Customs, Excise and Gold Tribunal - Mumbai
Bhayanagar Metals Limited vs Commissioner Of Central Excise on 22 February, 2007
Equivalent citations: 2007(116)ECC170, 2007ECR170(TRI.-MUMBAI)
ORDER
Jyoti Balasundaram, Vice President
1. The brief facts of the case which are relevant for better appreciation of the dispute are that the appellants herein were awarded a contract to supply IFWT (Integrated Fixed Wireless Telephone) and FWT (Fixed Wireless Terminal) phones to Bharat Sanchar Nigam Limited (BSNL) / Mahanagar Telephone Nigam Limited (MTNL). Under the contract the appellants were to supply phones and also to render maintenance service for a period of five years which services include providing infrastructure compatibility wherever the phone is used. They were also required to provide the service of facility for upgradation of the phone's functions from 2g network to 3g network. They imported from M/s. L.G. Electronics, cellular phones, both IFWT and FWT. The phones were operated under the CDMA Technology. For imparting additional functions to the phones and for maintenance thereof, in the manner desired by BSNL / MTNL and in accordance with the terms and conditions of the contract for supply, the appellants could impart such functions as required for maintenance including upgradation by means of a support CD Rom supplied by L.G. Electronics. The software has to be transmitted /installed qua computer into the telephone and in the circumstances it was expedient that for each phone there should be a separate CD-Rom as it might be required to be supplied to the customers for imparting the functions on the telephone as and when such exigency arise. The appellants, therefore, imported CD-Roms as software and filed Bill of Entry for clearance. Prices were negotiated between the supplier and the appellants and the valves were fixed at US $ 68 and US $ 29 for telephones and CD-ROMs respectively. The department was of the view that the value of the CD-ROMs should form part of the telephone and accordingly a show cause notice was issued proposing to deny benefits of exemption in terms of serial No. 313 / 427 of table to Notification 21/2002-Cus as amended on the ground that such benefit was available only to cellular phones while the imported goods were other than cellular phones and proposing addition of value of the CD-ROMs to the value of the telephone. The notice was adjudicated by the Commissioner of Customs, who upheld the denial of the benefit of the exemption and also added the value of CD-ROMs to the value of the telephone. The importers preferred appeal No. C/463 of 2004 before the Tribunal which vide its order No. A-920/WZB/2004/C-II dated 24/08/2004 accepted the contention of the importers that the phones were cellular telephones as they work on cellular technology and also held that the CD-ROM was software and therefore an accessory and the value of the accessory to complete telephone cannot be added for the purpose of levy of duty at the rates applicable to the main telephone instrument.
2. The Tribunal's order was contested in appeal by the Revenue before the apex Court which vide its order dated 13/12/2005 in a batch of Civil Appeals, including Civil Appeal No. 7939 of 2004 where the present appellants was the respondent, inter alia held that the model LSP-340 (the model imported by the appellants herein) was covered by the phrase "cellular telephone" and eligible to the benefit of exemption in terms of the notification. The issue of valuation of goods imported by the respondents was remanded to the Tribunal. This is how the matter came to be heard by us today.
3. We have heard both sides.
4. The appellants have clearly explained that the telephone as imported can discharge its infrastructure function as voice telephone in a particular network and that the software is needed only in cases were there is any change of infrastructure or upgradation from 2g to 3g network. While 2g network cannot support SMS and MMS, 3g network supports SMS and MMS. In 2g network data transfer is lower in speed than that compared to 3g network, that the telephones imported are complete in themselves as has been accepted by the Commissioner as seen from para 18 of the impugned order wherein he has held that:
In regard to the issue as to whether the imported item has to be considered as a complete telephone or part of a telephone, I find that the telephone as imported has the essential character of a complete telephone.... Therefore, in terms of Rule 2(a) of the General Rules for the interpretation of tariff I hold that the imported items has to be considered as a complete telephone and not part of the telephone.
5. He has also accepted the contention of the appellants that the telephones imported by them are not identical to those imported by Reliance and Tata but similar to them. This is seen from para 19 of his order wherein he has noted that:
...Certain distinguishing features with regard to the operating network, speed of data transfer, absence of SMS and MMS etc., have been pointed in support of the claim that the import is different from the items imported by Reliance and Tata, prices for which have been relied upon in the show cause notices. I observe in this context that while the subject telephone has in-built software for supporting voice, the software for data transfer is also imported along with the telephone in a detached way, since this software for data transfer has to be different for different circles so as to make it compatible with the CDMA equipment of BSNL, the service provider who uses different networks like those of Lucent, LG, Hyundai, etc. It is also not in dispute that the telephones imported by Reliance and Tata have the inbuilt software supporting voice as well as data transfer since the telephones imported by Reliance and Tata use a particular dedicated network. I am therefore of the view that the imported item is not identical, but similar to the items relied upon in the show cause notice.
6. In spite of noticing the distinguishing features between the items imported by Reliance and Tata and the phones imported by the appellants, he has held that the value of the CDMA telephones imported by the appellants has necessarily to include the value of the software which has to be loaded for making the telephone operative. In other words on one hand the Commissioner accepts that the telephones imported by the appellants are complete telephones and not parts thereof, while on the other hand he finds that the software has to be loaded for making the telephone operative and therefore value of the software is required to be loaded to the value of the phones. Once he has concluded that the telephone instrument is a complete telephone, he ought to have held that the software was only an accessory to the phone. Further, particularly the software is not required for voice communication which is the essential function of the telephone, but is used for downloading of any application software.
7. The value of an accessory cannot be added to the complete instrument in the light of the well settled legal position as reflected in the apex Court judgment in the case of CCE, Pondichery v. Acer India Ltd. which has been followed by the Tribunal in the case of Commissioner of Customs, Mumbai v. Hewlett Packard India Ltd. and Micro Village Communications Pvt. Ltd. v. Commissioner of Customs, Chennai holding that value of operating software is not includable in the assessable value of the complete computer loaded with such software.
8. In the light of the above discussion inclusion of the value of the software in the value of the telephones imported by the appellants herein cannot be sustained and we accordingly set aside the same.
9. In the result the appeal is allowed.
(Pronounced in Court on 22/02/2007)