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TMI Blog2000 (1) TMI 177X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 (for short, the 'Rules') framed thereunder and the Press Note dated March 17, 1992 of the Department of Electronics, Government of India. 2. SBI imported a consignment of Computer Software and Manuals from Kindle Software Ltd. Dublin, Ireland ('Kindle' for short) of the value of US $ 4,084,475.00 (equivalent to Rs. 10,75,70,267.25). SBI filed a Bill of Entry No. 5209, dated July 19, 1991 along with the Invoice of Kindle bearing No. 910701, dated July 3, 1991 for the aforesaid amount and after paying custom duty of Rs. 12,04,78,699/- on July 25, 1991 cleared the goods for home consumption. On August 7, 1991 SBI filed an application before the Additional Collector of Customs, Bombay claiming refund of custom duty of Rs. 10,86,49,119/-. It said that it had since received a detailed invoice which gave the particulars of imported Software and Manuals as under : "Particulars Cost 46 Diskettes and 82 Manuals US $ 14,300 Licencing fee for use of the software at single site US $ 386,747 Total Cost of the software for use at one site (including Diskettes & Manuals) US $ 401,04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AY 1 CENTRAL BANKMASTER TRAINING MODULE 15 IBSNET MODULE 9 DOS BOOT DISK 1 QUANTITY OF GOODS: DISKETTES 46 MANUALS 82 INSURANCE PAID 1R GBP 76.50 FREIGHT PAID IR GBP 429.40 THE COST OF ALL MANUALS IS INCLUDED IN THE COST OF THE SOFTWARE Sub Total US $ 4,084,475.00 VAT Total CIF BOMBAY US $ 4,,084,475.00 "Invoice STATE BANK OF INDIA, CENTRAL OFFICE, NEW ADMINISTRATIVE BUILDING, MADAME CAMA ROAD, BOMBAY 400 021. INDIA. Invoice No. 910701 Credit No. Date 03/07/91 Your Order No. DETAIL INVOICE TO SUPPLY OF COUNTRYWIDE LICENCE FOR INDIA FOR BANKMASTER WITH THE FOLLOWING MODULES : 7 CENTRAL BANKMASTER 1 FOREIGN EXCHANGE 1 COMMERCIAL LENDING 1 LIMITS MONITORING 1 EXTENDED FINANCIAL RETURNS 7 BRANCHPOWER 1 EASIXFER 1 BANKMASTER QUERY 1 GATEWAY 15CENTRAL BANKMASTER TRAINING MODULE 9 IBSNET MODULE 1 DOS BOOT DISK QUANTITY OF GOODS : 46DISKETTES 82MANUALS INSURANCE PAID 1RGBP 76.50 FREIGHT PAID IR GBP429.40 LICENCING FEE FOR USE AT SINGLE SITE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 dismissed the same. That is how the matter is before us. 7. Section 14 of the Customs Act provides for valuation of goods for purposes of assessment. Sub-section (1) of Section 14 provides : "For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force whereunder a duty of customs is chargeable on any goods by reference to their value, the value of such goods shall be deemed to be the price at which such or like goods are ordinarily sold, or offered for sale, for delivery at the time and place of importation or exportation, as the case may be, in the course of international trade, where the seller and the buyer have no interest in the business of each ether and the price is the sole consideration for the sale or offer for sale. Provided that such price shall be calculated with reference to the rate of exchange as in force on the date on which a bill of entry is presented under Section 46, or a shipping bill or bill of export as the case may be, is presented under Section 50. Sub-section (1A) of Section 14 provides : "Subject to the provisions of sub-section (1) the price referred to in that sub-section in respect of importe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /reproduction of imported software in India. That being so duplication will not attract any excise duty. The royalty payable on duplicate copies of the software will be paid with the foreign exchange arranged by the party. No custom duty will be leviable on the royalty paid. But then the Indian party will ensure that the royalty paid for each copy is not more than what is being charged by the manufacturer/owner from other customers elsewhere in the world. Master copy imported for duplication purposes will be assessed to customs duty as per existing procedure. From the reading of the press note, it is apparent that it would apply when there is commercial exploitation of the imported software. 11. What we have now to see is if under the agreement SBI has right to reproduce the imported software and for that purpose SBI has paid "royalties and licence fee" which have been added to the price actually paid for the imported software for use at the principal place called the Support Centre. If that is so under the Press Note no customs duty is leviable on the royalty so paid. This takes us to the relevant terms of the agreement which would indicate as to whether or not the royalty/l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp;# 102,000 Foreign Exchange # 51,000 Commercial Lending # 18,360 Limits Monitoring # 18,360 Extended Financial Returns # 15,300 BRANCHPOWER # 79,782 Easixfer # 10,948 BANKMASTER Query # 26,772 Gateway # 18,400 BRANCHNET # 41,400 Central BANKMASTER Training Module # 20,000 BRANCHPOWER Training Module # 20,000 422,322" "SCHEDULE II 1. Initial