Custom, Excise & Service Tax Tribunal
Moser Baer India Limited vs Cc ( Ii ) - (Airport Special Cargo) on 10 October, 2019
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, MUMBAI
REGIONAL BENCH
Customs Appeal No. 130 of 2009
(Arising out of Order-in-Appeal No. 200/Mumbai-III/2008 dated
10.11.2008 passed by Commissioner of Customs (Appeals), Mumbai-
III)
M/s. Moser Baer India Ltd. Appellant
23, Shah Industrial Estate,
2nd floor, Off Veera Desai Road,
Andheri (W), Mumbai 400 053.
Vs.
CC (II) - (Airport Special Cargo), Respondent
Mumbai
6th floor, Avas Corporate Point,
Makwana Lane,
Andheri-Kurla Road,
Behind S.M. Centre,
Andheri (E), Mumbai 400 059.
WITH
Customs Appeal No. 131 of 2009
(Arising out of Order-in-Appeal No. 198/Mumbai-III/2008 dated
10.11.2008 passed by Commissioner of Customs (Appeals), Mumbai-
III)
M/s. Moser Baer India Ltd. Appellant
23, Shah Industrial Estate,
2nd floor, Off Veera Desai Road,
Andheri (W), Mumbai 400 053.
Vs.
CC (II) - (Airport Special Cargo), Respondent
Mumbai
6th floor, Avas Corporate Point,
Makwana Lane,
Andheri-Kurla Road,
Behind S.M. Centre,
Andheri (E), Mumbai 400 059.
Appearance:
Shri Prasad Paranjape, Advocate, for the Appellant
Ms. Trupti Chavan, Authorised Representative for the
Respondent
CORAM:
Hon'ble Mr. S.K. Mohanty, Member (Judicial)
Hon'ble Mr. Sanjiv Srivastava, Member (Technical)
2 C/130,131/2009
FINAL ORDER NO. A/86793-86794/2019
Date of Hearing: 28.06.2019
Date of Decision: 10.10.2019
PER: SANJIV SRIVASTAVA
These appeals are directed against the order in
appeal of Commissioner Customs (Appeal) dated
10.11.2008 as indicated in the table below:
Appeal Order in Appeal Order in Original
No No Date No Date
C/130/ 200/Mumbai 10.11.08 JC/SK/ADJN/13/ 28.04.08
2009 -III/2008 2108-09
C/131/ 198/Mumbai 10.11.08 JC/SK/ADJN/21/ 25.04.08
2009 -III/2008 2108-09
1.2 By the impugned order Commissioner of Customs
(Appeals) has upheld the orders of Joint Commissioner
enhancing the value and have reduced the fine and
penalties imposed.
Order in Original No JC/SK/ADJN/13/2108-09 dated
28.04.2008
20. In view of facts and circumstances and the
discussions made in the earlier Paras, I pass the following
orders;
a) the declare value of Rs 286 for goods imported vide
AWB No 857876186521/13.01.08, and Bill Of Entry
42778 dated 13.01.08, is rejected and the same shall be
assessed at Rs 6,49,182/- (Rupees six lakhs forty nine
thousand one hundred eighty two only)
b) the good imported vide AWB No
857876186521/13.01.08, and Bill Of Entry 45009 dated
27.01.08, valued Rs 6,49,182/- are confiscated under
Section 111 (m) of the Customs Act, 1962. However, I
allow redemption of the same in lieu of confiscation, on a
fine of Rs 1,75,000/- (Rupees One Lakh Seventy Five
3 C/130,131/2009
Thousand only) in addition to payment applicable duties
within thirty days of receipt of this order.
c) I order imposition of personal penalty of Rs 75,000/-
(Rupees Seventy Thousand only) for the said imports on
M/s Moser Baer India Ltd, under Section 112(a) of the
Customs Act, 1962.
d) I order imposition of personal penalty of Rs 50,000/-
(Rupees Seventy Thousand only) for the said imports on
M/s Federal Express (India) Pvt Ltd., under Section
112(a) of the Customs Act, 1962.
By the impugned order in Appeal No C/130/2011,
Commissioner (Appeal) has reduced the total fine to Rs
75,000/- and penalty under Section 112(a) to Rs 50,000/-.
Order in Original No JC/SK/ADJN/21/2108-09 dated
25.04.2008
"20. In view of facts and circumstances and the
discussions made in the earlier Paras, I pass the following
orders;
a) the declare value of Rs 12,386/- for goods imported
vide AWB No 7879790984, and Bill Of Entry 45009 dated
27.01.08, is rejected and the same shall be assessed at
Rs 6,13,840/- (Rupees six lakhs thirteen thousand eight
hundred forty only)
b) the declare value of Rs 243/- for goods imported
vide AWB No 8860603673, and Bill Of Entry 45371 dated
30.01.08, is rejected and the same shall be assessed at
Rs 7,21,990/- (Rupees seven lakhs twenty one thousand
nine hundred ninety only)
c) the good imported vide AWB No 7879790984, and
Bill Of Entry 45009 dated 27.01.08, valued Rs 6,13,840/-
are confiscated under Section 111 (m) of the Customs
Act, 1962. However, I allow redemption of the same in
lieu of confiscation, on a fine of Rs 1,50,000/- (Rupees
One Lakh Fifty Thousand only) in addition to payment
applicable duties. This option shall b exercised within 30
days of receipt of this order.
4 C/130,131/2009
d) the good imported vide AWB No 8860603673, and
Bill Of Entry 45371 dated 30.01.08, valued Rs 7,21,990/-
are confiscated under Section 111 (m) of the Customs
Act, 1962. However, I allow redemption of the same in
lieu of confiscation, on a fine of Rs 2,00,000/- (Rupees
Two Lakh only) in addition to payment applicable duties.
This option shall b exercised within 30 days of receipt of
this order.
e) I order imposition of personal penalty of Rs 25,000/-
(Rupees Twenty Five Thousand only) and Rs 25,000/-
(Rupees Twenty Five Thousand only) respectively for the
said two imports on M/s Moser Baer India Ltd, under
Section 112(a) of the Customs Act, 1962.
f) I order imposition of personal penalty of Rs 25,000/-
(Rupees Twenty Five Thousand only) for the said imports
on M/s DHL Express (India) Pvt Ltd., under Section
112(a) of the Customs Act, 1962."
By the impugned order in Appeal No C/131/2011,
Commissioner (Appeal) has reduced the total fine to Rs
2,00,000/- and penalty under Section 112(a) to Rs
25,000/-.
1.3 Since the issues involved in both the appeals are
identical, they have been taken up together.
2.1 Appellant is engaged in the business of providing
entertainment contents on DVD/VCD to customers in
India. For foreign movies, they enter into contract
production houses acquiring the rights to reproduce and
distribute the said movies in India.
2.2 They had imported the content of Digi Beta Tape
through Courier by declaring the value of media only and
not of the license fees/ royalty payable against the said
imports towards the reproduction and distribution rights.
2.3 Revenue was of the view that these amounts paid by
the appellants to the foreign production houses were to
be added to the assessable value and accordingly
5 C/130,131/2009
investigations were undertaken the appellants. As result
of investigations undertaken, two show cause notices
both dated 13.02.2008, were issued to the appellant, one
for the imports made through courier Federal Express
(India) Pvt Ltd and second for imports made through DHL
Express (India) Pvt Ltd.
