Custom, Excise & Service Tax Tribunal
M/S. Accel Ltd vs Commissioner Of Customs (Air), Chennai on 21 January, 2013
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
C/82/2003
[Arising out of Order-in-Appeal No.C.Cus.578/2002, dated 31.12.2002 passed by the Commissioner of Customs (Appeals), Chennai]
FOR APPROVAL AND SIGNATURE:
Honble Shri Pradip Kumar Das, Judicial Member :
Honbe Shri Mathew John, Technical Member :
1. Whether Press Reporters may be allowed to see the Order
for publication as per Rule 27 of the CESTAT
(Procedure) Rules, 1982? :
2. Whether it should be released under Rule 27 of the
CESTAT (Procedure) Rules, 1982 for publication in
any authoritative report or not? :
3. Whether the Members wish to see the fair copy of
the Order? :
4. Whether Order is to be circulated to the Departmental
Authorities? :
M/s. Accel Ltd.
Appellant
Versus
Commissioner of Customs (Air), Chennai
Respondent
Appearance:
Shri Dwarakesh,Adv.
ShriK.S.V.V. Prasad, SDR For the Appellant For the Respondent CORAM:
Honble Shri Pradip Kumar Das, Judicial Member Honbe Shri Mathew John, Technical Member Date of hearing : 21.01.2013 Date of decision : 21.01.2013 Final Order No.____________ Per Pradip Kumar Das:
The appellant filed this appeal against the Order-in-Appeal No.C.Cus.578/2002, dated 31.12.2002 passed by the Commissioner of Customs (Appeals), Chennai.
2. The relevant facts of the case in this appeal are that the appellant imported Watchguard Security Products. They filed invoices under the description of the goods Watchguard Hardware, Watchguard Software and Watchguard User Software and paid duty under Customs Tariff Heading 8473.30. Subsequently, the appellant filed refund claim under Section 27 of the Customs Act, 1962 on the ground that they have deposited the duty wrongly on Watchguard Software. According to them, the goods were classifiable under 8524 and eligible for the exemption under Customs Notification No.17/2001-Cus., dated 01.03.2001. The lower authority rejected the refund claim holding that the goods were correctly classified under 8473.30. Commissioner (Appeals) upheld the adjudication order. Hence this appeal was filed by the appellant.
3. The learned counsel for the appellant submits that Watchguard, Firebox-II Software and Watchguard SOHO Software as mentioned in the invoices and bill of entry are Information Technology Software in recorded media would be classifiable under Heading 8524 and exempted from whole of duty. The learned counsel drew the attention of the Bench on operational aspects of Watchguard products and the literature. He submits that Watchguard Software is distinct from hardware and, therefore, it cannot be parts of computer. He relied upon the decision of the Honble Supreme Court in the case of Commissioner of Central Excise, Pondicherry Vs Acer India Ltd. reported in 2004 (172) E.l.T.289 (S.C.) and in the case of Commissioner of Customs, Chennai Vs Hewlett Packard India Sales Pvt. Ltd. reported in 2007 (215) E.L.T.484 (S.C.).
4. The learned authorized representative for the Revenue reiterated the findings of the Commissioner (Appeals). He submits that in this case imported goods are basically a single system and the embedded software was an integral part of the said system and used to operate the hardware. Thus, the entire system was rightly classifiable under sub-heading 8473.30. He also submits that the purchase order would indicate the value of goods as a single system. He relied upon the decision of the Tribunal in the case of M/s.Bharati Airtel Ltd. & Ors. Vs Commissioner of Customs, Bangalore reported in 2012-TIOL-746-CESTAT-BANG. He also relied upon the decision of the Honble Supreme Court in the case of Anjaleem Enterprise Pvt. Ltd. Vs Commissioner of Central Excise, Ahmedabad reported in 2006-TIOL-06-SC-CX.
5. After hearing both sides and on perusal of records, we find that the appellant placed the purchase order dated 08.02.2001 for Watchguard Security product. It is seen from the commercial invoices and bills of entry that the goods were invoiced in different parts, for example, (i) Watchguard Firebox-II Software, (ii) Watchguard SOHO Software, (iii) Watchguard SOHO Software w/10-user license and VPN option, (iv) Watchguard SOHO Upgrade to 25 user Software licencse and (v) Watchguard Web Blocker for SOHO and SOHO Software user license.
6. The goods were assessed under sub-heading 8473.30 as parts and accessories of the machines of Heading No.84.71. Subsequently, the appellant claimed that Watchguard Software and Watchguard SOHO are Software in recorded media and would be classifiable under 8524.40 which covers magnetic tapes for reproducing phenomena other than sound or image.