Licence Fee and Recurring Licence Fees. 1.1 The Initial Licence Fee for a countrywide licence for India for the Software Modules specified in schedule I (excluding the IQ Module) for use under the provisions of the Agreement shall be US $4,710,000. The Initial Licence Fee for the IQ Module shall be US $125 per site. 1.2 From 1st October, 1991 until the expiry of five years from the date of receipt by the Licensor of the payment referred to in article 5.1(d) of this Agreement the annual Recurring Licence Fee for India for the. Software Modules . specified in Schedule i (excluding the IQ Module) for use under the provisions of the Agreement) shall be US $435,000. Thereafter the annual Recurring Licence Fee for the IQ Module ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the Bill of Entry dated July 17, 1991 a declaration of the following effect was also filed : "DECLARATION We hereby declare that the break up of the value (as shown in column 9) of the consignment imported under B/E No. "5209/19-7-1991, AWB No. 618-12310200, dated 12-7-1991 as under Particulars Cost Indian Rs. 46 Diskettes and 82 Manuals US$ 14,300/- Rs. 376610.17 licencing fee for use of the software at single site U6 $ 386,747/- Rs. 10185514.20 Total cost of the software for use at one site (including Diskettes and Manuals) US $ 401,047/- Rs. 10562124.37 Licencing fee for use of software countrywide US $ 3,683,428/- Rs. 97008142.89 Total US 4,084,475/- Rs. 107570267.25 For STATE BANK OF INDIA Sd/- Dy. General Manager (C & I Project)" 14. He then said that the authorities including the Tribunal did not properly consider the scope and intent of the Press Note and though the argument was raised, it was brushed aside without proper consideration. In sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for granting permission of re-export BM Query Module. This letter also speaks about the detail break-up of the various modules to RBI. They have stated that they estimate that the present market value will be definitely at least 10% more than the cost at which they had procured from the supplier as they had obtained special concession for the countrywide licence and that two years have elapsed since then. They filed their claim for duty drawback under Section 74 of Customs Act. By their letter dated 20-6-1994 wherein also they have stated that they paid the said Customs Duty under the said invoice amount of US $4,084,475.00 on account of countrywide licence for use of the software in respect of the software modules received. In the Annexure also they have given the split up value and cost of software - all modules "countrywide", cost of software - all modules (single site). In this letter, they have not mentioned about anything about the reproduction charges being different in the assessable value of the software. They again filed a letter dated 20-9-1994 claiming duty drawback under Section 74 of the Customs Act in respect of the said Bankmaster Query. In this letter, they have g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion given in clause (f) of Rule 2 of the Rules. 18. The question that arises for consideration is if licence fee charged towards countrywide use of software in the second invoice could be the charges for the right to reproduction and were these added to the price actually paid or payable for the imported goods. If we refer to the agreement, software is not sold to the SBI as such but it was to remain the property of Kindle. There is no other value of the software indicated in the agreement except the licence fee. Price is payable only for allowing SBI to use the software in a limited way at its own centres for a limited period and that is why the amount charged is called the licence fee. After five years SBI is required to pay, only recurring licence fee. Countrywide use of the software and reproduction of software are two different things and licence fee for countrywide use cannot be considered as the charges for the right to reproduce the imported goods. Under the agreement copying storage, removal, etc. are under the strict control of Kindle and all copies are the property of the Kindle. SBI can use the software for its internal requirements only. Licence has been given to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mme. 21. Kindle supplied to the SBI countrywide licence for India of software package containing various modules as given in the invoice and consisting of 46 diskettes and 82 manuals (including cost of insurance and freight) for US $ 4,084,475.00. This amount in the subsequent invoice was bifurcated into (i) Licence Fee for use of software package at single site (including cost of 82 manuals and 46 diskettes of US $ 14,300) - US $ 401,047 and (2) Licencing Fee for right to use countrywide - US $ 3,683,428.00 (totalling US $ 4,084,475). 22. Reproduction and use are two different things. Now 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 righ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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