2.4 Both the show cause notices have been adjudicated
by the Joint Commissioner as per the order in original
indicated in para 1.2, supra.
2.5 On appeal Commissioner (Appeal) has by the
impugned orders upheld the order of adjudicating
authority to the extent of rejecting the declared value and
enhancing the same. While upholding the order
confiscating the goods, he reduced the redemption fines
imposed as indicated above and also the penalties
imposed under Section 112(a) on the Customs Act, 1962.
2.6 Aggrieved by the impugned orders of Commissioner
(Appeal), appellants have preferred these appeals.
3.1 Challenging the impugned orders, appellant has in
his appeals, submitted that-
The Rule 10(1)(c) of Customs Valuation Rules
provide royalties and license fees should be
included in the transaction value if:
o License fees are related to the imported
goods; and
o The payment of license fees is a condition for
the sale of the imported goods.
The payments made by them were for the material
value (i.e. digi beta tapes in which the movie titles
are imported) and for rights in relation to post
importation activities such as reproduction or
distribution or re-sale in India.
In their understanding, in terms of interpretative
notes, payments made for reproduction, distribution
6 C/130,131/2009
or re-sale in India are not included in the value for
the purpose of customs duty payments.
In case of Narmada Gelatines Limited [2009 (233)
ELT 332 (T-Del)], it was held that impracticability in
maintaining separate account, question of
exercising option (for CENVAT utilization) based on
maintaining spate accounts is inconceivable, i.e.
levying 8% on sales price of exempted goods of the
exempted goods as per Rule 6 of CENVAT Credit
Rules, 2002). Thus by application of the same
principle, when determination of the value of
particular right from a entire contract value is
impractical, then levying the custom duty on the
entire contract value is unwarranted.
In case of Sony Music Entertainment P Ltd [2006
(189) ELT 227 (CESTAT)] Sony BMG Music
Entertainment (I) P Ltd. [2007 (218) ELT 699
(CESTAT)], it was held that royalty paid on CDs
manufactured or sold in India should not be added
to the value of the imported CD as it is not a
condition for import of CDs.
They had bonafide intentions and had offered to
deposit the disputed Customs duty on the royalty/
license fees paid by them.
The issue of inclusion of these charges in the
assessable value for payment of Customs duty, has
always been the contentious issue. The offer for
payment of disputed duty therefore is enough to
show their bonafide intentions.
Appreciating the complexities involved they had
deposited the duty under protest during the course
of investigation on 16.10.2007.
In view of the bonafide intentions the appellant had
throughout imposition of fines and penalties on
them cannot be sustained. They rely on the
decision in case of S S Gupta [2001 (132) ELT 41
(T)].
7 C/130,131/2009
4.1 We have heard Shri Prasad Paranjape, Advocate for
the Appellant and Ms Trupti Chavan, Assistant
Commissioner, Authorized Representative for the revenue.
4.2 Arguing for the appellant learned counsel while
reiterating the submissions made in the appeal stated
that-
The Digi Beta Tapes containing movies imported by
them, could not have been used for viewing. These
master tapes could only be used for the purpose of
replicating/ reproduction of the content on multiple
VCD/DVD, to be sold by them in India.
Under the agreement executed with the overseas
Licensors, the appellant were granted the copyright
in the form of receiving right to reproduce the
licensed contents.
Rule 10(1) (c) only applies in respect of royalties and
license fees related to the imported goods that buyer
pays as condition of sale of goods being imported.
In terms of interpretative note 10 to Rule 10(1)(c),
the charges for the right to reproduce imported
goods in the country of importation not includible
irrespective of whether such payment is condition of
sale or not. The condition of sale qualification applies
only when the payment is towards right to distribute
or resale the imported goods. Admittedly in the
present case, royalty/ license fee is payable for
receiving the right to reproduce i.e. to make
VCD/DVD from the content and therefore the same is
not includible in assessable value.
Issue has been decided by tribunal in case of
Saregama India Ltd [2017 (345) ELT 236 (T-Mum)].
They also rely on the "International Commentary on
the GATT Customs Valuation Code" By Saul L
Sherman at page 124, para 294 and page 139 para
356.
8 C/130,131/2009
European Commission has in its commentary
"Compendium of Customs Valuation Texts" has
clarified that the amounts paid by the buyers of the
audio visual programmes for receiving the
broadcasting rights should be regarded as equivalent
to payment for the right to reproduce and
consequently these amounts should not be taken
into account for determining the customs value.
They have already paid differential custom duty
along with interest during the course of investigation
in respect of license fee paid on all licensing
contracts.
Since the issue of valuation of Digi Beta Master
Tapes was prone to multiple interpretation where
certain judgements were in assessee's favour, no
fine and penalty could have been imposed on them
as held by the Bombay High Court in case of Star
Entertainment Pvt Ltd [2015 (329) ELT 50 (Bom)].
They also rely on the decision of the Supreme Court
in case of State Bank of India [2000 (1115) ELT 597
(SC)], wherein Hon'ble Apex Court held that the
rights received by the bank to use the imported
software at various locations across country is
nothing but right to reproduce and hence the same
should be excluded for the purpose of computing
assessable value.
4.3 Arguing on behalf of Revenue, learned Authorized
Representative while reiterating the findings in the order
submitted that-
Appellants contention that addition of license fee for
the "reproduction right", is specifically excluded from
the value in terms of interpretative note (1) to Rule
10(1)(c) was rejected by the Commissioner
(Appeal), as he found that payments were not made
for the right of reproduction. Since the agreement is
styled as distribution agreement, it would be
9 C/130,131/2009
governed by interpretative note (2) to Rule 10(1)(c).
Further this payment was a condition for sale and
hence the amount is to be included in the assessable
value.
Payments in the present case were made prior to
actual import of tangible goods and made as
condition of sale-
o For Bill of Entry No 45009 dated 27.01.2008
the payments were made in terms of "Outright
Distribution Agreement dated 05.09.2007 for
the movie "Highlander - The Search for
Vengance" with Neo Mad Intellectual Properties
Licensing BV. The total payment under this
agreement i.e. US$ 15,000/- out of which US$
7,500/- made on execution of the agreement
and balance US$ 7,500/- made on notice of
initial delivery. The entire amount is
attributable to only Cinematic Rights as is
evidenced from Part IIIC (Financial Terms of
Agreement)
o For Bill of Entry No 45371 dated 30.01.2008
the payments were made in terms of "Outright
Distribution Agreement dated 21.05.2007 for
the movie "Feast of Love" with Lakeshore
Entertainment Group LLC. The total payment
under this agreement i.e. US$ 18,000/- is
made on execution of the agreement. The
entire amount is paid prior to actual import of
Digi Beta Tapes. In case this payment was not
paid the initial delivery of movie on the
tangible media would not have materialized.
Thus from the contracts it is clear that the right
conferred for which this amount (license fees) is paid
is not a mere right to reproduce the imported goods.
The case of Saregama relied upon by the Appellants
is clearly distinguishable as the license fees was not
incumbent on manufacture and gross sales in India.
10 C/130,131/2009
Here the license fee/ amount was paid upfront for
import of digi beta tapes.
