Custom, Excise & Service Tax Tribunal
Govind Rammurthy vs Cce Mumbai - I on 15 February, 2023
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, MUMBAI
REGIONAL BENCH
Excise Appeal No. 85044 of 2013
(Arising out of Order-in-Appeal No. BR/328-329/MI/2012 dated 25.09.2012
passed by the Commissioner of Central Excise (Appeals), Mumbai Zone-I)
M/s. Microworld Software Services Pvt. Ltd. Appellant
Plot No.80, Road No.15, MIDC, Marol,
Andheri (E), Mumbai 400 093.
Vs.
Commissioner of Central Excise, Mumbai-I Respondent
115, New Central Excise Building, M.K. Road, Churchgate, Mumbai 400 020.
AND Excise Appeal No. 85045 of 2013 (Arising out of Order-in-Appeal No. BR/328-329/MI/2012 dated 25.09.2012 passed by the Commissioner of Central Excise (Appeals), Mumbai Zone-I) Govind Rammurthy Appellant Managing Director of Microworld Software Services Pvt. Ltd., Plot No.80, Road No.15, MIDC, Marol, Andheri (E), Mumbai 400 093.
Vs. Commissioner of Central Excise, Mumbai-I Respondent 115, New Central Excise Building, M.K. Road, Churchgate, Mumbai 400 020.
Appearance:
Shri Rajesh Ostwal with Shri Saurabh Bhise, Advocates, for the Appellant Shri Amrendra Kumar Jha, Deputy Commissioner, Authorised Representative for the Respondent CORAM:
HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) HON'BLE DR. SUVENDU KUMAR PATI, MEMBER (JUDICIAL) Date of Hearing: 15.02.2023 Date of Decision: 15.02.2023 FINAL ORDER NO. 85752-85753/2023 PER: SANJIV SRIVASTAVA These appeals are directed against the order in appeal No BR/328-329/MI/2012 dated 25.09.2012/28.09.2012 of the
2 E/85044,85045/2013 Commissioner (Appeals) Central Excise, Mumbai -I. By the impugned order following has been held:
"I uphold the impugned order with modification that since the appellant No 1 had already paid Rs 9,09,647/-, the same is appropriated against the confirmed demand. Both the appeals are rejected."
1.2 Original Authority has by his order held as follows:
"ORDER
69. In view of the above discussion and findings, I pass, the following order.
After allowing the benefit of Cum duty price, I confirm the demand of Central Excise Duty amounting to Rs.35,40,853/- (Rupees Thirty Five Lakhs Forty Thousand Eight Hundred Fifty Three only), Education Cess amounting to Rs.70,817/- (Rupees Seventy Thousand Eight Hundred Seventeen), and Higher Secondary Education Cess amounting to Rs.26.915/- (Rupees Twenty Six Thousand Nine Hundred Fifteen only) payable by them being Central Excise Duty, not paid on goods, as detailed in Annexure 'A' to the Show Cause Cum Demand Notice, the packaged software, internet download sales, as classifiable under tariff item 8524 31 11 (as amended) manufactured and cleared by them during the period April - 2006 to November, 2008, under proviso to Section 11 A (1) of Central Excise Act, 1944, and order for recovery of the amount from M/s. Microworld Software Services Pvt. Ltd., Mumbai - 400 093.
I confirm and order recovery of interest at appropriate rate, from M/s. Microworld Software Services Pvt. Ltd., Mumbai - 400 093, under Section 11 AB of Central Excise Act - 1944.
I impose penalty of Rs.36,38,585/- (Rupees Thirty Six Lakhs Thirty Eight Thousand Five Hundred Eighty Five only) on M/s. Microworld Software Services Pvt. Ltd., Mumbai - 400 093, under provisions of Section 11 AC of the Central Excise Act 1944.
Further, I impose a penalty of Rs.1,00,000/- (Rupees_One lakh only) on Shri Govind Rammurthy, Managing Director of M/s.
Microworld Software Services Pvt. Ltd., Mumbai - 93, under Rule 26 of the Central Excise Rules-2002."
