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2014 (6) TMI 387 - AT - Central ExciseValuation of goods - s.4(1)(b) of CEA, 1944 - Rule 6 of Valuation Rules, 2000 - royalty/licence fee paid by Tata Sky to NDs for the download of the software by the appellant - Ehancement in valuation of goods - Revenue contends that STB manufactured and supplied by the appellant is sought to be enhanced in terms of the provisions of Rule 6 of the Central Excise Valuation Rules, 2000 - whether the cost of remote control supplied free of charge by the buyer can be added in the value of STBs supplied by the appellant to the buyer - Held that - both the smart card (viewing card) and the software are an integral part of the STB manufactured and supplied by the appellant. From the statement of Sri. A.K. Mehrotra, Group Financial Controller, it is evident that the STB contains PCB boards and various electronic components which include integrated chips (IC). These ICs are first put on to the AP 600 programming machine from where the software is copied on to the IC and ICs are then fixed on the PCB board through surface mounting technology process. As per system integration agreement, the STB integration costs refer to the cost of development of the software, which is required to be supplied by the manufacturer. NDS assists the manufacturer to develop this software to be loaded on to the STB - subscriber access card is the key component of the conditional access system and it is an active security device of the STB and hence an integral part of the STB. Therefore, the cost of the same has to be included in the assessable value of the STB in terms of Rule 6 of the Central Excise Valuation Rules. Pre-loaded operating systems software in the Hard Disk Drive of the laptop forms an integral part of the laptop and therefore, the cost of such pre-loaded software forms part of the value of the laptop - cost of software which has been loaded on to the flash memory which in turn has been soldered onto the PCB of the STB forms an integral part of the STB and therefore, the value of the STB shall include the value of such software also. In these circumstances, we uphold the confirmation of duty demand against the appellant by including the value of remote control, smart card and software in the value of STB. Consequently, the appellant shall also be liable to interest on the said duty demand confirmed. - Decided against the assessee. Penalty under Rule 25 of the Central Excise Rules - whether the penalty should be imposed equal to the duty sought to be evaded or not - Held that - No doubt, the assessee did not declare or reveal to the department the cost of items supplied free by the buyer and the non-inclusion of cost of such free supply in the assessable value of the STB manufactured and cleared by them. The appellant also did not inform or declare to the department the existence of various agreements relating to the design, manufacture and supply of the STB which could have supported its contention that it did not have any intention to evade payment of duty. Since the issue entailed interpretation of the provisions relating to valuation, in our considered view, imposition of penalty equal to the duty is not warranted. A penalty of (say) 5% of the differential duty demanded would suffice for contravention of the statutory provisions - Decided partly in favour of assessee.
Issues Involved:
1. Inclusion of the value of remote control in the assessable value of Set Top Boxes (STBs). 2. Inclusion of the value of viewing cards in the assessable value of STBs. 3. Inclusion of the royalty/licence fee paid for software in the assessable value of STBs. 4. Imposition of penalty under Rule 25 of the Central Excise Rules, 2002. Issue-wise Detailed Analysis: 1. Inclusion of the Value of Remote Control in the Assessable Value of STBs: The appellant argued that the remote control provided by Tata Sky is a universal remote control and not specific to any particular piece of STB. The STB is complete and functional without the remote control, and for excise duty purposes, the transaction between the appellant and its customer, Thompson, is relevant. The appellant cited several cases, including Shriram Bearings and Essel Propack, to support the contention that the value of accessories supplied free of charge by the buyer is not includible in the assessable value of the main product. The Tribunal, however, noted that the valuation rules changed with effect from 01/07/2000, and Rule 6 of the Central Excise Valuation Rules, 2000, mandates the inclusion of the value of materials, components, parts, and similar items supplied free by the buyer in the assessable value. The Tribunal referred to the Frick India Ltd. case, where the Supreme Court held that the value of a remote control, even if an accessory, should be included in the assessable value of the main product if it provides value addition. Consequently, the Tribunal held that the value of the remote control should be included in the assessable value of the STB. 2. Inclusion of the Value of Viewing Cards in the Assessable Value of STBs: The appellant contended that the viewing card is merely inserted into the slot provided for it in the STB and does not alter the STB's completeness. The viewing card is not supplied with exported STBs, proving that the STB is complete without it. The Tribunal examined the MOU and product specifications, which indicated that the viewing card is a key component of the Conditional Access System (CAS) and an active security device integral to the STB. The Tribunal concluded that the viewing card is not an accessory but an integral part of the STB and, therefore, its value should be included in the assessable value of the STB. 3. Inclusion of the Royalty/Licence Fee Paid for Software in the Assessable Value of STBs: The appellant argued that Rule 6 of the Valuation Rules does not provide for the inclusion of royalties paid, unlike the Customs Valuation Rules. The appellant cited cases such as PSI Data Systems and Acer India Ltd., where it was held that software should be classified separately and not included in the value of the hardware. The Tribunal noted that the software in question was downloaded and incorporated into the flash memory chip soldered onto the PCB of the STB. The Tribunal referred to the Anjaleem Enterprises Pvt. Ltd. case, where the Supreme Court held that the value of software embedded in a programmed EPROM, which is an integral part of the system, is includible in the value of the goods supplied. The Tribunal concluded that the cost of the software, which is loaded onto the flash memory and forms an integral part of the STB, should be included in the assessable value of the STB. 4. Imposition of Penalty under Rule 25 of the Central Excise Rules, 2002: The appellant argued that the penalty imposed under Rule 25 is not sustainable as the case involves interpretational issues. The appellant contended that there was no suppression of facts or intention to evade payment of duty, and the entire demand was within the normal period of limitation. The Tribunal held that the appellant failed to discharge its statutory obligation to correctly determine the duty liability and remove the goods on payment of the correct amount of duty. The non-disclosure of various cost elements and agreements indicated mens rea on the part of the appellant. However, the Tribunal considered the interpretational nature of the issue and reduced the penalty from Rs. 10,78,71,082/- to Rs. 50 lakhs. Conclusion: The Tribunal upheld the differential duty demand of Rs. 10,78,71,082/- along with interest thereon. The penalty imposed on the appellant was reduced to Rs. 50 lakhs. The appeal was dismissed with the above modifications.
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