Customs, Excise and Gold Tribunal - Bangalore
Wipro Ltd. vs Commissioner Of Customs on 17 May, 2005
Equivalent citations: 2005(189)ELT289(TRI-BANG)
ORDER T.K. Jayaraman, Member (T)
1. This is an appeal against Order-in-Original No. 3/2003 (AIR), dated 26-7-2003 passed by the Commissioner of Customs, Chennai (Air Port).
2. The brief facts of the case are as follows :
(i) The appellant filed Bill of Entry dated 1-6-98 for clearance of goods declared as computer software/electronic goods supplied by M/s. Brite Voice Systems, England. The declared value was UK Pounds 1,35,807.50. The goods arrived on 28-5-98 by air. A packing list was also submitted along with the Bill of Entry. The total value shown in the packing list was UK Pounds 2,71,650/- (incidentally double the value shown in the invoice). The goods were assessed to duty for Rs. 15,34,070/- on 3rd June, 1998. The appellant was not allowed to pay the duty as the department was carrying out certain investigations. The appellant was in dire need of the goods. Therefore, they sought provisional release of the goods without prejudice to the assessment made on the Bill of Entry. The appellant was required to file a new Bill of Entry. The department assigned the same number and date for this Bill of Entry. The appellant was required to indicate the items along with the classification as directed by the Department and value. On 30-8-1998 an amount of Rs. 52,51,132/- was paid in cash. Provisional bond for a value of Rs. 1,86,09,861/- was given and bank guarantee for Rs. 38.00 lakhs was given by Standard Chartered Bank, Chennai on behalf of M/s. WIPRO. The goods were then allowed to be cleared. The department issued a show cause notice dated 11-1-2000 on the basis of the second Bill of Entry. The differential duty demand was also made on the basis of the second Bill of Entry. The differential duty of Rs. 73,94,052/- was demanded under proviso to Sub-section (1) to Section 28 of the Customs Act, 1962 proposing to re-assess the goods under CTH 85.70.
(ii) The departmental contentions raised in the show cause notice are as follows:
(a) The value of the goods declared is not the correct transaction value in terms of Rule 4 of the Customs Valuation Rules, the total value is to be enhanced from UK Pounds to 2,71,615/- to UK Pounds 3,14,000/- as applicable for two systems of Brite VSD platform.
(b) The goods are classifiable under CTH 8517 in terms of Section Note 4 to Section XVI as telephone system and customer support system under CTH 8417. The differential duty amounts to Rs. 73,94,052/-along with interest at 24% per annum as per proviso to Section 28(1) of the Customs Act.
(c) The goods released provisionally are liable for confiscation under Section 111(m) of the Customs Act, 1962.
(d) The appellants are liable for penalty under Section 112(a).
(e) S/Shri S.B. Arun Kumar, Product Manager and K.S. Viswanathan, General Manager of M/s. WIPRO Ltd. Bangalore are liable for penalty under Section 112 of the Customs Act, 1962.
(f) Bank guarantee executed by the appellant for Rs. 38.00 lakhs are liable to be enforced and amount realized towards short collection of duty.
3. Shri R. Ravindran, learned Advocate appeared for the appellants and Smt. Shobha L. Chary, learned JCDR appeared for the Revenue.
4. The learned Advocate adduced the following arguments :
(a) The Bill of Entry was assessed on 3-6-1998 for a duty of Rs. 15,34,070/-. This was done after first check procedure under Section 17 read with Section 47 of the Act. It is an adjudication order. Such an order can be called into question only in a manner known to law by appeal or review. Once such an order is passed there cannot be any further assessment of the same goods. The entire proceedings initiated, in this case, thereafter are non-est in the eyes of law.
(b) The assessment made on the Bill of Entry filed on 3-6-98 has become final and binding on the department as the department did not proceed to get it set aside in the manner known to the law namely viz. by review by Commissioner under Section 129D as the assessment order was passed by the Assistant Commissioner. The learned Advocate relied on the following case laws :
- Collector v. MM. Rubber Co. - The order becomes effective immediately upon signing it by the proper officer. - Rewa Gases v. Assistant Collector - Order of the Assistant Collector comes into operation as soon as it is signed and it is not even necessary to communicate the same to the assessee. Succeeding Asstt. Collector cannot call it in question and issue fresh show cause notice. - SMZS Chemicals v. CCE - Order signed by the adjudicating officer and attested by Suptd. But not communicated to assessee, a final order in terms of law, even if audit approval was awaited. Such an order cannot be altered by the successive Asstt. Collector by a fresh order.
