9911796707
TMI Blog2014 (6) TMI 387X X X X Extracts X X X X X X X X Extracts X X X X ..... ieved of the same, the appellant is before us. The appeal was heard on 20th and 21 st of February, 2014. The appellant and the Revenue filed their final submissions on 6-3-2014 and 10-3-2014 respectively. 2. Brief facts of the case are as follows. The appellant is a manufacturer of set-top boxes and manufactured and sold the said goods to M/s Thompson, M/s Thompson had in turn an agreement to sell the STBs to Tata Sky. M/s Tata Sky supplied remote controls and viewing cards to the appellant through M/s Thompson. M/s NDS is a foreign collaborator of Tata Sky and NDS had given access to the appellant to download certain types of software from their server. M/s Tata Sky had agreement with NDS for the use of the software. The software was downloaded into a flash memory by the appellant which was then soldered to the populated printed circuit board of the set top boxes which were cleared to M/s Thompson. Tata Sky had paid royalty/licence fee to NDS for supply of the aforesaid software. The case of the department is that the value of remote control and viewing card supplied by Tata Sky should be included in the assessable value of STBs as they form an essential part of the STB. Further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ELT 518 (T)], TI Diamond Chains [2000 (126) ELT 790 (T)] also support the appellant's contention that value of accessories is not includible in the assessable value of main product, especially when the same are not manufactured by the appellant and supplied free of charge by the buyer. (5) Even as per Rule 6 of the Valuation Rules, value of remote control is includible in the STB only if the remote control supplied is used in the production and sale of STB. Since production of STB is complete without remote control, remote control value cannot be added to the value of STB for levy of excise duty. (6) As regards inclusion of value of the viewing card provided by Tata Sky, the viewing card carries a number printed on it. The said number is scanned into a computer which is paired with the STB to enable Tata Sky to maintain the services provided to its customers. Thus at the appellant's end, data entries are made/created linking/pairing the viewing card number with the corresponding STB number. Apart from this nothing is done to the viewing card or STB. The viewing card is merely inserted into the slot provided for it in the STB. Thus th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re manufactured without obtaining excise registration or goods are removed in contravention of the provisions of the Rules. In the present case no such contravention is present and hence no penalty is imposable. (10) The entire demand in the present case is within the normal period of limitation and the appellants had paid the duty demand with interest when the objection was raised by the department. Therefore, there is no suppression of facts or intention to evade payment of duty. Hence imposition of equal amount of penalty is very harsh and inequitable. Accordingly it is prayed that the appeal be allowed. 4. The ld. Commissioner (AR) appearing for the Revenue made the following submissions:- (1) M/s. Tata Sky, a joint venture of Tata Group with M/s Newscorp had set up a DTH platform for providing DTH broadcasting services in India under a licence issued by the Govt. of India. Signals in DB broadcasting are received through STB in subscriber premises and Tata Sky had entered into following agreements with NDS Ltd., UK and M/s Thompson Broadband (I) Pvt. Ltd. (a) Agreement betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egral part of the NDS technology without which it could not function. Thus the ICs became an integral part of the STB. (4) As part of the statement dated 29/12/2006 of Mr. Shrikant V Gramopadhye, Asst. Operations Manager, the smart cards are inserted into the set top boxes during the course of manufacture and the user manual and remote control are packed with the set top boxes. The smart card is scanned for its serial number along with the NDS serial number given to the PCB of the set top box and after scanning the above numbers, the Thompson serial number for the set top box is generated and the smart card is inserted inside the set top box. This particular activity is carried out as per the approved customer plan of Thompson. (5) In view of the above factual position, the cost of smart card (viewing card), remote control and software, supplied free of cost by the buyer or on behalf of the buyer, is addable to the assessable value of the goods supplied in terms of Rule 6 of the valuation rules. (6) Reliance is placed on the decision of the Tribunal in the case of Avaya Global Connect Ltd. [2007 (213) ELT 383] wherein it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e light of these decisions, it is contended that the value of smart cards and remote control are includible in the assessable value of STBs. (8) As regards the imposition of penalty, it is contended that mandatory penalty is imposable when the fact of additional consideration flowing directly or indirectly from the buyer are not disclosed to the department. In the present case evasion of duty could not have come to light in the absence of investigation by the department. Reliance is placed on the decision of the Tribunal in the case of Jaycee Autofab (P) Ltd. [2010 (260) ELT 263] and of the hon'ble Apex Court in the case of Indian Aluminium Co. Ltd. [1991 (55) ELT 454 (SC)] in support of this contention. Accordingly it is pleaded that the impugned order is sustainable in law and the appeal deserves to be dismissed. 5. We have carefully considered the rival submissions. Our findings and conclusions are discussed in the ensuing paragraphs. 