Gujarat High Court
J B And Brothers Pvt Ltd vs Union Of India on 25 June, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 16691 of 2014
With
R/SPECIAL CIVIL APPLICATION NO. 5447 of 2016
With
R/SPECIAL CIVIL APPLICATION NO. 5448 of 2016
With
R/SPECIAL CIVIL APPLICATION NO. 5464 of 2016
With
R/SPECIAL CIVIL APPLICATION NO. 5465 of 2016
With
R/SPECIAL CIVIL APPLICATION NO. 6869 of 2016
With
R/SPECIAL CIVIL APPLICATION NO. 7281 of 2016
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
==========================================================
Approved for Reporting Yes No
✓
==========================================================
J B AND BROTHERS PVT LTD
Versus
UNION OF INDIA & ORS.
==========================================================
Appearance:
MR TUSHAR P HEMANI(2790) for the Petitioner(s) No. 1
MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1
CHINTAN H DAVE(7193) for the Respondent(s) No. 3
MR ANKIT SHAH(6371) for the Respondent(s) No. 1
MS MANISHA LAVKUMAR(1010) for the Respondent(s) No. 2
==========================================================
CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Page 1 of 55
Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
Date : 25/06/2025
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned Senior Advocate Mr. Tushar Hemani with learned advocate Ms. Vaibhavi Parikh for the petitioners and learned advocate Mr. Ankit Shah for the respondent.
2. This group of petitions are filed challenging the show cause notice issued by the respondents - Additional Director General, Directorate of Revenue Intelligence and the Commissioner of Custom (Export) except in Special Civil Application No.5447/2016, Special Civil Application No.6869/2016 and Special Civil Application No.7281/2016 wherein order- in-original are already passed during the Page 2 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined pendency of the petition despite the stay was granted by this Court. The petitioner has amended the said petitions challenging the same.
3. As the issue arising in this group of petitions is common, the same were heard analogously and are being disposed off by this common Judgment and Order. For the sake of convenience, Special Civil Application No.16691 of 2014 is treated as the lead matter and accordingly, facts are recorded from the said petition.
4. The petitioner had purchased hardware and patented analysis software for advance planning, evaluation and measurement of diamond and gemstone production from M/s. Sarin Technologies Limited, Israel and Page 3 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined Galatea Limited which are foreign companies incorporated under the laws of Israel.
4.1 M/s. Sarin Technologies India Private Limited which is incorporated under the Companies Act, 1956 is a wholly owned subsidiary company of Sarin Technolgies Limited, Israel. 4.2 Sarin Technologies India Private Limited is carrying out various business activities on behalf of its holding company and sister concern Galatea Limited including production, demonstration, placement of orders by customers, shipment of hardware, installation of hardware and software, training to customers, maintenance during warrant period, software upgradation, etc. Page 4 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined 4.3 Respondent no.2 on the basis of intelligence gathered and investigation carried out by the Ahmedabad Zonal Unit of DRI issued a seizure order dated 11.03.2014 on the imported 34 numbers of diamond scanning machines valued at Rs.5,43,90,318/- on the ground that the petitioner had split the total value of the diamond scanning machines into two parts i.e. one for the hardware and another for the software portion and accordingly, the petitioner had mis- declared the value of goods by furnishing only the invoices in respect of hardware portion and not declaring the invoices in respect of the software portion, which put together constitutes the value of diamond scanning machines resulting into evasion Page 5 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined from payment of appropriate custom duty. 4.4 The petitioner by letters dated 12.03.2014 and 13.03.2014 provided explanation that the petitioner had not made any mis-declaration of value of goods imported and there was no evasion of any customs duty as the invoices accompanying the Hardware reflected the correct value and value of software was invoiced and was paid separately by the petitioner. 4.5 The petitioner thereafter paid Rs. 45,00,000/- towards the alleged evasion of customs duty on 18.03.2014. 4.6 The petitioner had also paid service tax upon invoice issued for software portion consequent to the inquiry Page 6 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined initiated by the Director General of Customs Excise and Indirect tax, Ahmedabad on alleged evasion of service tax on reverse charge mechanism to be borne by the petitioner.
4.7 The petitioner therefore, requested respondent no.3 for provisional release. Thereafter by letter dated 21.05.2014, the seized goods were provisionally released on condition of execution of bond for the full value of goods and execution of bank guarantee of 25% of the differential duty. 4.8 Respondent no.2 thereafter, issued the show cause notice dated 08.07.2014 calling upon the petitioner to show cause as to why the petitioner is not liable to Page 7 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined pay the custom duty on the suppressed value of Rs.3,81,02,296/- on account of software valuation which is not included in invoice value of the Hardware disclosed by the petitioner.
4.9 The petitioner filed reply to the show cause notice and also preferred Special Civil Application No.14127 of 2014 challenging the action of the respondent no.2 for issuing the seizure memo on the goods imported by the petitioner as well as the provisional release order and show cause notice.
4.10 The Commissioner of Central Excise, Customs & Service Tax, Surat-1 passed the adjudication order on 19.08.2014 for levy of service tax on the Software for which respondent no.2 has Page 8 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined issued show cause notice dated 08.07.2014 to recover custom duty.