The issue is squarely covered by the decision of
Madras High Court in case of Indo Overseas Films
[2007 (210) ELT 348 (Mad)]
Reliance is also placed on the decision of Supreme
Court in case of Associated Cement Company [2001
(128) ELT 21 (SC)]
5.1 We have considered the impugned order along with
the submissions made in appeal, during the course of
arguments and in written submissions filed.
5.2 In the two appeals under consideration we are
concerned with the three imports made as indicated in
table below:
Bill of Entry Movie Value Licensor
No Date Declared Agreement
42778 13.01.08 "Lucky Rs 286 € 11,000 Kinowelt
Luke - International
Daisy GmBH
Town" &
"Lucky
Luke - The
Ballard of
Daltons"
45009 27.01.08 Highlander Rs US$ Neo-Mad
-The 12,386 15,000 House
search of Intellectual
vengeance Properties
Licensing B V
45371 30.01.08 Feast of Rs 243 US$ Lakeshore
Love 18,000 Entertainment
Group LLC
5.3 Rule 10(1) of the Customs Valuation (Determination
of Price of Imported Goods) Rules, 2007 and the
interpretative notes in respect of the said rules are
reproduced below:
10. Cost and services. -
(1) In determining the transaction value, there shall
be added to the price actually paid or payable for the
imported goods, -
(a) .....
(b) ........
11 C/130,131/2009
(c) royalties and licence fees related to the
imported goods that the buyer is required to pay, directly
or indirectly, as a condition of the sale of the goods being
valued, to the extent that such royalties and fees are not
included in the price actually paid or payable;
(d) The value of any part of the proceeds of any
subsequent resale, disposal or use of the imported goods
that accrues, directly or indirectly, to the seller;
(e) all other payments actually made or to be
made as a condition of sale of the imported goods, by the
buyer to the seller, or by the buyer to a third party to
satisfy an obligation of the seller to the extent that such
payments are not included in the price actually paid or
payable.
Explanation.- Where the royalty, licence fee or any other
payment for a process, whether patented or otherwise, is
includible referred to in clauses (c) and (e), such charges
shall be added to the price actually paid or payable for the
imported goods, notwithstanding the fact that such goods
may be subjected to the said process after importation of
such goods.
Interpretative Notes: Rule 10(l)(c)
1. The royalties and licence fees referred to in rule
10(l)(c) may include among other things, payments in
respect to patents, trademarks and copyrights.
However, the charges for the right to reproduce the
imported goods in the country of importation shall not
be added to the price actually paid or payable for the
imported goods in determining the customs value.
2. Payments made by the buyer for the right to
distribute or resell the imported goods shall not be
added to the price actually paid or payable for the
imported goods if such payments are not a condition
of the sale for export to the country of importation of
the imported goods.
12 C/130,131/2009
There can be no dispute about the fact that all the
payments made by the buyer to the seller as condition of
sale of goods except the payments towards right to
reproduce will form the part of the assessable value to be
determined for the purpose of payment of Customs duty.
The decisions relied upon by the both appellant and
revenue also lay down the same law.
5.4 To determine the nature of the payments made by
the appellant necessarily the contracts entered between
appellant and supplier/ licensor needs to be examined. The
relevant terms from the agreement/ contract are
reproduced below:
A. IFTA- International Outright Distribution
Agreement dated 5th September 2007 between the
Appellant and M/s Neo Mad House Intellectual
Properties Licensing B V. (Movie "Highlander -The
search of vengeance") :-
FINANCIAL TERMS
A. License Fee:
1. Base Currency: US$ 15,000 Gross Flat Sale
The Base Currency is the currency in which all
payments and recoupment's under this Agreement
are denominated and calculated. If not otherwise
indicated, the Base Currency in United State Dollars'
2. Amount Payable
Installment Payment Event Payment Method
% Amount W/T Other
50% US$ 7500 On execution of this Agreement
50% US$ 7500 On Notice of Initial Delivery
On Initial Delivery
On
On
3. Payment Method
WT-Wire Transfer: Distributor will pay the indicated
installments of the License Fee by wire transfer of
unencumbered funds, free of any transmission charges
to the following account:
13 C/130,131/2009
Beneficiary: Neo Mad House Intellectual Properties
Licensing B V.
Bank Name: ING Bank, Amsterdam
Account number: 02.00.32.285
Swift Code: INGBNL2A
B. Other Payments:
Material charges are amounts due Licensor for Delivery
Materials ("Material Charges"). Distributor will pay material
charges due Licensor for Delivery Materials as follows:
Distributor shall remit any material charges either to Imagi
Services (USA) Limited, directly to the Licensor approved
lab, or as otherwise directed by Licensor.
C. Location of License Fee
If no allocation is indicated below, then the entire License
Fee will be allocated to Cinematic Rights. Otherwise
License Fee will be allocated among the Licensed Rights as
follows:
Licensed Right License Fee Allocation
% Amount
Cinematic
Ancillary
Video
Pay Per View
Pay TV
Free TV
IFTATM International Outright Standard Terms"
3. Licensed Rights and Reserved Rights
3.2 Vesting: Each Licensed Right will only vest in
the Distributor after the following is met in
accordance with the Deal Terms: (1) Distributor
accepts Initial Delivery of the Picture; and (ii)
Distributor pays Licensor the entire License Fee.
B. Distribution Agreement dated 21st May 2007
between Appellant and Lakeshore Entertainment
Group LLC (Movie "Feast of Love")
5. Financial Terms:
14 C/130,131/2009
a) Guarantee: Eighteen Thousand U S Dollars (US$
18,000) ("Guarantee")
b) Payment Installments: The Guarantee is payable to
Licensor in the following installments:
100% (US$ 18,000) payable on execution of this
agreement.
c) Minimum Net Sum: The Guarantee and all payments
due to Licensor are minimum net sums and no
deduction of any kind may be made from them.
d) Vesting: Rights in the Picture shall not vest to
Distributor until Licensor's receipt of full payment of the
Guarantee and in accordance with the terms of this
Agreement.
e) Payment Method; All payments made under this
Agreement shall be made by wire transfer of cleared
funds to the account in Paragraph 5(f) below:
f) .......
g) Invoices: Invoices shall not be required for payments
to be made by Distributor under this agreement. In the
event that Licensor issues invoices Distributor hereby
agrees to accept service via e-mail of a pdf of the
invoice.
All invoices and notices are to be sent to the following
address: .....
h) Licensor contact details for invoices and notices: ......
13. Delivery:
a) Notice of Initial Delivery: Licensor shall notify
Distributor, when materials are available from which
technically acceptable release prints of the feature can be
manufactured ("Notice of Initial Delivery"). On receipt of
the Notice of Initial Delivery, Distributor shall promptly pay
any installment of the Guarantee then due and owing.
Procedure: Following payment of the Guarantee, Licensor
shall issue Distributor with a materials price list for the
materials which are available for the Picture. Distributor
15 C/130,131/2009
shall notify Licensor in writing of Distributor's delivery
requirements and shall concurrently pay for the costs of
such delivery items as specified in the materials/ price list
furnished to the Distributor. For the avoidance of doubt, no
materials will be supplied to Distributor prior to Licensor's
receipt of the Guarantee in full and no materials will be
supplied without Licensor having received payment for the
materials ordered."