3 E/85044,85045/2013 2.1 The appellants are engaged in the manufacture and sale of packaged information technology software on media like CD- ROM or Disc. Till 1.3.2006, information technology software recorded on media was exempted from Central Excise duty. With effect from 1.3.2006, such information technology software recorded on CD-ROM or disc or any other media was classifiable under Tariff Item 8524 91 12 of the First Schedule to the Central Excise Tariff Act, 1985 (Central Excise Tariff for short) and basic excise duty @ 8% adv. was levied. With effect from 01.01.2007, the aforesaid Tariff Item No. was changed to 8523 80 20 which covered information technology software recorded on any media and attracted central excise duty @ 8% adv.
2.2 Appellants paid Central excise duty at applicable rate on packaged software sold in CD-ROM or disc after availing small scale exemption in terms of Notification No. 8/2003-CE dated 1.3.2003, as amended by Notification No. 8/2006-CE dated 1.3.2006.
2.3 Revenue authorities were of the view that the software sales made electronically through internet download were also goods since sales tax on software sold through internet download was discharged by the appellants. It was alleged that the software sold through internet was packaged software and not customized software and therefore, benefit in terms of Notification No.6/2006-CE dated 1.3.2006 was not available. A show cause notice dated 17.11.2009 was issued to the appellant 2.4 The show cause notice was adjudicated by the original authority as per the order in original referred in para 1.2 above. Appeal filed by the appellants was dismissed by the Commissioner (Appeal) as per the impugned order hence this appeal.
3.1 We have heard Shri Rajesh Ostwal with Shri Saurabh Bhise, Advocates for the Appellants and Shri Amrendra Kumar Jha Deputy Commissioner, authorized representative for the revenue.
3.2 Arguing for the appellants learned counsel submits:
The software downloads are not excisable goods covered under Section 2(d) of the Central Excise Act, 1944 and hence are not
4 E/85044,85045/2013 liable to levy of Central Excise duty under Section 3 of the Central Excise Act.
The Finance Minister's speeches while introducing Budget 2006- 07 and Budget 2008-09 support the above submissions.
When software is downloaded from / through internet, there is general consensus that none of the provisions of Customs Act and Central Excise Act shall apply.
Payment of Sales Tax on software supplied electronically does not automatically mean that excise duty is liable to be paid.
Denial of SSI exemption under Notification No.8/2003-CE is incorrect.
The appellants are not liable to pay excise duty on ESD in Nepal.
Majority of demand is barred by limitation.
Imposition of penalty is incorrect.
Penalty on the Appellant 2 cannot be justified.
The impugned Order is, therefore, incorrect and liable to be set aside.
3.3 Learned authorized representative reiterates the findings recorded in the impugned order.
4.1 We have considered the impugned order along with the submissions made in appeal and during the course of arguments.
4.2 Impugned order records following findings:
"(5) Present issue to be decided in this case is whether the appellant is required to pay Central Excise duty on the software supplied electronically or the software allowed by them to be downloaded by their customers through internet etc., for a consideration.
(6) Appellants were manufacturing and selling "Information Technology Software" falling under Chapter Heading No. 85.23 (prior to 01.03.2007 under Chapter Heading No. 85.24) of the Central Excise Tariff Act, 1985. They were paying Central Excise duty only on the "Software" recorded and sold in 'Disc', 'CD-
ROM' etc. In addition to the same they were also selling these "Software" through 'Internet', for a consideration, which were neither declared in the monthly returned filed in the Form ER-1 5 E/85044,85045/2013 nor paid any Central Excise duty. The facts about such non- declaration and non-payment came to the notice of the Department only when the jurisdictional Central Excise officers carried out an inquiry and investigation in the matter. The appellants were availing small scale exemption under Notification No. 8/2003-CE dated 01.03.2003 as amended. They did not include the value of these "Software" while computing the exemption limit specified therein. The main reason for nonpayment of duty etc. as per the appellants is that the software downloads are not excisable goods covered under Section 2 (d) of the Central Excise Act, 1944 and hence are not liable to Central Excise duty; that even if duty is payable they are entitled for exemption under Sr. No. 27 of the Notification No. 6/2006 dated 01.03.2006 as amended and that as per Finance Minister's Budget speeches of 2006-07 and 2008-09 these are covered under "Information Technology Software Service" on which Service Tax is leviable and payable from 2008 onwards. The period involved in the Show Cause Notice is from April, 2006 to November, 2008 and the Notice was issued on 17.11.2009.