4.11 The petitioner by letter dated 02.10.2014 addressed to respondent no.3 explained that all Software invoices covered under the impugned show cause notice issued by respondent no.2 have been already covered by the service tax authority while passing the adjudication order for charging the service tax thereon by treating the same as service covered under the provisions of the Finance Act, 1994. It was therefore, contended that as the service tax has already been imposed, adjudicated and paid, the proceedings under the Customs Act should be dropped and amount of Rs. 45,00,000/- paid by the petitioner under protest should be Page 9 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined refunded.
4.12 It appears that thereafter Special Civil Application No.14127 of 2014 was disposed off by this Court by order dated 02.12.2014 which reads as under:
"1. The petitioner has prayed for a direction to the respondents to release the seized imported machinery which was seized under the seizure memo at Annexure A.
2. Brief facts are as under. The petitioner is in the business of diamond polishing. The petitioner had imported diamond scanning machine for such purpose along with software system for operating such machinery from Israel. The dispute pertains to the duty liability of the software component of such imported machinery. The Customs authority holds a belief that such software would form part of the imported goods and therefore, would invite customs duty along with the hardware. Since the petitioner had not declared the valuation of such software and had not paid customs duty, proceedings were initiated for recovery of unpaid custom Page 10 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined duties. In the meantime, in exercise of power under section 110 of the Customs Act, 1962, the authorities passed impugned order dated 11.3.2014 seizing scanning machines on the belief that the same were liable to confiscation under the provisions of the Customs Act.
3. Parallely, the authorities under the service tax regime held a belief that the software imported was a service and that the petitioner was therefore, liable to pay service tax on such software. It is undisputed that the Commissioner of Central Excise, Customs and Service Tax, Surat passed an order dated 19.8.2014 holding that software provided by the exporters should be treated as Information Technology Software under section 65(53a) of the Finance Act, 1994 and correspondingly exigible to service tax under section 65(105) (zzzze) of the Finance Act, 1994. He accordingly ordered recovery of service tax of Rs.1.13 crores(rounded off) with interest and penalties.
4. The petitioner has accepted its service tax liability as held by the adjudicating authority in the said order. The petitioner has also paid up service tax with Page 11 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined interest. The petitioner has therefore, on legal grounds questioned the penalties in the appeal. Such appeal is pending. At this stage, where the same import of software has been held by one wing of the department as providing of service and also levied service tax on the same, continued attachment by the customs department on the premise that the same was liable to confiscation on the ground of mis- declaration of valuation of the imported goods for the purpose of customs duty, would not be permissible.
5. As noted, the petitioner does not dispute its service tax liability and has accepted the principal component of tax without appeal.
6. Under the circumstances, impugned order dated 11.3.2014 is quashed. The petition is disposed of. This is without prejudice to the department's contention with respect to the nature of the petitioner's imports and declaration made at the time of import. When the order of attachment is quashed, any amount that may have been deposited by the petitioner with the department provisionally for any interim use of such machinery, shall be Page 12 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined refunded".
4.13 During the pendency of the Special Civil Application No.14127 of 2014, the petitioner has preferred this petition 11.11.2014 with following prayers:
"a) quash and set aside the Show Cause Notice dated 08/07/2014 at Annexure A issued by the Respondent No.2;
(b) pending the admission, hearing and final disposal of this petition, to stay implementation and operation of the Show Cause Notice dated 08/07/2014 at Annexure A issued by the Respondent No.2;
(c) direct the Respondent No.2 and 3 to refund an amount of Rs.45,00,000/- paid by the Petitioner towards Custom Duty under Protest;
(d) any other and further relief deemed just and proper be granted in the interest of justice;
(e) to provide for the cost of this petition."Page 13 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025
NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined 4.14 So far as prayer nos. (b) and (c) are concerned, same is already taken care of by this Court in para no. 6 of order dated 02.12.2024 passed in Special Civil Application No.14127 of 2014. 4.15 This Court passed the following order on 18.11.2014 in Special Civil Application No.16691 of 2014 :
"1. Petitioner has challenged a show cause notice dated 08.07.2014 as at Annexure A to the petition. The petitioner had imported diamond scanning machine along with specialized software. It is a case of the department that the valuation of the machine declared at the time of import did not include value of the software. Under the impugned show cause notice it is alleged that such undervaluation lead to evasion of custom duty since the petitioner was liable to pay custom duty on the machine inclusive of the value of the software. In other words, according to the department, in the said show cause notice the software being the part of the Page 14 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined goods imported, on such basis, a show cause notice proposed to levy unpaid custom duty with interest and penalty has been issued.
2. Counsel for the petitioner pointed out that with respect to the same import, the department had also issued notice for recovery of service tax on the software purchased by the petitioner on the premise that providing of software amounted to providing of service. Counsel pointed out that in such proceedings the adjudicating authority has already passed an order dated 19.08.2014 confirming the demand of service tax of Rs.1,13,60,916/ which includes the basic service tax with Education Cess and Higher Education Cess.
