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2018 (6) TMI 639 - AT - Central ExciseValuation - manufacture of telecom optical transmission equipments / optical multiplexers - inclusion of value of Tejas Network Element Software (TEJNES) in the value of these multiplexers - whether the value of the TEJNES software loaded into / supplied along with multiplexers is required to be added to the value of multiplexers manufactured and cleared by the appellants for the purpose of arriving at assessable value and discharge of Central Excise duty? Held that - A multiplexer is a device used in telecommunications, inter alia high speed transmission of one or more input signals on single shared medium or single device. The Linux software which is an operating system manages the communication between the multiplexer hardware and the software TEJNES. However, the most essential and indispensible item aspect which would be required to make such multiplexer operational and function in the manner that it is expected to do, is the TEJNES software. The TEJNES software is the critical suite which provides control and management of the individual net work elements in a geographically dispersed net work - No doubt, the Linux software is also preloaded into the multiplexer, however that is only an operating system amongst one of the many operating systems that are available worldwide to support the technologies like the digital net work management which the multiplexer sets out to do. The TEJNES software is thus an integral and indispensible to the multiplexer, without which the hardware cannot function. TEJNES software is an integral and indispensible requirement software, without which the multiplexer will have any functionality. The Operating System, Linux also loaded into the multiplexer cannot in any case by itself cannot make the multiplexer perform the functions it is required to do. The Ld. Advocate for the respondent has been at pains to contend to the contrary, however, no technical or expert evidence has been adduced to support those arguments. Thus, TEJNES takes the colour of embedded software - It is not a case of charging duty of software but it is a case of charging duty on the equipment which includes the value of such basic software. The TEJNES software has to be held as an integral and vital requirement of the multiplexers and as a software without the embedding of which, the hardware cannot function. Hence value of the TEJNES software will require to be included for the purpose of arriving at the assessable value and discharging duty liability - The impugned orders dropping the proceedings initiated in the related SCNs are therefore set aside and the matter remanded back to the adjudicating authority, only for the limited purpose of quantifying the differential duty liability, interest and penalty/ies as proposed in in the related SCNs - appeal allowed by way of remand.
Issues Involved:
1. Inclusion of TEJNES software value in the assessable value of multiplexers for excise duty purposes. 2. Classification of TEJNES software as embedded software. 3. Applicability of precedents and case laws on the inclusion of software value in hardware. Detailed Analysis: Issue 1: Inclusion of TEJNES Software Value in Assessable Value of Multiplexers The primary issue for decision is whether the value of the TEJNES software loaded into or supplied along with multiplexers should be added to the value of the multiplexers for arriving at the assessable value and discharging Central Excise duty. The department argued that the TEJNES software is embedded software and integral to the functioning of the multiplexers, thus its value must be included in the assessable value. The adjudicating authority had initially set aside the proposals, leading to the department's appeal. Issue 2: Classification of TEJNES Software as Embedded Software The department contended that the TEJNES software is an embedded software, essential for the functioning of the multiplexers. The respondents argued that the multiplexers could function independently on the Linux operating system, and the TEJNES software was customized and not always preloaded at the factory. However, the tribunal found that the TEJNES software is critical for the multiplexers' operation, making it an integral part of the hardware. The tribunal concluded that without the TEJNES software, the multiplexers would not be operational, and thus, it should be considered embedded software. Issue 3: Applicability of Precedents and Case Laws The tribunal examined various precedents and case laws, including: - Anjaleem Enterprises Pvt. Ltd. vs. CCE Ahmedabad: The Supreme Court held that the value of embedded software must be included in the value of the equipment. - CCE Pondicherry vs. Acer India Ltd.: The Supreme Court ruled that the value of operating software is not includible in the assessable value of computers. - Bharti Airtel Ltd. vs. CC Bangalore: The tribunal held that software preloaded in hardware should not be disintegrated for separate valuation. - Bhagyanagar Metals Ltd. vs. CCE Hyderabad-III: The Larger Bench of the tribunal concluded that hardware and its embedded software should be valued together. The tribunal followed the ratio laid down by the Larger Bench in Bhagyanagar Metals and other relevant decisions, determining that the TEJNES software, being embedded and integral to the multiplexers, must be included in the assessable value for excise duty purposes. Conclusion The tribunal concluded that the TEJNES software is an indispensable part of the multiplexers, without which the hardware cannot function. Therefore, its value must be included in the assessable value of the multiplexers for excise duty purposes. The impugned orders were set aside, and the matter was remanded back to the adjudicating authority for quantifying the differential duty liability, interest, and penalties based on this decision. The department's appeals were allowed.
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