1998 (97) E.L.T. 211 (S.C.) - Escorts Ltd. v. UOl 2001 (130) E.L.T. 54 (T - LB - 5 Member Bench) - CC v. Arvind Export (P) Ltd.
1986 (26) E.L.T. 873 (T) - Ajay Exports v. CC, Madras 1993 (67) E.L.T. 710 (T) - Medimpex India v. CC 2002 (148) E.L.T. 364 (T) - Hitaishi Fine Kraft Inds. v. CC
(c) The Commissioner held that the imported goods are two systems of Brite VSD Debit Platform. It is not the case of the department that there were more goods/items than what was declared by the appellants in the Bill of Entry. Hence the quantity of goods imported was exactly as declared by the appellants in the Bill of Entry. When all the items imported have been declared fully, it is irrelevant whether the goods form one system or two systems. As regards the value of the goods imported the same has been fully declared to the department at UK Pounds 2,71,615/-. However, the Commissioner held that the value was UK Pounds 3,14,000/- as per the proforma invoice of Brite dated 3-5-1997 that is more than one full year prior to importation. The impugned order ignores the actual purchase order dated 15-4-1998 placed by WIPRO on Brite for a total value of UK Pounds 2,71,615/-. It is well settled that proforma invoice and quotations are not relevant evidences for determining the transaction value as held in the case of Swarn Fabrics v. CC - (T) and in the case of Ramana International v. CC - (T).
(d) The adjudicating authority has classified the imported goods as telephonic system under CTH 8517. As per HSN, at page 1472, which defines electrical apparatus for line telephony or line telegraphy as under:
"The term 'electrical apparatus' for line telephony or the telegraphy means "apparatus for the transmission between two points of speech or other sounds (or of symbols representing written messages, images or other data), by variation of an electric current or of an optical wave flowing in a metallic or dielectric copper (copper, optical fibres, combination cable, etc.) circuit connecting the transmitting station to the receiving station. The heading covers all such electrical apparatus designed for this purpose, including special apparatus used for carrier-current line system."
The pre-paid system imported by the appellants do not fall under this category. The impugned order ignores the fact that the goods are to be classified in the condition in which it is imported and not on the basis of the use to which they may be put later on. Sarvalak-shmi Paper and Board v. CC - 2000 (126) E.L.T. 935 (T).
(e) The Commissioner discussed the issue whether the imported software is computer software or telecommunication software. This issue travels beyond the show cause notice. No such issue was put in the show cause notice to the appellants for their reply. The findings are therefore of no consequence.
(f) The Commissioner considered the issue of commission. This is altogether a new issue. No such issue was raised in the show cause notice. Even in the order, despite the Commissioner's finding the demand does not include the alleged commission. Under the agreement between WIPRO and Brite, commission is payable only when the goods are directly purchased by the customer. In this case goods were imported by WIPRO and hence no commission is payable. No such commission was actually paid. No material was brought on record by the department to show that such commission was actually paid to WIPRO.
(g) The next issue considered by the adjudicating authority was whether the price of software has been inflated and the hardware under-invoiced. No evidence was brought on record to prove the department's case that software prices were inflated. Merely by comparing the quotation given to RPG in May 1997, more than one year before the import, it is sought to be contended that the hardware price is under-invoiced. The learned Commissioner proceeds on the basis that software was not put to use till 1-1-1999. The fact admitted by the department is that software is already loaded on hardware. Hence RPG need not have to use the software in the CD, as it only the licenced software already loaded. The contention of the department that the value of software is included in the hardware and it is the hardware which is liable to duty is contrary to the judgment of the Hon'ble Supreme Court in the case of Sprint RPG India Ltd. v. CC, Delhi - .
(h) The Bill of Entry was filed on 1-6-1998. On that day Notification No. 11/97 was in force. Under the Notification Entry No. 173, duty on "computer software" is NIL. Notification No. 23/98 came into force from 2-6-98. Only this notification distinguished telecom software from computer software. Assuming without admitting that the software is telecom software, even then as on 1-6-98 no duty was leviable. It is not the case of the department that it is for operation of any machine performing a specific functioning other than data processing and incorporating or working in connection with an automatic data processing machine. No such case was made in the show cause notice nor any finding recorded in the impugned order. The impugned order is not sustainable.
