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TMI Blog2016 (2) TMI 614X X X X Extracts X X X X X X X X Extracts X X X X ..... al rejected 2. C/574/2006 Shri NarenderSurana, M.D. of appellant at Sl. No. 1 Penalty reduced 3. C/575/2006 Shri Balasubramanian, V.P. of appellant at Sl. No. 1 Penalty reduced 4. C/487/2006 M/s Surana Telecom Ltd. Appeal rejected 5. C/488/2006 ShgriBalasubramanian, V.P. of appellant at Sl. No. 4 Penalty reduced 6. C/489/2006 Shri NarenderSurana, M.D. of appellant at Sl. No. 4 Penalty reduced 7. C/491/2006 M/s L.G. Electronics Penalties set aside 8. C/556/2006 M/s L.G. Electronics Penalties set aside 9. C/473/2006 M/s Huawai Technologies Co. Ltd. Penalty set aside Mumbai Bench of the Tribunal decided appeal No. C/463/2004 filed by M/s Bhagyanagar Metals Ltd. by final order No. A/131/WZB/2007/CSTB/C.I. dated 22/02/2007. The Tribunal allowed the appeal in full. Revenue filed civil appeal No. 5007/2007 in the Hon'ble Supreme Court against the final order of the Mumbai Bench of the Tribunal. The appellant - assessee filed six civil appeals Nos. 6718-6720/ 2008 and 6722-6724/2008 against the final order dated 09/7/2008 of Bangalore Bench of Tribunal. These civil appeals were decided by the Hon'ble Supreme Court on 15/10/2015. After havin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals separately, however came to the conclusion that the software necessary for functioning of the telephone is already embedded in it. Hence, there is no separate software for assessment and valuation adopted for the phones. The adjudication order passed by the Commissioner was upheld. It is to be noted that the material evidence collected during detailed investigations by Revenue were available only during proceedings before Bangalore Bench. As directed by the Hon'ble Supreme Court, while disposing of the civil appeals, the evidence on record must be considered to decide all the appeals, by us. Submissions on behalf of appellants :- Learned Senior Advocate Shri V. Sridharan, appearing on behalf of all the appellants explained the nature of WLL Cellular telephones and the argued that appellants are right in their claim for exemption of software imported by them. The whole thrust of the argument of the learned Counsel is based on applicability of Note 6 of Chapter 85 of the First Schedule to the Customs Tariff Act, 1975 to imports made by them. The relevant portion of the said note states: "Records, tapes and other media of heading 85.23 or 85.24 remain classified in tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra); (b) The Hon'ble Supreme Court in CCE, Pondicherry vs. Acer India Ltd. reported in 2004 (172) E.L.T. 289 (S.C.) specifically rejected the 'essentiality test' and held the software installed inside Computer should be separately classified under heading 85.24 and not alongwith the Computer. As per HSN Explanatory Notes recorded media (Software) assembled with constituent part of machine of Heading 84.69 to 84.72 fall under heading 85.24 ; (c) Sprint R.P.G. India Ltd. vs. CC-I, Delhi reported in 2000 (116) E.L.T. 6 (S.C.) held that the software contained in hard disk will fall in Heading 85.24 even if such hard disk is a unit of Computer. The software retains its identity as a software in such situation also. The classification of software under Heading 85.24 even if installed in the hard disk within the Computer was affirmed in Commissioner vs. Barber Ship Management (I) Pvt. Ltd. reported in 2002 (144) E.L.T. A293 (SC); (d) CC, Chennai vs.Hewlett Packard India Sales (P) Ltd. reported in 2007 (215) E.L.T. 484 (S.C.) held that the value of hard disk drive is includable in the value of laptop, but value of the software contained in hard disk is not includable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mported CDMA mobile phones, the appellants never claimed that the separate goods is software falling under Heading 85.24. Only CDMA mobile phones were declared with a split up value for "hardware portion" and "software portion" of the phones. The learned AR urged that the claim of the appellants is a wholly fresh assertion i.e., that there were two kinds of goods falling under different headings with separate description for assessment. This claim is made for the first time. He pleaded that this claim requires to be rejected outright. On the merits of the case, the learned AR made elaborate submissions. His submissions are summarized as below :- (a) Note 6 of Chapter 85 requires that the media as goods to be presented with the apparatus. In the present case, the Cell Phones were not presented with any separate media. The appellants earlier claimed that the software was in CD-ROMs. Now they are claiming that the software is in the flash memory unit which is part of the printed circuit board inside the phones. The claim of the appellant that the software was available with the flash drive as media, which is made for the first time, is also not correct; (b) It is not the case now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reful consideration of the factual, legal and technological issues, the main point for decision is whether there are two distinct goods - hardware part of fixed wireless phone and the software part of the said phone - for Customs duty assessment. In other words, is there, as claimed by the appellants, an identifiable goods as software in a media falling under Heading 85.24 of the Customs Tariff, in