C. International Standard Deal Memorandum
between Appellant and Kinowelt International GmBH
dated 4.09.2007
"6. Material: Licensor will deliver all material indicated
below at Distributor's cost. All material shall be considered
technically satisfactory for the manufacture of first class
print and exploitation material unless Distributor notifies
Licensor otherwise in writing within fourteen days after
delivery. Title to all materials delivered to Distributor or
created by Distributor (including but not limited to all
language tracks) shall at all times remain vested with
Licensor. Licensor shall at all times have free and
unimpeded access to these materials,
35mm to buy On loan
X Digital Betacam to buy X On loan
Betacam SP to buy On loan
X Artwork (if available) X to buy On loan
Certificate of Origin
X Music Cue Sheets
X Dialogue List
Other Material and Special Conditions; N/A
7. Guarantee: Distributor undertakes to pay a Flat
License Fee X Minimum Guarantee ("MG") of 7,000 €
(in words seven thousand Euro) for the TV Rights and
4,000 € (in words four thousand Euro) for the Home Video
Rights and becoming due and payable as follows:
X 50% = 5,500 € upon signature hereof
X 50% = 5,500 € upon notice of availability
%= upon delivery of initial material.
Other :
16 C/130,131/2009
Method of Payment X Telegraphic transfer into the
account at Sparkasse Leipzig (IBAN: 92 8605 5592/BLZ:
86055592/Account No 1100 51 1098 or other: N/A
The guarantee is a Minimum Net Sum and no other
charges may be deducted from it.
8. Disposition of Gross Receipts: Gross Receipts from
the distribution of the Picture (s) shall be calculated "at the
source" and shall be shared as follows:
Licensed Licensor Distributor Licensed Licensor Distributor
Rights Rights
Theatrical N/A % N/A % Free TV 50 % 50 %
(before
recoupment)
Theatrical N/A % N/A % Pay TV 50 % 50 %
(after
recoupment)
Non N/A % N/A % Pay Per 50 % 50 %
Theatrical View
Home Video N/A % N/A % Video on N/A % N/A %
Rental Demand
Home Video N/A % N/A %
Sell Through
Commercial N/A % N/A %
Video
Building/ % %
Kiosk/
Covermount
5.5 From the perusal of the terms as above from the
three agreements in terms of which the imported goods
have been procured by the appellants from the foreign
suppliers, we are of the view that the payments made by
the appellants are towards the distribution rights and are
clearly payable as condition of sale of the said goods. All
the three agreements clearly lay down that entire payment
of the 'License Fee" or "Guarantee" shall be made by the
Distributor to the licensor at the time of "Notice for Initial
Delivery", and only on the receipt of the entire payments,
the process of the supply of the initial materials in terms of
the said agreement shall commence. In view of
Interpretative Note 2 to Rule 10(1)(c), reproduced above
such amounts paid towards distribution rights are to be
included in the assessable value of the imported goods if
they are charged as condition of sale of the goods. In our
view to determine whether a particular payment made by
17 C/130,131/2009
the buyer to the seller is as a condition for sale of the said
goods, the relevant question to be answered is "Whether
this sale is possible without payment of the said amounts".
When we put the said question to ourselves in respect of
the transactions under consideration, the reply is obvious
from the terms of three agreement. Commissioner
(Appeal) has in para 8 of his order observed as follows:
"8. In respect of the Licence agreement the appellant
have not been able to
(i) Identify which licensed right pertains to the right
to reproduce; and
(ii) Give a breakup of the License fee attributable to
such right of reproduction.
8A. The rights under this agreement are more in the
nature of right of distribution. In fact in the agreement the
appellant is described as distributor. Therefore
Interpretative Note 2 to the Rule 10(1)(c) (and not the
interpretative Note 1) will have to be considered. However,
as analysed in the foregoing paragraph, the payment of
the fee/ royalty being a condition of sale of the pictures to
the appellant, this note is not attracted."
5.6 Tribunal has in case of Indo Overseas Films [2002
(139) ELT 729 (T)] held as follows:
"3. The facts of the case are that the appellants imported
feature films titled "Web of Silence - AIDS" in 35 mm print
of 2569 Mtrs along with one trailer in 35 mm of 35 Mtr
length and declared the value for the purpose of
assessment as US $ 1000 and US $ 20 respectively
totalling US $ 1020. It was noticed that the appellants paid
US $ 12,500 towards Royalty including one brand new
print and one Trailer (Rights of reproduction and
distribution for public performance for the territories of
India) - US $ 12,500/-. The appellants contended that in
terms of Rule 9(1)(c) of the Customs Valuation Rules 1988
it is obvious that the charges made for the right to
18 C/130,131/2009
reproduce the imported goods in the country of
importation are not to be added to the price paid or
payable for the imported goods and also payments made
by the buyer for the right to distribute or resell the
imported goods shall not be added to the price actually
paid or payable for the imported goods if such payments
are not a condition of sale for export to the country of
importation of the imported goods and in their case the
film remains exclusive property of M/s. Euro Film
International and what is assigned is the distribution rights
of the film and what is sold are new prints along with
trailers of the film and the lower authority has lost sight of
this distinction; that as per World Customs Organisation's
Ruling No. VG/33, dated 18-6-93 in connection with a
reference by Cyprus, it was held that the amounts paid for
the right to project Video Cassettes by television stations
are considered to be for the rights of reproduction as such
do not constitute elements includible in the customs value
of the imported video cassettes and in another ruling
relating to Finland Reference No. TVR 421, TH5/302/88,
dated 10-4-88, it was held that the fee to be paid to the
seller of film productions for the right to show the films to
the public in the country of importation is not to be
included in the transaction value since the right of public
performance is considered equal to the right of
reproduction. Appellants contend that in the light of the
above mentioned rulings of World Customs Organisation
and clear provisions of Rule 9(1)(c) of the Customs
Valuation Rules, 1988 and the interpretation note to the
above rules, there is no justification, whatsoever to include
the royalties paid for computing assessable value of the
films imported.
4. The lower authorities did not agree with their
contention in view of the fact that there was no split up
shown in the invoice with regard to royalty charges and
distribution charges for asking exclusion in terms of the
19 C/130,131/2009
note to rule. Although the Commissioner agreed with them
that the interpretative rules is acceptable, however, he has
held that since the agreement did not give any break-up of
the amount payable towards each of the rights of licensing
granted to them and as such exclusion of portion of the
total amount towards re-distribution charge is not feasible
in arriving at the conclusion. He has noted that the issue is
covered by the judgment of the Hon'ble Apex Court in the
case of M/s. Essar Gujarat Ltd. - 1996 (88) E.L.T. 609
(S.C.) and that of the CEGAT in TDT Copper Ltd. v. CCE,
New Delhi reported in 2000 (120) E.L.T. 265 (Tribunal).
The findings given by the Commissioner (Appeals) is
reproduced below :
"I have gone through the records of the case and the
submissions of the appellant carefully.
The issue boils down to includability of US $12500 under
Rule 9(1)(c) of the Valuation Rules. As per the Distribution
Agreement, the Licensor licenses exclusively to the
Distributor viz. the appellant the picture in the territory i.e.
India for the period upto December 31, 2002. Which
confers theatrical as well as home video and commercial
video rights. The payment of US $12500 covers licence
fees, one brand new print and one Brand new trailer. The
invoice for the import of the impugned goods shows
royalty including one brand new print and one Trailer
(Rights of re-production and distribution for public
performance for the territories of India) - $ 12,500 and
cost of movie material-$1,020.