(i) The impugned order proceeds to finalize the provisional assessment made on 13-8-98. The provisional assessment was made on the second Bill of Entry, which had the classification and rate of duty as per the directions of the department. That is exactly in the manner in which the impugned order has been passed. Where the assessment was provisional, no penalty is imposable. - Mangalore Refinery v. CC - 2002 (145) E.L.T. 689 (T).
(j) The question of manipulation of price, etc. does not arise. The learned Commissioner finalized the assessment under the second Bill of Entry where he had already taken the value of software in the hardware. Hence the assessment which is sought to be finalized is what has been held by him in the impugned order. Provisions of Section 111(m) are not attracted. No allegation of manipulation can be made under such circumstances. Hence the confiscation under 111(m) is not sustainable.
(k) It was pointed out that one DRI officer went to UK for investigation. Adverse findings against the appellant if any found out by that officer has not been submitted to the appellant.
(l) Personal penalty has been imposed on Shri Viswanathan under Section 112(b) of the Customs Act. For imposing penalty under this Section, it must be shown that the person was involved in some physical manner of dealing with the goods. No such finding has been recorded against him. - D. Akineedu Chowdry v. CC, 2005 (67) RLT 78 (T).
5. The learned JCDR urged the following points :
(i) Taking us through the adjudication order and also the various documents, the JCDR urged that the appellants had actually placed orders for two systems. The invoice never indicated the value. It is only the packing list, which contains the value of the goods. It is very unusual that the value is indicated in the packing list. The Commissioner has clearly brought out in his order that the appellant had imported two systems but declared the value of only one system. Thus it is a clear case of mis-declaration.
(ii) The items imported are to be supplied to RPG who are cellular operators. The pre-paid system imported is to be used in conjunction with the cellular telephony system of M/s. RPG. Therefore the imported goods are only telephony system and the findings of the adjudicating authority on this are correct.
(iii) Normally computer software is not liable to customs duty, while hardware is chargeable to duty. The modus operandi of importers is to inflate the value of software so that they can pay less duty on the hardware. The appellants also have adopted this method for evasion of duty. She pointed out that in the instant case, the value of software is much more than the hardware.
(iv) She further drew our attention to the investigation conducted to show that the price at which Hutchinson imported the similar software was much less.
(v) She reiterated the findings of the Commissioner in the adjudication order and urged the Bench to dismiss the appeals.
6. On a very careful consideration of the entire issue, the following picture emerges. The appellants had an agreement with M/s. RPG. M/s. RPG are cellular operators. They wanted to introduce pre-paid system in Chennai and Indore. Since the appellants had an agreement of distributorship with M/s. Brite Voice Systems, England, they agreed to import the system for RPG. Even though initially RPG wanted two systems, later they decided not to go ahead with the pre-paid system in Indore. In view of these developments, there had been changes in the configuration of the equipment needed by RPG. Finally a purchase order dated 15-4-98 was placed with M/s. Brite. L/C was opened on 27-4-98, which was amended on 2-5-98 and 5-6-98. Bill of Entry was filed on 1-6-1998. The description of the items in the Bill of Entry filed originally are : Computer systems/monitor/keyboard/printer/computer software/power supply/modem router/hard disk drive/Ethernet hub, etc. They were originally assessed to duty on the basis of the declaration of the appellants. However, Revenue had doubts regarding the declaration of the value and description of the goods. Hence they conducted further investigations. Since the appellants were in urgent need of the goods, they were provisionally released. It has been brought to our notice that the department insisted on the appellants to file another Bill of Entry with classification as directed by the department. The second Bill of Entry was given the same number and date as the one initially filed on 1-6-98. For example, in the original Bill of Entry filed on 1st June 1998, the appellants declared the computer system under 8471.90. However, in the revised Bill of Entry bearing the same number and date as the Bill of Entry originally filed, the Computer systems have been classified under 8517.00 on the directions of the Department. We find that the procedure adopted by the departmental authorities is highly irregular. Once a Bill of Entry is filed and assessed to duty, the department cannot sweep it under a carpet and insist that the appellants file another Bill of Entry. The fact that the same number and date has been given to the fresh Bill of Entry is also very disturbing. The appellant's contention that the assessment done on the Bill of Entry filed on 1-6-1998 is final and no demand can survive until and unless the assessment order is reviewed by the department is correct. The Honourable Apex Court in the case of Priya Blue Industries Ltd. v. CC, (Preventive) have held that "Refund claim contrary to assessment order not maintainable without order of assessment having been modified in Appeal or reviewed under Section 28 of Customs Act, 1962." On the same lines, Revenue also cannot demand duty without order of assessment having been modified in Appeal or reviewed under Section 28 of the Customs Act, 1962. Even the other case laws cited by the learned Counsel are relevant. Even on this ground alone, the Order-in-Original is liable to be set aside. However, we shall go into the other issues also. The adjudicating authority held that the impugned goods are classifiable under 8517.00. The reasoning adopted by him is as follows :