the imports by the appellants for the purpose of Customs Valuation and assessment. There are other connected points also for decision, namely, interest liability of the appellants, sustainability of redemption fine and penalties imposed in these cases. Discussion and findings :- Before proceeding with examination of the merits of the case, it is necessary to address the preliminary objection raised by Revenue regarding admissibility of a totally new plea which was never raised in any of the proceedings till date. As noted earlier in this order, the appellants put up their defence mainly on the ground of applicability of Note 6 of Chapter 85 to their case; to consider the Flash memory unit inside the WLL Cell Phones imported by them as a media carrying the software and accordingly elig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature and functionality of the imported goods - fixed wireless telephones. CDMA Fixed Wireless Telephone :- It is necessary to understand the actual nature and functioning of the FWTs (WLL Phones) relevant to this case. We have seen the instrument, perused the user manual and service manual. FWT is supplied with main unit with handset, dipole antenna, back up battery, AC/DC Power adopter and power cord. FWT and WLL are generic terms for radio based telecommunication technologies. The CDMA WLL network consists of WLL system, BTS (Base Station Transmission sub-system) and FWT (Fixed Wireless Telephone). The WLL system is directly connected with LE (Local Exchange). Relevant to decide the claim made by appellant regarding nature, tariff classification and thereby the exemption as available to software contained in "other media" (Note 6 of Chapter 85) is the nature of the memory unit which is part of the Internal RF circuit of the telephone. Learned Counsel has shown a sample of the said printed circuit board and claimed that the Flash memory unit which is attached to the PCB is to be considered as a storage media of the software. Such software should therefore be considered as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a which is hard-wired as a Firmware. Such software is closely tied to specific hardware. From the above technical details it is clear that the memory unit, which is a part of ARM7TDI Micro processor sub-system, is clearly an integral part of the internal circuit of the telephone. This contains both volatile (temporary) and non-volatile (permanent) data, without which activation of the phone is not possible. It is not correct to call such memory unit as a storage media for software. The applicability of Note 6 depends on availability of a identifiable, separate media. From the technical analysis above it cannot be said that there is any identifiable, separate media in the present case. Relevance and applicability of Note 6 to Chapter 85 of the Schedule to Customs Tariff Act, 1975 . Note 6 to Chapter 85 of the Schedule to Customs Tariff Act, 1975 as it stood prior to 01/1/2002 is reproduced hereunder: "6. Records, tapes and other media of heading No. 85.23 or 85.24 remain classified in those headings, whether or not they are presented with the apparatus for which they are intended". Note 6 to Chapter 85 of the Schedule Customs Tariff Act, 1975 w.e.f. 01/1/2002 is reproduced he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the software contained in the memory unit clearly rule out the possibility of calling this part of the printed circuit board separately as a media for software. It is also not the claim of the appellant that such media carrying the software for FWT phones is anywhere available separately for trading. It is the clearly admitted fact that the software/data loaded on the Flash memory is specific to the user/customer. It contains caller ID and caller block software. The phones imported have embedded software with required parameters for its functioning. Analysis of case laws : Learned Senior Counsel as well as Revenue relied on various case laws in support of their submissions. We are conscious of the fact that the present dispute involves highly dynamic technological issues relating to the nature of software, memory unit and telephone instrument. Hence, it is necessary before analyzing and applying any rulings, to have the changing technologies and concepts in mind. The appellants relied on the decision of Hon'ble Supreme Court in PSI Data SystemsLtd. vs. CCE (supra) to submit that the value of the software is not includable in the value of the WLL telephone. In the said case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the program is a software because a floppy is a storage in which software plays the dominant role whereas in the case of IC the programme is embodied in the IC which can perform various functions only when fixed to the mother board and is not removable like a floppy from VCR. According to Encyclopaedia of Technology Terms by Whatis.com , an IC can function as an amplifier, oscillator, timer, microprocessor etc. On the other hand, a floppy disk is only a storage. Moreover the essential character of IC does not change with the programme being embedded in the IC and hence the IC remains classifiable under CH 85.42. This distinction is also brought out by tariff items referred to above (See: Dictionary of Computing by Prentice Hall). 