7. The main contention of the learned counsel is that the operating system and the application software controlling the operation of the device has been embedded into a non-volatile memory of the device by the manufacturer. He further submits that the hardware and software are distinct items both of which are required for the appliance to perform its design functioning. It is also stated that the hardware and software are different and distinct product and, therefore, the same were shown separately in the commercial invoice and the goods should be classified separately and assessed to duty as distinct commodities in which case he would get exemption from customs duty for value of the software.
8. We are unable to accept the contention of the learned counsel. It is seen from the literature that the software has been embedded into the non-volatile memory of the devices by the manufacturer. It was also stated by the learned counsel that the software was embedded into the non-volatile memory and cannot be deleted. In this case, the imported software is an integral part of the hardware. It is seen from the purchase order that the appellant placed the order for Watchguard Security products of US$ 50009.00 whereas in the commercial invoices and bills of entry, the value was artificially split.
9. In the case of M/s.Bharati Airtel (I) Ltd., (supra), it has been observed that there is no justification to disintegrate the pre-loaded software from the imported equipment and grant it separate status to classify the goods under Chapter 8524 and to exclude its value which was artificially split from the composite value of the equipment to arrive at the value of the equipment. In the case of Anjaleem Enterprise Pvt. Ltd. (supra), the Honble Supreme Court observed that in embedded systems, the software resides in ROM IC chips. Embedded systems are combination of hardware and software. They form the integral part of the machines and have to be classified accordingly and would not fall under the Heading 8524 as claimed by the appellant.
10. The learned counsel for the appellant relied upon the case of M/s. Hewlett Packard India Sales Pvt. Ltd. (supra), wherein the issue was in respect of classification of Hard Disc Drive loaded with software imported along with laptops and also on the issue of transaction value of the lap top loaded with operating system. In para 10 of the order the Court held as under:
10.?Applying the above tests to the facts of the present case, we are of the view that preloaded operating system recorded in HDD in the laptop (which is the item of import) forms an integral part of the laptop. What was imported in the present case was a laptop as a stand alone item (unit). Present dispute relates to the transaction value of the unit. An importer who buys a laptop containing an operating system pays for the laptop as a unit. As stated above, without the operating system, like Windows, the laptop cannot work. The computer cannot open without operating system. In the present case, the respondent has not only imported laptops, it has also imported HDDs on which the operating system was recorded (packaged software) which has been classified by the Department under CTH 85.24. However, when a laptop is imported with in-built preloaded operating system recorded on HDD the said item forms an integral part of the laptop (computer system) and in which case the Department is right in treating the laptop as one single unit imported by the respondent. The Department has rightly classified the laptop as a unit under CTH 84.71, quoted above.
11. Even in the above situation where the software is easily portable the Hon. Court did not allow plea for separating the cost of software from the cost of hardware. In the present case the software was etched and was not portable to any other hardware and hence has no separate existence. The Counsel has made arguments showing product literature showing capability of the device to alert about software updates and to suggest recommended configuration. According to him this would imply that the software was separate commodity. This argument is not correct because any software will have certain parts etched on hardware and certain parts of software which can be stored and used for improving the functionality and also to take care of upgrades of software. In this appeal the value under dispute is the value of software etched on hardware when goods were imported.
12. In the case of ACER India Ltd. (supra), it was dealing with operating software (packaged software) and such software were available in the market separately. The manufacturer of computer was only loading the software under licenses purchased by the buyer of computers before clearance of computers from the factory. The Court was of the view that computer and software were distinct commodities in that case and the cost of software could not be subjected to excise duty. This situation is not comparable to the situation in the present case where the software was that of the manufacturer himself and it is seen that the software was etched on the non-volatile memory system on the importers device and it cannot be deleted. So, the case law relied upon by learned counsel are not applicable herein.
13. It is seen from the order of the Commissioner (Appeals) that the Website of the manufacturer indicates value as single unit price of hardware and value of the software were not available separately. It is also noted that the basic and the main function of the imported goods related to the hardware components and the embedded software used to operate the hardware, an integral part of the same. The goods imported by the appellant has no independent existence at the moment it is etched on the volatile memory of the hardware, it becomes part and parcel of the said system. Thus, the claim of the learned counsel in this case that the software and hardware were separate and distinct cannot be acceptable.
14. In view of the above discussion, we do not find any reason to interfere with the order of the Commissioner (Appeals). Accordingly, the appeal filed by the appellant is rejected.
(Operative portion of the order was pronounced in open court ) (MATHEW JOHN) (PRADIP KUMAR DAS) TECHNICAL MEMBER JUDICIAL MEMBER ksr 2 C/82/2003