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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 ..... er/customer. It contains caller ID and caller block software. The phones imported have embedded software with required parameters for its functioning. The present appeals deal with Fixed Wireless phones, with PCB inside, a part of which is claimed as a recorded media for software. As examined with technical literature earlier in the order, the logic/programme loaded in the said memory unit is the fundamental necessity for the function of the FW telephone. It cannot be compared to any optional or identifiable software as a recorded media. Such software as available for computers are nowhere comparable to the programme software pre-loaded in the memory chip of the PCB. The Fixed Wireless phones as imported require to be classified and assessed as phones with no segregation of value assignable to the software separately, as claimed by the importers. - Demand of duty confirmed - however, demand of interest, redemption fine and penalty waived. - Decided partly in favor of assessee. - Customs Appeal No. 573-575, 487-489, 491, 556, 473 of 2006 and 463 of 2004 - Final No. 30110-30119/2016 - Dated:- 17-2-2016 - G. Raghuram, President, Sulekha Beevi C S, Member (J) And B Ravichandr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Tribunal. These civil appeals were decided by the Hon'ble Supreme Court on 15/10/2015. After having considered the two CESTAT decisions mentioned above the Hon'ble Apex Court observed and ruled as under :- Having regard to the aforesaid situation, it is suggested by Mr. S.K. Bagaria, learned senior counsel appearing for the assessees, that better course of action would be to send the matters back to the CESTAT which should be decided by a Larger Bench. We may accept the aforesaid proposal but while doing so it has to be necessarily directed that the evidence which has surfaced later on and relied upon by the Department in other show cause notices shall be considered as common evidence in all these cases. Accordingly, the impugned decisions of the CESTAT in these appeals are set aside. The matter is remitted back to the CESTAT with request to the President, CESTAT to constitute a Larger Bench and decides the matters afresh on the lines specified above. We would appreciate if the Larger Bench decides these matters within a period of one year from the date of receipt of the copy of this order . 2. Accordingly, this Larger Bench came to be constituted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant portion of the said note states: Records, tapes and other media of heading 85.23 or 85.24 remain classified in those headings, when they are presented with the apparatus for which they are intended . The contention is that the software intended for FWT phones are loaded in the Flash memory unit which is to be considered as a media for such software and to be classified under CTH 85.24. The exemption to software is available even if it is preloaded in the apparatus. Learned Counsel accepted that in proposing this argument they are not concerned with the software loaded in CDs presented with the apparatus at the time of imports. As such the media, here the information technology software, claimed for exemption is the Flash memory card which is part of main printed circuit board of the telephone apparatus, not the CDs imported and presented with these telephones. This is entirely a new matrix of factual and legal propositions not advanced earlier in any proceedings before the lower authorities. This Tribunal nor in the appeal before the Hon'ble Supreme Court. As such, admission of such entirely new propositions, claimed on facts, is itself to be decided. Lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld 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 in the value of laptop, which should be assessed separately under Heading 85.24. The Telecom software now under consideration is covered under the category of Computer software ; (e) In the present case the software resides in the Flash memory, which is a mere storage device and, hence, should be assessed separately ; (f) The decision of the CESTAT in Bharti Airtel Ltd. vs. CC, Bangalore reported in 2012 (286) E.L.T. 270 (Tri. - Bang.) is not good law. The decision of Hon'ble Supreme Court in Anjaleem Enterprises Pvt. Ltd. vs. CCE, Ahmedabad reported in 2006 (194) E.L.T. 129 (S.C.) is not applicable to the present case. (g) There is no interest liability in the present case. There is no provision for payment of interest on differential duty assessed on finalization of provisional assessment under Section 18 (3) of the Customs Act, 1962. Interest under Section 28 AB is not applicable to the present case. The legal position is settled by the ruling in Jaswal Neco Ltd. vs. CC, Visakhapatnam reported in 2015 (322) E.L.T. 561 (S.C.). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant 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 that the equipment imported (CDMA WLL Cell phones) were presented with any media containing software. Note 6 will not apply. All the case laws relied upon by the appellants are in the context of computer hardware/software. The software in those cases were carried in a hard disk or other media and are also available separately for sale. In the present case there is no separately identified software which can be treated as goods in any media. (c) The software in the present case is a basic software which gives the phone its identity and functionality. It is pre-loaded in the hardware and the appellants attempt to show separate import of software through CDs is simply a device to escape Customs duty on the full value of the imported item - WLL Cell Phones. The earlier claim of software imported in CD is only to avail the otherwise ineligible exemption for the purported software as goods. (d) The Tribunal in Bharti Airtel Ltd. (supra) elaborately examined the issue of valuation of pre-loaded software. In that case, software was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 eligible for exemption. The learned Senior Counsel for the appellants admitted that they are making this submission for the first time and are abandoning earlier arguments before the lower Authorities as well as the Tribunal, i.e., regarding the CD-ROMS contained software for the WLL Phone, being eligible for clearance without payment of duty. On the preliminary objection, the learned Senior Counsel submitted that the present plea is taken by the appellants to counter allegation of Revenue that pre-loaded software cannot be considered for separate assessment as a software in media. He further pleaded that there is no legal bar in taking a fresh ground before the Tribunal. He relied on the decision in Mahalaxmi Textile Mills Ltd. reported in AIR 68 (SC) 101. In the said case, the Hon'ble Supreme Court held that the right of the assessee to relief is not restricted to the plea raised by him. The learned Counsel while admitting that the present plea though inconsistent with the plea raised before Departmental Author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 separate goods, though contained in and presented as a part of PCB inside the telephone. The exemption as available to software would thus be eligible to the same. The block diagram will show the location of the memory unit in the PCB (U 11 - Flash Memory). This memory unit is part of the digital/voice processing unit which in turn is a part of Internal RF circuit of the telephone. The memory unit is composed of Flash memory for storing main program activating MSM (Mobile Station Modem) and storing user service related data and RF calibration data, and SRAM for reading and writing data. The Flash Memory has a 1M X 16 CMOS concurrent Read/Write manufactured with high CMOS Super Flash Technology. NATURE OF MEMORY UNIT: The Service Manual of the telephone gives the following description of the memory unit : The unit is composed of Flash Memory for storing main program activating MSM and storing user service related data and RF calibration data, and SRAM for reading and writing data ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 hereunder: 6. Records, tapes and other media of heading No. 85.23 or 85.24 remain classified in those headings when presented with the apparatus for which they are intended . This Note does not apply to such media when they are presented with articles other than the apparatus for which they are intended . There is no remote possibility for calling the 'memory unit' in the present case as one of the media covered by above note. The memory unit is clearly part of the circuit board of the telephone and more appropriately covered under Tariff heading 85.42. Tariff Heading 85.42 covers Electronic Integrated Circuits whether or not combined with memories. Such memories may be in the form of DRAMS SRAMS PROMS EPROMS EEPROMS etc. Note 5 of Chapter 85 provides that the classification of Articles defined in the said note, Headings 85.41 and 85.42 shall take precedence over any other heading in this schedule which might cover them by reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 the apex Court was dealing with tangible software of the nature of discs, floppies and CD-ROMS. It was held that software sold along with the computer cannot be included in the assessable value of the computer for the purposes of excise duty. The Hon'ble Supreme Court cited the example of cassette recorder and a cassette to state that though cassette is required for functioning of cassette recorder, these are two distinct articles. In the present case we are dealing with pre-loaded/embedded software in the memory unit which is an integral part of the Printed Circuit Board inside the Fixed Wireless phone. The reasoning and ratio of the apex court in the above decision are not applicable to the present case. In PSI Data Systems Ltd. vs. CCE (supra) it was not the contention of the appellants that the firm or etched software that is implanted into a computer is not to be taken into account in the valuation thereof for the purpose of excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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, the software resides in ROM IC chips. Embedded systems are combination of hardware and software like ATMs, Cellular telephones etc. In embedded systems, the software resides in ROM IC Chip (See: www.answers.com ). These chips are more than mere carriers. Example of embedded system: microwave ovens, cell phones, calculators etc. The Hon'ble Supreme Court examined and distinguished their earlier findings in PSI Data Systems Ltd. vs. CCE (supra) and Sprint R.P.G. India Ltd. vs. CC-I, Delhi (supra) and held that in