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TMI Blog2006 (6) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... the operation manual clearly indicated that the modem cannot work without the software in other words the modem was supplied along with the software, it appeared the importers had split up the value of modem and software in order to clear the software at lower rate of duty. 1.3. The investigation revealed that the goods were imported as one consignment of 980 sets Hayes Accura 336 message modem with Voice and (980 + 980) sets of Smartcom Data/Fax Pro software and Smartcom message centre software vide Invoice No. 1099, dated 26th March of M/s. Hayes (Asia) Ltd., Hongkong were cleared and bonded under into bond under Bill of Entry No. 1494, dated 3-4-1997, the value of the goods imported as one package was also split up between hardware and software. It was also seen from the Ingram Mark comprehensive Hardware Catalogue that the subject product is sold as one unit for price of US $150.50. With the above it appeared that the importer has misdeclared the value of the import consignments in the import documents including the Bills of Entry, hence M/s. Datamatics Ltd., appears to have violated the provisions of Sec. 111(m) of the Customs Act, 1962 and thereby the goods imported appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Customs Act, 1962. (e) Customs duty of Rs. 1,47,11,1195/- (sic) on the said imports shall not be demanded and determined under the proviso to section 28(i) of the Customs Act, 1962. (f) Corresponding interest @ 20% on the above said duty for the period from 7 days after payment of duty to till date of the payment of differential duty should not be recovered under section 28AB of the Customs Act, 1962. (g) The amount of Rs. 43.00 lakhs deposited so far by them shall not be adjusted towards the above-referred liabilities. 1.5. Commissioner of Customs while adjudicating the case dropped all the proceedings initiated by the show Cause Notice holding the same to be not tenable. He also ordered the provisional assessment to be finalized on the basis of the values declared by the Importer. 1.6. On going through the case records, the Board being satisfied that the order passed by the Commissioner is not proper, correct or legal for the following reasons. (a) The Commissioner while dwelling upon the issue in para 66 of the order has not taken cognizance of the fact and evidences of the documents taken over by the department under Panchnama and the documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he value of the item viz. Hays Ultra 144 Modem which were USD 550 is split up into 2 values that the Ultra 144 Modem priced at USD 521 and that of Smartcom software for windows priced at USD 29, which totally aggregate to USD 550. The original purchase order no. H-106, dated 26-5-1995 was based on the proforma invoice no. 950605, dated 5-6-1995 which was for 2 pieces of Ultra -144 valued at USD 550 each. Subsequently on receiving of the advice note date 9-6-1995 from their buyer M/s. Datamatics, the supplier changed the value of Ultra-144 to USD 521 each and included a new item viz. Smartcom software valued at USD 29 each, though the aggregate value was not changed. Further the purchase order number and the date was also not changed. This probably explains for the recovery of two sets of purchase order having the same number and date and the same aggregate value, but the description being altered. Thus the split up in the value was clearly the after effect of the hand written message dtd. 9-6-1995 and clearly throws light on the intention of the said company which was to evade legitimate customs duty, since the duty on software was only 10% compared to the duty on hardware which wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l as thereafter with their local customers in India were with respect to modems only. In support of the above contention the department had relied upon the following. (i) On import, both the modem and the software were packed in one box as evidenced by P/L No. NIL dated 26-3-1997 to Invoice No. 1099, dated 26-3-1997 and pertaining to P.O.H. 156, dated 7-3-1997. (ii) The business conducted by the party in India with their customers clearly indicated that each and every transaction was for the modems as evidenced by the emphasis laid to the serial number of the modems in the delivery challans No. MODM/BOM/AY-97/8283, dtd. 25-8-1997 relating to the sale of modems to M/s. Indian Oil Corporation. It is pertinent to note here that the said challan does not bear the serial number or part number of the software which appears to be against the common code of business transaction. Usually software being licensed software and especially when sold by a reputed manufacturer always accompanies a licence agreement and includes the serial number and manufacturers code number which is prominently displayed in all the documents relating to the sale specifically the