Customs, Excise and Gold Tribunal - Bangalore
Adani Exports Limited And Ors. vs The Commissioner Of Customs And Central ... on 25 September, 2006
Equivalent citations: 2007(210)ELT443(TRI-BANG)
ORDER T.K. Jayaraman, Member (T)
1. These appeals have been filed against the OIO No. 21/2004-Cus dated 22.03.2004 passed by the Commissioner of Customs, Hyderabad-II Commissionerate.
2. M/s. Vaishal Impex, Ahmedabad, imported 1,10,000 pieces of Compact Discs from Dubai through Air Cargo Complex, Hyderabad. According to the declaration, the goods are "Computer Software on CD". The departmental officers conducted investigations into the import of the impugned items. It appeared that the importers had declared a much higher value than the actual value of the goods with an intent to send out foreign exchange, which was to be subsequently brought in as remittance for export of CD ROMs under DEPB/DEEC Scheme for availing export incentives. Shri Dharmesh Shah is the Proprietor of M/s. Vaishal Impex. It was further revealed that the L/Cs. for the payment of the impugned goods had been opened by M/s. Adani Exports Ltd. Further it appeared that M/s. Vaishal Impex only acted as a frontman for M/s. Adani Exports Ltd. in the import. M/s. G.A. International is a sister concern of M/s. Adani Trading Company, operating in Jabel Ali Free Zone. The said concern exported the CD ROMs and had used the name of Computer Point, Dubai, to complete the formalities relating to the exports and prepare necessary documentation. Shri Vinod Shantilal Shah, the contact person of M/s. G.A. International, is the brother of the Chairman and Managing Director of M/s. Adani Exports Ltd. After elaborate investigation, Show Cause Notices were issued to the concerned persons under the Customs Act. The Show Cause Notices raised the following issues.
(i) The correctness of the declaration of the impugned goods as Computer Software. Proposal to classify the CDs under sub-heading 8524,99.
(ii) Denial of benefit of Notification 11/97-Cus dated 1.3.97 vide Sl. No. 173 and extension of the benefit of the same Notification vide Sl. No. 174
(iii) Demand of duty of Rs. 20,21,456/-.
(iv) Demand of Interest under Section 28AB of the Customs Act
(v) Confiscation of the goods under Section 111(m) of the Customs Act.
(vi) Penalty under Section 114A of the Customs Act.
After adjudication, the Commissioner passed the impugned order. The gist of the order is as follows:
(i) The impugned goods are classified as Recorded CD ROMs under Customs Heading 8524.99.
(ii) Assessable value determined at Rs. 62,39,834/-
(iii) Benefit of Notification No. 11/97-Cus dated 01.03.1997 under Sl. No. 173 is denied.
(iv) Demand of duty of Rs. 20,21,456/- under Section 28(1) of the Customs Act read with first proviso,
(v) Demand of Interest under Section 28AB.
(vi) Confiscation of the impugned goods under Section 111 of the Customs Act and imposition of Redemption Fine of Rs. 10,00,000/-.
(vii) Imposition of penalty of Rs. 20,21,456/- each on M/s. Adani Exports Ltd., and M/s. Vaishal Impex.
(viii) The following penalties were also imposed:
M/s. Padmini Polymers Ltd. Rs. 10,00,000/- Shri Rajesh Adani, Managing Rs. 10,00,000/- Director, M/s. Adani Exports Ltd. Shri Dharmesh Shah, Proprietor, Rs. 5,00,000/- M/s. Vaishal Impex Shri Vivek Nagpaul, Director, Rs. 5,00, 000/- M/s. Padmini Polymers Ltd. Shri Vinod Shah, Rs. 5,00,000/- M/s. G.A. International M/s. G.A. International Rs. 5,00,000/- The appellants strongly challenge the impugned order.
3. Shri V.S. Nankani, the learned Advocate, appeared for the appellants and Sri K.M. Mondal, the learned Consultant, appeared for the Revenue.
4. The learned Advocate urged the following points:
(i) He brought to the notice of the Bench the decision of the Tribunal in its Order No. A-777 to 782/Kol/06 dated 24.8.2006 in the case of Contessa Commercial Co. Pvt. Ltd. and Ors. v. CC, Faridabad and CC, Delhi, wherein the issue has been settled. Further, he said that the entitlement to the benefit of this Notification to similar goods has been settled in favour of the appellants by the Apex Court in the case of Pentamedia Graphics Ltd. as reported in 2003(196) ELT 164(SC).