these cases the question of integrated circuit did not arise and interpretation of entry 85.42 was not at all considered. The Apex Court further examined the decision in CCE, Pondicherry vs. Acer India Ltd. (supra) and distinguished the same as not applicable to facts of the case of STD - PCO telephones. It was held that the software loaded in the IC Chip, constitutes the 'brain' of the system. The levy is on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 Tribunal considered inclusion of the cost of software loaded in the Flash memory chip inside the Set Top Boxes (STB). The Tribunal observed : 5.12 The next question for consideration is with regard to the inclusion of cost of software which were downloaded and incorporated in the flash memory chip which was soldered onto the PCB of the STB. As per the literature available, flash memory is EPROM (Erasable Programmable Read Only Memory) and is an integrated chip. Thus, it is a rewriteable memory chip on which programmes are written with an external programming device before being placed on the PCBs. Thus, the flash memory is an integral part of the STB and therefore, its cost would include the cost of software loaded on to it. It is in this factual context, the decisions relied upon by the appellant have to be examined. The appellant has relied on the decisions of the Apex Court in the case of PSI Data Systems and Acer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ftware 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. case, the Hon'ble Apex Court once again reiterated the above view, wherein it was held that pre-loaded operating systems software in the Hard Disk Drive of the laptop forms an integral part of the laptop and therefore, the cost of such pre-loaded software forms part of the value of the laptop. Accordingly, the Hon'ble Apex Court held that when a laptop is imported with inbuilt preloaded operating system recorded on the hard disk, the said item forms an integral part of the laptop and has to be classified as laptop and not as computer software separately. Applying the ratio of these decisions to the facts of the present case, it becomes abundantly clear that the cost of software which has been loaded on to the flash memory which in turn has been soldered onto the PCB of the STB forms an integral part of the STB and therefore, the value of the STB shall include the value of such software also . Close analysis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 payment of which the assessee may have cleared the goods. It was only with effect from 13-7-2006 that such charging provision was introduced in the statute. Upon introduction therefor such provision created interest liability for the first time w.e.f. 13-7-2006. In absence of any indication in the statute itself either specifically or by necessary implication giving retrospective effect to such a statutory provision, we are of the opinion that the same cannot be applied to cases of provisional assessment which took place prior to the said date. Any such application would in our view amount to retrospective operation of the law . We also find that the Tribunal in Sterlite Industries (India) Ltd. vs. CC, Trichy reported in 2014 (311) E.L.T. 91 (Tri. - Chennai) held that in respect of provisional assessment prior to 13/7/2006 interest would not be leviable by invoking Section 18 (3) of the Customs Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 on the execution of a bond by the assessee and in those circumstances, the Hon'ble Apex Court held that the mere fact that the goods were released on the bond being executed would not take away the power of custom authority to levy redemption fine. A reading of the judgment/order of the Hon'ble Apex Court in M/s. Weston Components Ltd. v. Commissioner of Customs, New Delhi (supra), would show that the Apex Court has taken the view that redemption fine can be imposed even in the absence of the goods as the goods were released to the appellant on an application made by it and on the appellant executing a bond. Since the goods were released on a bond the position is as if the goods were available. The ratio of the above decision cannot be understood that in all cases the goods were permitted to be cleared initially and later proceedings were taken for under-valuation or other irregularity, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 carried in appeal to CESTAT, Bangalore Bench. In both original and the appellate proceedings these evidences have been examined. Regarding the statement of learned Senior Counsel that it is a case of finalization of provisional assessment, we find that after a detailed investigation the show cause notice to the appellants relating to imports invoked the penal provisions. In a case before the investigation, the Commissioner, Goa, did not impose penalty. In the case of Hyderabad, the Commissioner impose penalties on the appellant/assessee in terms of Section 114A and on the various individuals under Section 112 of Customs Act. We find that the penalty imposed under Section 114A was equivalent to the differential duty payable which was worked out in terms of Rule 5 of Customs Valuation Rules, 1988 readwith Section 14 (1) of Customs Act, 1962. Penalty under Section 114A is imposable in c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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