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TMI Blog2009 (10) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... shed software packages/modules, will not qualify itself as a custom designed software. Further held that the imported PADO and BPOS software packages are only modified packaged software and are not eligible to the exemption under the Central Excise Notification No. 6/2006 dated 1-3-2006 as the benefit of the said Notification is admissible only to the Custom designed Software.We uphold the impugned Order passed by the Commissioner of Customs (Appeals) and reject the appeal. - C/811/2008-MUM - A/250/2009-WZB/MUM/C-I/CSTB, - Dated:- 8-10-2009 - S/Shri P.G. Chacko, Member (J) and A.K. Srivastava, Member (T) S/Shri A. Hidayatullah, Sr. Advocate with S. Vijay Kumar, Advocate, for the Appellant. Dr. T. Tiju, SDR, for the Respondent. [Order per: A.K. Srivastava, Member (T)]. - This is an appeal filed by M/s. Steag Encotec (India) Pvt. Ltd. (the appellant herein) against the Order-in-Appeal passed by the Commissioner of Appeals (ACC). 2. The brief facts of the case are as follows: The appellant has imported Performance Analysis and Diagnostic Optimization System (PADO) software package and Boiler Performance Optimization System software package (BPOS) vide four Bills o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that they were given licences for each software. He submitted that there could not have been any post-sale condition to utilize "off the shelf software". Hence, he contended that the software imported was indeed customized software. It is also the ld. Counsel's submission that the benefit of the notification is unavailable only for packaged software i.e. software developed to meet the need of variety of users, which is capable of being sold "off the shelf". 3.5 He further contended that once there was a technical opinion 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 Central Excise reported in 1995 (77) E.L.T. 485 (S.C.) and in the case of Mahindra Sintered Products Ltd. v. Collector of Central Excise reported in 1994 (71) E.L.T. 563 (Tri.) 3.6 The ld. Counsel stated that their assertion regarding the fact that the software was prepared for each unit based on design and operating conditions, which may vary from one power plant to another, has been totally ignored and the Revenue has arrived at its own conclusion contrary to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n successfully installed and employed in different power plants across the world. He further referred to the Standard Technical Specifications prescribed for Main Plant Package of Sub Critical Thermal Power projects brought out by the Central Electricity Authority, Ministry of Power, Govt. of India, which specifies PADO software and BPOS as the standard packages to be employed in such coal based thermal power plants. 4.3 The ld. SDR submitted that the facts like software to be handed over to BHEL within a short span of 6 weeks as per the agreement, the ownership rights still remaining with Steag Ketek IT GmbH, the software to get regular updates and upgrades just like a standard software - all point to the fact that the same is a standard/packaged software. 4.4 The ld. SDR submitted that based on the above evidences, it can be seen that it is the same product Steag Ketek has developed, which is supplied to the clients with some modifications so that it can work better in their environment. He thus contended that the impugned software is not at all custom designed to merit exemption as per the relevant notification. 5. Heard both sides and perused the records. 6. The main is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was packaged software or customized software. He contended that in the present case, the software was customized in Germany as per the needs of BHEL, after due consultation with BHEL and NTPC, and hence at the time of import, the software was customized and hence as per the decision cited above, the benefit of the notification should be extended to them. 6.1.2 The ld. SDR, on the other hand, submitted that in the case of Yokogawa, the issue of 'what amounts to customization of software' was neither agitated nor contested. This is not the case here, where the main issue being contested is whether the software needs to be developed from scratch or whether it just needs to be modified to qualify for the said exemption notification. He submitted that the issue in the case of Yokogawa was decided mainly on the fact that the Customs duty should be chargeable on the goods, as they were at the time of import. He also submitted that this being a Central Excise notification, the CVD on import is only secondary and the major aspect to be kept in mind on interpreting the notification is regarding the levy of Central Excise duty on the software. 6.1.3 We note that the subject notificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r own opinion for the classification of the goods" 6.3.2 The ld. SDR, on the other hand, relied on the judgment in the case of Novopan India Ltd. v. Collector of Central Excise and Customs, Hyderabad as reported in 1994 (73) E.L.T. 769 (S.C.), the relevant Paragraph 12 of which reads as under: "Learned Counsel for the appellant sought to rely upon the affidavits of experts filed by him before the Tribunal which according to him prove that, commercially speaking, particle boards and MFPBs are one and the same product. The Tribunal has declined to place any reliance on these affidavits for more than one reason. So far as Dr. Joseph, one of the experts is concerned, the Tribunal has pointed out, and rightly in our opinion, that he has been associated with the appellant-company from the beginning, as admitted by the said person himself. The other person Shri A.C. Shekhar was also found to be associated with the appellant-company. Both of them deposed before the Tribunal that they did not witness the process of manufacture nor were they able to comment upon the process of manufacture contained in the brochure referred to hereinabove. From a reading of their affidavits, the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed has used his personal knowledge and if he does so, he becomes a witness in the proceedings and cannot adjudicate the subject case. He has relied on the decisions in the case of Advani Oerlikon Ltd. Anr v. UOI reported in 1981 (8) E.L.T. 432 (Bom.) and Pudumji Paper Mills v. UOI reported in 1991 (51) E.L.T. 273 (Bom.). We have perused the said decisions. We find that such intent is neither forthcoming from any of these decisions cited by the ld. Counsel nor can it be construed from these decisions that on using personal knowledge, one becomes a witness in the proceedings and hence cannot adjudicate. It is true that quasi-judicial authorities should not decide issues purely based on their personal knowledge. However, personal knowledge of the adjudicating authority is undoubtedly valuable in appreciating evidence available before him as rightly held by the Tribunal in the case of National Leather Cloth Mfg. Co. v. Commissioner of Central Excise, Mumbai reported in 2003 (160) E.L.T. 672 (Tri.