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TMI Blog1994 (9) TMI 166X X X X Extracts X X X X X X X X Extracts X X X X ..... n particular attention to `a Big Package of Incentives by Government of India at S. No. 6 of the brochure which is as follows :- 6. Duty-free import of capital goods and equipment from preferred sources. He has also drawn attention to the application dated 16th October 1987 in which the applicant stated against the column `items to be manufactured in NEPZ and annual capacity with FOB value exports (yearwise for 5 years) as follows :- Computer consultancy for the overseas market and Computer Software Development. Annual capacity will be based on contracts received and export man-power availability." This application was approved by the Government of India in the Ministry of Commerce vide its letter dated 16th Dec., 1987 indicating the items of manufacture and the annual capacity as follows :- Year Item of manufacture Annual capacity (Rs. in lakhs) 1st Computer consultancy and computer software development 195 2nd -do- 228 3rd -do- 262 4th -do- 315 5th -do- 341 He has also drawn attention to the Government of India s Policy on Computer S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating authority is against the facts and circumstances of the case. The applicant had clearly stated that his item of manufacture is going to be computer consultancy in the overseas market. This was duly approved, as stated, by the Government of India. In the face of these facts it is not proper for the department to turn back and say that the benefit of Notification 339/85-Cus. does not apply to them because nett foreign exchange earnings on account of computer consultancy cannot be taken as having met the export obligation of the applicant. He has also submitted that there is nothing in the definition of `goods in Section 2(22) of the Customs Act which expressly excludes `services from the definition of the said goods. He submits that in view of all the facts being placed before the Government and Government having accorded the approval to export of consultancy among other software the word `goods should be construed as including `services and should be given a liberal construction as held in the case of Senior Electric Inspector and Others (Appellants) v. Laxminarayan Chopra and Another (Respondents) [AIR 1962 SC 159]. In the said judgment, submits the learned counsel, the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion `telegraph line is sufficiently comprehensive to take in the wires, used for the purpose of the apparatus of the Post and Telegraph Wireless Station." 2.3. Learned advocate has further submitted that in terms of the Notification 339/85-Cus., the Collector of Customs has no jurisdiction to monitor export obligation which is the duty cast on the Development Commissioner of the NEPZ. Consequently, he cannot demand duty in terms of the said notification. In support of the latter proposition, he also submits that Notification 339/85 envisages only one circumstance under which the applicant is liable to pay duty. That circumstance is set out in condition No. (vii)(a) of the said notification i.e. when the capital goods are not proved to the satisfaction of the Collector of Customs to have been installed or otherwise used within the Zone. He submits that there is no allegation that the capital goods imported by the applicant have not been installed or used within the Zone. He further submits that all the terms of the notification have been satisfied as follows :- (i) the applicant has been authorised to establish a manufacturing unit in the Zone; (ii) the applicant has been g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contracts which were duly intimated from time to time in submission of the applicant s accounts in terms of the notification to the Development Commissioner which are directly correlated to the goods at NEPZ because the goods ₹ 1100 Platform in the various Units of the applicant are installed only at NEPZ and these contracts executed abroad and against which net foreign exchange has been earned to the tune of over Rs. 2 crores are, therefore, directly relatable to the goods at NEPZ. 4. We have carefully considered the pleas advanced on both sides. We observe that the full facts regarding their activities had been disclosed by the applicants and the nature of export obligations to be undertaken by them when they had indicated consultancy for overseas market abroad as one of the items to be manufactured by them and was duly approved by the Government of India before establishment of their unit at NEPZ. In these circumstances, it would not be correct for the authorities below to take a view prima facie that services are not goods and therefore, the applicant has not fulfilled export obligation or is not capable of fulfilling so. Rest of the requirement that the goods are to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other facts and documents referred during the arguments. 7. We had heard extensively ld. Sr. Advocate Setalwad and the ld. SDR. We have also gone through in detail the entire facts and circumstances of the case and the evidence on records and also the case law cited before us. 8. The allegations in the show cause notice dated 16-3-1992 are that the applicant had submitted their project report to the Ministry of Commerce alongwith their application for approval to set up an Industrial Unit in NOIDA Export Processing Zone (NEPZ). They had stated in their application among other things that the plant and machinery as well as raw-materials, components etc. imported by them would be used for production in NEPZ of goods wholly for export. The Ministry of Commerce vide letter of approval dated 16th December, 1987 approved their project and authorised them to set up an Industrial Unit at NEPZ for manufacture of computer consultancy and computer software development for export subject to certain conditions. One of the conditions was that the net average value addition achieved by them during the first five years was not to be less than 60%. On the basis of their letter of approval refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey had furnished any information establishing overseas development of manpower for execution of the contracts (it has to be observed here that after hearing Shri Setalwad for a whole of morning session on 5-3-1993, the Bench felt that the applicant was required to place before us for scrutiny of these contracts, invoices etc. The same had been placed vide application on the date of final hearing of this stay application on 22-4-1993). The show cause notice alleges that the applicant had not intimated the department of the execution of so-called export orders and the same had remained unauthenticated, as they had not submitted any export documents or information to the Customs for verification. Therefore, it has been alleged that the applicants are not engaged in manufacture or production of goods for export and are not utilising the goods imported by them in their unit inside NEPZ for the purposes of manufacture or production of goods for export as required under their Letter of Approval and the said Customs notification. Hence the applicants were alleged with the contravention as stated in the show-cause notice and were called upon to pay the said customs duty amount and also were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. At page 5 of their reply to the show-cause notice they have denied that their NEPZ unit is primarily engaged in training of personnel whereas in their letters dt. 5-10-1990 and 23-10-1991, they have themselves declared that the goods imported in their NEPZ unit are used for training of personnel. Just after denial, they have submitted in their reply that such training is essential and not prohibited. These two submissions made by them are self-contradictory. They have also declared that their consultancy exports are provided on site abroad and they send computer engineers trained on the goods imported in the Zone to their clients locations abroad for execution of export orders at clients site. Such activity is not covered by the provisions of the aforesaid customs notification which clearly stipulates that production activities should be confined within the said zone . During the personal hearing, they have submitted that the notification should be given proper interpretation so as to include export of services which are much wider than the restrictive term goods used in the notification and also that under Customs Act, goods have a wider definition which is an inclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... software exports to take a quantum jump and capture, sizeable in international software market. 2.To promote the integrated development of software in the country for domestic as well as export markets. 3.To simplify the existing procedures to enable the software industry to grow at a faster pace. 4.To establish a strong base of software industry in the country. 5. To promote the use of computer as a tool for decision making and to increase work efficiency and to promote appropriate applications which are of development canalising nature with due regard for long term benefit of computerisation of the country as a whole." Para (III) deals with import policy for promoting software development and export and lists out the scheme. Sl. No. 5 reads : Computer software export will include besides physical export on magnetic media or on paper, also export through satellite data link and consultancy delivered at the location of the foreign client abroad by Indian Computer expertise. The policy gives entire details of policy on training, excess export entitlement, foreign collaboration and marketing abroad and the procedure to be followed and the legal prosecution of softwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd CUSTOMER agrees not to disclose or discriminate to others, any of such material without specific written permission of TUL. CUSTOMER understands and acknowledges that the furnishing of computer consultancy service under this Agreement does not convey a licence from TUL to use any program material licensed separately by TUL or any of its affiliated companies under a programme products licence agreement, and CUSTOMER understands that a separate programme product license may be necessary from a company authorised by the owner of programe products to grant such licenses if a licensed programing is to be used. 17.A reading of the terms and conditions of the Contract brings out the following : (i) The computer consultancy services had been in the form of recording of deliverables (computer data etc.) by TUL on computer tapes, and for disks, and/or cassettes and/or cartridges and/or technical literature, manuals/reports etc. (ii)There has been no sale of these items. (iii)There has been only a charge of fee and no bargain market price had been fixed. (iv)The right, title, interest and all rights had remained with the applicant. It follows that there had been no sale of go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and additional duty of customs. From among the conditions listed in the notification are listed conditions for execution of a bond binding themselves to fulfil the export obligations and to fulfil the conditions stipulated in the notification and in or under the Import and Export Policy for April 1985 to March, 1988. Clauses (v)(vi)(vii) reads : (v) The importer agrees :- (a) to bring the goods into the Zone and then use within the Zone for the production of goods for exports out of India or with the promotion of such exports of goods; (b) to export out of India, goods so purchased or packaged or to use such goods for imparting training to workers or to sell such goods (or packages) within the Zone, as the case may be; (c) to export or dispose of in the manner approved by the Development Commissioner of the Zone all remnants arising out of such production or packaging; (vi) the importer shall maintain a proper account of import, consumption and utilisation of goods and of exports made by him and shall submit such account periodically to the Development Commissioner of the Zone in such form and in such manner as may be laid down by the said Commissioner; (vii) The imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each of the same and hence no duty is demandable. He argued that the imported machinery had been installed in the NOIDA and the Collector of Customs could demand duty only if the machinery had not been installed. As they had been installed, the question of Collector demanding duty did not arise and that the question of re-export did not arise at all and the post-importation condition regarding minimum value addition is not a requirement of the said notification and that the Collector had acted beyond his jurisdiction. With due respect to the ld. senior advocate, I do not agree with this argument. It is totally devoid of any merits. The applicant had not produced any goods for export nor they had maintained accounts and no goods had been exported and thus there had been a clear violation of the Import Export Policy, Import Export (Control) Act, Customs Act and there had been a clear breach of provisions of Customs Act. Sri Setalwad, Ld. senior advocate argued that the licence had been for computer consultancy and the applicant having trained their engineers and having gone abroad and performed services for customers and earned foreign exchange, is a sufficient compliance of the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the raw material purchased by them, the processes of neutralisation by alkali and bleaching by activated earth and/or carbon. According to the Id. Counsel, manufacture is complete as soon as by the application of one or more processes, the raw material undergoes some change. To say this is to equate processing to manufacture and for this we can find no warrant in law. The word manufacture used as a verb is generally understood to mean as bringing into existence a new substance and does not mean merely to produce some change in a substance , however minor in consequence the change may be. This distinction is well brought about in a passage thus quoted in Permanent Edition of Words and Phrases, Vol. 26 from an American Judgment. The passage runs thus :- Manufacture implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation that a new and different article must emerge having a distinctive name, character or use . 15. It is helpful to consider also in this connection the ordinary meaning of the word goods . For, by the ver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on with the aid of power . The definition of manufacture as in S. 2(f) puts it beyond any possibility of controversy that if power is used for any of the numerous processes that are required to turn the raw material into a finished article known to the market, the clause will be applicable; and an argument that power is not used in the whole process of manufacture using the word in its ordinary sense, will not be available. It is only with this limited purpose that the legislature, in our opinion, inserted this definition of the word `manufacture in the definition section and not with a view to make the mere processing of goods as liable to excise duty". 21. In Bhor Industries case the Supreme Court again reiterated basing on the above ruling and other rulings as follows : Therefore, the marketability in the sense that the goods are known in the market or are capable of being sold and purchased in the market is essential. This principle was again reiterated by this Court in South Bihar Sugar Mills Ltd. etc. v. Union of India others - 1978 (2) E.L.T. (J336) = 1968 3 SCR 21, where this court held that the gas generated by the appellant companies in that case was kiln g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cise on tobacco and other goods manufactured or produced in India" and it is now well accepted that excise duty is an indirect tax, in which the burden of the imposition is passed on to the ultimate consumer. In that context, the expression goods manufactured or produced must refer to articles which are capable of being sold to a consumer. In Union of India v. Delhi Cloth General Mills, this Court considered the meaning of the expression goods for the purposes of the Central Excises and Salt Act, 1944 and observed that to become goods" an article must be something which can ordinarily come to the market to be brought and sold", a definition which was reiterated by this Court in South Bihar Sugar Mills Ltd. v. Union of India. It is necessary in this connection to reiterate the basic fundamental principles of excise. The Judicial Committee of the Privy Council in Governor General in Council v. Province of Madras - 1978 (2) E.L.T. (J 280) = (1945 F.C.R. 179), this Court observed at page 1287 of the report that excise duty was primarily a duty on the production or manufacture of goods produced or manufactured within the country. This Court again in In Re the Bill to amend S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d software abroad, which they did not sell at market price but only rendered training with it, by retaining the right, title and interest over it. Therefore, the concept of `goods does not fit in the concept of `services , which ld. Senior Counsel had persuaded us to accept. 23. The imported goods are tangible ones. The same are liable to customs duty and additional duty of customs. But Govt. of India granted conditional exemption as per the notification. The notification makes it clear that the same should be utilised for production of goods. Hence what is required to be exported is tangible goods, which should have a market and ascertainable price. The definition of market price as per Section 2(3) of the Customs Act is market price in relation to goods, means the wholesale price of the goods in the ordinary course of trade in India". Therefore, for the purpose of charging duty there has to be import of goods, which is a merchandise, recognised in trade and has a market price. The chargeable duty is as fixed in the Tariff Act. It follows that the goods should have been incorporated in the Tariff Act and should not have been prohibited or barred for Import/Export under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt 62% of the components of the copiers and the balance of 38% - was to be manufactured by them indigenously. According to the import policy this percentage of 62% was to be reduced in the subsequent years. The import policy was not meant for such entrepreneurs who instead of importing 62% of the components, imported 100% of the components of a fully finished and complete goods manufactured by a foreign country. It is an admitted position that fully finished plain paper copiers were a prohibited item for import and thus the device adopted by the company in the present case was a complete fraud on the import policy itself. Apart from the above circumstances in our view the Tribunal was not right in setting aside the finding of the adjudicating authority and in taking the view that one has to look into the respective licence and not to the fact that if all the consignments covered by all the bills of entry assembled together, there will be a full and complete machinery . 