Under the same order the adjudicating authority has also imposed penalties. Counsel for the petitioner stated that the petitioner has already paid the basic service tax without challenge. The petitioner would, however, question the imposition of the penalties.
3. On the basis of such facts, counsel for the petitioner argued that the software is either be categorized as service exigible to service tax or be considered as goods part imported machinery Page 15 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined exigible to custom duty but not both. The department, therefore, cannot pursue two conflicting proceedings.
4. Issue Notice returnable on 2nd December 2014. In the meantime, if the petitioner prays for adjournment before the adjudicating authority,the same shall be granted."
4.16 Thereafter following order was passed on 2.12.2014 for admission of this petition while simultaneously disposing of Special Civil Application No.14127 of 2014:
"1. Petitioner has challenged a show cause notice dated 8 th July 2014,as at Annexure A to the petition. Such notice has been issued by the revenue intelligence calling upon the petitioner why certain custom duty with interest and penalty not to be recovered on the software imported by the petitioner along with the diamond scanning machine. The petitioner, who is engaged in diamond polishing business, had imported diamond scanning machinery along with software. The custom Page 16 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined authorities on the premise that the petitioner did not disclose the value of the software along with the imported machinery and evaded customs duty on such software. According to the department, the exporter of the machinery, during investigation, clarified that the software in question was given free of charge with the purchase of the machine and only at the request of the petitioner a separate price was shown for such software bifurcating the value between hardware and software. The case of the department is that at the time of import of the machinery the petitioner should have disclosed the full value of the machine without reducing the same by the separate component of the software value. On such basis, the impugned show cause notice came to be issued.
2. It is not disputed that the Commissioner of Customs, Central Excise and Service Tax, Surat issued a show cause notice to the petitioner on the premise that such software was in the nature of service provided and therefore exigible to service tax. Such show cause notice proceedings culminated into an adjudication order dated 14.08.2014 in which the said authority confirmed the Page 17 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined service tax with interest and penalties. The petitioner has paid up the service tax with interest without any challenge but has challenged the penalties in appeal.
3. We are prima facie of the opinion that commodity can either be a service or goods. If the software is treated as service, it would be exigible to service tax. If, on the other hand, it is treated as goods, on its import,the importer would have to pay customs duty. Even if the software was to be treated as not separately charged, but the value should form part of total value of imported machinery, the same may invite custom duty but not service tax. However, the importer would not be liable to pay both service tax as well as the customs duty for the same component. When one arm of the revenue has already held the same to be service and not only levied but also collected tax on such basis, a serious question would arise whether the other arm of the department can pursue an entirely opposite stand and contend that the value of software would invite customs duty. Even the assertion of the department that the software had no value and was provided cost free on purchase of the machine Page 18 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined and the two values were artificially split, would run counter to the service tax authorities levying service tax on the software. In short,the question would be whether two different units of the revenue can take diametrically opposite stand and proceed against an assessee simultaneously. Perhaps if the proceedings under the service tax regime had not attained finality either at the first stage of adjudication or in appeal, by way of abundant caution, not to miss time limit, it may have been open for the department to issue preliminary show cause notice under the Customs Act. However, once when the service tax authority has already taken a final decision and which decision is not in appeal,we have serious doubt whether the customs authority can then proceed against the assessee in a show cause notice which would essentially challenge the findings of the service tax authority.
4. Under the circumstances, Rule. By way of interim relief, the respondents are prevented from proceeding further with the show cause notice."
5. The issue involved is identical in Page 19 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined this group of petitions, hence,facts in rest of the petitions are summarised as under:
SCA No. Date of seizure Date of show Date of Reply memo cause notice under challenge 5447/2016 08.10.2014 14.11.2014 18.12.2014 18.04.2016 5448/2016 10.10.2014 02.12.2014 24.12.2014 5464/2016 13.10.2014 04.02.2015 26.03.2015 5465/2016 26.02.2015 20.04.2015 19.05.2015 6869/2016 28.02.2014 22.08.2014 22.09.2014 7281/2016 28.04.2014 31.07.2014 14.02.2015 29.03.2016 SCA No. Service Tax Order-in-Original Differential Amount of Custom service tax Duty levied & proposed paid (Rs.) (Rs.) Date of SCN Date of Date of Reply adjudicati on 5447/2016 NA NA 20.8.14 1,63,45,523 78,09,126 5448/2016 14.10.13 21.11.13 25.2.15 31,36,801 20,22,587 5464/2016 18.10.13 15.11.13 13.5.14 39,87,946 64,30,592 5465/2016 22.10.2013 8.8.14 28.11.15 12,49,522 33,77,859 6869/2016 12.10.12 27.2.13 29.2.16 1,47,44,458 41,18,120 12.11.13 10.3.14 3,11,430 7281/2016 18.10.13 20.11.13 10.4.15 1,07,28,874 80,97,413 24.3.15
6. Learned Senior Advocate Mr. Tushar Page 20 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined Hemani submitted that the petitioners have accepted the service tax liability on reverse charge mechanism and order-in- original dated 19.08.2014 has achieved finality as the petitioners have already paid the service tax amounting to Rs.1,19,61,701/-.
