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TMI Blog2013 (4) TMI 220X X X X Extracts X X X X X X X X Extracts X X X X ..... n cleared from the factory without the software being loaded in the equipments. No evidence is relied upon by the department to disprove this claim. The impugned software is no doubt customized software usable only with the DLCs. However, the DLCs do not become dysfunctional without the impugned software as they can be used as 2W type of DLC. In view of the above, the appellants claiming separate classification of the impugned software under Chapter subheading 8524 and clearing the said software without payment of duty is in order. There is no justification for including value of such software in the value of DLC equipments. - Decided in favor of assessee. - E/20/2009 - 391/2012 - Dated:- 18-6-2012 - P.G. Chacko, And M. Veeraiyan, JJ. Appellant Rep. by: Mr. G. Mohan Rao, Adv. Respondent Rep. by: Mr. Ganesh Haavanur, Additional Commissioner (AR) [Order per: M. Veeraiyan]. This is an appeal against the order of the Commissioner No. 46/2008 (PVR) dated 16.10.2008. By this order Commissioner has confirmed demand of differential duty of Rs.2,12,23,061/- (Rupees Two crore Twelve lakhs twenty three thousand and sixty one only) along with interest and imposed equal amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lore. The DLCs which are cleared in parts are assembled at BEL premises and, after assembly, software is loaded after downloading from web-site and the system is tested. (c) BEL purchased C-DOT telephone exchange and installed at the BEL premises at Bangalore for testing the DLC Rings. The testing of the DLCs has taken place at BEL in the presence of MTNL QA representatives. (d) The operating/application software can be re-programmed or upgraded any number of times. As per the PO, until the expiry of warranty period the operating/application software is required to be freely upgraded loaded from time to time. (e) There are several vendors of V5.1/V5.2 software internationally and they do not manufacture hardware. Some of these vendors are Netbricks, Milegate, Web NMS. (f) It was open to the BEL to purchase the hardware of the DLCs from the appellant and software from third parties and vice versa. (g) Further the DLC rings without V5.1 interface can be used as 2W type of DLC (type 2 as per TEC GR). (h) The audit report does not state anywhere that the DLCs are cleared from the factory after loading with application/operational software. (i) It was open for the depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 11AC is invoked, no further penalty can be imposed under Rule 25. 5.1. Learned Additional Commissioner (AR) appearing for the department strongly defended the order of the Commissioner. Referring to the Commissioner's finding, he submits that the order placed by BEL is for a PCB which cannot work by itself independently. One DLC unit consisting of different boards depending on type and each board has to be loaded with software. Basing on architecture of the PCB, the software has been developed and the functions are unique in nature and tailor made. Hence, what the buyer procured is electronic equipments with the required software. Hence, it is to be construed that the software supplied by the assessee is DLC firm software. Further, it is clear that the software supplied in embedded form in DLC is a customized software and lasts with the equipment itself. He, further, submits the following: a) In the first of the six purchase orders under reference, the price fixed was for a composite price of the product including the value of the software. There was no split amount indicated separately for tile software and the hardware. b) The software developed by the appellant-ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and PSI Data Systems cases were distinguished by the Hon'ble Supreme Court in the case of Anjaleem Enterprises referred above. 5.4. He submitted that extended period of limitation has been correctly invoked. He further submitted that ER-1 filed by the appellant-assessee indicated clearance as "Computer Software". It was only during auditing of the factory that evidences of the DLC ring system cleared loaded with the software came to the knowledge of the respondent-department. The audit was conducted in the beginning of the year 2004. Thereafter, purchase orders, etc. were furnished by the appellant-assessee in their replies to the audit objection. The appellant assessee mis-declared in the ER-1 returns and artificially separated the value of the hardware and software of the parts/modules of the system. 6.1. We have carefully considered the submissions from both sides and perused the records. 