Under Rule 9(1)(c) of the Valuation Rules, royalties and
licence fees related to the imported goods that the buyer is
required to pay directly or indirectly as a condition of sale
of the goods being valued to the extent such royalties and
fees are not included in the price actually paid or payable.
In the instant case, the appellant had to pay not only the
cost of movie materials but also the royalty for the rights
specified in the Distribution Agreement as a condition of
20 C/130,131/2009
sale, for, without the right of re-production and
distribution, the impugned goods viz. the print and the
trailer will not be of any use to the appellant at all to enjoy
the theatrical and video rights conferred on him.
The appellant relies upon the Interpretative Notes of Rule
9(1)(c) to argue that charges for the right to re-produce
the imported goods in the country of importation and
payment made for the right to distribute or re-sell the
imported goods shall not be added to the price actually
paid or payable. However, the Interpretative Notes provide
for non-inclusion of payment made for the right to re-
distribute only if such payment is not a condition of sale
for export to the country of importation of the imported
goods. The appellant's argument here that there is no sale
for export to the country of importation, in the instant
case, as the appellant had purchased the goods from M/s.
Lakshmi Pictures Ltd., London, who are not the makers of
the film and the makers of the film viz. M/s. Euro Film
International, Italy, have sold the distribution rights to the
supplier of the impugned goods and as such, there is no
sale for export to the country of importation etc., is
definitely not an acceptable argument. The sale is between
the appellant and M/s. Lakshmi Pictures Ltd., London. The
fact that M/s. Lakshmi Pictures Ltd. have obtained the
right to sell the film as well as the right of re-production
distribution etc., from the producer of the film will not
affect the transaction between the appellant and the
supplier, in the instant case. The fact is that not only the
cost of the materials imported but the right to use, re-
produce and distribute them have been collected from the
appellant by the supplier. The goods under import cannot
be used, re-produced or distributed without obtaining the
requisite right to do these operations under the
Distribution Agreement and the fact that these rights have
been paid for, would definitely make these charges
includable in terms of Rule 9(1)(c). The ratio of the
21 C/130,131/2009
honourable Apex Court's decision in the case of M/s. Essar
Gujarat Ltd., and that of the honourable CEGAT in TDT
Copper Ltd., v. CC, New Delhi [2000 (120) E.L.T. 265
(Trib.)] apply to the instant case. Though the appellant's
plea that the fee paid for re-production is not includible as
per the Interpretative Rules is acceptable, the agreement
does not give any break-up of the amount payable towards
each of the rights/licences granted to the appellant and as
such exclusion of a portion of the total amount towards
reproduction charges is not feasible.
In view of this, the decisions/opinions cited by the
appellant are not relevant and cannot come to his rescue.
Accordingly, the lower authority's order is maintainable
and the appeal is rejected."
5. Shri M. Murugappan, .....
6. Shri A. Jayachandran, .......
7. On consideration of the submissions made, we notice
that the aspect pertaining to includibility of "royalty
charges" cannot be disputed in view of the ruling rendered
by the Hon'ble Supreme Court and the Tribunal decision
noted above. The learned Counsel has made fervent
appeal for the exclusion clause of the interpretative rules
which according to him has been accepted by the
Commissioner (Appeals). The learned Counsel relied upon
the typed papers in the paper book which is said to be the
ruling of US and Finland export valuation book. The
authenticity of these is not proved. It does not have
persuasive value as in the case of HSN explanatory notes.
The Customs valuation rules require includibility of royalty
charges which has been paid in the present case in terms
of the invoice. Therefore, the burden of proof for seeking
exclusion of certain charges is on the appellants which has
not been discharged. Therefore, we do not find any
infirmity in the impugned order as the order has been
passed after verification of the invoice and agreement and
22 C/130,131/2009
in view of the non availability of split up charges, the
Commissioner's order is justified that the royalty charges
given in the invoice is required to be accepted in terms of
Rule 9(1)(c) of the Valuation Rules, 1988. Therefore there
is no merit in the appeal and the same is dismissed."
5.7 Affirming this order of Tribunal, Hon'ble Madras High
Court held as follows:
"5.The value of the imported goods for the purposes of
determination of the duty has to be arrived at in terms of
Section 14 of the Customs Act, which in turn provides for
determination of value in terms of the Customs Valuation
(Determination of Price of Imported Goods) Rules, 1988.
Rule 3 of the 1988 Rules provides for (i) the value of the
imported goods shall be the transaction value; (ii) if the
value cannot be determined under the provisions of clause
(i) above, the value shall be determined by proceeding
sequentially through Rules 5 to 8 of these Rules. Rule 4
provides that the transaction value of imported goods shall
be the price actually paid or payable for the goods when
sold for export to India, adjusted in accordance with the
provisions of Rule 9 of these Rules. Rule 9 refers to the
charges incurred for various types of services and
stipulates addition in respect of the same whether actually
paid or not. Rule 9(1)(c) provides that in determining the
transaction value, there shall be added to the price
actually paid or payable for the imported goods, - royalties
and licence fees related to the imported goods that the
buyer is required to pay, directly or indirectly, as a
condition of the sale of the goods being valued, to the
extent that such royalties and fees are not included in the
price actually paid or payable. Rules have interpretative
note and the interpretative note to Rule 9(1) is to the
effect that royalties and licence fees referred to in Rule
9(1)(c) may include among other things, payments in
respect to patents, trademarks and copyrights. However,
the charges for the right to reproduce the imported goods
23 C/130,131/2009
in the country of importation shall not be added to the
price actually paid or payable for the imported goods in
determining the customs value. It further provides that
payments made by the buyer for the right to distribute or
resell the imported goods shall not be added to the price
actually paid or payable for the imported goods if such
payments are not a condition of the sale for export to the
country of importation of the imported goods.
6.It could be seen from the invoice made available at page
No.3 of the typed set of papers that the petitioner has
imported the feature film - "Web of Silence - AIDS". The
cost of the materials, i.e., one 35 mm (2569 meters
length) is valued at 1000 US $ and in 35 mm of trailer (35
mm length) of the said film is 20 US $. So, the value of the
imported goods, i.e., feature film is 1020 US $. Apart from
that royalty including one new print and one trailer with
the right of reproduction and distribution of public
performance for the territories of India had been valued at
12500 US $. The payment of 1020 US $ for the print and
trailer and 12500 US $ towards royalty for exploitation of
the film is condition precedent in the importation. Though
the value has been splitted out as royalty and the cost of
materials, as per the agreement, the petitioner imported
the feature film for exploitation only and without
exploitation there is no purpose for importing the feature
film. On the other hand, the purpose of importation of the
film is only for exploitation. For the purpose of exploitation
the charges is stated to 12500 US $. As per Rule 19(1)(c)
the royalty and licence fee relating to the imported goods
that the buyer is required to pay, directly or indirectly, as a
condition of the sale of the goods being valued, to the
extent that such royalties and fees are not included in the
price actually paid or payable.