6.1 Learned Advocate Mr. Hemani referred to and relied upon the findings of the order-in-original passed by the adjudicating authority under Service Tax to point out that while passing the order for levy of service tax, adjudication authority has already considered the fact that the petitioners have not paid any custom duty on the Software as same was delivered through Email/Internet from the foreign software companies as mentioned in Page 21 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined the invoices, treating the same as service as the payment has been made only for obtaining the 'right of use' of such software for processing of rough diamonds. 6.2 It was therefore, submitted that the respondent authority could not have continued with the impugned show cause notice proceedings simultaneously in view of order-in-original passed by the Service Tax authority. It was submitted that once Service Tax Authorities have already taken a final decision and no appeal is filed by the petitioners, the respondent custom authority cannot proceed further against the petitioner pursuant to the show cause notice which would be in contradiction to the findings arrived at by the Service Tax authority. It was submitted that the impugned show cause notices are liable to Page 22 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined be quashed and set aside in facts of the case.
7. Per contra, learned advocate Mr. Ankit Shah elaborately referred to the contents of the impugned show cause notice dated 08.07.2014 to point out that Software was imported by the petitioners along with Hardware and the petitioners in order to save the customs duty fraudulently did not show full value of the imported diamond cutting machines by splitting the value being 1/3rd for Hardware and 2/3rd for Software portion. 7.1 Learned advocate Mr. Shah vehemently submitted that prior to 2008 petitioners were showing full value of machine imported which included value of Page 23 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined Software also, however, in view of EPCG Scheme, the petitioners have started modus operandi by splitting value of Hardware and Software separately by obtaining separate invoices from supplier and thereby paying customs duty only on the value of Hardware which is shown as 1/3rd of the total cost so as to get the benefit of EPCG Scheme. It was submitted that such modus operandi continued up to 2013 and as such, the impugned notice is required to be proceeded further so as to find out correct fact of the suppression of value made by the petitioners while importing the machine which included the Hardware. 7.2 In support of his submission, learned advocate Mr.Shah referred to the statements recorded under section 108 of Page 24 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined the Customs Act, 1962 as referred to in the show cause notice. He invited the attention of the Court to the statement of one Rahul Jolapara, Custom Support Manager (Legacy) of M/s. Sarin Technologies India Private Ltd. who in his statement dated 03.04.2014 stated inter-alia that diamond cutting machines are always imported along with Software and only additional Software which are freely available on the website of M/s. Sarin Technologies Private Ltd were loaded on the computer at the time of installation.
7.3 It was therefore, submitted by learned advocate Mr. Shah that the goods imported by the petitioners were undervalued to the extent of 2/3rd value pertaining to the Software price by Page 25 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined generating separate invoice by the petitioners. It was submitted that there is a very good prima facie case against the petitioners for levy of the custom duty for violation of Rule 3 of the Customs Valuation Rules, 2007 which provides for method of valuation and as per Rule 12 of the said Rules, the valuation shown by the petitioners is liable to be rejected and the transaction value is liable to be determined in terms of Rule 3 of the said Rules.
7.4 It was therefore, submitted that there is a prima facie case that the petitioners have undervalued the Hardware imported in which Software was embedded and thereby there was short levy of custom duty amounting to Rs.85,99,496/- which otherwise is leviable under the provisions Page 26 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined of section 28 of the Customs Act, 1962. 7.5 It was further submitted that merely because the petitioners have accepted the levy of service tax on the Software under the provisions of the Finance Act, 1994, the respondent authorities need not be restrained from carrying out further verification and investigation pursuant to the impugned show cause notice and whether to levy customs duty in addition to service tax which is already paid by the petitioners is required to be considered at the time of adjudication of the show cause notice. It was therefore, submitted that at the stage of issuance of show cause notice merely because the petitioners have accepted the liability for payment of Page 27 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined service tax on the Software on the basis of reverse charge mechanism, further proceedings should not be stalled. 7.6 It was further submitted that the document gathered from the investigation by DRI clearly suggest and show that the petitioners had entered into a contract for value of the diamond cutting machines along with Software and what was imported is machine which was agreed to be purchased by the petitioners and as such, by splitting the value being 1/3rd for Hardware and 2/3rd for Software is nothing but the intention of the petitioners to evade the payment of custom duty. 7.7 In support of his submission, reliance was placed on the following averments made in the affidavit in reply Page 28 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined filed on behalf of respondent nos. 2 and 3:
"5.3. As per the scheme of things, prior to the year 2008, the importers of diamond scanning machines have obtained one single invoice constituting the entire value (including the hardware and software) and have declared the same to the customs authorities at the time of import and availed concessional rate of duty under EPCG scheme. After 2008, the importers have insisted on two separate invoices viz. one for the hardware portion and another for the software portion and have systematically declared only the invoice for the hardware portion while suppressing the invoice issued for the software portion so as to evade payment of customs duty. This scenario changed after mid 2012 when DGCEI had initiated enquiry on service tax evasion on the invoices issued for software portion. With a view to avoid payment of service tax (at the rate of 12.5%), the importers again switched to the old practice of obtaining one single invoice constituting the hardware and software portion and declared the same before the customs authorities at the time of import and availed concessional rate of Page 29 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined duty at the rate of 3% under EPCG scheme.
