2000 (1) TMI 177 - SC - Customs

Whether or not the royalty/licence fees needed to be included in the value of the imported goods? Held that - Under the agreement user is specifically limited to licence sites. Transaction as a whole is to be seen. Press Note is of no help to the SBI. Rule 9(1)(c) and the interpretative note thereto did not apply as nothing was added to the price actually paid for the imported goods by way of royalties etc. Refund would be allowable only if there was something added on to the royalty payment which was not in the present case. The invoice originally presented was complete in itself. Second invoice was not filed along with the Bill of Entry. In the second invoice also it is licence fee for right to use countrywide and it is not right to reproduce as claimed by the SBI. Schedule I to the agreement is module and copies are modalities for the use of software by the SBI with various restrictions. If we again refer to clause 6.4 of the agreement there is a complete restraint on SBI which says SBI shall not use, print, copy, reproduce or disclose the software or documentation in whole or in part except as is expressly permitted by the agreement nor shall SBI permit any of the foregoing. SBI is also barred from allowing access to its software or documentation except what is permitted under the agreement. Again SBI is barred from selling, charging or otherwise making the software or documentation available to any person except what is expressly permitted under the agreement. Clause 6.5 of the agreement says that SBI shall not copy or permit copying of the software supplied to it by Kindle save as may be strictly required for delivery to licence sites. The terms of the agreement also apply to the copies. Having thus examined the terms of the agreement between M/s. Kindle Software Ltd., Dublin, Ireland and the State Bank of India for supply of software and the Rules regarding valuation as contained in Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 and the Press Note, we are of the opinion that the stand of the revenue is correct. The State Bank of India is not entitled to any refund of the custom duty paid. We uphold the order of the Customs, Excise and Gold (Control) Appellate Tribunal rejecting claim for refund of custom duty. Appeal dismissed.

Issues Involved:
1. Refund of custom duty under Section 27 of the Customs Act, 1962.
2. Interpretation of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, specifically Rule 9(1)(c) and its Interpretative Note.
3. Applicability of the Press Note dated March 17, 1992 by the Department of Electronics, Government of India.

Detailed Analysis:

1. Refund of Custom Duty:
The State Bank of India (SBI) sought a refund of custom duty amounting to Rs. 10,86,49,119/- paid on a consignment of computer software and manuals imported from Kindle Software Ltd., Dublin, Ireland. SBI argued that the duty was incorrectly levied on the total invoice value of US $4,084,475.00, which included a countrywide licensing fee. SBI contended that the duty should only be levied on the software's cost for a single site, which was US $401,047.00, including the cost of manuals and diskettes.

2. Interpretation of the Customs Valuation Rules:
The SBI's claim was based on the interpretation of Rules 2, 3, 4, 9(1)(c), and 12 of the Customs Valuation Rules, 1988, and the Interpretative Note to Rule 9(1)(c). SBI argued that the licensing fee for the right to use the software countrywide should not be included in the customs value, as per the Interpretative Note to Rule 9(1)(c), which states that charges for the right to reproduce imported goods in the country of importation should not be added to the price actually paid or payable for the imported goods.

3. Applicability of the Press Note:
SBI also relied on the Press Note dated March 17, 1992, which directed that custom duty was not to be levied on reproduction charges. The Press Note aimed to reduce the prices of imported software and save foreign exchange by allowing duplication/reproduction of imported software in India without attracting excise duty. SBI argued that the countrywide licensing fee was essentially a reproduction charge and thus exempt from customs duty.

Judgment Analysis:

1. Tribunal and Lower Authorities' Decisions:
The Assistant Collector, Collector (Appeals), and the Tribunal all rejected SBI's refund claim. The Tribunal's decision was based on the interpretation that the countrywide licensing fee was not a reproduction charge but a fee for the right to use the software across multiple sites.

2. Supreme Court's Interpretation:
The Supreme Court upheld the Tribunal's decision, emphasizing that the agreement between SBI and Kindle did not grant SBI the right to reproduce the software but only the right to use it at various sites. The Court noted that the software remained the property of Kindle, and the license fee was for the use of the software, not for reproduction. The Court also highlighted that the original invoice did not show any split-up of charges, and the subsequent detailed invoice appeared to be an afterthought.

3. Applicability of the Press Note:
The Court found that the Press Note did not apply to SBI's case, as the note was intended for commercial exploitation of imported software, not for internal use by an organization like SBI. The Court concluded that the countrywide licensing fee could not be considered as charges for the right to reproduce the imported software.

Conclusion:
The Supreme Court dismissed the appeal, holding that the countrywide licensing fee was part of the transaction value and subject to customs duty. The Court affirmed that SBI was not entitled to any refund of the custom duty paid, as the licensing fee for the right to use the software countrywide did not qualify as reproduction charges exempt from customs duty under the Interpretative Note to Rule 9(1)(c) or the Press Note. The appeal was dismissed with costs.

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