"The pre-paid system, although, has no independent identity by itself, works in conjunction with the switch and thus becomes a part of the telephony system. The system under import is meant to be a part of main switch equipment for prepaid cellular phone system. Therefore, the item under import is rightly classifiable under CTH 8517. Though the individual components of the system are classifiable under various other headings like 8471,8473, 8504 and 8517, the system as a whole is rightly classifiable under CTH 8517."
We are not in a position to agree with the findings of the adjudicating authority for the following reasons. We have gone through technical write-up on the items imported. They consist of various parts of computer system (hardware) and also software. The packing list also describes the items as given in the Bill of Entry. Prima facie, there does not appear to be any mis-declaration. In our view, the items imported consist of Hardware and Software. The next question is whether the software imported is Telecom software. In this connection the Chairman of Centre for Electronic Design and Technology (CEDT), Indian Institute of Science, Bangalore, has given his opinion on the software. It is as follows :
"Representatives of M/s. WIPRO Infotek Group, Mahatma Gandhi Road, Bangalore has approached me for an opinion on the nature of software received by them in "box 18" in a recent consignment. They have supplied data sheets of the above software and the hardware platform on which the software runs. The data sheets supplied describe the software to work with the Solaris operating system and perform certain operating system operations. Therefore, it does not qualify to be called a telecommunication software.
Sd/-
Prof. H. S. Jamadagni Chairman, CEDT 9, June 1998 There is no reason to disregard the above opinion.
7. The HSN explanatory Note defining electrical apparatus for line telephony or line telegraphy has already been given in the submission of the learned Counsel. After going through those submissions and also the description of the items imported we are satisfied that the items imported cannot be called as telephony systems, classifiable under CTH 8517.00. The items imported are for the functioning of prepaid system and not for telephony. Even without prepaid system, RPG Cellular system was functioning. Hence, the classification declared originally by the appellants appears to be correct. As regards the question of import of two systems, in our view, this issue is not very relevant. The goods, which have been imported are in accordance with the quantities mentioned in the packing list. The DRI officer visited UK for investigation. That investigation has not revealed that, Me appellants paid an amount in excess of what has been declared by them in the Bill of Entry. Hence there are no grounds to reject the transaction value. We are also not in full agreement with the findings of the adjudicating authority that the appellants imported two systems. The most important question is whether the appellant paid money for two systems and declared the value of only one system. If that is the case of the department, they have not come out with any evidence even after investigating in UK. There is no proof that they had remitted more money than what was declared in the Bill of Entry for assessment. Under these circumstances, the finding of the adjudicating authority that they had imported two systems is set aside. We are also of the view that there is absolutely no evidence to show that the price of software has been inflated and the hardware under-invoiced. The contention of the learned JCDR that the software in the CD had not been used by RPG is not a very strong point, since the software was already loaded in the equipment. Normally when we purchase computer systems the operating system is sometimes loaded in the system itself. Even then, the licenced software is supplied in a CD for a consideration. There is also no rule that software should cost less than that of Hardware. The cost of software depends on its complexity and utility. Suppose there is a crash in the system, then the licenced software in the form of CD would enable us to load the software again. We need not doubt that the appellants had paid for licenced software. The fact that software costs more than the Hardware does not surprise us. In view of our findings, the Order-in-Original has absolutely has no merits. Therefore we allow the appeals with consequential relief.
(Pronounced in open Court on 17-5-2005)