5.4. It is submitted that the present case is not a case of double taxation. The Petitioner Company had indulged into fraudulent practice of obtaining two separate invoices for the value of diamond scanning machines and declared only the invoice (for the hardware portion) for a lower value before the customs authorities while suppressing the other invoice (for the software portion) for a higher value from the customs authorities. As the value of the diamond scanning machines has been mis-declared an offence case of evasion of customs duty has been booked against the Petitioner company. As the Petitioner company have deliberately committed a fraud in mis-declaration of the value of the diamond scanning machines before the customs authorities which has been unearthed by DRI, the Petitioner is crying foul of double taxation to hoodwink this Hon'ble Court.
5.5. These machines have been used in the Diamond Industry from 2000 onwards. Till 2008 these machines were always imported as a single unit and tax was paid accordingly. It is note worthy that it is the Page 30 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined entire composite machine (hardware and software) that is considered as a single unit based on which customs duty is imposed. That the petitioner evolved a novel procedure by requesting the manufacturer to send him two separate invoices for duty purposes whilst customs duty is to the tune of 23% whereas service tax liability is only to the extent of 12.5%, which is why the said machines were consciously and deliberately undervalued in so far as the hardware is concerned and grossly overvalued in so far as the software is concerned. Further it is pertinent to note that the software as per the say of the manufacturer comes free of cost.
5.6. The petitioner company has involved in a calculated fraud in evading customs duty by getting split the value of the various diamond scanning machines imported by them from M/s.Sarin Technologies Ltd., Israel, into two parts viz. one for the hardware and one for the software portions. The value of the hardware was deliberately for a lower value i.e. 1/3rd of the total cost of the diamond scanning machines and the value of the software was for a higher value i.e.2/3rd of the total cost of the diamond scanning machines.Page 31 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025
NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined 5.7. The Petitioner company had deliberately requested for two quotations and two separate invoices with a view to systematically evade payment of appropriate customs duty by declaring only the invoice issued for the hardware portion for a lower value which was received along with the machine at the time of import while suppressing the invoice issued for the software portion from the department, which was subsequently received by courier.
5.8. The evidences gathered and the statement recorded from the representative of the supplier company in India reveal that the cost of the diamond scanning machines remained the same since last 7 years and the price list also do not indicate any separate cost for the hardware or software.
5.9. The CEO of the supplier company in India, in his statement had categorically stated that the cost of the machine includes the software for the said machine which was supplied free along with the machine. He further stated that the cost of the diamond scanning machine was split by issuance of invoices for hardware and invoices for software only at Page 32 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined the instance of the buyer i.e. the Petitioner company in the present case.
5.10. The Petitioner company has gravely mis-lead this Hon'ble Court by mis-representing the facts that the case against them for evasion of service tax has attained finality. The Petitioner Company has not appended the copy of the appeal filed by them with the appropriate authority whereby they have accepted the order of the adjudicating authority and appealed against the penalties levied against them.
xxx 5.13. The service tax component is only 12.5% whereas, the customs duty component is 21.52% in 2009 and 23.89% in 2010. It may be for this reason that the Petitioner company claims to have accepted the order of the adjudicating authority confirming the service tax demand which was for the period from 2008 to 2013 which includes other software programmes procured by the Petitioner company procured from other overseas suppliers such as M/s.DiamSoft Company Inc., UAE. Whereas, the customs duty demand is only for the period from 2009 to mid-2012 i.e. only the cases where two Page 33 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined separate invoices were issued by M/s.Sarin Technologies Ltd., Israel, alone were considered."
7.8 It was further submitted that the evidence gathered during the course of inquiry initiated by DRI reveals that the petitioners at the time of placing order for diamond scanning machines had specifically requested for two separate invoices by splitting value of diamond scanning machine i.e. one for Software portion and another for Hardware portion being a modus operandi of undervaluation. It was therefore,submitted that merely because the service tax is paid by the petitioners on the Software invoice cannot prevent the respondent from carrying out the adjudication of the impugned show cause notice as the custom duty is to be paid on Hardware/machine which is imported Page 34 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined by the petitioners which included the Software also and therefore, the petitioners are liable to make payment of value of custom duty on the valuation of Software which is embedded in the machine which is imported.
7.9 In support of his submission, reliance was placed on the decision of Hon'ble Apex Court in case of Tata Consultancy Services v. State of A.P. reported in (2005) 1 Supreme Court Cases 308, wherein in the Apex Court in facts of the case before it, has explained what is Software as under:
"78. A software may be intellectual property but such personal intellectual property contained in a medium is bought and sold. It is an article of value. It is sold in various forms like floppies, disks, CD-ROMs, Page 35 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined punch cards, magnetic tapes, etc. Each one of the mediums in which the intellectual property is contained is a marketable commodity. They are visible to senses. They may be a medium through which the intellectual property is transferred but for the purpose of determining the question as regards leviability of the tax under a fiscal statute, it may not make a difference. A programme containing instructions in computer language is subject matter of a licence. It has its value to the buyer. It is useful to the person who intends to use the hardware, viz., the computer in an effective manner so as to enable him to obtain the desired results. It indisputably becomes an object of trade and commerce. These mediums containing the intellectual property are not only easily available in the market for a price but are circulated as a commodity in the market. Only because an instruction manual designed to instruct use and installation of the supplier programme is supplied with the software, the same would not necessarily mean that it would cease to be a 'goods'. Such instructions contained in the manual are supplied with several other goods including electronic ones. What is essential for an Page 36 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined article to become goods is its marketability.
