Customs, Excise and Gold Tribunal - Bangalore
Psi Data Systems Ltd. vs Cc on 17 April, 1997
Equivalent citations: 1997(72)ECR127(TRI.-BANGALORE)
ORDER
V.P. Gulati, Vice-President
1. The issue in the appeal relates to the valuation of the software imported by the appellants and the penalty levied for reason of misdeclaration of value. The appellants among other items had imported one of the item which has been described as bundled software, the value of which had been show in the invoice as French Franc 4200. On a search conducted by the authorities they found in respect of the very same goods the appellants had another invoice showing no charges and also the order under which the goods have been supplied showing the value of the goods is French Franc 320000. The statements were recorded from some of the officers of the appellants and also about how the different invoices came into existence. The Vice-President of the company Shri Ravichandra, it is seen from para 6 of the order of the lower authority accepted the fact of undervaluation to evade duty and the attempt which had been made to undervalue the goods by replacing the invoice of the higher value for one with lower value. The duty which was alleged to have been evaded by the appellants came to Rs. 18,37,784/-. The learned lower authority while demanding this duty in terms of the impugned order has also levied a personal penalty on the appellant company. The goods were also ordered to be confiscated under Section 111(m) of the Customs Act, 1962 and the same were allowed redemption on payment of redemption fine of Rs. 2 lakhs.
2. The learned Advocate for the appellants Shri Sorabjee has stated that the appellants had a collaboration agreement with M/s Bull of France for development and duplicate of software in India. For this purpose they had placed a purchase order for the supply of the bundle software and the commercial value of the same as shown in this order was French Franc 3200000 (sic). Since they had a collaboration agreement and the software was to be developed in India and the sales of the same was to be made on royalty basis, the value of this software in one of the invoice was shown as no charges However, subsequently they had second thoughts and the value for this software in the second invoice was shown as French Franc 4200. He fairly concedes that these various invoices were prepared in India and there is nothing on record to show as to the circumstances and basis which led to the no-charge being shown against these items or the value at 4200 French Franc. No correspondence or discussion preceding the preparation of these invoices has been shown to be there, nor the learned Advocate is able to enlighten us as to the terms of any agreement and for what consideration the item was first shown as on no-charge basis and subsequently it was shown as for 4200 French Franc. He however, accepts the position that the commercial value of the goods as shown in the order cannot be disputed. His plea is that this commercial value of the software could not be adopted as the assessable value under Section 14 of the Customs Act, 1962 as the value of the software comprises of two components viz., the carrier on which the software is encoded and the encoded material which is retrieved for further use in the appellants firm. He has pleaded that the encoded material was in the nature of intellectual property and that being not goods, the value of the same could not be taken into reckoning for assessment purposes under Section 14 of the Customs Act, 1962. He has pleaded, as it is there is no entry in the Customs Tariff relating to the software and the duty could only be charged in respect of that physical entity which carries the intellectual information. In this connection he referred us to an extract which he has field in the paperbook wherein he has pleaded it has been stated that for GATT Valuation purposes the value of the software i.e. encoded information is not required to be included. In this context his attention was drawn to Section 14 of the Customs Act, 1962 and he was asked to enlighten as to how from this section and the valuation rules framed thereunder, the inference the learned Advocate seeks to draw could be drawn. After reading the section, he has no specific plea to make in this regard except to say that the concept of the term goods can only extend to physical carrier of the information and it is that carrier alone which can be taken into the reckoning. As to the penalty he has pleaded that in the circumstances penalty could not have been levied as the appellants were under the bona fide belief that the value of the carrier alone was to be included. As an alternative sought for reduction in the levy of penalty.
3. The learned SDR for the Department has pleaded that software is a commodity well known in the trade and is sold as such. In this connection he has referred us to the ITC Classification of Goods based on HSN and has drawn our attention to the entry at Sl. No. 85245309.10 wherein there is a specific entry for computer software. He has pleaded that the appellants' plea that 8524 in the Customs Tariff does not refer to software is also not sustainable in as much as the entry is meant to cover the recorded media for information and software is one such recorded item. He has also pleaded that Notfn. 138/91, 95/93, 140/91 which have been issued in the context of the 100% EOUs deals specifically deal with software development etc. His plea is that software as such is recognised as a commodity by itself and, therefore, it is to be dealt with as such and there is no question of splitting the value of a software imported between the medium which carries the information and the value of the information recorded on the media. He has, therefore, pleaded that the value has been rightly enhanced and adopted for the purpose of Section 14. In this connection he referred us to the inculpatory statements of the appellants' senior officers who have clearly stated that they have misdeclared the value with a view to evade duty. He has nothing on record to show that the appellants were actuated by any bona fide in the matter of declaration of the value before customs authorities.