(7) It is observed that "Information Technology Software Service" is covered under Service Tax under Finance Act, 1994 only with effect from 16.05.2008 and the Service Tax is payable on them as per law. During the course of investigation the appellant had stated that they were holding Service Tax registration and paying Service Tax only from 16.05.2008. It means that for the period prior to this the appellants had not paid any Service Tax on software downloads for the simple reason that no Service Tax is payable on them. It is not under dispute that "Information Technology Software" are covered under Chapter Heading No. 85.23 (prior to 01.03.2007 under Chapter Heading No. 85.24) of the Central Excise Tariff Act, 1985 from 2005 and Central Excise duty is payable on them except if the same were exempted under any particular Notification. Sr. No. 27 of the Notification No. 6/2006 dated 01.03.2006 reads as under:
27. 8524 Any customized software (that is to say, any custom designed software, developed for a specific user or client), other 6 E/85044,85045/2013 than packaged software or canned software, Explanation. For the purposes of this entry, "packaged software or canned software"
means a software developed to meet the needs of variety of users, and which is intended for sale or capable of being sold, off the shelf Nil It is not under dispute that the "Software" sold through Internet download as per the admission of the appellant themselves is not customized software and therefore, their product is not covered under this heading of the exemption Notification. The products of the appellant are not exempted at the material time under any other Notification. There is no dispute that "Software"
is a 'goods', since "Software" was capable of abstraction, consumption, use, transmission, transfer, delivery, storage, possession etc. Hon'ble Supreme Court in the case of Tata Consultancy Services vs State of Andhra Pradesh 2004 (178) ELT 0022 S.C. had specifically held that "Since software was capable of abstraction, consumption, use, transmission, transfer, delivery, storage, possession etc., it was included as 'material, articles and commodities' in definition of 'goods' in Section 2(h) of Andhra Pradesh General Sales Tax Act, 1957 and, accordingly its sale by licensee was liable to sales tax Plea that software was not tangible movable property and hence not goods rejected". (Emphasis Supplied) "Information Technology Software Service" is covered under Service Tax under Finance Act, 1994 only with effect from 16.05.2008 and the Service Tax is payable on them from 16.05.2008, whereas, "Information Technology Software" is covered under Chapter Heading No. 85.23 (prior to 01.03.2007 under Chapter Heading No. 85.24) of the Central Excise Tariff Act, 1985 from 01.03.2005. The definition of "Information Technology Software" under both the said Act, are same. Therefore, their cannot be any dispute about the Central Excise dutiability of "Software", in whatever form it is sold from 01.03.2005 and that these are goods. It is observed that the appellant themselves were also paying CST, VAT on the "Software", that were also sold through Internet downloads. Their cannot be any dispute that these are 'goods'.
7 E/85044,85045/2013 (8) Section 2 (d) of the Central Excise Act, 1944 defines 'excisable goods' as "(d) "excisable goods" means goods specified in [[the First Schedule and the Second Schedule] to the Central Excise Tariff Act, 1985 (5 of 1986)] as being subject to a duty of excise and includes salt; ?
[Explanation. For the purposes of this clause, "goods" includes any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable".
It is quite clear from the above definition that 'excisable goods' includes any article, material or substance which is capable of being bought and sold for a consideration. Therefore, to consider any goods as 'excisable goods' it can be any article, material or substance and it should be capable of being bought and sold for a consideration. The "Information Technology Software" is specifically covered under Chapter Heading No. 85.23 (prior to 01.03.2007 under Chapter Heading No. 85.24) of the Central Excise Tariff Act, 1985 from 01.03.2005. The "Software" will not cease to be 'goods' if sold or purchased through Data Communication and Tele-communication Link/Internet etc. (9) CBEC vide Circular No. 58/2000-Cus., dated 10-7-2000, issued under F. No. 305/60/99- FTT on the subject "Import of Software through Data Communication and Tele-communication Link/Internet by Software Development Units in EPZ/EHTP/STP and the EOUS engaged in Development and Export of Software" clarified that -
"2. The matter has been considered. In view of the RBI's decision to allow remittances of money for such imports, it has been decided that EOUS engaged in development and export of software and software developing units operating under EPZ/EHTP/STP scheme will be allowed to import software through data- communication/telecommunication link and internet. Considering that such imports would not be available for physical verification, proper accountal of such imports in the records maintained by the unit and regular verification of such records by Customs are considered necessary. Accordingly, the 8 E/85044,85045/2013 following procedure is required to be followed by the units importing software through data communication/telecommunication link or internet -
(i) to (iii) ....