79. At this juncture, we may notice the meaning of canned software as under:
"(7) 'Canned software' means that is not specifically created for a particular consumer. The sale or lease of, or granting a license to use, canned software is not automatic data processing and computer services, but is the sale of tangible personal property. When a vendor, in a single transaction, sells canned software that has been modified or customized for that particular consumer, the transaction will be considered the sale of tangible personal property if the charge for the modification constitutes no more than half of the price of the sale."
7.10 Referring to the above decision, it was submitted that the Software embedded in the machine imported by the petitioners is therefore, liable to custom duty irrespective of the service tax paid by the petitioners on the amount shown in Page 37 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined separate invoices for software as there is no correlation between invoices of Hardware which is imported as well as the receipt of Software through separate invoices. It was therefore, submitted that no interference may be called for while exercising extraordinary jurisdiction under Articles 226 and 227 of the Constitution of India.
8. Having heard the learned advocates for the respective parties and considering the facts of the case as well as the material placed on record, it appears that up to 2008, the petitioners were importing the machines showing the value of Software in the composite invoices which included both Hardware and Software and from 2009 till 2013, the petitioners have imported the machines showing value of only Hardware Page 38 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined and separate invoice for Software is obtained from the supplier for which separate payment is made which is the subject matter of levy of service tax under the provisions of Finance Act, 1994.
9. The adjudicating authority under the provisions of the Service Tax i.e. The Commissioner of Central Excise, Customs & Service Tax, Surat by the order-in- original dated 19.08.2014 has confirmed the levy of service tax on the invoice of Software obtained by the petitioners on the ground that the same would be covered under the category of taxable service i.e. "Information Technology Software Services"
as specified in section 65(105)(zzzze) of the Finance Act, 1994 read with the provision of Rule 3 of the Taxation of Services (Provided from Outside India and Page 39 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined Received in India) Rules, 2006, Rule 2(1)
(d)(iv) of the Service Tax Rules 1994, Rule 2(1)(d)(i)(G) of the Service Tax Rules, 2012 and Rule 3 of Provision of Services Tax Rules, 2012 read with provisions of section 66A of the Finance Act, 1994. The adjudicating authority while coming to the conclusion that invoice obtained by the petitioners for Software amounts to service and has been discussed in the Order-in-original as under :
"17. On careful examination of services provided by M/s Sarin, M/s Galatea and M/s DiamSoft as discussed in the impugned Show Cause Notice, I find that the aforesaid Softwares are Tailor Made Software/ Customized Softwares, exclusively developed for Diamond manufacturing companies by the aforementioned foreign software companies and cannot be used in any other industry. Further, the said software is not mass-market Page 40 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined product generally available in packaged form off-the-shelf in retail outlets, as the same are being directly supplied via Email/ Internet by the said foreign companies from abroad to the buyer diamond manufacturing company. Further, I observe that M/s JB had placed the order for said taxable services directly to the said foreign companies and these companies had issued the invoices directly in the name of M/s JB and had supplied the software and/or License / Right to use / End use agreement to them only. I find that this fact, supra, has been discussed in a very logical way by providing with detailed illustrations of relevant bills, Invoices etc. in the impugned Show Cause Notice. I find that M/s JB, either in their defence reply or at the time of personal hearing, have not rebutted, on this score, with satisfactory logic and reasoning. Further, M/s JB had made the payment for the said services by remitting the amount in convertible foreign currency to these foreign companies. The said foreign companies are owner of the said Software and M/s JB had paid them the amount for License / Right to use/End User License and purchase of software for their commercial / business use and they cannot alter/amend the said Page 41 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined software. I hold that the Softwares provided by the said Companies are covered under "Information Technology Software"
as defined under Section 65 (53a) of the Finance Act, 1994. The services provided in the form of various Softwares and its licenses/Right to use/End-use License are covered under the category of taxable service, viz.