7.In the case on hand, the petitioner had to pay not only
the cost of movie materials, but also the royalty and the
rights specified in the distribution agreement as a condition
24 C/130,131/2009
of sale, as without the right of exploitation the print or
trailer could not be of any use to the petitioner to enjoy
theatrical or video right conferred on the petitioner. In the
light of the statutory provisions and peculiar facts and
circumstances of the present case and in the light of the
reasoning above stated, I do not find any substance in the
argument of the learned Counsel to the effect that 12500
US $ referable to as royalty cannot be included in the
valuation of the imported goods."
5.8 Hon'ble Supreme Court has in case of Tata
Consultancy Service vs State of Andhra Pradesh [2004
(178) ELT 22 (SC)], held as follows:
"20. In the case of Associated Cement Companies Ltd. v.
Commissioner of Customs reported in (2001) 4 SCC 593,
the question was whether customs duty was leviable on
technical material supplied in the form of drawings,
manuals and computer disc, etc. The further question was
if customs duty was leviable how it was to be valued. In
that case also it was inter alia argued that customs duty
could not be levied as the drawings, designs diskettes, etc.
were not goods and that they only constituted ideas. It
had been submitted that what was being transferred was
technology, i.e., the knowledge or know-how and thus,
even though this may be valuable, it was intangible
property and not goods. This Court noted Section 2(22) of
the Customs Act, which defined "goods" as follows :
"2.(22) (a) vessels, aircrafts and vehicles;
(b) stores;
(c) baggage;
(d) currency and negotiable instruments; and
(e) any other kind of movable property."
21. It is thus to be seen that under the Customs Act,
apart from what had been specified therein, any other kind
of movable property constituted goods. This Court held as
follows :
25 C/130,131/2009
"27. According to Section 12 of the Customs Act, duty is
payable on goods imported into India. The word "goods"
has been defined in Section 2(22) of the Customs Act and
it includes in clause (c) "baggage" and clause (e) "any
other kind of movable property". It is clear from a mere
reading of the said provision that any movable article
brought into India by a passenger as part of his baggage
can make him liable to pay customs duty as per the
Customs Tariff Act. An item which does not fall within
clause (a), (b), (c) or (d) of Section 2(22) will be regarded
as coming under Section 2(22)(e). Even though the
definition of the goods purports to be an inclusive one, in
effect it is so worded that all tangible moveable articles will
be the goods for the purposes of the Act by residuary
clause (e) of Section 2(22). Whether moveable article
comes as a part of a baggage, or is imported into the
country by any other manner, for the purpose of the
Customs Act, the provision of Section 12 would be
attracted. Any media whether in the form of books or
computer disks or cassettes which contain information
technology or ideas would necessarily be regarded as
goods under the aforesaid provisions of the Customs Act.
These items are moveable goods and would be covered by
Section 2(22)(e) of the Customs Act.
..........................................................................
33. It is true that what the appellants had wanted was technical advice on information technology. Payment was to be made for this intangible asset. But the moment the information or advice is put on a media, whether paper or diskettes or any other thing, that what is supplied becomes a chattel. It is in respect of the drawings, designs etc. which are received that payment is made to the foreign collaborators. It is these papers or diskettes etc. containing the technological advice, which are paid for and used. The foreign collaborators part with them in lieu of money. It is, therefore, sold by them as chattel for use by 26 C/130,131/2009 the Indian importer. The drawings, designs, manuals etc. so received are goods on which customs duty could be levied.
34. The decision of Winter v. Putnam case [938 F 2nd 1033 (9th Cir 1991)] is also of no help to the appellants as in that case it was the quality of information regarding mushrooms which was not regarded as a product even though the encyclopaedia containing the information was regarded as goods. Here we are not concerned with the quality of information given to the appellants. The question is whether the papers or diskettes etc. containing advice and/or information are goods for the purpose of the Customs Act. The answer, in our view, is in the affirmative.
.........................................................................
41. Significantly Chapter 49 also includes items which have substantial intellectual value as opposed to the value of the paper on which it is put. Newspapers, periodicals, journals, dictionaries etc. are to be found in Chapter 49 wherein maps, plans and other similar items are also included, while Chapter 97 talks about original engravings. It is clear that intellectual property when put on a media would be regarded as an article on the total value of which customs duty is payable.
42. To put it differently, the legislative intent can easily be gathered by reference to the Customs Valuation Rules and the specific entries in the Customs Tariff Act. The value of an encyclopedia or a dictionary or a magazine is not only the value of the paper. The value of the paper is in fact negligible as compared to the value or price of an encyclopedia. Therefore, the intellectual input in such items greatly enhances the value of the paper and ink in the aforesaid examples. This means that the charge of a duty is on the final product, whether it be the encyclopedia or the engineering or architectural drawings or any manual.
27 C/130,131/2009
43. Similar would be the position in the case of a programme of any kind loaded on a disc or a floppy. For example in the case of music the value of a popular music cassette is several times more than the value of a blank cassette. However, if a pre-recorded music cassette or a popular film or a musical score is imported into India duty will necessarily have to be charged on the value of the final product. In this behalf we may note that in State Bank of India v. Collector of Customs [(2000) 1 SCC 727 : (2000) 1 Scale 72] the Bank had, under an agreement with the foreign company, imported a computer software and manuals, the total value of which was US Dollars 4,084,475. The Bank filed an application for refund of customs duty on the ground that the basic cost of software was US Dollars 401.047. While the rest of the amount of US Dollars 3,683,428 was payable only as a licence fee for its right to use the software for the Bank countrywide. The claim for the refund of the customs duty paid on the aforesaid amount of US Dollars 3,683,428 was not accepted by this Court as in its opinion, on a correct interpretation of Section 14 read with the Rules, duty was payable on the transaction value determined therein, and as per Rule 9 in determining the transaction value there has to be added to the price actually paid or payable for the imported goods, royalties and the licence fee for which the buyer is required to pay, directly or indirectly, as a condition of sale of goods to the extent that such royalties and fees are not included in the price actually paid or payable. This clearly goes to show that when technical material is supplied whether in the form of drawings or manuals the same are goods liable to customs duty on the transaction value in respect thereof.
44. It is a misconception to contend that what is being taxed is intellectual input. What is being taxed under the Customs Act read with the Customs Tariff Act and the Customs Valuation Rules is not the input alone but goods 28 C/130,131/2009 whose value has been enhanced by the said inputs. The final product at the time of import is either the magazine or the encyclopaedia or the engineering drawings as the case may be. There is no scope for splitting the engineering drawing or the encyclopaedia into intellectual input on the one hand and the paper on which it is scribed on the other. For example, paintings are also to be taxed. Valuable paintings are worth millions. A painting or a portrait may be specially commissioned or an article may be tailor-made. This aspect is irrelevant since what is taxed is the final product as defined and it will be an absurdity to contend that the value for the purposes of duty ought to be the cost of the canvas and the oil paint even though the composite product, i.e., the painting, is worth millions.
45. It will be appropriate to note that the Customs Valuation Rules, 1988 are framed keeping in view the GATT protocol and the WTO agreement. In fact our rules appear to be an exact copy of GATT and WTO. For the purpose of valuation under the 1988 Rules the concept of "transaction value" which was introduced was based on the aforesaid GATT protocol and WTO agreement. The shift from the concept of price of goods, as was classically understood, is clearly discernible in the new principles. Transaction value may be entirely different from the classic concept of price of goods. Full meaning has to be given to the rules and the transaction value may include many items which may not classically have been understood to be part of the sale price.