(ii) With regard to the valuation of goods, the case of the department is solely based on the export declaration filed by M/s. Gulf Software, which supplied the identical goods to M/s. Contessa Commercial Co. Pvt. Ltd. The Tribunal has held that the above declaration is not relevant for the purpose of determination of value under Section 14 of the Customs Act, 1962. Further, the Tribunal, in the case of CC v. Dimple Overseas has held that the export declarations filed by the Overseas parties have no bearing on the determination of value under Section 14 of the Customs Act, 1962.
(iii) In similar case of import at Mumbai, Bangalore & Goa, the department has accepted the declared value and no appeal has been filed.
5. Shri K.M. Mondal, the learned Consultant and assisted by the Departmental Representative Shri K. Sambi Reddy, urged the following points.
(i) At the outset, the learned Consultant referring to a definition of Computer Software in Notification No. 11/97-Cus made the point that the impugned goods, by no stretch of imagination, can be considered as software because they are not capable of being manipulated or providing interactivity to a user which is a requirement for computer software. Referring to the Supreme Court decision in the Pentamedia Graphics case (cited supra), he said that the said decision deals with Customs Notification 20/99-Cus wherein the definition of Software is different from the definition given in the Notification 11/97-Cus.
(ii) The samples of the CD ROMS drawn were sent to National Informatics Centre, Gandhinagar and Software Technology Parks of India, Gandhinagar for their opinion as to whether the CD ROMs contain software and whether could be run in an automatic data processing machine not loaded with the operating system.
(iii) The NIC, in their letter dated 31.7.2001 has inter alia informed that none of the CDs contain software as per the definition of 'Computer Software' except for the CD title Complete House. The Software Technology Parks of India, Gandhinagar, in its letter dated 18.10.2001, informed that all the 30 CDs can be run on a computer containing Windows operating system. The contents of each of the CDs indicate that they cannot be considered as Software.
(iv) On the question of valuation, the following points were urged:
(a) The CD ROMs imported in April 1998 were found lying un-sold in the godown till 5.1.2001 i.e. till the date of seizure. If the goods were really costly, no prudent businessman could have kept them in the godown for about 3 years without even making any effort to sell them. The goods are, therefore, substandard and junk.
(b) The export declaration filed by M/s. Gulf Software in February, 1998 in respect of the identical goods exported to M/s. Contessa Commercial Co. Pvt. Ltd., Calcutta, clearly showed that the FOB price per CD ROM was US$ 1.11 only.
(c) Since the CD ROMs imported by M/s. Vaishal Impex were identical to those imported by M/s. Contessa Commercial Co. Pvt. Ltd., Calcutta, the declared price of US$ 15 per pc. cannot be accepted as genuine as it is highly inflated and exaggerated.
(v) With regard to the Tribunal's decision in Dimple Overseas case (cited supra) relied on by the appellant, the same is not a good law as this decision has been rendered without noticing the decision of the Hon'ble Tribunal in the case of Orson Electronics Pvt. Ltd. v. CC, Bombay 1996 (82) ELT 449(Tri.). In this case, the Tribunal has held that export declaration showing higher value before the Japanese Customs can be adopted for the purpose of determination of value under Section 14 of the Customs Act. The above decision has been confirmed by the Hon'ble Supreme Court as reported in 1997 (93) ELT A-133(SC).
(vi) The contention that in a similar case, the Department has accepted the order of the Commissioner of Customs of Bangalore and that no appeal has been filed, cannot be taken as a binding precedent. It is still open to the Department to correct an erroneous view at a later stage.
In view of the above submissions, he urged the Bench to uphold the OIO.
6. We have gone through the records of the case carefully. The appeals involve the determination of the following issues:
(i) Whether the goods declared as "Computer Software on CD" or Computer Software eligible for benefit of Customs Notification 11/97-Cus dated 1.3.1997 as amended vide Sl. No. 173 of the Table annexed to the Notification.
(ii) Whether the value of the goods is mis-declared and highly inflated.