25. At this prima facie stage, I am of the considered opinion that there has been a violation of provision of Import and Export Control Act, Import Export Policy, 1985 and the provisions of Customs Act. It appear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M. Setalvad, submitted that the appellants, herein, had obtained approval of the Government of India in terms of the export policy for the development of computer software and computer consultancy services overseas. The Ld. Sr. Counsel referred to the Government of India Policy of computer software export as in the communication dated 18-12-1986. The Ld. Sr. Counsel emphasised that these documents give an extended definition to the concept of export to take in the value of conusltancy services rendered abroad within the ambit of computer software export. In this context the Ld. Sr. Counsel pointed out that there is a Public Notice No. 10/1993 dated 24-6-1993 issued by the Collector of Customs, which inter alia, stated that Export Declaration Form A B annexed to the Public Notice will meet the requirement of export documentation under Section 50 of the Customs Act, 1962 in respect of export of consultancy service, which has not been in physical form, and having regard to the special nature of the exports. It was contended that this Public Notice clearly acknowledges that for the purpose of Notification 339/85, export of consultancy services is also to be taken into consideration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld. Sr. Counsel, further, relied upon the Orissa High Court judgment in the case of Greaves Cotton and Co. Ltd. v. Sales Tax Officer and Another, Sales Tax Cases Vol. 67 1987 364, for the proposition that in a case where there is a difference of opinion between two judges and where one of the Members in a stay application has taken a view that prima facie case has been made out, then on that ground alone stay in favour of the assessee can be granted. This decision of the Orissa High Court was on a difference of opinion between two judges on a stay matter in Sales Tax Case. 31. Shri B.K. Singh, ld. SDR, opposing the stay, submitted that the point of difference has been drafted by the Bench only based on the material and arguments put forth before the Bench and the question was whether the appellants, herein, have made out prima facie case. Therefore, the ld. SDR urged that arguments now made on the basis of Public Notice and subsequent notification, cannot be considered and only arguments put forth before the Referring Bench are relevant. Referring to the order proposed by the Hon ble Member (Technical), the ld. SDR pointed out that there is nothing to show that goods, as defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service can be regarded as export of goods for the purpose of Notification 339/85. In this context, the department s own understanding of the scope of the notification is important. This is revealed in the Public Notice 10/1993, dated 24-6-1993 issued by the Collector of Customs, which is reproduced below : It has been observed that software units in the N.E.P.Z. are providing computer consultancy services to their overseas clients at client s overseas location, in addition to software development in N.E.P.Z. with the help of the goods imported free of duty under Customs exemption Notification No. 339/85 dated 21-11-1985. Since, the export of said consultancy services is not in the physical form, the units have not been, meeting the requirement of Section 50 of the Customs Act, 1962. The question of streamlining the procedure to ensure that all the exports including the export of consultancy services by the Zone units who have availed the benefits of Customs Central Excise duty has been under consideration of the N.E.P.Z. authorities. In order to ensure that goods acquired free of Customs and Central Excise duty are used in accordance with the provisions of relevant Custom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to, shall be further amended by inserting after the paragraph number of each of the said notifications as specified in the corresponding entry in column (3) of the said Table, the following paragraph with the paragraph number specified in the corresponding entry in column (4) of that Table namely :- Notwithstanding anything contained in paragraph (1), in the case of units engaged in the development of computer software, the exemption contained therein shall also apply to goods imported by such unit for the development of software for export and for providing consultancy services for development of software `on site abroad : Provided that - (a)the conditions stipulated in this notification are complied with by such software development unit; and (b)the procedure specified by the Collector of Customs is followed. Explanation : With effect from 13th August, 1993, the consultancy fees received by software development units in convertible foreign currencies for consultancy services for development of software `on site abroad shall be deemed to be exports for the purposes of fulfilment of export obligation under this notification." TABLE S. No. Notification ..... X X X X Extracts X X X X X X X X Extracts X X X X
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