2014 (10) TMI 800 - AT - Customs

Waiver of pre deposit - import of software - customised software or embedded with the hardware - Benefit of exemption Notification No. 06/06-CE dated 1.3.2006 - Whether the main parties namely M/s Prithvi Information Systems Ltd. (PISL) and M/s Vuppalamritha Magnetic Components Ltd. (VMCL) had deliberately shown the software which was embedded in the system imported by them and supplied to BSNL as customised software separately imported to avoid payment of duty on the software portion of the imported equipment - held that - while EMS software and other application software have been specified by name, the embedded software is conspicuous by its absence. The fact that the software was imported through one port and hardware was imported through another port also shows that there is planning and conspiracy on the part of the appellants. If the appellants have put themselves in a situation wherein they have committed an offence to reduce the duty liability in their anxiety to become lowest bidders, it would not be appropriate for the Tribunal to lend a helping hand to them by waiving the requirement of pre deposit which in our opinion prima facie was liable to be paid at the time of importation. - appellant directed to deposit entire amount of differencial duty as demanded. - stay denied. Waiver of penalty on other parties and employees - Held that - it may not be appropriate to require them to deposit the entire amount of penalties imposed on them and in our opinion, the quantum of penalty may also have to be reduced in view of the fact that ultimately, the BSNL has defaulted to both the suppliers and both the suppliers have claimed financial difficulties and further the penalties under Section 114 A have been imposed on the importing parties. - penalty stayed partly.

Summary

Issues Involved:
1. Allegation of mis-declaration and evasion of customs duty on imported Dense Wavelength Division Multiplex Equipment (DWDM) and associated software.
2. Determination of whether the software was embedded in the hardware or imported separately as customized software.
3. Financial hardship claims by the appellants for seeking waiver of pre-deposit.
4. Penalties imposed on various parties involved, including importers, suppliers, and individuals.

Issue-wise Detailed Analysis:

1. Allegation of Mis-declaration and Evasion of Customs Duty:
The core issue revolves around whether the appellants, M/s Prithvi Information Solutions Ltd. (PISL) and M/s Vuppalamritha Magnetic Components Ltd. (VMCL), mis-declared the imported DWDM equipment and associated software to evade customs duty. The Revenue alleged that the hardware was preloaded with the software, and the imported CDs were blank, thus not qualifying for the exemption under Notification No. 06/06-CE dated 1.3.2006.

2. Determination of Embedded Software:
The investigation revealed that the DWDM equipment imported by PISL and VMCL was embedded with the necessary software, and the CDs imported were either blank or contained useless data. Statements from various employees and officials, including those from the suppliers (HTCL and SC), confirmed that the equipment was functional with embedded software and no additional software was required. The C-DOT test report also supported the Revenue's case, stating that the equipment contained embedded software and the CDs did not contain the necessary software for functionality.

3. Financial Hardship Claims:
The appellants claimed financial hardship, citing unpaid dues from BSNL amounting to over Rs. 900 crores each. However, the Tribunal noted that the appellants had the option to recover the actual duty paid from BSNL as per the tender documents. The Tribunal found that the financial difficulties were a result of the appellants' own actions and did not justify waiving the pre-deposit requirement.

4. Penalties Imposed:
Penalties were imposed on PISL, VMCL, their overseas suppliers (HTCL and SC), and several individuals involved. The Tribunal considered the roles and gravity of the offenses committed by each party. For instance, employees admitted to importing blank CDs and manipulating invoices to evade duty. The Tribunal required pre-deposits from the penalized parties, with the amounts determined based on their involvement and the severity of their actions. The penalties were partially waived for individuals and firms based on their specific roles and financial conditions.

Conclusion:
The Tribunal concluded that the appellants had deliberately imported hardware and software separately and manipulated records to evade customs duty. The Tribunal ordered the appellants to deposit the differential duty not covered by bank guarantees within twelve weeks and report compliance. The pre-deposit requirements for penalties were specified for each party based on their involvement, with partial waivers granted to some individuals. The stay applications were disposed of with instructions for compliance and reporting.