6.2. The issue as to in what circumstances the software should be treated as a distinct product and classified separately and value should be excluded from hardware and when such software should be treated as part of hardware and value should be included in the hardware has been considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her computers nor electronic goods. (a) An IC engine meant for a motor vehicle and the motor vehicle are two different commodities for the purpose of classification/valuation. However, an IC engine fitted to make a motor vehicle loses its identity as an IC engine and becomes an integral part of the motor vehicle for the purpose of classification /valuation. (b) Similarly, tyres meant for motor vehicles and the motor vehicles are distinct commodities and such tyres are accordingly bought and sold separately in the market. However, the tyres fitted to make a motor vehicle loose their identity as tyres for the purpose of classification/valuation as the tyres become integral part of the motor vehicle. (c) The typewriter ribbon is essential for running the typewriter. However, the typewriter ribbons are separately sold in the market. A person using typewriter can purchase the typewriter ribbon in a spool and fit it to the typewriter and use the typewriter. In spite of the fact that the typewriter ribbon is essential without which the typewriter cannot be used, the typewriter ribbon has been held to be only an accessory and not an integral part of typewriter. 15.2. Computers are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is separately bought and sold and usable in any computer is stand-alone software and its value requires to be excluded from the value of computer even if such software is cleared along with the computer. 15.3. Computer and telecom equipments come under a broad heading (which we may call a family) referred to as "data processing machines/equipments". Computer has very many general applications. Some machineries / equipments may be computer-aided but such machineries and equipments cannot be treated as computers as such. With the above in mind, we may, now, proceed to consider the ratio of case law relating to electronic equipments other than computers: a) Software imported separately for providing additional features to the existing system should be dealt with separately for the purpose of classification and extending the benefit of the exemption as held in the case of BPL Communications '. b) Software for 'distributed control system' supplied through floppies, CDs is separately classifiable under 8524.24 and the value thereof is not includible while valuing the distributed control system (as held in the case of Asia Brown Bovery). c) Software imported and recorded int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are supplied by them cannot be charged to Central Excise as held by the Hon'ble Supreme Court in the case of PSI Data Systems Ltd. Vs. Collector of Central Excise 1997 (89) E.L.T. 3 (SC))], wherein, it was held that the value of computers will not include the value of the software supplied in the form of floppies, discs, tapes, along with the computer. However, it was clarified in Circular No. 644/35/2002-CX, dated 12.07.2002, that if the computer is loaded with a software the value of the software will be included in the value of the computer. As per Condition 10 of Purchase Order No. 290812/TI/880111, dated 16.09.2002, "M/s. MIC has to supply complete system (Ringwise) as per MTNL requirement for Inspection." Hence, it is clear that the software has to be loaded into the system (Ring), before it is complete in all aspects and only then, the system/ring can be tested. Moreover, as can be seen from the Terms of Payment, as stated in Amendment No.1, dated 04.10.2002, to Purchase Order No. 290812/TI/880111, dated 16.09.2002, 75% of the basic value of the P.O would be made by opening a LC initially and 15% of the Basic Price 100% of the Excise Duty against each ring would be paid on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be included in assessing the hardware is not appropriate. 7.6. The appellants also submits that the software in question is a standard V5.1/V5.2 INTERFACE as per the standards laid down by the International Telecommunication Union (ITU-T), which is adopted by the TEC, Department of Telecommunication, Gov. of India. There are several vendors of V5.1/V5.2 software internationally like Netbricks, Milegate, Web NMS and they do not manufacture the hardware. It was further contended that it was open to the BEL to have purchased the hardware of the DLCs from them and software from third parties and vice versa. Further, it was claimed that the DLC rings without V5.1 interface could be used as 2W type of DLC (Type 2 as per TEC GR). In other words, it is their contention that the DLC equipment are functional even without the impugned software and the impugned software enables the equipments to function at a higher capacity with more efficiency. And therefore, the impugned software should be treated as application software/ operational software and the value of the said software should be excluded from the value of hardware in question. These submissions were supported by producing the tech ..... X X X X Extracts X X X X X X X X Extracts X X X X
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