4. We have considered the pleas made by both the sides. We observe that the appellants had earlier sought to import the goods against the order placed by them and the value of the goods shown in that order for purchase were shown as 320000 French Franc. This value has been explained to us to be representing the commercial value. The plea is that this commercial value for the purpose of Section 14 could not be adopted, as the value charged was for the medium as well as information which was recorded on the same and since the information was not goods the question of levy of any duty' towards that portion of the value would not arise. We observe that for the purpose of imports what has to be looked at is the goods as they have been imported. The goods admittedly are the software which comprises of information which has been recorded on a media. The Customs Tariff as it is carries separate heading for recorded media and unrecorded media. What has been sold to the appellants is a package which acquires value by the characteristics which have been built into it and it is this value of the goods for their intrinsic worth which forms the value for commercial purposes or in other words, this is the transaction value for the goods. Section 14 does not admit of any split up of the value between the components i.e. separately for medium, separately for the information which has been recorded. Section 14 talks about the deemed value in respect of the goods and the same is defined as under:
14. Valuation of goods for purposes of assessment.-(1) For the purposes of the [Customs Tariff Act, 1975 (51 of 1975)], or any other law for the time being in force whereunder a duty of customs is chargeable on any goods by reference to their value, the value of such goods shall be deemed to be [* * *| the price at which such or like goods are ordinarily sold, or offered for sale, for delivery at the time and place of importation or exportation, as the case may be, in the course of international trade, where the seller and the buyer have no interest in the business of each other and the price is the sole consideration for the sale or offer for sale:
[Provided that such price shall be calculated with reference to the rate of exchange as in force on the date on which a bill of entry is presented under Section 46, or a shipping bill or bill of export, as the case may be, is presented under Section 50.] [* * *].
[(1-A) Subject to the provisions of Sub-section (1), the price referred to in that sub-section in respect of imported goods shall be determined in accordance with the rules made in this behalf].
(2) Notwithstanding anything contained in Sub-section (1) [or Sub-section (1-A)], if the Central Government is satisfied that it is necessary for expedient so to do, it may, by notification in the Official Gazette, fix tariff values for any class of imported goods or export goods, having regard to the trend of value of such or like goods, add where any such tariff values are fixed, the duty shall be chargeable with reference to such tariff value.
[(3) For the purposes of this section-
(a) 'rate of exchange means, the rate of exchange-
(i) determined by the Central Government, or
(ii) ascertained in such manner as the Central Government may direct, for the conversion of Indian currency into foreign currency or foreign currency into Indian currency;
(b) 'foreign currency' and 'Indian currency' have the meanings respectively assigned to them in the Foreign Exchange Regulation Act, 1973 (46 of 1973).] Therefore, what follows from this is that the value to be adopted is in respect of the goods as those are imported. There is no denial from the appellants that the goods as are imported comprise of the medium on which information is recorded. It represents one entity and it is this entity which is to be considered as goods for the purpose of assessment. There is nothing in the valuation rules to say that the goods in the manner these have been imported cannot be said to be one entity for the purpose of assessment. Software is a well recognised commodity in the international trade and it is so recognised even in the HSN which is internationally accepted. The same has been treated as separate entity as such for the purpose of various concessions etc. We are, therefore, unable to accept the plea of the appellant that the value as declared by them is acceptable for the goods as imported. The appellants had a value for the goods with them as reflected in the order placed by them and which has been accepted as the commercial value for the goods and it was this value that the appellants should have declared to the customs authorities. It is observed the appellants instead resorted to first preparing an invoice showing the goods as on no-charge basis and subsequently prepared another invoice showing the value as French Franc 4200. The appellants' plea is that they were under the bona fide impression that the value of the medium alone requires to be declared. We are not able to appreciate this plea in as much as nothing has been brought on record that the appellants were under this impression for the reason of a different international concept being there or that they were guided in this matter of declaration of value by some decision of a court or the view held in any proceedings in India. It was the duty of the appellant to come on record as to the information they had with respect to the goods. This not having been done and also the fact that the senior executives have admitted that they have resorted to the preparation of multiple invoices and wrong invoice to evade duty to have the benefit, cannot be accepted. The appellant's plea that the burden is on the Department to prove mala fides on the part, we observe that this is simply discharged and reliance has been placed on the statement of Shri Ravichandra, Vice-President of the company.
5. We in the circumstances hold the charge of misdeclaration has been brought home. The goods have therefore, been rightly confiscated and the duty has been rightly demanded from the appellants and they are rightly liable held to penalty. The penalty of Rs. 1 lakh levied in the circumstances of the case cannot be considered excessive. In the above view of the matter, the appeal is dismissed.
(Pronounced and dictated in Open Court).