specific requirement of the client so as to qualify itself as a custom designed software. Software, just modified from already existing established software packages/modules, will not qualify itself as a custom designed software. Further held that the imported PADO and BPOS software packages are only modified packaged software and are not eligible to the exemption under the Central Excise Notification No. 6/2006 dated 1-3-2006 as the benefit of the said Notification is admissible only to the Custom designed Software.We uphold the impugned Order passed by the Commissioner of Customs (Appeals) and reject the appeal.

Issues Involved:
1. Whether the imported software qualifies as "customized software" under Central Excise Notification No. 6/2006.
2. Interpretation of "customized software" versus "packaged software" in the context of the notification.
3. The role of expert opinions and other documentary evidence in determining the nature of the software.
4. The applicability of exemption under the Central Excise Notification No. 6/2006 to the imported software.

Issue-wise Detailed Analysis:

1. Whether the imported software qualifies as "customized software" under Central Excise Notification No. 6/2006:
The appellant argued that the imported software, PADO and BPOS, was customized specifically for each power plant of BHEL and thus should qualify for exemption under Notification No. 6/2006-C.E. The appellant provided evidence that the software was developed in Germany based on the specific parameters of each plant and referred to the Factory Acceptance Test (FAT) and System Design Documents to support this claim. However, the respondent contended that the software was not custom-designed but rather a standard software modified to suit the specific requirements of BHEL, thus not qualifying for the exemption.

2. Interpretation of "customized software" versus "packaged software" in the context of the notification:
The notification grants exemption to "customized software" defined as "custom designed software, developed for a specific user or client," excluding "packaged software or canned software." The appellant relied on the dictionary meaning of "customized" and previous tribunal decisions to argue that modification of existing software qualifies as customization. The respondent, however, emphasized that the notification explicitly restricts the exemption to "custom designed software," which should be developed from scratch, not merely modified.

3. The role of expert opinions and other documentary evidence in determining the nature of the software:
The appellant presented an expert opinion from BHEL stating that the software was customized. However, the respondent argued that BHEL, being an interested party due to the duty liability, could not provide an unbiased opinion. The tribunal agreed with the respondent, citing Supreme Court judgments that opinions from interested parties should not be considered reliable. The tribunal also considered various documents, including purchase orders, meeting minutes, and website printouts, which indicated that the software was pre-existing and only modified for BHEL's requirements.

4. The applicability of exemption under the Central Excise Notification No. 6/2006 to the imported software:
The tribunal concluded that the imported software packages were modified versions of pre-existing software and not custom designed from scratch. The tribunal emphasized that exemption notifications must be interpreted strictly, and any ambiguity should be resolved in favor of the state. The tribunal held that only software developed entirely from basic building blocks for a specific client qualifies as "custom designed software" eligible for exemption. Consequently, the tribunal upheld the order of the Commissioner of Customs (Appeals) and denied the exemption to the imported software.

Conclusion:
The tribunal concluded that the imported PADO and BPOS software packages are modified packaged software and do not qualify for exemption under Central Excise Notification No. 6/2006, which is reserved for custom designed software. The appeal was rejected, and the order of the Commissioner of Customs (Appeals) was upheld.

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