46. The concept that it is only chattel sold as chattel, which can be regarded as goods, has no role to play in the present statutory scheme as we have already observed that the word "goods" as defined under the Customs Act has an inclusive definition taking within its ambit any movable property. The list of goods as prescribed by the law are different items mentioned in various chapters 29 C/130,131/2009 under the Customs Tariff Act, 1997 or 1999. Some of these items are clearly items containing intellectual property like designs, plans, etc.
47. In the case of St Albans City and District Council v. International Computers Ltd. [(1996) 4 All ER 481)]. Sir Ian Glidewell in relation to whether computer programme on a disc would be regarded as goods observed at p. 493 as follows :
"Suppose I buy an instruction manual on the maintenance and repair of a particular make of car. The instructions are wrong in an important respect. Anybody who follows them is likely to cause serious damage to the engine of his car. In my view, the instructions are an integral part of the manual. The manual including the instructions, whether in a book or a video cassette, would in my opinion be 'goods' within the meaning of the 1979 Act, and the defective instructions would result in a breach of the implied terms in Section 14.
If this is correct, I can see no logical reason why it should not also be correct in relation to a computer disc on to which a program designed and intended to instruct or enable a computer to achieve particular functions has been encoded. If the disc is sold or hired by the computer manufacturer, but the program is defective, in my opinion there would prima facie be a breach of the terms as to quality and fitness for purpose implied by the 1979 Act or the 1982 Act."
48. The above view, in our view, appears to be logical and also in consonance with the Customs Act. Similarly in Advent Systems Ltd. v. Unisys Corpn. [925 F 2d 670 (3d Cir 1991)] it was contended before the Court in the United States that software referred to in the agreement between the parties was a "product" and not a "good" but intellectual property outside the ambit of the Uniform Commercial Code. In the said Code, goods were defined as "all things (including specially manufactured goods) which 30 C/130,131/2009 are moveable at the time of the identification for sale". Holding that computer software was a "goods" the Court held as follows :
"Computer programs are the product of an intellectual process, but once implanted in a medium they are widely distributed to computer owners. An analogy can be drawn to a compact-disc recording of an orchestral rendition. The music is produced by the artistry of musicians and in itself is not a 'goods', but when transferred to a laser-readable disc it becomes a readily merchantable commodity. Similarly, when a professor delivers a lecture, it is not a goods, but, when transcribed as a book, it becomes a goods.
That a computer program may be copyrightable as intellectual property does not alter the fact that once in the form of a floppy disc or other medium, the program is tangible, moveable and available in the marketplace. The fact that some programs may be tailored for specific purposes need not alter their status as 'goods' because the Code definition includes 'specially manufactured goods'."
49. We are in agreement with the aforesaid observations and hold that the value of the goods imported would depend upon the quality of the same and would be represented by the transaction value in respect of the goods imported."
22. To be noted that this authority is directly dealing with the question in issue. Even though the definition of the term "goods" in the Customs Act is not as wide or exhaustive as the definition of the term "goods" in the said Act, it has still been held that the intellectual property when it is put on a media becomes goods. Mr. Sorabjee submitted that whilst referring to the case of St. Albans City and District Council v. International Computers Ltd. [1996 (4) All ER 481] this Court missed the express finding of that Court to the effect "clearly, a disk is within this definition. Equally clearly, a program, of itself, is not". Mr. 31 C/130,131/2009 Sorabjee submitted that the English case clearly holds that software programes are not goods. He further submitted that the observations of this Court in Associated Cements case (supra) are in the context of valuation of imported goods and must therefore not be taken into consideration whilst deciding whether software is intangible, incorporeal intellectual property. We are unable to accept this submission of Mr. Sorabjee. The observations have been made not just in the context of valuation but to decide whether the items imported were "goods". Question of valuation would come only if the items imported were "goods" on which customs duty could be levied.
23. In the case of Commissioner of Central Excise, Pondicherry v. M/s. Acer India Ltd, reported in JT 2004 (8) SC 53, this Court has considered in detail what a software programme is. After so considering, it has been held that a computer and operative software are different marketable commodities. This Judgment would also have been against the arguments canvassed by Mr. Sorabjee but for the fact that this Court has itself clarified as follows :
"86. We, however, place on record that we have not applied our mind as regard the larger question as to whether the informations contained in a software would be tangible personal property or not or whether preparation of such software would amount to manufacture under different statutes."
24. In our view, the term "goods" as used in Article 366(12) of the Constitution of India and as defined under the said Act are very wide and include all types of movable properties, whether those properties be tangible or intangible. We are in complete agreement with the observations made by this Court in Associated Cement Companies Ltd. (supra). A software programme may consist of various commands which enable the computer to perform a designated task. The copyright in that programme may remain with the originator of the 32 C/130,131/2009 programme. But the moment copies are made and marketed, it becomes goods, which are susceptible to sales tax. Even intellectual property, once it is put on to a media, whether it be in the form of books or canvas (in case of painting) or computer discs or cassettes, and marketed would become "goods". We see no difference between a sale of a software programme on a CD/floppy disc from a sale of music on a cassette/CD or a sale of a film on a video cassette/CD. In all such cases, the intellectual property has been incorporated on a media for purposes of transfer. Sale is not just of the media which by itself has very little value. The software and the media cannot be split up. What the buyer purchases and pays for is not the disc or the CD. As in the case of paintings or books or music or films the buyer is purchasing the intellectual property and not the media i.e. the paper or cassette or disc or CD. Thus a transaction sale of computer software is clearly a sale of "goods" within the meaning of the term as defined in the said Act. The term "all materials, articles and commodities" includes both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed etc. The software programmes have all these attributes."
In the concurring judgment, Hon'ble Justice S B Sinha, recorded as follows:
"71. 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, 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 regard leviability of the tax under a fiscal
33 C/130,131/2009 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 article to become goods is its marketability.
72. At this juncture, we may notice the meaning of canned software as under:
"(7) 'Canned ƒsoftware'„ 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."
[See STATE-CASE APP-CT,OH-TAXRPTR 402-978 Ohio Board of Tax Appeals, Aeroquip Cop. Page 9 of 12]
73. The software marketed by the Appellants herein indisputably is canned software and, thus, as would appear from the discussions made hereinbefore, would be exigible to sales tax.
34 C/130,131/2009
74. It is not in dispute that when a programme is created it is necessary to encode it, upload the same and thereafter unloaded. Indian law, as noticed by my learned Brother, Variava, J., does not make any distinction between tangible property and intangible property. A 'goods' may be a tangible property or an intangible one. It would become goods provided it has the attributes thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of transmitted, transferred, delivered, stored and possessed. If a software whether customized or non-customized satisfies these attributes, the same would be goods. Unlike the American Courts, Supreme Court of India have also not gone into the question of severability.
75. Recently, in Commnr. Of Central Excise, Pondicherry v. M/s. Acer India Ltd. [2004 (8) SCALE 169] this Court has held that operational software loaded in the hard disk does not lose its character as tangible goods.
76. If a canned software otherwise is 'goods', the Court cannot say it is not because it is an intellectual property which would tantamount to rewriting the judgment. In Madan Lal Fakirchand Dudhediya v. Shree Changdeo Sugar Mills Ltd. [(1962) Suppl. 3 SCR 973], this Court held that the court cannot rewrite the provisions of law which clearly is the function of the Legislature which interprets them."