"Information Technology Software Service", as specified in Section 65(105)(zzzze) of the Finance Act, 1994. The aforesaid foreign companies are not having permanent fixed establishment or business establishment or permanent address or usual place of residence in India and whereas M/s JB, the recipient of such service, are in possession of their place of business, fixed establishment, permanent address or usual place of residence in India. Therefore, in view of provisions of Rule 3 of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006; Rule 2(1)(d)
(iv) of Service Tax Rules, 1994, Rule 2(1)(d)(i)(G) of Service Tax Rules, 2012; Rule 3 of the Place of Provision of Services Rules, 2012 and the provisions of Section 66A of the Finance Act, 1994, which are discussed at length in the impugned notice and not repeated here for the sake of Page 42 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined duplication, I hold that M/s JB, as a recipient of taxable service of "Information Technology Software Services" as defined under Section 65(105)(zzzze) of the Finance Act, 1994, is liable to pay Service Tax under reverse charge mechanism. M/s JB owns the manufacturing/ processing unit at Surat and has utilized the said Information Technology Software Services at their Surat premises and they, therefore, after initiation of inquiry by DGCEI, obtained Service Tax Registration at their Surat address as mentioned above and paid amount of Service Tax is, therefore, rightly required to be demanded from the registered premises shown in Service Tax Registration. M/s JB, as a recipient, had not paid Service Tax on the Information Technology Software Service, under reverse charge mechanism under Section 66A of Finance Act, 1994.
However, after initiation of inquiry, they, as a recipient, paid the amount of Rs.1,13,60,916/-as Service Tax payable on all the foreign currency payment made against the Softwares for which they had obtained the Right to use from M/s Sarin Technologies Ltd. and M/s Galatea Ltd., both of these companies from Israel and from M/s DiamSoft Company Inc., UAE during Page 43 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined the period from 16.05.2008 to 31.07.2013, under the category of Information Technology Software Service in terms of Section 66A of the Finance Act, 1994. Therefore, I hold that this amount of Service Tax paid by them is rightly required to be appropriated against the demand of Service Tax and the payment made by them under protest does not hold any logic on the basis of the facts as discussed in the foregoing paragraphs and, hence, requires to be rejected.
18. I further observe that M/s JB had not paid any Customs duty on the said Software as the same were delivered through Email / Internet, from the said foreign software companies, as clearly mentioned in the invoices, treating the same as service and the payment has been made only for obtaining the 'right of use' of the said software via E-mail/Internet, for processing of rough diamonds. As such, their defence of bringing such software by Engineers is not acceptable. The defence contention of M/s JB that M/s Sarin Technologies India Pvt. Ltd. is a permanent establishment of M/s Sarin and M/s Galatea has already been correctly dealt in the impugned notice. I find that the noticee, in their Page 44 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined defence, failed to come up with any new argument, hence, I also endorse the same view as discussed in the impugned Show Cause Notice."
10. Thereafter conclusion is recorded as under :
"22. In light of the facts discussed herein above and the material evidences available on records, it is established that M/s JB has contravened the following provisions of Chapter V of the Finance Act, 1994 and the Service Tax Rules, 1994 with intent to evade payment of Service Tax in respect of taxable services viz. "Information Technology Software Services" received by them from the aforesaid companies based outside India during the period from 16.05.2008 to 31.07.2013, under reverse charge mechanism:
(i) Section 67 of the Finance Act, 1994 read with Rule 7 of the Service Tax (Determination of Value) Rule, 2006 in as much as they have failed to determine the value of the aforesaid taxable services received from above companies based outside India.
(ii) Section 68 of the Finance Page 45 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined Act, 1994 read with Rule 6 of the Service Tax Rule, 1994 in as much as they failed to pay appropriate Service Tax on the due dates.
(iii) Section 69 of the Finance Act, 1994 read with Rule 4 of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 and Rule 4 of the Service Tax Rules, 1994 in as much as they, as a recipient, have failed to make an application to the jurisdictional officer for registration under the service categories of "Information Technology Software Services"
within the period prescribed.
(iv) Section 70 of the Finance Act, 1994 read with Rule 7 of the Service Tax Rules, 1994 in as much as they, as a recipient, have failed to furnish proper periodical returns in form ST-3 mentioning the particulars of the aforesaid taxable services received by them from abroad, the value of taxable service determinable and other particulars in the manner as provided therein and incorporating the required information to the jurisdictional Superintendent of Service Tax.
(v) Rule 5 of the Service Tax Rules, 1994 in as much as they have failed to furnish to Page 46 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined jurisdictional Superintendent of Service Tax a list of all the accounts maintained by them in relation to Service Tax payable under Reverse Charge Mechanism.
(vi) Section 66A of the Finance Act, 1994 read with Rule 3(iii)(c) of the Taxation of Service (Provided from Outside India and Received in India) Rules, 2006 till 30.06.2012 and thereafter Rule 2(1)(d)(i)(G) of the Service Tax Rules, 2012 w.e.f. 01.07.2012 in as much as they have failed to pay the Service Tax within the prescribed time, as a recipient of said taxable services provided by the said companies based outside India, in the manner and at the rate as provided under the said provisions.
23. Further, I find that all the acts, supra, of contravention constitute an offence of the nature as described under the provisions of Sections 77 and 78 of the Finance Act, 1994, rendered themselves liable to penalty under Section 77 ibid separately for failure to make an application to the jurisdictional officer for Service Tax registration under the service categories of "Information Technology Software Services", as a recipient, within the period prescribed as well as also for Page 47 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined failure to pay Service Tax by due dates and not furnishing the information in respect of import of above taxable service provided by companies based outside India and taxable value thereof in prescribed periodical ST-3 returns as well as under Section 78 of the Finance Act, 1994 for suppression of taxable value of said taxable services received from abroad with intent to evade payment of Service Tax leviable thereon.