invoice. (iii) It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the same is not reflected in the documents presented to Customs which shows the split values for hardware and software without showing the respective manufacturing code number (as in the usual practice). The sample available with the department bears the following: (a) Hayes Accura Message Modem, (b) This product is specially designed for use in Asia, (c) PN 08-02696 From the above it can be seen that the part No., 08-020696 relates to the manufacturing code number of modem and not software. Secondly, the fact that this product was specially designed for use in Asia signifies that the complimentary software was also supplied to Asia and not restricted to USA and Europe as claimed by the importer. (e) Commissioner of Customs while adjudicating the case has also not taken the above points into consideration and has accepted the importers contentions without valid reasoning. The Commissioner has also failed to take notice of the documents relating to several consignments specifically B/E No. 5307, dated 13-6-1995 pertaining to purchase order no. H-106, dated 26-5-1995 which were earlier cleared by the party wherein the goods were declared only as one item viz. modem whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the product and shows only one value for each item i.e. the value of hardware and software is not shown separately. [ii] the price list dated 1-4-1995 does not show the code no of the product but show the value of hardware and software separately. However, the aggregate total unit value of hardware and software is equal to the unit value of the corresponding product listed in the price list dated 1-12-1994. [iii] the price list dated 1-12-1994 1-10-1995 does not show that value of hardware and software separately for Ultra 144 and lists the price at US$ 550. However, price list dated 01-04-1995 shows the split up price of the same item at US$ 521 for hardware and US$ 29 for software, but the aggregate value for the item again in US$ 550. This clearly shows that the value of the goods under import were for hardware only (modems) and that the value was split up as that of hardware and software for the convenience of the importer and for claiming the concessional rate of duty which was then available for computer software other than software meant for telecom. (h) The Commissioner failed to take due note of; [i] Fax transmission sheet dated 20-6-1995 from Mohan B/Rao ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner ought to have upheld all the allegation levelled in the show Cause Notice ordering confirmation of duty demand, confiscation of the goods under section 111(m) of the Customs Act, 1962 and ought to have imposed deterrent penalties under the provision of Section 114-A/112 of the Customs Act, 1962 on the Importer. 2.1 After hearing both sides and considering the issues it is find- (a) The question of addition of value of a software on to hardware is new well settled. In the case of CCEx v. ACER India Ltd. [2004 (172) E.L.T. 289 (S.C.)] it has been held that the valuation of operating software, cannot be added on to the value of the hardware when sold together, the exemption granted to software from excise duty then whether it is operating software or application software in terms or of hearing 85.24, no duty could be levied thereon indirectly. Though this decision was in terms of duty under the Central Excise Act, there is no reason why the said law as laid down by the full bench of the Apex (sic) cannot be applied in case of valuation exemption under the Customs Act, 1962, (b) Modems imported in the present case would fall under 85.17 the chapter notes prescrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice dtd. 3-8-1998. in para 6 admits - 6...................He stated that the value of software is decided by their suppliers as per the application an available on the respective software and they publish the price list of these goods...................... . A perused of the said notice are not demonstrated to reveal, that any value of the modem has been artificially or otherwise transferred on to the software. If in this case the price of software is to be determined by the supplier based on the kind of use the software can be put into, and since price lists for the said software are available, there is no material to hold, that the prices so spilt, on an advise of buyer or otherwise by the supplier, are not in excess of the printed Price Lists of manufacturer or supplier available issued, there can be no reason therefore to arrive at any mens rea on part of the importers, to, in conducting the exercise of splitting of prices to evade duty. The charges of putting the value, of the cards denial of software exemption/assessment on such values of the card therefore cannot be upheld in view of the material, in this case following the settled position in law. (d) When und ..... X X X X Extracts X X X X X X X X Extracts X X X X
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