9911796707
TMI Blog2009 (10) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... e Department's view that the same is not custom designed software and hence ineligible for the exemption under the said notification was confirmed by the adjudicating authority and upheld by the Commissioner (Appeals). Hence this appeal. 3. The main contention of the ld. Counsel of the appellant is that the Commissioner (Appeals) grossly misinterpreted the Excise Notification No. 6/2006, which grants exemption from the Central Excise duty to customized software and denied the benefit of the same to the customized software made specifically for each power plant of BHEL. 3.1 The ld. Counsel has submitted that the software has been customized specifically for each plant of BHEL and hence the issues such as ownership of the software, the necessity to develop the software entirely from scratch etc., which are not parts of the notification cannot be the grounds for denying the exemption. 3.2 The ld. Counsel has relied on the decision of the Tribunal in the case of Yokogawa India Ltd. v. Commissioner of Customs, Bangalore as reported in 2008 (226) E.L.T. 474 (Tri. Bang.). He contended that the judgment means that it does not matter whether the software is just modified from standard so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an example of chapattis in an attempt to classify the software. The chapattis, which are normally made, are standard chapattis. If in case someone demands chapattis in diamond shape, the standard chapattis are cut into diamond shape and served, which would be customized chapattis (still maintaining the qualities of standard chapattis). In case, chapattis are made for a heart patient keeping in mind his specific requirements, right from the start of making of the dough, care would be taken to add a bit of Soyabean powder, add less salt and less oil. The chapattis thus made would be custom made chapattis. He stated that, in a similar manner, software can be standard or canned software; standard software, which can be customized by modifying the existing software; and custom made or custom designed software, where the software is designed right from the beginning keeping in mind the exact requirements of the client. 4.1 The ld. SDR submitted that the wording of the notification is unambiguous and customized software at Sl. No. 27 of Notification No. 6/2006-C.E., dated 1-3-2006 has been clarified to mean custom designed software. He also submitted that the intention of the Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the software for each plant is specifically designed taking into consideration the parameters and specifications of each power plant. For this purpose, the data from each plant is made available to Steag Ketek IT GmbH and the customized software is developed accordingly. He referred to the Factory Acceptance Test (FAT), which referred to the testing of PADO software based on the simulated input data derived from BHEL plants. He also referred to the System Design Document and pointed out that there was a separate System Design Document for each power plant based on the specific parameters. He also referred to the minutes of the meeting held in Germany on 29-7-2005 and 30-7-2005 between M/s. Steag Germany/India and BHEL EDN for procurement of PADO packages for NTPC projects. He submitted that all these indicate that the pre-customization discussions had taken place and based on the same, customization of the software has taken place in Germany and the software imported was customized software. 6.1.1 He relied on the decision of the Tribunal in the case of Yokogawa India Ltd. v. Commissioner of Customs, Bangalore as reported in 2008 (226) E.L.T. 474 (Tri.-Bang.), wherein the benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the software to the benefit of the notification is to be decided, it is prudent to look at the issues on a wider compass. We are of the view that when the basic issues are being agitated in this appeal, a decision, which has not dealt with the same, cannot be held to squarely cover the case in hand. 6.2 Having said so, the first issue now before us in this case is the determination of the exact nature of the software, which is imported by the appellant. Once the exact nature of the software is determined, the applicability of the notification can be taken up for decision. 6.3.1 It is pertinent here to consider the submissions of the ld. Counsel that there is an expert opinion tendered by BHEL about the nature of the impugned software. He submitted that BHEL, vide their letter dated 29-11-2006, have said that the said software is customized software and hence that expert opinion should be the basis for deciding the same. It is also his contention that once a technical opinion is given, the adjudicating authority was bound to take equal expert opinion, if the same had to be refuted or discarded. He relied on the decisions in the case of BPL Pharmaceuticals Ltd. v. Collector of Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove reasons, the Tribunal declined to accept their bare assertion that MFPBs can be described as unveneered particle boards. We cannot say that the reasons given by the Tribunal for rejecting the said affidavits are either irrelevant or unsustainable. The said affidavits, therefore, do not advance the appellant's case in any manner." The ld. SDR, therefore, submitted that the Supreme Court has thus decided that the opinion of the interested parties cannot be considered as relevant and sustainable. 6.3.3 The ld. SDR, in this regard, referred to the Commercial Terms and Conditions annexed to each purchase order of the software, the relevant Para 3 of which reads as under: "Customs Duty: Presently Nil. In case if the customs duty is applicable during the tenure of the contract, the same shall be reimbursed by BHEL against documentary evidences." 