24. An embedded system is a programmed hardware device. Software written for embedded systems, especially those without a disk drive is called Firmware, the name for software embedded in hardware devices e.g. in ROM IC chips. Many embedded systems avoid mechanical moving parts, such as, disk drives, switches or buttons because they are unreliable as compared to ROM or Fast Memory IC chips. It is kept outside the reach of humans. In embedded systems ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal in Vodafone Essar Gujarat Ltd. vs. CC (Imports), Mumbai (supra), relied upon by the appellant, is regarding software presented in a recorded media in the form of tapes/CDs as well as in the hard disk contained in the hardware. The software in that case is not embedded or contained in ROM or EEPROM or in the microprocessor chips. The reasoning given in the said decision is therefore inapplicable to the facts of the present case. As held by the Tribunal in Bharti Airtel Ltd. vs. CC, Bangalore (supra) and by the Hon'ble Supreme Court in Anjaleem Enterprises Pvt. Ltd. vs. CCE, Ahmedabad (supra), in the matter of valuation, one of the important aspects to be taken into account is the condition of the goods at the time they leave the factory. The memory unit/chip is an essential part of PCB inside the telephone and is an integral functional component. Hence, in the present case there are no two items for valuation. The item of import is FWT and as such should be subjected to classification and assessment accordingly. Revenue relied on the decision of the Tribunal in Jabil Circuit India Pvt. Ltd. vs. CCE, Pune reported in 2014 (307) E.L.T. 891 (Tri. - Mumbai), where the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 Hewlett Packard Sales (P) Ltd. cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (3) of the said Section was incorporated by Section 21 of the Taxation Laws (Amendment) Act, 2006. The said sub-Section reads as under :- Section 18 (3):- The importer or exporter shall be liable to pay interest, on any amount payable to the Central Government, consequent to the final assessment order [or re-assessment order] under sub-section (2), at the rate fixed by the Central Government under Section 28AB from the first day of the month in which the duty is provisionally assessed till the date of payment thereof". We find that the Hon'ble Supreme Court decision in JaswalNeco Ltd. vs. CC, Visakhapatnam (supra) ruled that levying interest can only be by a substantive provision, thereby making it clear that such levy can only be prospective. The Hon'ble Apex Court referred approvingly to the decision of Hon'ble Gujarat High Court in CC (Preventive) vs. Goyal Traders reported in 2014 (302) E.L.T. 529 (Guj.) as under :- "17. In the present case, we find that prior to introduction of sub-section (3) of Section 18 of the Act in the present form, there was no liability to pay interest on difference between finally assessed duty and provisionally assessed duty upon p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 110A of the Customs Act, 1962. He further submitted that the bond mentioned by the Original Authority in his order dated 18/8/2006 is for the clearance of goods on payment of provisional duty. In the present case in the absence of any seizure thereafter provision release of goods under bond, confiscation or imposition of redemption fine are not sustainable. We find that reliance placed by Revenue on the decision of Hon'ble Supreme Court in Weston Components Ltd. vs. CC, New Delhi (supra) is misconceived. In the said case, there was a seizure and provisional release against a bond, undertaking to produce the goods when called for. In such situation, the Hon'ble Supreme Court held that redemption fine can be imposed if the goods are already cleared. Since, such release of goods is on execution of bond such fine was justified. We find that the Hon'ble Punjab & Haryana High Court in CC, Amritsar vs. Raja Impex (P) Ltd. reported in 2008 (229) E.L.T. 185 (P&H) held :- "12. It may also be noticed here that in the case of M/s. Weston Components Ltd. v. Commissioner of Customs, New Delhi (supra), the goods were released to the assessee on an application made by it and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 114A of the Customs Act, 1962 as the present impugned orders can only be considered as relatable to Section 18. Section 114A can apply when there is a demand under Section 28. He further submitted that the issue involved is one of pure interpretation of statutory provisions and as such there could be no ground for imposing penalty. Learned Counsel mentioned that the Commissioner of Central Excise, Goa in his order dated 27/4/2004 did not impose any penalty, as the issue involved was only regarding classification of software and assessment thereof. We find that at the time of original proceedings before the Commissioner, Goa or during further appellate proceedings before the CESTAT, Mumbai, the detailed investigation and the evidences gathered therefrom by the Department are not available for consideration. As seen from the impugned order dated 18/8/2006 of the Commissioner, Hyderabad II, the Department collected various evidences after detailed investigation involving contract documents, correspondence, E-mails, statements of various persons involved in the import etc. These evidences were examined in the impugned order passed by the Commissioner, Hyderabad II, which was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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