(iv) the unit shall file Bill of Entry alongwith certificate from Director STPL/Development Commissioner and Bank attested invoice alongwith other relevant documents within 48 hours of import to the jurisdictional Assistant Commissioner or Deputy Commissioner of Customs or Central Excise for obtaining notional "out of charge." (Emphasis Supplied) The above aspect clearly substantiates that even the 'Software"
imported through data- communication/telecommunication link and internet are not different from the "Software" imported in the form of 'Disc', CD-ROM' etc. (10)(a) "Section 65 (53a) of the Finance Act, 1994 states that:
"information technology software" means any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of a computer or an automatic data processing machine or any other device or equipment".
"Section (105) of the said Act, defines "taxable service" means any service provided or to be provided. Section (105) (zzzze) states as under:
(zzzze) to any person, by any other person in relation to information technology software [* *] including, development of information technology software,
(ii) study, analysis, design and programming of information technology software,
(iii) adaptation, upgradation, enhancement, implementation and other similar services related to information technology software,
(iv) providing advice, consultancy and assistance on matters related to information technology software, including conducting feasibility studies on implementation of a system, specifications for a database design, guidance and assistance during the start-
9 E/85044,85045/2013 up phase of a new system, specifications to secure a database, advice on proprietary information technology software,
(v) [providing] the right to use information technology software for commercial exploitation including right to reproduce, distribute and sell information technology software and right to use software components for the creation of and inclusion in other information technology software products,
(vi) [providing] the right to use information technology software supplied electronically".
(b) CBEC vide Instructions issued under F. No. 354/189/2009- TRU dated 04.11.2009 on the subject "Applicability of indirect taxes on packaged software - Regarding" clarified that
(c) "The undersigned is directed to state that 'Packaged Software' is a type of IT software which caters to the needs of a variety of users and is capable of being used for variety of hardwares. IT software is fully exempt from basic customs duty being covered under Information Technology Agreement. So far as excise duty/CVD is concerned, while customised software is fully exempt, the packaged software attracts duty @ 8%.
3. Normally, cost of a software supplied in a media consists of two cost components, namely,-
a. the cost of the actual software, i.e. set of information which is placed on a media; and b. the cost of the Intellectual Property Right (IPR) relating thereto.
4. In 2008 budget, the IPR portion of the cost of software was brought under the service tax net under a new taxable service IT Software Service' (ITSS). As per the definition, a service provided in relation to IT software for use in the course, or furtherance, of business or commerce was covered under this taxable service. In specifics, the taxable service included, -
(v) providing the right to use information technology software for commercial exploitation including right, to reproduce, distribute and sell information technology software and right to use software components for the creation of and inclusion in other information technology software products, 10 E/85044,85045/2013
(vi) providing the right to use information technology software supplied electronically and the term 'service provider' shall be construed accordingly.
5. In their pre-budget representations for the 2009 budget, the IT companies and their associations represented that if such IT software is imported, it is likely to be subjected to double taxation. While for calculating additional duty, the value of 'right to use supplied alongwith the software would be included (as per the provisions of the Customs Valuation Rules) by the Customs authorities, the service tax authorities would charge service tax on the same value (i.e. on right to use) considering it to be import of ITSS.
6. Accepting their plea, in Budget 2009, two parallel notifications were issued on the excise and customs side. Vide notification no. 22/2009-C.E., dated 7-7- 2009, partial exemption from excise duty was provided to packaged or canned software on that portion of the value which represents the consideration for the transfer of the right to use for commercial exploitation, as on this portion, service tax would be leviable under the ITSS. Similar exemption from CVD was provided vide notification No:
80/2009-Customs dated 7-7-2009 on such software. These exemptions were notified to ensure that while importing or manufacturing packaged software, the importer/manufacturer is spared from paying customs duty/excise duty on the value attributable to transfer of 'right to use'.