5.9 In our view the issue of inclusion of the License Fee in terms of Distributor Agreement, had been settled by the Apex Court in the decision in case of Associated Cement Companies Ltd [2001 (128) ELT 21 (SC)] and Tata Consultancy Services referred above. Hence we do not find any merits in the submissions made by the Appellant that at the relevant time there was any confusion prevailing with regards to inclusion of such value. Hence by not including the value of the License Fee or Guarantee paid by them under the agreements referred above relating to import of the Digi Beta Cam, with the movies on them they 35 C/130,131/2009 have misdeclared the said goods in terms of the value and have rendered them liable for confiscation under Section 111(m) of Customs Act, 1962. Since the goods have been held liable for confiscation under Section 111, the appellant for their act of misdeclaration are liable to penalty in terms of Section 112(a) of the Customs Act,1962.
5.10 In table below, to highlight the quantum of misdeclaration the declared and assessed value (after including the License Fee/ Guarantee paid) is indicated.
Bill of Entry Movie Value 'Rs
No Date Declared Assessed
42778 13.01.08 "Lucky Luke - Daisy 286 649182
Town" & "Lucky Luke -
The Ballard of Daltons"
45009 27.01.08 Highlander -The 12,386 613840
search of vengeance
45371 30.01.08 Feast of Love 243 721990
Looking into quantum of misdeclaration, we find that the redemption fine imposed by the authorities below is just and reasonable.
5.10 Distinguishing the decision of Tribunal in case of Saregama relied upon by the appellant, and relying on the decision of Madras High Court as referred in para 5.7 above Tribunal has in case of GENX Entertainment Ltd {2018 (363) ELT 1021 (T-Mum)] held as follows:
9. The decision of the Tribunal in re Saregama India Ltd.
was rendered in a different context and set aside the attempts by Revenue to incorporate the cost of production of the films contained in beta tapes in the assessable value since such a proposition lacked logic. In that matter, there was no requirement for rejection of the declared value in the absence of any other allegations.
10. If the licence fee was intended as a consideration solely for the right to reproduce the contents in India or was payable on account of transfer of rights for distribution in India, it is only reasonable to infer that the payment would be linked to the earnings or to the number of 36 C/130,131/2009 targeted 'eyeballs'. We find from the contract that the royalties are related to the number of episodes. There is also no justification to conclude that the said royalty/licence fee may include consideration for reproduction or distribution rights. The Hon'ble High Court of Madras in Indo Overseas Films v. Union of India [2007 (210) E.L.T. 348 (Mad.)] by '6. It could be seen from the invoice made available at page No. 3 of the typed set of papers that the petitioner has imported the feature film - "Web of Silence - AIDS". The cost of the materials, i.e., one 35 mm (2569 meters length) is valued at 1000 US $ and in 35 mm of trailer (35 mm length) of the said film is 20 US $. So, the value of the imported goods, i. e., feature film is 1020 US $. Apart from that royalty including one new print and one trailer with the right of reproduction and distribution of public performance for the territories of India had been valued at 12500 US $. The payment of 1020 US $ for the print and trailer and 12500 US $ towards royalty for exploitation of the film is condition precedent in the importation. Though the value has been splitted out as royalty and the cost of materials, as per the agreement, the petitioner imported the feature film for exploitation only and without exploitation there is no purpose for importing the feature film. On the other hand, the purpose of importation of the film is only for exploitation. For the purpose of exploitation the charges is stated to 12500 US $. As per Rule 19(1)(c) the royalty and licence fee relating to the imported goods that the buyer is required to pay, directly or indirectly, as a condition of the sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable.
7. On consideration of the submissions made, we notice that the aspect pertaining to includibility of "royalty charges" cannot be disputed in view of the ruling rendered by the Hon'ble Supreme Court and the Tribunal decision 37 C/130,131/2009 noted above. The Learned Counsel has made fervent appeal for the exclusion clause of the interpretative rules which according to him has been accepted by the Commissioner (Appeals). The Learned Counsel relied upon the typed papers in the paper book which is said to be the ruling of US and Finland export valuation book. The authenticity of these is not proved. It does not have persuasive value as in the case of HSN explanatory notes. The Customs Valuation Rules require includibility of royalty charges which has been paid in the present case in terms of the invoice. Therefore, the burden of proof for seeking exclusion of certain charges is on the appellants which has not been discharged. Therefore, we do not find any infirmity in the impugned order as the order has been passed after verification of the invoice and agreement and in view of the non-availability of split up charges, the Commissioner's order is justified that the royalty charges given in the invoice is required to be accepted in terms of Rule 9(1)(c) of the Valuation Rules, 1988. Therefore there is no merit in the appeal and the same is dismissed.' affirmed the decision of the Tribunal that, in the absence of discharge of burden of proof for seeking exclusion from such part of the royalty, the entire royalty would have to be added to the assessable value. The enhancement of value must sustain.
11. The claim of the appellant for not invoking the extended period does not find much favour and the reliance placed on the decision of the Hon'ble High Court of Bombay in re Star Entertainment Pvt. Ltd. which noted the decision of the Hon'ble Supreme Court in Continental Foundation Joint Venture v. Commissioner of Central Excise, Chandigarh-I [2007 (216) E.L.T. 177 (S.C.)] that '10. The expression "suppression" has been used in the proviso to Section 11A of the Act accompanied by very strong words as 'fraud' or "collusion" and, therefore, has to be construed strictly. Mere omission to give correct 38 C/130,131/2009 information is not suppression of facts unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty. When the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression. When the Revenue invokes the extended period of limitation under Section 11A the burden is cast upon it to prove suppression of fact. An incorrect statement cannot be equated with a wilful misstatement. The latter implies making of an incorrect statement with the knowledge that the statement was not correct.
11. Factual position goes to show the Revenue relied on the circular dated 23-5-1997 and dated 19-12-1997. The circular dated 6-1-1998 is the one on which appellant places reliance. Undisputedly, CEGAT in Continental Foundation Joint Venture case (supra) was held to be not correct in a subsequent larger Bench judgment. It is, therefore, clear that there was scope for entertaining doubt about the view to be taken. The Tribunal apparently has not considered these aspects correctly. Contrary to the factual position, the CEGAT has held that no plea was taken about there being no intention to evade payment of duty as the same was to be reimbursed by the buyer. In fact such a plea was clearly taken. The factual scenario clearly goes to show that there was scope for entertaining doubt, and taking a particular stand which rules out application of Section 11A of the Act.' would not apply to the present set of facts and circumstances which are materially different."
In this decision, tribunal has rejected the arguments advanced by the appellant by relying upon the decision of Hon'ble Bombay High Court in case of Star Entertainment. Thus in view of this decision of tribunal we are not in position to agree with the submissions made by the appellants on merits or limitation. In view of the plethora 39 C/130,131/2009 of case law including that of Apex Court on the subject, we do not find any relevance of the submissions made by the appellants relying on the commentaries and compendium referred in their submissions.
6.1 In view of the discussions as above, both the appeals are dismissed.
(Order pronounced in the open court on 10.10.2019) (S.K. Mohanty) Member (Judicial) (Sanjiv Srivastava) Member (Technical) tvu