24. As regards their submission and the case laws relied upon, it may be mentioned that most of the arguments have already been dealt by me during the above discussion. Further, as regards to their reliance on case law of Microsoft Corporation (I) Pvt. Ltd., it may be mentioned that it relates to purchase of software/software products in retail segment; case law of Tata Consultancy Services & Infosys Technology Ltd. relates to sales of computer softwares whereas, in the instant case the issue is with regard to non-
payment of Service Tax on receipt of taxable services. As regards Mumbai and Bengaluru Commissionerates views referred, I find that based on this, no final conclusion can be arrived at vis- à-vis the issue on hand."
Page 48 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025
NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined
11. The adjudicating authority under the service tax has also taken into consideration the decision of Tata Consultancy Services & Infosys Technology Ltd.(supra) relied upon by the petitioner in support of the defence that the Software purchased by the petitioners is a Tailor Made Software and cannot be considered as canned Software so as to attract the service tax but the same has been distinguished by the adjudicating authority to hold that the said decisions relate to sale of computer software whereas in the facts of the case, the issue is with regard to payment of service tax on receipt of taxable services.
12. The Hon'ble apex Court in case of Tata Consultancy Services(supra) has arrived at the conclusion that the canned software Page 49 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined which is available for sale and to be used by any person who owns such Software having license to use is an article of goods and not service liable to sales tax. Same analogy cannot be applied to the Software purchased by the petitioners to run the imported diamond scanning machine for which separate invoice is obtained. It is pertinent to note that the petitioners have accepted the liability to pay the service tax as recorded by this Court in para no.5 of order dated 2.12.2014 in Special Civil Application No.14127 of 2014 wherein it is noted that the petitioner does not dispute its service tax liability and has accepted the principal component of tax without appeal.
13. The Hon'ble Apex Court in case of Union of India and another v. Mohit Page 50 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined Minerals Private Limited through Director reported in (2022) 10 Supreme Court Cases 700 while dealing with levy of GST on the ocean freight which is part of composite supply of CIF value of the goods imported has held as under :
"171. Based on the above discussion, we have reached the following conclusion:
xxxxx 171.2. On a conjoint reading of Sections 2(11) and 13(9) of the IGST Act, read with Section 2(93) of the CGST Act, the import of goods by a CIF contract constitutes an "inter-State"
supply which can be subject to IGST where the importer of such goods would be the recipient of shipping service.
171.3. The IGST Act and the CGST Act define "reverse charge" and d prescribe the entity that is to be taxed for these purposes. The specification of the recipient in this case the importer-by Notification No. 10 of 2017 is only clarificatory. The Government Page 51 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined by notification did not specify a taxable person different from the recipient prescribed in Section 5(3) of the IGST Act for the purposes of reverse charge. 171.4. Section 5(4) of the IGST Act enables the Central Government to specify a class of registered persons as the recipients, thereby conferring the power of creating a deeming fiction on the delegated legislation.
171.5. The impugned levy imposed on the "service" aspect of the transaction is in violation of the principle of "composite supply"
enshrined under Section 2(30) read with Section 8 of the CGST Act. Since the Indian importer is liable to pay IGST on the "composite supply", comprising of supply of goods and supply of services of transportation, insurance, etc. in a CIF contract, a separate levy on the Indian importer for the "supply of services" by the shipping line would be in violation of Section 8 of the CGST Act."
14. The above decision would apply conversely in facts of the case as when there is composite supply of goods and Page 52 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined service, the tax is to be levied at one point only similarly when in facts of the case when service tax is already levied on reverse charge mechanism by the Service Tax Authority on the Software purchased by the petitioner, the same cannot be subjected again to custom duty and therefore, the very basis of issuance of impugned show cause notices for levy of custom duty on the alleged suppression of value of Software cannot be sustained.
15. In view of foregoing reasons ,we are therefore of the opinion that once the liability to pay service tax is already crystalised on the very same transaction of import of Software, the same cannot be considered as part of the goods being Hardware imported by the petitioners. Under the circumstances, all the petitions Page 53 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined are allowed. The impugned show cause notices are accordingly quashed and set aside Consequently, the order-in-originals are also hereby quashed and set aside.
16. At this stage, learned Senior Advocate Mr. Tushar Hemani for the petitioners of Special Civil Application No.6869/2016 submitted that the petitioners had made payment of Rs. 50,00,000/- under protest at the time of provisional release of goods, the same may also be ordered to be refunded as ordered by this Court in Special Civil Application No.14127 of 2014 dated 2.12.2014.
17. In view of above findings that the impugned show cause notices and order-in- originals cannot be sustained and are Page 54 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025 NEUTRAL CITATION C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025 undefined accordingly quashed and set aside, the respondent authorities are directed to refund the amount of Rs. 50,00,000/- deposited by the petitioners within a period of 12 weeks from the date of receipt of a copy of this order.
18. Rule is made absolute to the aforesaid extent. No order as to costs (BHARGAV D. KARIA, J) (PRANAV TRIVEDI,J) RAGHUNATH R NAIR Page 55 of 55 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025