2014 (4) TMI 301 - HC - Customs

Waiver of pre-deposit valuation - inclusion of value of software required to running equipments - Mis-declaration - Confiscation, Liability of duty and Penalty Held That - On examination of the facts placed before the Tribunal and before this Court, we do not think that the assessee has made out a case for complete waiver of the pre deposit and stay of the entire due - Nevertheless, when there were two divergent views rendered by the Tribunal and the assessees had placed certain materials before the Tribunal to distinguish their case from that of the case of Bharti Airtel and supported by the decision of the Co-ordinate Bench of the Tribunal in the case of Vodafone Essar, the Court is of the view that the assessee has made out a prima facie case for at least partial waiver of the pre-deposit. Considering the point raised and bearing in mind the interest of Revenue, the assessees is directed to pay 50% of the demand of duty made, in each case, pending appeal before the Tribunal - On such deposit being made, there shall be a stay on the balance amount payable by the assessees - Both these appeals are allowed in part - Consequently, the connected miscellaneous petitions are closed Decided partly in favour of assessees.

Issues Involved:
1. Pre-deposit requirement for entertaining appeals.
2. Classification and valuation of imported equipment and software.
3. Application of exemption from customs duty.
4. Invocation of the extended period of limitation.
5. Imposition of penalty.
6. Relevance of previous Tribunal and Supreme Court decisions.

Detailed Analysis:

1. Pre-deposit Requirement for Entertaining Appeals:
The Tribunal directed the assessees to pre-deposit Rs. 10,21,25,614/- for Aircel Cellular Ltd. and Rs. 24,67,77,929/- for Aircel Ltd. as a condition precedent for entertaining the appeals. The assessees were granted eight weeks to make such deposits. The High Court, considering the divergent views of the Tribunal in similar cases and the materials placed by the assessees, directed the assessees to pay 50% of the demand of duty in each case within eight weeks, granting a stay on the balance amount.

2. Classification and Valuation of Imported Equipment and Software:
The assessees imported equipment classified as Mobile Switching Centre (MSC), Base Station Controller (BSC), Base Transceiver Station (BTS), and parts classifiable under Chapter Heading 85.25. The equipment required software for functioning, which was pre-loaded and also imported separately in some cases. The Revenue contended that the software was embedded and should be included in the value of the hardware for duty purposes. The assessees argued for the exclusion of software value, citing that it was separately imported and paid for, and relied on Note 6 of Chapter 85 for separate classification.

3. Application of Exemption from Customs Duty:
The assessees claimed exemption from customs duty on the software, which was exempted at the relevant time. The Revenue alleged mis-declaration and dummy transactions to evade duty. The High Court noted the assessees' reliance on previous Tribunal decisions where similar exemptions were granted, but the Tribunal in this case followed a different view, leading to the demand for duty.

4. Invocation of the Extended Period of Limitation:
The assessees challenged the invocation of the extended period of limitation, arguing that the issue involved was a question of law regarding the interpretation of Chapter Note 6 to Chapter 85. The Tribunal, however, did not accept this contention, leading to the demand for duty covering an extended period.

5. Imposition of Penalty:
Show cause notices were issued, alleging mis-declaration and liability for confiscation and duty. Penalties equivalent to the amount of duty were imposed. The assessees contested the penalties, arguing that there was no evidence of intentional mis-declaration and that the software was removable and upgradable, thus not forming part of the hardware.

6. Relevance of Previous Tribunal and Supreme Court Decisions:
The assessees cited the Tribunal's decision in Vodafone Essar Gujarat Ltd. and the Larger Bench decision in Digital Equipment (India) Ltd. to support their case. They argued that the Tribunal's decision in Bharti Airtel Ltd. was per incuriam as it did not consider these precedents. The Revenue relied on the Supreme Court's decision in Anjaleem Enterprises Pvt. Ltd., which was against the assessees. The High Court observed that the Tribunal should have referred the matter to a Larger Bench due to the divergent views and the pending appeal before the Supreme Court in the Bharti Airtel case.

Conclusion:
The High Court partially allowed the appeals, directing the assessees to deposit 50% of the duty demand within eight weeks and granted a stay on the balance amount. The Court emphasized the need for the Tribunal to refer the matter to a Larger Bench due to the conflicting decisions and the pending Supreme Court appeal. The detailed analysis preserved the legal terminology and significant phrases from the original judgment, providing a comprehensive understanding of the issues involved.

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