2018 (5) TMI 682 - AT - Customs

Valuation - software - whether or not value of the software is liable to be included in the assessable value of equipment imported by the appellant? - Held that - In the case of Vodafone Essar Gujarat Ltd 2008 (10) TMI 173 - CESTAT, MUMBAI , the Bench held that software meant for telecommunication equipment is classifiable under Chapter Heading No 85.24 and the value of such software cannot be included in the value of hardware. In the case in hand it is undisputed that software imported is in relation to the software which is embedded in the equipment and this software is used for exporting certain controlling in the equipment. The separate sale of hardware and software thereof is not the criteria for determining whether the price of software is to be included in the price of hardware or otherwise. Appeal dismissed - decided against Revenue.

Issues Involved:
1. Inclusion of software value in the assessable value of imported equipment.
2. Applicability of Notification No. 21/2002 for duty exemption on software.
3. Allegation of mis-declaration and imposition of penalty.
4. Validity of demand raised beyond the normal period under Section 28 of the Customs Act, 1972.

Issue-wise Detailed Analysis:

1. Inclusion of Software Value in the Assessable Value of Imported Equipment:
The core issue was whether the value of software should be included in the assessable value of the imported equipment. The assessee imported various microwave communication equipment and software, filing bills of entry that indicated separate values for the hardware and software. The assessee claimed duty exemption on the software under Notification No. 21/2002, classifying it under Chapter 85.24. The adjudicating authority included the software value in the assessable value of the equipment, alleging mis-declaration. However, the Tribunal found that the software, billed separately, should not be included in the hardware's value. This conclusion was supported by precedents, including Vodafone Essar Gujarat Ltd, ITI Ltd vs. CC Calicut, and Bharti Airtel Ltd vs. CC Bangalore, which held that software meant for telecommunication equipment is classifiable under Chapter Heading 85.24 and its value cannot be included in the hardware's value.

2. Applicability of Notification No. 21/2002 for Duty Exemption on Software:
The assessee claimed exemption from duty on the software under Notification No. 21/2002. The Tribunal upheld this claim, referencing previous decisions that classified telecommunication software under Chapter Heading 85.24 and granted duty exemption. The Tribunal noted that the software was imported separately and not embedded in the hardware, aligning with trade practices and judicial interpretations.

3. Allegation of Mis-declaration and Imposition of Penalty:
The adjudicating authority imposed a penalty on the assessee for alleged mis-declaration. The Revenue's appeal argued for a penalty equivalent to the duty and interest. However, the Tribunal found no basis for the allegation of willful mis-declaration, as the bills of entry clearly indicated separate values for hardware and software. Consequently, the Tribunal set aside the penalty, stating that the demand for duty, interest, and penalty was unsustainable.

4. Validity of Demand Raised Beyond the Normal Period Under Section 28 of the Customs Act, 1972:
The assessee contended that the demand raised by the show-cause notice dated 25.02.2008 for imports made between February 2003 to October 2003 was time-barred under Section 28 of the Customs Act, 1972. The Tribunal agreed, noting that the demand was beyond the normal period and thus not enforceable.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, setting aside the demand for duty, interest, and penalty. The Revenue's appeal for an equivalent penalty was dismissed as infructuous. The judgment reaffirmed the non-inclusion of software value in the assessable value of imported hardware, supported by judicial precedents and trade practices.

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