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TMI Blog2008 (10) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellants are the manufacturers of Telecommunication Equipments including Telephone Exchanges, falling under CSH 8517 of CETA 1985, and parts and accessories thereof. They cleared Telephone Exchanges as well as the parts for the Department of Telecommunications. Revenue issued a show cause notice against the appellants on the ground that when they cleared the OCB Exchanges for the period form 1-3-1997 to 30-11-1999, they did not include the value of the software and thereby evaded the duty to the extent of Rs.10 crore and above. The show cause notice was adjudicated by the Commissioner who confirmed a demand of Rs. 8,56,97,114/- (Rupees Eight Crores Fifty Six Lakhs Ninety-Seven Thousand One Hundred and Fourteen only). Equal penalty under Section 11AC was imposed. The longer period was invoked in the show cause notice. 5. The main allegations of the department are that 'Software' is an integral part of the OCB Exchange and is essential for the functioning of the OCB Exchange. In terms of Section 4 of the Central Excise Act, 1944, the assessable value of excisable goods has to be computed by including the value of all the parts contained in and essential for the functioning of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvocate stated that the show cause notice as well as the order is not maintainable in law as the assessments were provisional during the period from 1-3-1997 to 30-11-1999. It was also stated that the learned Commissioner has not dealt with the specific submissions that were made before him in respect of several contentions. Therefore, it appears that there is non- application of mind. It was also stated that he has not dealt with the documentary evidence placed before him and in particular the bid documents for the supply of Digital Local Telephone Exchange Equipment which gives the details of the software that is required to be supplied. The -Purchase Orders dated 12-5-1999 and 2-8-1999 placed by the Deputy General Manager, DOT, Kerala Circle, Trivandrum and Assistant General Manager, HP Circle, Shimla, respectively, clearly indicate the type of software required to be supplied along with the OCB exchanges manufactured and supplied by the appellants. It was urged that the Commissioner has traversed beyond the show cause notice inasmuch as in the impugned order he has cited material, vide paras 27 to 30, which were not cited or referred to as relied upon documents. This amounts to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. Ors. v. CCE, Surat - 2000 (121) E.L.T. 502 (Tribunal) = 2000 (40) RLT 368 (CEGAT) (e) G.D. Industrial Engineers, Faridabad v. CC, Chandigarh - 1983 (14) E.L.T. 1994 (f) Gammon Fur Chemis v. CCE, Bangalore - 1994 (71) E.L.T. 59 = 1994 (1) RLT 334 8. It was also submitted that the appellants had not consciously or deliberately withheld any information so that proviso to Section can be invoked They relied on the following case-laws: (a) Collector v. Chemphar Drugs Liniments - 1989 (40) E.L.T. 276 (S.C.) (b) Padmini Products v. Collector - 1989 (43) E.L.T. 195 (S.C.) (c) Tamil Nadu Housing Board v. Collector - 1994 (74) E.L.T. 9 (S.C.) (d) Pushpam Pharmaceuticals Co v. Collector - 1995 (78) E.L.T. 401 (S.C.) 9. The learned advocate took us through the Purchase Order dated 12-5-1999, from the Deputy General Manager, Department of Telecommunications, Kerala Circle, Trivandrurn and especially to para 12.2, 12.3, 12.4, 12.5, 14.0 and 15.6 they are reproduced below: "12.2 : Supplier shall supply software for the dimensioning of the Exchange and the bill of materials as per site requirement. 12.3 : All technica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the OCB Exchange manufactured by them for a capacity of 10,000 lines would consist of at least 5 racks or more. In each one of the racks the PCBs and other add on cards are mounted and assembled, to make into a functional exchange within their factory premises. However, the OCB Exchange is required to be tested before dispatch, whether the same is functioning properly or not. For this purpose, the appellants have to use the Software required for testing the OCB Exchange. It was explained that the software for OCB Exchange consists two parts. The first part is required for testing it is called 'BBUINT' and the second part of the software is essential for the functioning of the exchange in accordance with the needs and requirements of the customers. It was stated that the software are imported from ITI Technical Collaborator, M/s. Alcatel. The testing of software is used only for testing the exchange and is not used for further functioning of the exchange. The said software 'BBUINT' is loaded with the help of personal computers as front-end interface, and loaded on to the System, for testing the equipment. After testing the OCB exchange, the software may remain in the hard dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atement