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TMI Blog2016 (11) TMI 1325X X X X Extracts X X X X X X X X Extracts X X X X ..... essable value. We therefore direct the lower authorities that while arriving at assessable value in terms of Rule 8 the appropriate adjustment towards expenses, taxes and profit margins has to be given to the Appellant. Confiscation of goods and Imposition of penalty - Held that: - the confiscation has been ordered in respect of only those Bill of Entries which were provisionally assessed. Further penalty under Rule 112 (a) and Section 114 A has been imposed on the ground of misdeclaration of goods. We find that there is no infirmity in the above observation of the adjudicating authority and therefore uphold the confiscation of goods as well as imposition of redemption fine and penalties. We remand the case back to the adjudicating authority only for the limited purpose of re-quantification of duty by determining the assessable value in terms of Rule 8 of Central Excise Valuation Rules, 1988 after taking into consideration the Appellant’s submission on appropriate adjustment towards expenses, taxes and profit margins - appeal allowed by way of remand. - C/88315/14 - A/93186/16/CB - Dated:- 17-10-2016 - Mr Ramesh Nair, Member(Judicial) and Mr. C.J. Mathew, Member(Technical) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they directly pay loyalty to M/s Microsoft. The Appellant received enquiry and query by the Customs department on such importation of CD regarding their valuation. The goods were provisionally assessed and out of charge was given. The Appellant were later issued show cause notice proposing to reject the declared value of CD containing software in terms of Rule 4 (2) read with 10 A of the Customs Valuation (Determination of price of imported goods),Rules 1988 and to re-determine the same under Rule 8 of the said Rules; to demand and recover differential custom duty of ₹ 24,91,25,321/-; to confiscate the imported goods under Section 111 (d) and 111 (m) of the Customs Act and to recover interest under Section 18 (3) read with Section 28AB of the act; to impose penalty under section 112 (a)/ section 114A; to finally assess the Bill of entry on the basis of re-determination as proposed and to enforce the provisional duty bonds towards duty liability. The proposal were based on the premise that the transaction value of CDs imported by the Appellant cannot be accepted under Rule 4 of the Customs Act as the sale of CDs was restricted by M/s MS as there is an agreement between Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oice before custom authorities for clearance of goods. This practice was adopted even before excise duty on software. He submits that the payment of royalty by OEM and DSPs is a matter between M/s Microsoft and OEM/ DSPs and the Appellants have no role to play in that transaction as the same is paid on use of software. The payment of royalty is linked to COA supplied to OEMs and the same is not known to them. That in absence of any other payment the value declared by them is the transaction value as per section 14 read with rule 4. That the onus is on the department to establish that the transaction value is incorrect and in absence of any evidence the department is bound to accept that the transaction value is correct. The provisions of Rule 4 (2) (a) of the Valuation Rules is not applicable as there is no restriction as to disposition or use of imported goods imposed by the supplier and that conditions or considerations relating to the production or marketing of the imported goods shall not result in rejection of transaction value. That therefore licence fees is not includible in value of goods. He submits that Rule 9 (1) (c) of Customs Valuation Rules can be invoked o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not sold in retail but is being supplied by OEM along with computer. However both types of CD are having complete software and are being supplied with COA levels and as such directly usable. That the authorized replication services agreement shows that Appellant can sell goods only to those OEM and distributors who has valid agreement with Microsoft. Appellant cannot sell the goods to any party who does not have agreement with Microsoft and thus there is restriction on sale of goods. As per Section 4 (2) the transactional value of the goods is accepted if there is no restriction on sale of goods. In this case there is restriction on sale of goods and hence the transaction value cannot be accepted. The value declared by the Appellant at the time of importation was US$ .18 to US$ 0.46 whereas the distributor are selling the goods for ₹ 3000 to ₹ 4600/- per piece after charging royalty. He submits that as per the agreement of the Appellant with M/s Microsoft the MSLI grants licence to sell the product in the applicable region. The Customer means OEMs and Other Authorised Replicators that have current and valid license with MSLI or have been approved by MSLI. That OEM me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s decided by M/s MSLI, therefore for all practical/ legal purposes import is from MSLI only. That since the goods were sold to related buyers who were having agreement with the owner of licence (in this case MSLI), hence the advisory Opinion quoted by Appellant in their appeal are not sustainable. That similar submissions were made in case of Atul kaushik Vs. CCU (Exports) New Delhi 2015 (330) ELT 417 (TRI - DEL) but the tribunal held that royalty charges are to be added to assessable value. He submits that looking to the facts of the case and investigation by SIIB it is clear that it was only after comprehensive investigation that the facts came to knowledge of the department and since the Appellant has made wrongful declaration they are liable for penalty and invocation of extended period. The Appellant has not produced any document that they had bonafide belief. That the original authority has confiscated only those goods which were provisionally assessed and which were released under Bond. Therefore such goods can be confiscate and Redemption fine can be imposed. He submits that there is no violations of principals of natural justice as the relied upon documents were suppli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ps from the Appellant there is no restriction on use of software provided they have licensing agreement with the MSLI. It is an undisputed fact that all the OEMs had agreement with the MSLI known as Microsoft Distribution channel agreement that the OEM had to sell unopened and unaltered package as received from Appellant as no further processing was required. The Distributors in turn while selling these goods added royalty paid or to be paid by them to M/s MSLI. This clearly shows that the Software package is of no use without royalty and it is the royalty payment or an undertaking/ agreement to pay royalty which is prerequisite of working of package. The goods imported by the Appellant are not merely blank CD but is loaded with the software for which key is provided by the Appellant themselves. It shows that the goods are always inclusive of royalty which is otherwise recovered by M/s MSLI from the OEMs/DSPs. It is apparent that the whole operation of royalty payment made by the OEM and DSPs to M/s MSLI is planned in a way that it may show that the Appellant, OEMS/DSPs and Microsoft are not connected even though the every benefit is accruing to M/s MSLI. The Royalty is payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given. However we find that since the identical goods of greatest aggregate quantity are not imported, the recourse to Deductive Value Method i.e Rule 7 of Customs Valuation cannot be taken and therefore recourse has to be taken of Rule 8 (Residual method) of Customs Valuation (Determination of Price of Imported goods) Rules, 1988 by giving reasonable flexibility. The price list of M/s Esys Information technologies and M/s Ingram Micro have been given to the Appellant as relied upon document which acts as a bench mark to calculate the assessable value. We therefore direct the lower authorities that while arriving at assessable value in terms of Rule 8 the appropriate adjustment towards expenses, taxes and profit margins has to be given to the Appellant. 9. As regard imposition of penalty we find that the adjudicating authority has imposed penalty on the ground that in column of Bill of Entries - condition on restriction attached with the sale Rule 4 (2), the Appellant had stated no condition and that it was only after comprehensive investigation by Special Investigation Branch that the complex nature of payments arrangements was unearthed which shows violation of Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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