2016 (8) TMI 388 - AAR - Central Excise

Whether the activity of loading of business software in the Nucleus Device by the applicant constitutes manufacture under the Central Excise Law - Held that - we are in agreement with the applicant that up-loading of software into the Nucleus Device, which is already embedded with the basic input output system to perform primary functions will not result in new and different article having a distinct name, character or use. Further, the original commodity i e, Nucleus Devise proposed to be imported, will not cease to exist on up-loading of software into the Nucleus Device and would also continue to serve its functions. We are also in agreement with the applicant that Chapter Note 10 or any other Note to Chapter 85 is not applicable in the present case to consider the activity of up-loading of business software in the Nucleus Device as deemed manufacture. If the intention of the legislature was to treat up-loading of software into devices like Nucleus Device, as manufacture, Note(s) to Chapter 85 would have included goods of heading 8517, deeming such activity to be manufacture. Therefore, the activity of loading of business software in the Nucleus Device by the applicant will not constitute manufacture under the Central Excise Law. - Decided in favour of applicant

Summary

Issues:
- Whether the activity of loading business software in the Nucleus Device constitutes manufacture under the Central Excise Law?

Analysis:
1. Factual Background: The applicant, a Public Limited Company in India, planned to import Nucleus Devices from China and load business software onto them before selling in the domestic market. The Nucleus Device is classified under Tariff Entry 85176290 and serves as a cashless currency transmitting apparatus.

2. Loading Process: The Nucleus Devices are imported with the basic input output system from China. The software is loaded into the device using a Software Download, Battery Charger Adapter. The process involves sending commands from a personal computer to the Nucleus Device via USB cable, programming the software into the Flash memory, and finalizing the download process.

3. Revenue's Argument: The Revenue argued that loading software is integral to the Nucleus Device's functionality, making it a manufacturing process. They cited a Tribunal order to support their claim, stating that the cost of software is part of the final device cost.

4. Applicant's Response: The applicant contended that the Nucleus Device is a complete product upon import, and loading software only enhances its utility. They referred to legal definitions of "manufacture" and Supreme Court decisions to support their argument that loading software does not create a new article with a distinct name, character, or use.

5. Legal Interpretation: The Central Excise Act defines "manufacture" to include processes incidental to product completion or specified in the Tariff Act. The applicant argued that loading software does not fall under these definitions, as no specific process in the Tariff Act deems it as manufacture.

6. Chapter Notes: The applicant highlighted Chapter Note 7 to Chapter 85, inserted after a Supreme Court decision, which deems certain activities as manufacture. However, this note is not applicable to goods under heading 8517, like the Nucleus Device, indicating that loading software is not considered manufacture under the Act.

7. Decision: The Authority for Advance Rulings ruled that loading business software into the Nucleus Device does not constitute manufacture under the Central Excise Law. The activity of loading software was deemed as enhancing the utility of the device rather than creating a new commercial commodity.

This detailed analysis of the judgment in the case of Advance Ruling Authority provides a comprehensive overview of the issues involved, arguments presented by both parties, legal interpretations, and the final ruling on whether loading software in the Nucleus Device amounts to manufacture under the Central Excise Law.