5.1 In the present case the value of the STB manufactured and supplied by the appellant is sought to be enhanced in terms of the provisions of Rule 6 of the Central Excise Valuation Rules, 2000. It woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'production' and 'sale' is used not in conjunctive sense but in a disjunctive sense. This is obvious from clauses (ii) to (iv) to the Explanation where the items specified therein are used in or for production of goods. They are not required for the sale of such goods. Thus the expression "and" has to be read as "or" in a disjunctive sense. The word 'or' is normally disjunctive and 'and' is normally conjunctive but at times they are read as vice versa to give effect to the manifest intention of the Legislature as disclosed from the context. In the present case, from the context, it is obvious that the word 'and; has been used in a disjunctive sense. Secondly a legal fiction has been created to include the money value of goods supplied free of charge or at reduced cost by the buyer which shall be treated as an additional consideration flowing directly or indirectly from the buyer to the assessee. It is in the light, the said Rule has to be applied to the facts of the case in hand. 5.3 As per the MOU between Tata Sky and Thompson dated 17-1-2006, Clause 9.1 of the MOU stipulated that the STB supplied to Tata Sky shall conform to the mutually agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S and Thompson, as per clause 1.1, the Statement of work applies to integration of the NDS verifier software, smart card, the EPG and Media Highway Core 3.1 middleware in to the manufacture of STB. As per clause 3.2, software components specified under the said clause are to be provided by NDS. Clause 4 deals with Manufacturer's obligations and clause 4.1 deals with STB software. The manufacturer is required to design and manufacture the STB in accordance with the document LC-T056, IRD Electrical Interface Specification and the hardware must comply with LQ-T400, Generic Digital Project and SB-T004, Set-top box security. Generic Digital Project document specifies NDS's mandatory hardware requirements and specifications which shall be approved by NDS for each specific model of STB prior to full scale manufacture. Clause 4.1 deals with Hardware Design requirements. Clause 4.1.1 prescribed that - "the components containing NDS technology(ICAM IC and integrated implementation thereof) shall be soldered on the main Digital Receiver Board. The use of sockets and removable component mountings is not acceptable. All NDS technology shall be an integral part of the main board. A separ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of data between computers and other digital products. It is a specific type of EEPROM (Electrically erasable programmable read-only memory) that is erased and programmed in large blocks; in early flash the entire chip had to be erased at once. Flash memory costs far less than byte-programmable EEPROM and therefore has become the dominant technology wherever a significant amount of non-volatile, solid state storage is needed.... Flash memory is non-volatile, meaning no power is needed to maintain the information stored in the chip. In addition, flash memory offers fast read access times (although not as fast as volatile DRAM memory used for main memory in PCs) and better kinetic shock resistance than hard disks. These characteristics explain the popularity of flash memory in portable devices. Another feature of flash memory is that when packaged in a "memory card", it is extremely durable, being able to withstand intense pressure, extremes of temperature, even immersion in water." 5.8 From the technical literature submitted by the appellant during the proceedings, it is seen that the flash memory used in the present case is an integrated chip consisting of Volta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s value addition and, therefore, its value is liable to be included in the assessable value of the ceiling fan.' 5.10 The same view was reiterated in the case of Siddhartha Tubes Ltd. wherein a question arose regarding inclusion of value of bought out sockets which was fitted to the pipes manufactured by the assessee. The Hon'ble Apex Court held that since the sockets were essential for functioning of the pipes, its value is includible in the assessable value of the pipes. In our view, the ratio of these decisions are relevant and shall apply to the facts of the case before us. The remote control supplied along with STB may be an accessory supplied free of charge to the buyer by the assessee. But nevertheless it is an additional feature providing value addition. Therefore, in respect of an STB supplied with remote control, the cost of remote control has to be added to the assessable value of the STB supplied and we hold accordingly. 5.11 As regards the subscriber access card (viewing card), we have already held in paragraph 5.4 that the subscriber access card is the key component of the conditional access system and it is an active security device of the STB and hence an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is includible in the value of the goods supplied. In the case before us, the flash memory is not the goods under clearance but it is the STB. The memory chip has been soldered onto the PCB of the STB and is not easily removable. The programme embedded in the flash memory is also not removable. Therefore, it will not fall under the category of recorded media under CETH 8424. In view of the above position, the ratio of the decision of the Hon'ble Apex Court in the case of Anjaleem Enterprises Pvt. Ltd. would be more appropriate and correct in the facts of the case before us. This ratio of the Apex Court was followed by this Tribunal in the case of Avaya Global Connect Ltd. (supra) wherein also it was held that software supplied along with system, namely, EPROM, as embedded in the system becomes an integral part and the value of such software is includible in the assessable value of the system supplied. This Tribunal further held that when the software is embedded in the system and becomes an integral part of the equipment, it is not a case of charging duty on software but it is a case of charging duty on the equipment which includes the value of such basic software. In the Hewle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a on the part of the appellant. 5.14 The question is whether the penalty should be imposed equal to the duty sought to be evaded or not. The issue involved in this case is the valuation of goods under clearance. No doubt, the assessee did not declare or reveal to the department the cost of items supplied free by the buyer and the non-inclusion of cost of such free supply in the assessable value of the STB manufactured and cleared by them. The appellant also did not inform or declare to the department the existence of various agreements relating to the design, manufacture and supply of the STB which could have supported its contention that it did not have any intention to evade payment of duty. Since the issue entailed interpretation of the provisions relating to valuation, in our considered view, imposition of penalty equal to the duty is not warranted. A penalty of (say) 5% of the differential duty demanded would suffice for contravention of the statutory provisions. Accordingly, we reduce the penalty imposed on the appellant from Rs. 10,78,71,082/- to Rs. 50 lakhs (Rs. Fifty Lakhs). 6. To sum up, we uphold the differential duty demand of Rs. 10,78,71,082/- along with interest t ..... 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