By TIOL News Service

MUMBAI, JULY 01, 2013: THE brief facts of the case are that the appellant imported 28,351 pieces of Fixed Wireless Terminal (FWT) module during the period from June, 2001 to July 2001 declaring an assessable value of Rs. 16,41,68,213/- through IGI Airport, Delhi. They also imported 29,000 pieces of WLL loader software during October, 2001 declaring an assessable value of Rs. 8,98,94,383/- through IGI Airport, Delhi and Air Cargo Complex, Mumbai.

After conducting investigation, the department was of the view that the appellant has artificially split up the hardware and software values inasmuch as since the software were cleared without payment of duty, the software module value should be added to the hardware module value and differential duty amounting to Rs. 3,48,21,488/- is liable to be demanded.

Show-Cause notice was issued demanding the differential duty along with interest thereon and proposing to confiscate the goods under importation and proposing penalties on the appellant and its Senior Vice President and President.

Another SCN was issued by the Commissioner of Customs, Tuglakabad, New Delhi on similar grounds in respect of 21,139 pieces of FWT module imported through Inland Container Depot (ICD), Tuglakabad and in respect of 20000 pieces of WLL loader software imported during July,2001 to October, 2001 through Air Cargo Complex, Mumbai. A third SCN was issued by the Commissioner of Customs, Nhava Sheva in respect of 1,00,750 pieces of FWT imported through JNPT, Nhava Sheva and in respect of 1 lakh pieces of WLL loader software imported during October, 2001 to January 2002 through Air Cargo Complex, Mumbai and IGI Air Port, Delhi.

All the 3 SCNs were adjudicated by the Commissioner of Customs, Nhava Sheva who held that in terms of the Note 6 to Chapter 85 read with Circular No. 51/2002-Cus dated 12.08.2002 and decision of the Supreme Court in the case of PSI Data System - - (2002-TIOL-46-SC-CX) it is clear that the value of the software has to be separately declared and assessed on merits as software, even if the same is loaded onto the hardware. Similarly, the value of the hardware has to be declared/calculated and assessed on merits as hardware. In this case, he further held that the importer has imported the hardware and software separately and has declared the values separately which is quite legal and proper so far as this part of the import/clearance of the procedure is concerned, in terms of the laid down law. However, the Commissioner came to the conclusion that the actual value of the software imported is only USD 95032 as evidenced from the agreement dated 16.04.2001 entered into between the appellant and M/s Hynix Semiconductor, Korea and not Rs. 37,49,61,132/- as declared by them in the Bills of Entry for the import of WLL software and that to this extent the hardware had been undervalued. Accordingly, he confirmed a duty demand of Rs. 14,34,00,490/- under Section 28 of the Customs Act, 1962 along with interest thereon under Section 28AB ibid. He also imposed equivalent penalty on the appellant under Section 114A and a penalty of Rs. 25,00,000/- on Shri Manjit Singh, President of the appellant firm.

Aggrieved the appellants are before the CESTAT.

It is submitted that the Commissioner has gone beyond the scope of show-cause notice by holding that the appellants have over-valued the value of software; that the Commissioner has committed an error by taking the value of software in respect of FWT/HWT module as USD 95032 as per the agreement dated 16.4.2001 entered into between the appellants and their foreign supplier and which agreement pertains to networking software BSC (Base Station Controller) BTS (Base Transmission System) and IWF and had nothing to do with the software for FWT/HWT imported by them; therefore, the entire demand is based on wrong appreciation of facts.

The Special Counsel for the Revenue drew the attention of the Bench to the paragraph 1 of the SCN wherein it is recorded as an information gathered that the value of the Fixed Wireless Terminal/Telephone (FWT) was being split artificially into value of the equipment hardware and software to avail benefit of nil rate of duty on the value of CD ROM/software in terms of Notification 17/2001 Sl. No. 267/285. Inasmuch as the allegation against the appellant is that they have over-valued the transaction value of software in the Bills of Entry; however since the Commissioner has taken wrong consideration of the fact that the value shown in the agreement dated 16.04.2001 is not the value of software for FWT/HWT; the matter be remanded for fresh consideration.

The Bench inter alia observed -

"6.1 On going through the conclusion of the show-cause notice in the proceedings paragraphs, we find that the allegation against the appellant was that the appellants have artificially splited into the values to software and hardware and claimed nil rate of duty on the value of CD ROM/software while paying duty for the hardware HWT imported separately through this port. The duty is leviable on the value of hardware and software as the latter form integral part of the former and the duty has been escaped assessment by way of suppression of facts and splitting the value of FWT artificially. Therefore, it was alleged that the value of software imported duty free should be assessed along with the value of the hardware imported through this port. From the above it is clear, the only allegation in the concluding paragraph of the show-cause notice is that the value of software imported by the appellant is to be included in the value of the hardware for assessment of duty. The said question has been answered by the learned Commissioner in the impugned order by relying on the judgement of the Hon'ble Apex Court in the case of PSI Data System (supra) and ACER India Ltd. (supra) where he has held that hardware and software are to be assessed independently on merits whether they imported together or separately. The learned Commissioner has gone beyond the scope of show-cause notice by holding that the appellants have inflated the value of software, the said allegation is not sustainable. Further, on the allegation of inflation of the value of software is also not sustainable. As per Annexure ‘A' to the agreement, the goods which are to be supplied by the foreign supplier are (i) Parts of BSC (ii) Parts of BTS (iii) Other items such as Inter Working Controller, Operation Maintenance Controller, Documentation for System description/Operation and (iv) software. These software comprises of Networking Software for BSC, Networking Software for BTS and Networking Software for IWF. There is no mention in the agreement that the software value of USD 95032 pertain to fixed FWT/HWT modules imported by the appellant. Therefore, it is not understood how the Commissioner has arrived at a value of USD 95032 in respect of software module imported by the appellant. On the contrary, there are letters between the foreign supplier and the appellant indicating that in respect of FWT/HWT hardware, agreed prices are USD110 and for software USD 45 vide communication dated 10.09.2002 and 22.06.2001. Therefore, it appears that the Commissioner has not appreciated the evidence available on records correctly and has arrived at the value of the software without any basis, what-so-ever."

Taking the view that the order passed by the Commissioner is on appreciation of erroneous facts and beyond the scope of the show-cause notice, the same was held to be not sustainable in the eyes of law. The Bench also did not agree with the contention of the Revenue Counsel for remanding the matter back to the adjudicating authority for denovo adjudication by observing that the issue raised in the show-cause notice had been answered by the adjudicating authority after relying on the judicial pronouncements. In fine, the order was set aside and the appeals were allowed with consequential relief.

(See 2013-TIOL-989-CESTAT-MUM)