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TMI Blog2014 (10) TMI 800X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal to lend a helping hand to them by waiving the requirement of pre deposit which in our opinion prima facie was liable to be paid at the time of importation. - appellant directed to deposit entire amount of differencial duty as demanded. - stay denied. Waiver of penalty on other parties and employees - Held that:- it may not be appropriate to require them to deposit the entire amount of penalties imposed on them and in our opinion, the quantum of penalty may also have to be reduced in view of the fact that ultimately, the BSNL has defaulted to both the suppliers and both the suppliers have claimed financial difficulties and further the penalties under Section 114 A have been imposed on the importing parties. - penalty stayed partly. - C/1215/2012, C/1252/2012, C/1253/2012, C/1254/2012, C/1268/2012, C/1269/2012, C/1342/2012, C/1343/2012, C/1344/2012, C/1345/2012, C/1346/2012, C/1347/2012, C/1348/2012 - MISC ORDER Nos. 27769-27781/2013 - Dated:- 20-1-2014 - SHRI D.N. PANDA AND SHRI B.S.V. MURTHY, JJ. For the Appellant : Mr. S. Sankara Vadivelu G. Shivadass, Advocates For the Respondent : Mr. Ganesh Haavanur, Additional Commissioner (AR) ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant that Revenue has been protected to the extent of ₹ 9.36 crores during pendency of this appeal followed by live B.G. for ₹ 35.34 lakhs. This protection is against duty demand of ₹ 36.03 crores apart from the other consequences of penalty and interest. Appeal No. C/1269/2012 5.1 It is submitted on behalf of the importer appellant that 17(seventeen) consignments of hardware i.e. DWDM were imported before investigation and 5(five) hardware consignments were imported thereafter. Similarly, 9(nine) software consignments were imported before investigation and 4(four) consignments of software were imported after investigation. Giving the break-up, learned counsel submits that the specifications of the hardware were 2.5G and 10G in both the periods. Before investigation, the import of 2.5G hardware involving duty element of ₹ 1,01,64,643/- and 10G hardware involved duty element of ₹ 11,49,82,418/-. Similarly, the hardware of 2.5G specification imported after investigation involved duty element of ₹ 1,99,79,730/- and 10G specification of the hardware involved duty element of ₹ 4,47,61,765/- against the total duty element of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l No. 1268/2012 and M/s Punjab Communications who is in Appeal No C/1215/2012 were bidders and after becoming successful bidders. M/s Punjab Communications after winning the bid, entrusted the contract to M/s VMC for execution who is in Appeal No. C/1269/2012. M/s VMC is nothing but a creation of M/s Prithvi. Revenue has a case that the software imported was not customized software. Therefore importer appellants shall not enjoy the benefit of customs duty exemption granted by notification aforesaid. So also when the software was embedded to the hardware imported by the appellant importer, that cannot be called as customized software because software were embedded to the hardware using the technique through chips. Therefore, it is fool proof case of Revenue that no software was to be incorporated into the hardware through any CDs and the CDs imported did not contain any software needed for the equipments for performing their functions. Any upgradation/modification required to the embedded software, was done by downloading the software from website. This also proved that there was no customized software imported. The appellant importers had no case at all to argue that the software c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereto. Accordingly, no customized software was required to make the hardware functional. The consignments examined demonstrated oblique motive of the appellant importers and the supplier being the same even the pre-investigation supplies became questionable. It was further submitted on behalf of the Revenue that the entire equipment when equipped with chips, software claimed to be customized has no relevance since the hardware was made functional by the chips only. The CDS were merely to integrate the software and they failed to prove themselves to be customized software. 6.4. Placing reliance on agreement of the VMC with foreign supplier learned A.R. says that the term software has been defined in the agreement. The very definition can be read from page 38 of the appeal folder in Appeal No. 1253/2012. The software according to the definition is that which is embedded to the hardware itself. Therefore this proves that appellants software was never imported separately to be called as customized software. Since supplier was responsible to deliver the goods in finished form so as to serve the purpose of the tender since tender was for the hardware and that too functional hardware ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artner based in Japan and several individuals working for these organizations and M/s Punjab Communications Ltd. (PCL) who had participated in the auction and subsequently entrusted the supply work to VMCL. BSNL also has been visited with penalty which has been dealt with separately. 12. Dense Wavelength Division Multiplexing Equipment (DWDM) is the core technology in an optical transport network and functions in the following sequences. The source, a solid-state laser, must provide stable light within a specific, narrow bandwidth that carries the digital data modulated as an analog signal. Modern DWDM systems employ multiplexers to combine the signals. There is some inherent loss associated with multiplexing and demultiplexing. This loss is dependent upon the number of channels but can be mitigated with optical amplifiers, which boost all the wavelengths at once without electrical conversion. The effects of crosstalk and optical signal degradation or loss must be reckoned with in fiber optic transmission. These effects can be minimized by controlling variables such as channel spacing, wavelength tolerance, and laser power levels. Over a transmission link, the signal may need ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of software and manufacture of SMPS FWTS respectively. There is no dispute that according to tender documents, the suppliers were required to indicate the cost of software component and hardware components separately and further the taxes payable were also to be indicated and tender documents also provide for suitable adjustments towards changes in the statutory rates of taxes if any. According to the Memorandum of Understanding between HTCL, PISL PCL, HTCL were to assist in preparation of tender documents and also in answering queries that may be raised in the tender process. Ultimately PCL PISL and