of Shri M. Balasubramanian, Deputy Manager (Sales) on 24-12-1999 in answer to question No. 2. It was also urged that the Application Software BBUMES which is modified according to the requirements of each customer, is a separate entity and is installed at the exchange concerned in situ. Its value is not includible in the value of the main equipment. Reliance was placed on the following decisions: (a) PSI Data Systems Ltd. v. Collector of Central Excise - 1997 (89) E.L.T. 3 (S.C.) (b) O.R.G. Systems v. Collector of Central Excise, Vadodara - 1998 (102) E.L.T. 3 (S.C.) (c) CMS Computers Pvt. Ltd. v. Commissioner of Central Excise, Mumbai-I - 1999 (108) E.L.T. 525 (Tribunal) (d) Sprint R.P.G. India Ltd. v. Commissioner of Customs-I, Delhi - 2000 (116) E.L.T. 6 (S.C.) (e) Sunray Computers (P) Ltd. v. CCE, Bangalore - 1999 (112) E.L.T. 540 (T) (f) Similar decision was taken in the case of CCE, Hyderabad v. OMC Computers Ltd . - 2000 (XC1)-GJX-3804-Tribunal 13. It is a well settled law that even if the software is pre-loaded, the value of the same, is required to be excluded from the assessable value of the Hardware and the same cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc. from the standard text book. It is an admitted position in the subject Show Cause Notice that the software value of which the Department intends to add to the assessable value of the OCB exchange is liable to 'Nil' rate of duty under CETA, 1985. The only issue that is required to be decided is whether the value of the said software is required to be added to the value of the hardware viz., the value of the OCB Exchange. 16. The prices of the OCB Exchange cleared by ITI during the period from 1-3-1997 to 30-11-1999 were 'provisional' and were subsequently revised the DOT. The question whether the assessments during the said period were provisional or otherwise was decided by this Bench in the Final Order No. 2068 to 2072/2005 dated, 10-11-2005 [2006 (201) E.L.T. 177 (Tribunal)]. In the order the Tribunal had held that the assessments made continued to be provisional for the years 1994-95 onwards and no final assessments were made under Rule 9B (5) for the period in question. It was also held by the Tribunal that the Show Cause Notice was premature and the assessments continued to be provisional for the period covered by the Show Cause Notice and were required to be finalized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garding the includibility of the value of the software meant for OCB Exchanges when they were cleared by the appellants. We have already narrated all the facts in detail. On going through the impugned order, it is found that the main thrust of Commissioner is that the software is an integral part of the OCB Exchanges, the OCB exchanges cannot function without the said software. Moreover, the contention of the appellant that the software is loaded in situ has not been accepted by the Commissioner. He stated citing statements of some individuals that the software is loaded into the machines when they are dispatched. He has also distinguished the case-laws cited by the learned Advocate on the ground that they relate only to computer and not to other machines like OCB Exchanges. He has also stated that-prior to 1-3-1997 the appellants were clearing the OCB Exchanges and paying duty on the entire value without splitting up the value into software and hardware. In view of all these grounds, he has come to the conclusion that the value of the software has to be included in the value of the OCB exchange and duty has to be paid. He has also invoked the longer period stating that there was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellants have clearly explained that there are two types of software as far as the OCB Exchanges are concerned. The first type of software is necessary for testing of it and then there is another software which is necessary for the functioning of the equipment and this software is loaded in situ and they have also made the point that the same software has to be modified at the site in order to suit the requirement of the customers. In view of this, we do not accept the contention of the Departmental Representative and also the Commissioner that the said software is an embedded software. Further, on going through the Purchase Orders, Tender Documents etc. it is very clear that there is a separate mention of the software. The extracts of the purchase order and tender document have already been given above. Therefore, we don't want to reproduce it in the finding. But a careful reading of them shows that the software required are separately to be supplied and they are not embedded and moreover they are imported from France. We agree with the learned Advocate that these software which are required are loaded in situ. Even if they are loaded in the factory, that will not make much d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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