6.1. During the course of hearing, our attention was invited to the decision of the Calcutta Bench in the case of Contessa Commercial Co. Pvt. Ltd. and Ors. v. CC, Faridabad and CC, Delhi Final Order No. A-777 to 782/Kol/06 dated 24.08.2006. We find that the issues dealt with in that case and in the present case before us are identical. In the case decided by the Calcutta Tribunal, M/s. Contessa Commercial Co. Pvt. Ltd. (CCCPL) imported consignment of CD ROMs from M/s. Gulf Software, UAE and declared the same as Computer software. The consignment consisted of various titles of different programmes such as educational programmes, games, etc. The value declared was US$ 15 per piece. In this case also, CCCPL approached M/s. Adani Exports Ltd. (AEL for short) for opening the Letter of Credit for payment. AEL, being a Star Trading House, in terms of para 5.7 of the Handbook of Procedures, opened a letter of credit on the basis of the letter of Authority issued by CCCPL. In the above case, proceedings were initiated for denial of the benefit of the Notification and also on the question of valuation. The lower authority passed order confirming the demand and confiscating the goods with an option to redeem the same on payment of fine. When the above case came up before the Tribunal, the Tribunal elaborately discussed the issue and came to the conclusion that the impugned goods are indeed Computer Software and are entitled for the benefit of the Customs Notification. On the question of valuation also, the issue was decided in favour of the appellants. We are reproducing para 3.1 of the Final Order, which deals with both the issues.
3.1. We have considered the facts and submissions made by both sides. We find that:
a) On the issue of eligibility to notification exemption, the case is squarely covered by the decision of the Apex Court in Pentamedia Graphics Ltd. (supra). The relevant para 12 is reproduced herein.
12. Submission of the learned Counsel appearing for the Revenue that the 'Capture Animation Files' are not software since another software is required to load the same is without any substance. It is evident from the book of Computers and Microprocessors by A.C. Downton, that a loader programme is required to load software on the disk of the computer. This concept is called as boot strapping. In other words, if software is required to load a programme on the computer then the programme which has to be loaded on the computer continued to be software. Simple because the 'Motion Capture Animation Files' requires another software known as 'soft image' to get the final result does not detract the goods under import from being software. The same continues to be software and entitled to exemption under Notification No. 20/90-Cus.
It therefore follows that so long as the CD ROMs were capable of interactivity, the same would be covered by the definition of 'computer software' contained in the said notification. There is no condition or requirement in the said notification to the effect that in order to qualify as computer software, it must work without any operating system pre loaded on and automatic data processing machine, i.e., the computer, the Hon'ble Supreme Court has referred to various dictionary meanings of the term 'software' and concluded that any program which requires another program like the operating software, will also be treated as computer software. The eligibility to notification has to be upheld,
(b) The Commissioner has relied upon the judgment of the Hon'ble Supreme Court in Commissioner v. Acer India Ltd. . This judgment deals with issue of valuation under Section 4 of the Central Excise Act, 1944 where the finding is that operating software and the hardware are commercially different items and even if the computer cannot run without operating software, the operating software does not form an essential part of the hardware. The reliance by the Commissioner on the said case of Acer India is misplaced. The judgment in Pentamedia Graphics Ltd. is directly on issue in the present case. The question in the present case is whether the goods fall within the description of the term 'computer software' as used in the exemption notifications. That issue did not arise for consideration before the Hon'ble Supreme Court in the case of Acer India. The Commissioner has accepted that the CDs in question could be run in the computer system provided with preinstalled operating system. The Commissioner, however, has read a condition in the notification to the effect that the automatic data processing machine cannot be preloaded without operating system. It is not open to the Commissioner to read or add conditions in an exemption notification, when no such condition exists. On the other hand, the issue directly arose in Pentamedia. Therefore, following the same, we hold that the goods imported by CCCPL are eligible for the benefit of exemption from customs duty under the said notification No. 11/97-Cus.
c) On the issue of valuation, the export declaration initially filed and the revised export declaration may give rise to a suspicion. However, we have to appreciate and take into account the totality of the facts and other circumstantial evidence, since it is settled law is that suspicion cannot take the place of evidence. The other circumstantial evidence in the form of contemporaneous imports of like/similar goods shows that the value declared is correct. Section 14 of the Act provides that the value shall be the price at which such or like goods are ordinarily sold or delivered at the time and place of importation. The contemporaneous imports relied upon by CCCPL is evidence which cannot be discarded, when in some cases, the supplier of imports at Mumbai, Bangalore and Goa is the same. The Commissioner of Customs, Bangalore, vide order No. 38/2001/Commr. Adjn. dated 3 1.12.2001 has accepted the value of similar goods from the same supplier after conducting full inquiry. The department has not challenged that order and has accepted the findings therein. We therefore find that even if the declared value is not acceptable as Transaction Value due to the suspicion, after discarding the same, similar comparable goods prices have to be accepted as per the data detailed in the Chart.