United Telecom Ltd Bangalore succeeded and United Telecom Ltd. (UTL) was the L-1 bidder in respect of tender-2006 and in their case there was no splitting of hardware and software component of equipments. After winning the bid, PCL offloaded the tender execution to VMCL by keeping a small margin of 1.6% on 10G DWDM equipment and 2.75% in respect of 2.5G DWDM equipment. Shri P.D. Odak of VMCL and Shri V. V. Rama Rao, General manager of VMCL, admitted that the software received by them was embedded in the equipment. Shri V.V. Rama Rao also admitted that they had imported only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are of the software contained in the CDs but CDs contained some files of about 70 KB which was definitely not software. He also admitted that as per the contract, software imported by VMCL was already embedded in to the respective cards of hardware of the equipment. Shri V.V. Rama Rao, Chairman of VMCL also admitted that they were importing finished systems from HTCL. The employees of SC also admitted that they had manipulated the invoice as per the request of the importers. Shri Gaurav Mohan, General Manager (sales) of M/s HTICPL (Indian subsidiary of the exporter) also admitted that they had not transferred any technology to PISL and VMCL. He also stated that all equipments supplied by HTCL were thoroughly tested by quality control department and test report/inspection reports were provided. He also stated that in the supply contract agreements there is an annexure titled as Commercial Factor Sheet wherein they had represented that the software component is also subject to customs duty and DWDM equipment is transmission equipment and not a computer and therefore software could not be supplied separately. Further, he also stated that HTCL was not supplying any software throug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d we have to burn the software into it. This is corroborated by the statement wherein it has been stated that about more than 16,000 CDs were burnt by the appellants. 13. In addition to the above as submitted by the learned DR, the software has been defined in the agreement between HTCL and importer which clearly says that software means embedded software. 14. We also went through one of the annexure to the tender documents of BSNL. There also while EMS software and other application software have been specified by name, the embedded software is conspicuous by its absence. The fact that the software was imported through one port and hardware was imported through another port also shows that there is planning and conspiracy on the part of the appellants. 15. Shri Sankara Vadivelu, learned advocate for the appellants concentrated only on one point. His submission was that CDs were never tested even though the same were seized by the Revenue. He submitted that the CDs relating to 2G equipment were only tested and the conclusion is that C-DOT, the testing agency did not support the case of the revenue at all. At this stage it would be appropriate to reproduce the test report w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is required for configuring these equipments prior to commissioning them in the network. The C-DOT report reproduced above clearly says that hardware equipment contained embedded software. The observations clearly show that software in the CD was not required for the equipment to function. If this was the case with 2G, in the absence of any claim the same observations can be applied to 10G equipment also. In our opinion, the fact that CDs imported with 10G equipment were not tested would not really make a difference. In any case, the departments case is not only based on statements but also based on CDs which contained 70KB text data which has nothing to do with the software. In fact the case has many more details and much more information and documents which we will consider at the time of final hearing, which need not be gone into at this stage. Since the scrutiny of the records and consideration of submissions reflected above is sufficient to show that appellants deliberately imported hardware and software separately and the CDs which were imported were totally useless and had nothing to do with the software in the equipment and there is enough evidence to show that the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have committed an offence to reduce the duty liability in their anxiety to become lowest bidders, it would not be appropriate for the Tribunal to lend a helping hand to them by waiving the requirement of pre deposit which in our opinion prima facie was liable to be paid at the time of importation. In fact even the suppliers had the same impression that duty is required to be paid on the embedded software as already observed elsewhere in this order. For a financial situation crated by the appellants own folly as well as the purchasers decision not to pay, it would be unfair to Govt. of India and the public of India if pre deposit is waived and stay granted. In this view of the matter we consider that VMCL PISL should deposit the entire amount of differential duty not covered by B.G. within 12 (twelve) weeks (more time has been given to help the appellant to make the payments without any default) and report compliance on 20.02.2014. The appellants may pay the principal and ascertain the interest amount payable from the department and pay the same. Needless to say Department will be free to enforce Bank Guarantee. 17. On behalf of Punjab Communications Ltd, it was argued that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em and in our opinion, the quantum of penalty may also have to be reduced in view of the fact that ultimately, the BSNL has defaulted to both the suppliers and both the suppliers have claimed financial difficulties and further the penalties under Section 114 A have been imposed on the importing parties. Therefore in respect of two importers the pre deposit of penalties is not required. As regards other firms/companies on whom penalties have been imposed, records/evidences show their involvement and therefore pre deposit of a portion of penalty is required. 19. Accordingly pre deposit of penalties required by the appellants determined on the basis of the role played by each and the gravity of the offence vis-`-vis actual penalty imposed are as under: V. V . RAMA RAO PRE DEPOSIT @ 10% 3,39,00,000 33,90,000 B HIMA BINDU PRE DEPOSIT @ 10% 2,47,00,000 24,70,000 GOPAL K SHARMA PRE DEPOSIT @5% 13,75,000 68,750 HUAWEI TELECOM PRE DEPOSIT @ 10% 5,50,00,000 55,00,000 HUWWEI INDIA PRE DEPOSIT @ 10% 2,37,00,000 23,70,000 K KIRAN KUMAR PRE DEPOSIT @ 5% 5,95,000 29,750 SOJITZ CORPORATION PRE DEPOSIT @ 1% 2,75,00,000 2,75,000 SOJITZ CORPORATION INDIA PRE DEPOSIT @ 1% 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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