-Mumbai). In the present case, we find that the adjudicating authority has used his personal knowledge to appreciate the evidence before him in a better manner and that cannot be faulted with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the fun?" (ii) At page 70-74 of the Paper Book, there is a 4-page web material under the title 'Chocolate Review'. In this web material, various names of Chocolate Bars are shown. Nestle Milkybar Choo is also shown as chocolate at page 72. (iii) At page 84 of the Paper Book, the web material says, inter alia as follows: "The milkybar choo, the greatest Chocolate bar of all times." (iv) At page 85 of the Paper Book, there is a web material under the title 'Nestle Milkybar Choo - Read Reviews'. It says, inter alia, as follows: "Its CHOO good to be true. Review of Nestle Mikybar choo by James Brock. Advantages: Delicious blend of white chocolate and fudge. Disadvantages: They do' not last very long." 27. From the above web materials, it is clearly established that the appellant not only recognizes 'Milkybar Choo' as 'white chocolate' but also sells it in the market as 'white chocolate'." 6.6.4 Hence, we hold that even the website extracts can be taken as corroborative evidence, though caution should be exercised to examine the relevance and authenticity of the same. In this case, we do not find any reason to disregard the printouts of the supplier's and importer's we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese shall be further refined wherever required based on the observations during this FAT." This means that the same systems have been used and only corrections and refinement done to opt get the software going in Simhadri, Ramagundam and Rihand. (c) As per the System Design Document (SDD) submitted by BHEL, the PADO software consists of SRv, SR1, SR4, SRnt, SRopt components. The SDD mentions inter alia that, SR1 is employed successfully in many different power plant units either as standalone application or in combination with other SR modules like SRv for data reconciliation or SR4 for optimization of power plant operation. As a standard, SR1 has been designed to run on Windows NT as a client/server system. It includes a specific data management system as well as a powerful visualization module. The required data are exchanged with the process control system or with external data management systems via standard interfaces. For system handling and visualization of calculation results on the customer owned LAN/ WAN licence free clients in any number are available. It also mentions that "SR4 has been successfully installed on several power plants and can be operated in combin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ope of contractor. The PADO system shall provide the following functions in a modular and seamlessly integrated environment using a common plant model and a dynamically shared database." The Ld. SDR submitted that the Specifications document brought out by CEA clearly specifies PADO software and BPOS as the standard packages to be employed in such coal based thermal power plants. 6.7.3 The ld. SDR contended that this goes to mean that the various modules of PADO and BPOS are standard software products of the developer M/s. Steag Ketek IT GmbH. They have been just suitably adapted or modified to suit the specific parameters of each power plant so that it can work better in their environment. 6.8.1 The ld. Counsel of the appellant also submitted that there is a strict condition that the software should be used only in the specified plant and that they were given licence for each software. He referred to the letter dated 3-3-2006 from M/s. Steag Ketek IT GmbH to M/s. Steag Encotec India Pvt. Ltd. intimating the licences for the software to be used in Ramagundam plant Unit 7. He pointed out that the letter mentions that the licensed software is configured and restricted for use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicative of the software being packaged, where the developer retains all proprietary knowledge of the software. In the case of custom designed software, the ownership of the software is given to the client with full rights to use them as he needs. Thus the restrictions and licence effectively point towards the packaged nature of the software. 6.9 The ld. SDR also submitted that there are a few more aspects, which prove that the impugned imported software is not custom designed software. (a) He pointed out that as per the minutes of the meeting referred to above, the licensed software was to be handed over to the client within a period of 12 weeks. He pointed out that the entire processes of the software development life cycle including any modifications, bug testing, bug fixing and final release all have to be completed within such a short period and hence the modification can only be epidermal and not at the fundamental level. This again shows that the software is packaged software, which is just modified according to the needs. (b) He also referred to the Commercial Terms and Conditions as annexed to each purchase order, wherein after sales support is detailed. The paragrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he question of 'customizing by BHEL' does not arise at all. In reply to a specific query from the Bench, the ld. Counsel of the appellant has in his written synopsis submitted that this was applicable only to Vindhyachal, Kahalgaon, Sipat and Talcher and not to other locations. The entire customization of the software to the design conditions including the dimension and material specifications of the boiler in particular will be done by Steag in Germany. Thereafter, the software is installed at site. BHEL will be responsible for further fine tuning to suit the local ambient conditions of temperature, pressure, humidity etc. 6.10 Taking into consideration all aspects as discussed above, we find that the impugned software/its constituent modules did exist prior to importation and have been installed and employed in many coal based power plants in many parts of the world including India. We also find that the licensing angle and the withholding of the proprietary rights by the software developer also point strongly towards a packaged software. This is further strengthened by the small latent period from the order to the delivery of the software and the fact of regular upgrades/relea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied to work for a specific company to keep track of and cross reference information or users in a definite way. It can be any software made to do a specific function not available otherwise." 