Customs, Excise and Gold Tribunal - Bangalore
Yokogawa India Ltd. vs The Commissioner Of Customs on 4 January, 2008
ORDER T.K. Jayaraman, Member (T)
1. This appeal has been filed against the Order-in-Appeal No. 182/2006/Cus (B) dated 29.12.2006 passed by the Commissioner of Customs (Appeals) Bangalore.
2. The appellants filed two bills of entry dated 09.03.2006 and 21.03.2006 for clearing of Software System ID, licence, instruction guide and manuals etc. They classified the software under CTH 8524.20 and claimed the benefit of nil rate under Notification C.N 21/02 for the basic customs duty and serial No. 27 of Notification No. 6/06 Central Excise for basic Excise duty. After seeking certain clarification from the appellants, the departmental officers were of the opinion that the software imported is packaged software and therefore they would not be liable for the exemption in respect of the countervailing duty (equal to Central Excise duty). According to the appellant, the software imported is customized software which is entitled for the benefit of the Notification 6/06 Central Excise. The Lower Authority passed an appealable order holding that the software is packaged/canned software and denied the benefit of Notification 6/06. The benefit of Notification would be available only to customized software. The appellants approached the Commissioner (Appeals) who passed the impugned order. In the impugned order, the Commissioner (Appeals) has upheld the order of the lower authority. Therefore, the appellants are aggrieved and have come before this Tribunal for relief.
3. Shri K. Parameswar, learned Advocate, appeared on behalf of the appellants and Ms. Sudha Koka, learned SDR for the Revenue.
4. We heard both sides. The foreign supplier of the software is Yokogawa Electric Corporation, Japan. The appellant is a subsidiary of the foreign supplier. The foreign supplier manufactures what is known as DCS (Distribution Control System). The Distribution Control System consists of both hardware and software. Hardware indicates the mechanical and electrical components of a computer (illustrated Oxford Dictionary). Software means the programs and other operating information used by a computer (illustrated Oxford Dictionary). In the present appeal, we are concerned only with software. Distribution Control System is used in various process industries, for example: Power plant, Fertilizer plant, Chemical plant, etc. are actually process industries. There are several parameters which are to be maintained at desirable levels in a process. If a particular parameter changes to a level, other than the desired level, the variation which is also known as error is converted into a signal and used as a feedback to actuate a mechanism which takes remedial action so that the particular parameter is restored to the desirable level. This is basic to all automatic control systems. Due to rapid strides in Information Technology, computers are used in automatic control systems. The foreign supplier manufactures DCS comprising of both hardware and software. The appellant undertakes supply of DCS to various industries in India. According to the appellant, the requirement of DCS configuration for each customer is unique which is different from the configuration meant for another customer. In other words, as the hardware and software supplied to each customer are customized, the same cannot be used by a variety of users. The appellants have stated that the software imported by them for use of a particular customer is customized and cannot be used by another customer. In that sense, according to the appellant, the imported software should be considered as customized software and the benefit of the Notification should be given to them. On the other hand, Revenue contends that the software imported by the appellant is capable of being used by a variety of users after loading into Yokogawa Machines and further modifications at the site.
5. The gist of the submissions made by the learned Advocate is as follows:
(a) Yokogawa software cannot be used as a standalone unit to provide an output - it needs propitiatory Yokogawa's Control System Hardware and customized design to deliver an output
(b) The software needs a specific Control System Hardware configuration for loading
(c) The software are not of general purpose and cannot be used anywhere else, other than the Control System Hardware as it was intended for/based on the end user's process requirements.
(d) The output of the software is not tangible to a user; it is only an enabler to the control system to collectively perform process control of the plant
(e) The software uses Yokogawa proprietary communication protocol to function and therefore cannot be sued outside the Yokogawa domain.
(f) The Yokogawa software package cannot be individually bought across, the shelf and used. The software configuration varies with customer and application to application. These software are configured on job basis to meet the end user's requirements. This application software is developed, based on an understanding of process to command the control system.
(g) The final designed output of the Yokogawa software/hardware combination can only be used for the client it was designed for - every installation is customized and therefore are unique.
6. However, the lower authority has given the following findings to hold that the imported software is only packaged/canned software.
a) The software imported by the appellant is basic application software grouped under various headings depending upon its functions.
b) The software is capable of being used by variety of users after loading into Yokogawa machines and further modifications at the site.
c) The software has been given specific licence keys without which the same cannot be made use in the system
d) As per the literature under 'notes of Software', it has been clearly mentioned that the software is prohibited for reproduction and no part of the product may be transferred, converted or sub-let for use by any third party without the prior consent form Yokogawa and the software is specific to a particular machine. This goes to support the contention that the developer of the software has restricted the software usage only to a particular customer to avoid duplication/loss of revenue.
e) On comparing the prices of two different customers, the price of the software is found to be the same.
f) They are standard software for Centum 1000/3000 machinery and the specific requirements of each plant/customer will have to be further modified at the site by Yokogawa engineers and since this customization is being done subsequent to the importation, the software imported cannot be called as a 'customized software' as contended by the appellant.
7. The Commissioner (Appeals) has discussed the issue in detail and come to the conclusion that the order of the lower authority is Segal and proper. Therefore, he has upheld the view that the imported software is packaged software. Serial No. 27 of Notification 6/06 is reproduced below:
Any customized software (that is to say, any customs designed software, developed for a specific user or client) other than packaged software or canned software.
Explanation: For the purposes of this entry, "packaged software or canned software" means software developed to meet the needs of variety of users, and which is intended for sale or capable of being- sold, off the shelf.
8. The above entry explains both customized software and packaged software or canned software. If the software, is customized then there is no countervailing duty. To decide the issue, we have to go strictly by the Notification without getting lost in technicalities. The question to be asked is whether in the form in which software has been imported, it can be considered as developed for a specific user or client. Both lower authorities have elaborately discussed that the appellant is actually importing certain standard software packages and later modifies the same at the site of the customer to suit their needs. Some of the software imported are given in the impugned order. Standard Operating and monitoring systems
(a) OPC interface package
(b) Control drawing status display
(c) Logic Chart status display
(d) Long term data archive package
(e) Report package
(f) Standard builder package
(g) Modbus communication package
(h) Graphic builder
(i) Test Function
(j) Self-documentation package
9. On a very careful consideration of the matter, we find that the imported software cannot be used as such in the site of a customer. The said software requires further modification before installing at the site of a customer. However, the imported software package consists of several standard packages. In other words, each component of the package with suitable modification can be used by a variety of users. There is also evidence to show that the said software is capable of being sold, off the shelf. In other words, when the software package is imported, it remains a packed software or canned software. Only after further modification it acquires the characteristic of custom designed software. Alternatively what is supplied to a customer by the appellant is customized software but what is imported is packaged software. In view of this, the impugned order is upheld and the appeal is dismissed.
(Pronounced in open Court on 4 JAN 2008)