6.3.4 He contended that since the duty incidence, thus, being directly on BHEL, the opinion of BHEL cannot be considered as an expert opinion in the light of the Hon'ble Supreme Court judgment cited above. He submitted that in the given scenario, it can only be considered as a letter to thwart the duty liability and hence the adjudicating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r adjudication need to be considered. He relied on the decision in the case of Blue Star Ltd. v. UOI reported in 1980 (6) E.L.T. 280 (Bom.) and Leukoplast India Pvt. Ltd. v. UOI reported in 1985 (20) E.L.T. 70 (Bom.) to substantiate this aspect and pointed out that at the time of adjudication, the ld. adjudicating authority has relied on the website printouts of Steag Encotec. 6.6.2 The ld. SDR, on the other hand, submitted that the relevant company website extracts cannot be considered as advertisements. A website is an identity of the company on the web, detailing the various aspects of a company in addition to many optional features, which is open to the people all over the world, who can access the internet. It has to be presumed that such a big company like Steag GmBH or Steag Encotec will not give wrong facts on their own website. 6.6.3 We have seen the documents as were available before the adjudicating authority as well as the ones presented before us. Even at this stage, the ld. Counsel and the Ld. SDR have produced website extracts from wikianswers.com. In today's world, the role of internet in gathering information cannot be underestimated. We do not find any improprie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... printouts of two websites, one which describes 101 ways to customize Microsoft Office ™ and the other which describes ways and means to customize Microsoft Windows ™. He submitted that customizations made like this on canned/packaged software like Microsoft Office ™ and Microsoft Windows ™ to suit the specific requirements of the client or customer cannot render it custom designed software and they would be aptly called modified or customized standard (packaged) software. 6.7.1 The ld. Counsel has submitted that the imported software is customized software whereas the ld. SDR maintained that the software was not a custom designed software, but was a standard or packaged software, which has been modified/adapted for BHEL so that it can work better in their environment. 6.7.2 The ld. Counsel argued that the imported software is customized software, which is specifically made for each plant based on the specific parameters and design of each plant. The ld. SDR countered this by pointing out that the standard software/its standard components or modules are installed in different power plants across the world. He relied on the following documents in support: (a) PADO and BPOS are t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any client terminal. This means that the components are installed in many power plants worldwide. (d) A news item "German Software optimizes Indian power plants" which mentions about Steag Ketek winning contract to monitor and optimize 14 more power plants of NTPC in India. (e) A Power Point Presentation of Steag Encotec, which mentions that (i) it owns and operates around 11000 MW of installed capacity of coal, gas and refinery residue based power plants (90% of which is coal based) (ii) it has developed projects in Germany, USA, Columbia, Turkey, Philippines etc. (iii) Steag Ketek has been developing and supplying Energy management systems viz. SR1 (Lifetime monitoring), SR2 (Energy Management), SR3(Energy controlling). SR4 (Power plant Optimisation), SR5 (Power trade system), SRv (Data validation), SRp (Strategic forecast), SRk (Power cycle evaluation) etc. (f) Standard Technical Specifications prescribed for Main Plant Package of Sub Critical Thermal Power projects brought out by the Central Electricity Authority (CEA), Ministry of Power, Govt. of India. The CEA with the help of major utilities and equipment manufacturers like NTPC, BHEL, MAHAGENCO, APGENCO, WBPDCL, R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) He submitted that these conditions indicate only a licensing angle and the very fact that they are specifically prohibited for further use in any plant or site implies that they are capable of being used in other sites as well. If the same cannot be absolutely used in any other plants or sites, there is no point in such a restriction/warning. Further, it is standard or canned software, which will need licences to prevent unauthorized duplication/copying/use of the same. Classical examples are MS Office, MS Windows etc., which are undisputedly standard or canned software, which are protected by a licence and the licence agreement stipulates that the same are also specific to the system/network/site/domain as per the situation. A plain reading of the End User License Agreement (EULA) of these canned software will make it amply clear that they are licensed for a specific site/domain/plant/machine. (b) He contended that this restriction also means that the ownership of the software is still with Steag Ketek IT GmbH, which also is a strong indication that the software is not custom designed for BHEL. To support his arguments, he has referred to the letter of Steag Encotec submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kaged software. He referred to an Income-tax case regarding the allowability of expenditure on custom built and canned software as business expenditure viz. Commissioner of Income Tax v. GE Capital Services Ltd, reported in (2007) 164 TAXMAN 46 (DELHI). The Hon'ble High Court of Delhi in this case has observed as under: "3. The only question that has arisen in this case pertaining to the assessment year 1997-98 is that expenditure incurred by the assessee on software was treated by the assessing officer as capital expenditure. The Tribunal was of the view that due to technological changes and the need to upgrade the software on a regular basis, it cannot be said that the software was of an enduring nature. 4. We are informed that the software for which the expenditure was incurred was MS office; which is not a custom built software for the assessee and it is common knowledge that this software requires regular upgradation. 