7.2.2 It is also the ld. Counsel's submission that the benefit of the notification is unavailable only for packaged software i.e. software developed to meet the need of variety of users, which is capable of being sold "off the shelf" and any software other than packaged software will be eligible to the exemption. He pointed out that packaged software is synonymous to a CD, a cassette, a tape or such other specified product, which has specific pre-designed known purpose and usage. In this case, he submitted that the impugned goods were not developed to meet the need of variety of users like various power plants. The software is specific as modifications, adaptations and changes in configurations have been carried out taking into consideration the needs of each of the plants. He further submitted that "off the shelf software" in this case would be a standard product of known advertised technical specification of qualities and technical capabilities, which will not fit into any power plant of B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: "18. We are, however, of the opinion that, on principle, the decision of this Court in Mangalore Chemicals and in Union of India v. Wood Papers referred to therein represents the correct view of law. The principle that in case of ambiguity, a taxing statute should be construed in favour of the assessee - assuming that the said principle is good and sound - does not apply to the construction of an exception or an exempting provision; they have to be construed strictly. A person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision. In case of doubt or ambiguity, benefit of it must go to the State. This is for the reason explained in Mangalore Chemicals and other decisions, viz., each such exception/exemption increases the tax burden on other members of the community correspondingly. Once, of course, the provision is found applicable to him, full effect must be given to it. As observed by a Constitution Bench of this Court in Hansraj Gordhandas v. H.H. Dave [1978 (2) E.L.T. (J 350) (S.C.)= 1969 (2) S.C.R. 253] that such a Notification has to be interpreted in the light of the wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nexempted class of tax payers and should be construed against the subject in case of ambiguity, it is an equally well known principle that a person who claims an exemption has to establish his case. Indeed, in the very case of Parle Exports (P) Ltd. relied upon by Shri Narasimhamurthy, it was observed: "While interpreting an exemption clause, liberal interpretation should be imparted to the language thereof, provided no violence is done to the language employed. It must, however, be borne in mind that absurd results of construction should be avoided." The choice between a strict and a liberal construction arises only in case of doubt in regard to the intention of the legislature manifest on the statutory language. Indeed, the need to resort to any interpretative process arises only where the meaning is not manifest on the plain words of the statute. If the words are plain and clear and directly convey the meaning, there is no need for any interpretation. It appears to us the true rule of construction of a provision as to exemption is the one stated by this Court in Union of India v. Wood Paper Ltd. [1990 (47) E.L.T. 500 (S.C.) = 1990 (4) SCC 256]: "...Truly speaking liberal a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. To the same effect is the view expressed by Sir Raymond Evershed in Routledge v. McKay Ors. [1954 (1) A.E.R. 855]. The learned Master of Rolls observed: "on the authorities, that exemption, as I understand, should be liberally interpreted." 18. We are, however, of the opinion that, on principle, the decision of this Court in Mangalore Chemicals - and in Union of India v. Wood Papers referred to therein - represents the correct view of law. The principle that in case of ambiguity, a taxing, statute should be construed in favour of the assessee - assuming that the said principle is good and sound - does not apply to the construction of an exception or an exempting provision; they have to be construed strictly. A person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision. In case of doubt or ambiguity, benefit of it must go to the State. This is for the reason explained in Mangalore Chemicals and other decisions, viz., each such exception/exemption increases the tax burden on other members of the community correspondingly. Once, of course, the provision is found applicable to him, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he submissions of the ld. SDR that when there is a clear cut meaning attributed to customized software in the notification itself, then the dictionary meaning or description as given in 'wikianswers.com' cannot override the same. 7.4.6 When we apply the rationale as laid down by the Hon'ble Supreme Court in the case of Novopan cited supra and construe the subject notification strictly, we are of the considered opinion that only 'custom designed software' can pass the acid test of eligibility to the exemption and that the party will have to categorically prove the same to claim the exemption. There is no scope for any ambiguity here. Even if there had been any doubt, still, as per the said Judgment, the same has to be construed in favour of the Revenue only. 7.4.7 There is considerable force in the ld. SDR's argument that if the argument of the appellant that even modification/tuning/adaptation of standard software will make it a customized software is accepted then that would defeat the very purpose of the notification. This would undoubtedly lead to unintended benefits. 7.5 We, therefore, hold that the software has to be developed from the basic building blocks, whereby a ne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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