(d) Yet another circumstance is the opinion of the Electronic and Computer Software Export Promotion Council, who vide letter dated 19.6.1998, opined that the value of USD 15 is fair in the international market. There is no other evidence contrary to this expert opinion which was sought by the Department before releasing the goods. There is also force in the submission of Shri Bagaria that there is no evidence of export declaration at lower price by the same supplier in relation to other importers of similar goods at other ports in India and that merely because according to the Commissioner no enquiry was made in other cases of export from UAE by the same supplier cannot be held against CCCPL. The submission of Shri Bagaria that since the goods are wholly exempt from Customs duty, there could be and is no motive in mis-declaration of value, also merits consideration. Shri Bagaria points out that the foreign seller has received full consideration as per invoices issued by him and the inquiries by the Indian Consulate does not show that the foreign seller had not received any amount other than the full amount. He submits that having received the full consideration, the declaration of lower value is an obvious error He refers to decisions of the Tribunal including in CC. v. Dimple Overseas the Tribunal held that the declarations filed by the overseas parties with the local Customs authorities does not have bearing on the determination of value under Section 14 of the Act which refers to time and place of importation i.e. India. We cannot accept declarations made to UAE Customs to be sacrosanct to prove mis-declaration of value under Indian Customs Law.
e) We also find that the Commissioner has invoked Rule 8 of the Customs Valuation Rules. Rule 8 is a residuary provision which can be invoked only after Rules 4 to 7 are exhausted. The evidence of contemporaneous imports under Rule 5 and Rule 6 is available in the present case. There is no justification, therefore, for invoking Rule 8 in such a case. Looking to the totality of the facts and circumstances, we find that the value declared by CCCPL has to be accepted.
f) The Commissioner has observed that the CDs were sub-standard. We do not find any material on record to support or arrive at such finding. In fact the consignment was examined twice, the second time being 100%. Nothing is shown from the examination reports that goods were sub-standard. The goods were released after enquiry and final assessment. The expert bodies have also not stated that goods were sub-standard. The adjudicating authority's findings on conjectures have to be discarded. Inferences drawn must be supported by evidence or material and not just personal views or opinion of the adjudicator.
g) Having held on merits that the goods are entitled to exemption and the value declared is correct, it may not be necessary to deal with issue of limitation, but since both sides made submissions thereon, we also record our findings thereon. From the record, it appears the goods were initially examined on 11.6.98, the Department caused inquiry to be made during the course of which statement of the concerned persons were recorded, opinion of two government agencies, who confirmed the correctness of the value as well as description. Thereafter, the same were released. The importer disclosed all facts and documents. Nothing incriminating has been recovered from CCCPL The case is based upon subsequent inquiry at the suppliers' end, & satisfactory explanation has been given by him. We have perused the correspondence, before issue of show cause notice, exchanged between Gulf Software, Consulate and DRI and find the explanation to be acceptable. There is nothing on record to show that CCCPL had prior knowledge about the first export declaration filed by Gulf Software which they did not disclose nor is any provision shown to us that they were required to disclose the same. CCCPL has not suppressed any fact or material and hence, the ingredients of the proviso to Section 28(1) are absent. The Commissioner has wrongly resorted to demand duty under Section 28(1) of Act. We would uphold the bar of limitation to be applicable in this case.
h) As we find that there is no mis-declaration, we hold that the goods are not liable for confiscation under Section 111(m). The Hon'ble Supreme Court in Northern Plastics v. CC 1998 (101) ELT 598 has held that mere claim for classification / exemption does not amount to mis-declaration. We therefore set aside the confiscation and levy of fine in lieu thereof, especially when claim for exemption is found to be valid & is upheld.
6.2. Even in the above case, opinions were sought from NIC and Software Technology Parks of India, Gandhinagar. The Tribunal has examined the queries and found that incorrect and wrong questions have been put to the expert bodies which travel beyond the terms of the said Notifications. Hence, it was held that these opinions cannot be relevant and relied upon. While deciding the impugned goods to be software, the Tribunal has relied on the decision of the Apex Court in the Pentamedia Graphics Case. In view of the clear cut finding of the Calcutta Bench of the Tribunal, we have no reason to differ with them on both the issues.
6.3. It is also seen that on the question of valuation, in similar cases, the Commissioner of Customs, Bangalore has accepted the declaration of the party and those decisions have not been appealed against. In these circumstances, we do not find any merit in the impugned order. Hence, we set aside the demand of duty by holding that the impugned goods are entitled for the benefit of the Notification No. 11/97-Cus. We also accept the value declared by the appellants. Therefore, the goods are not liable to confiscation under Section 111(m) of the Customs Act. Hence, the RF and the penalties under Section 114A, 112(a), 112(b) on the appellants are set aside. We allow the appeals.
(Operative portion of this Order was pronounced in open court on conclusion of hearing)