5. We can understand that where customized software is prepared then, it could be of an enduring nature, but in this case, MS Office is not customized software and it cannot be said that the software does not require frequent upgradation" The ld. SDR submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts mentioned above, we are in full agreement with the ld. SDR that the impugned software is in the nature of packaged software. However, we also note that the same have been modified to suit the various parameters as required by the power plants. Hence, we hold that the impugned imported PADO software and BPOS software packages are modified packaged software. 7. Having come to a conclusion that the software packages viz PADO and BPOS imported by Steag Encotec are preexisting software, which were modified to suit the relevant parameters of the power generation plants, we, now have to examine whether the software is eligible to the exemption under the Central Excise Notification No. 6/2006 dated 1-3-2006. 7.1 The description of the entry at Sl. No. 27 of the said Notification reads thus: "Any Customized software (that is to say, any custom designed software, developed for a specific user or client), other than packaged software or canned software. Explanation - For the purposes of this entry, "packaged software or canned software" means a software developed to meet the needs of variety of users, and which is intended for sale or capable of being sold, off the shelf" Thus, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lative intent is made clear with that expression. 7.3.2 He also submitted that the intention of the Government can also be inferred from the Service Tax Circular 81/2/2005-ST dated 7 October, 2005, the relevant part of the Para 3 reads as under: "........In the case of unbranded/customized software, the supplier develops the software and thereafter transfers the software so developed in a media and it is taken to the customer's premises for loading in their system..." The ld. SDR submitted that the description finds mention in the Service Tax as well and there also it is mentioned in no unclear terms that in the case of customized software, the supplier develops the software. The same does not talk about modifying/tuning/adapting/customizing the software. He submitted that this description is pari materia to the description in Central Excise and hence should be considered as a pointer to the Government intent. 7.3.3 It is the ld. SDR's contention that what 'customized software' means is clearly specified in the statute and hence no other interpretation or meaning will prevail over the same. When the Indian statute is clear, there is no point relying on other statutes. 7.3.4 H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he subject notification also, being an exemption notification, should be construed strictly and if at all there is any ambiguity, the benefit should go to the State. He also submitted that this being an exemption notification, which is available specifically for custom designed software only, anything other than custom designed/developed software will go out of the purview of the exemption. He submitted that even well established canned or packaged software can be customized in many ways and if mere modification/tuning/adaptation/customization of a standard or packaged software will render itself to be considered as custom designed software, then that would render the notification to immense misuse, in the realm of both Central Excise and Customs. 7.4.1 We note that the Hon'ble Supreme Court in the case of Novopan India Ltd. cited supra, after lengthy deliberations on the issue of interpretation of exemption notifications has held thus: "13. The learned counsel for the appellant then contended that since there is an ambiguity about the meaning and purport of Item 6 of the table appended to the Exemption Notification, the benefit of such ambiguity should go to the assessee-manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be given to it and it calls for a wider and liberal construction...." 15. This was also the view expressed in the Commissioners of Inland Revenue v. James Forrest [(1890) 15 A.C. 334] where Lord Halsbury, L.C. observed: "all exemptions from taxation to some extent increase the burden on other members of the community ...." and in Littman v. Barron (Inspector of Taxes) [1951 (2) A.E.R. 393], a decision of the Court of Appeal where Cohen, L.J. said: "the principle that in case of ambiguity a taxing statute should be construed in favour of a taxpayer does not apply to a provision giving a taxpayer relief in certain cases from a section clearly imposing liability." 16. It is true that in some decisions a contrary view appears to have been expressed. In Caroline M. Armytage & Ors. v. Frederick Wilkinson [(1878) 3 A.C. 355], a decision of the Privy Council, it was observed: "Their Lordships have now to consider whether the decision of Mr. Justice Molesworth upon the merits of the application to him is correct. They must begin by expressing their dissent from the principle which seems to have influenced Mr. Justice Molesworth in this and some of the earlier cases, viz., that the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be had to the clear meaning of the words and that the matter should be governed wholly by the language of the notification, i.e., by the plain terms of the exemption." 7.4.2 Thus the two stages of interpreting the exemption notifications in the case of doubt are very clearly laid down. At the stage when there is a doubt whether a subject falls in the notification or in the exemption clause; then, it being in nature of exception has to be construed strictly and against the subject. It will be the liability of the person who invokes the exemption provision to relieve him of the tax liability to clearly establish that he is covered by the said provision. At this stage, if there is any doubt or ambiguity, the Hon'ble Apex Court rules that exemption, being an exception, the benefit should go to the State. The Hon'ble Court also notes that exemptions from taxation have a tendency to increase the burden on the other unexempted class of tax payers and underlines the further rationale why it should be construed against the subject in case of ambiguity. 7.4.3 The second stage is obviously after the first i.e. when it is proved that the subject falls well within the ambit of the notifi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