CBEC vide its 'Circular No. 15/2011-Cus., dated 18-3-2011 issued under F. No. 354/189/2009-TRU on the subject "Applicability of indirect taxes on packaged software Regarding"
clarified that "In the context of assessment of pre-packaged software imports, kind attention is also drawn to Notification No. 30/2010-Central Excise (N.T.) dated 21st December, 2010 by which all such packaged software or canned software were brought under the purview of assessment based on retail sale price, as also Notification No. 25/2011-Cus., dated 1-3-11 and Notification No. 14/2011-C.E., dated 1-3-11, whereby in case of such packaged software which does not require affixation of Retail Sale Price (RSP), exemption has been provided, from payment of Excise 11 E/85044,85045/2013 duty/CVD, on the portion of value representing consideration for transfer of right to use such packaged/canned software. These exemptions have been issued in order to rule out taxation of this portion of the value twice-once as Excise duty/Additional duty of Customs and another time as Service Tax on the consideration that all package software is not sold as shrink wrapped software and that affixation of retail sale price is not required for certain categories viz. (i) software on optical media supplied free of charge, for which right to use or license is purchased separately;
(ii) full pack -packaged software with limited validity, not for resale and generally imported for demonstrations or for OEMs;
(iii) up-grade full pack-packaged software-supplied free of charge under annual maintenance/subscription/software assurance contract; and (iv) up-dates for packaged software-
supplied free of charge under annual maintenance/subscription/ software assurance contract etc.
5. Accordingly, all packaged/canned software imported in shrink wrapped packages, will attract Excise duty/CVD on such retail sale price declared being the combined value of the software and the licenses (right to use). Such software will, however, be exempt from payment of service tax under the category ITSS (as provided in Notification No. 53/2010-S.T. dated 21st December 2010). On the other hand, such packaged/canned software, on which affixation of retail sale price is not required under the relevant provisions for the packaged commodities, and the assessment is based therefore, on the value determined under section 4 of the Central Excise Act, 1944, the excise duty/CVD will be charged only on the value, excluding the value representing consideration for transfer of right to use such packaged/canned software. However, service tax under the category ITSS would be levied on such portion subsequently". (Emphasis Supplied).
(11) It is crystal clear from the above that the "Information Technology Software Service" is covered under Service Tax under Finance Act, 1994 only with effect from 16.05.2008 and the Service Tax is payable on them from 16.05.2008, whereas, "Information Technology Software" is covered under Chapter Heading No. 85.23 (prior to 01.03.2007 under Chapter Heading 12 E/85044,85045/2013 No. 85.24) of the Central excise Tariff Act, 1985 from 01.03.2005. The definition of "Information Technology Software"
under both the said Act, are sanie. There cannot be any dispute about the payment of Central Excise duty on the said "Information Technology Software" in whatever form it is sold even through electronic media for downloading it through Internet or any other source or method prior to 16.05.2008. The dispute arises only during the period 16.05.2008 to 21.12.2010 about the value on which Central Excise duty is required to be paid and the value on which the Service Tax is required to be paid. From 21.12.2010, the product is covered under Section 4A of the Central Excise Act, 1944 for payment of Central Excise duty. Two components are involved in the value of "Information Technology Software".
(a) the cost of the actual software, i.e. set of information which is placed on a media; and the cost of the Intellectual Property Right (IPR) relating thereto.
(b) The major part of the value is for the "Software" and not for the 'Disc' or 'CD-ROM' or any other media through which it is supplied. "Software" supplied through any other means, other than 'Disc' or 'CD-ROM' etc. will continue to remain and considered as "Software". In 2008 budget, the IPR portion of the cost of software was brought under the service tax net under a new taxable service 'IT Software Service' (ITSS) (with effect from 16.05.2008). Prior to 16.05.2008 Central Excise duty is required to be paid on the entire value of the "Information Technology Software". There can be no dispute about it. From 21.12.2010 also on the basis of MRP Central Excise duty is required to be paid. Suitable exemption Notification has been issued from time to time both for payment of Central Excise duty as well as Service Tax by granting exemption from the part of value on which is Central Excise duty or Service Tax is paid as the case may be to avoid double Taxation. Therefore, their cannot be any dispute about on what value of the "Information Technology Software" the payment of Central Excise duty and Service Tax is required to be paid. The exemption Notifications issued in this regard is required to be taken into consideration.
But all these happen only with effect from 16.05.2008 to 13 E/85044,85045/2013 21.12.2010 and in restricted case as specified from 21.12.2010 onwards. Prior to 16.05.2008 on the entire value of the "Information Technology Software" Central Excise duty is required to be paid and from 21.12.2010 based on MRP. In the present case the dispute is restricted for the period 16.05.2008 to November, 2008 only on this account. The assessment for this short period is required to be made on the value determined under section 4 of the Central Excise Act, 1944, for the payment of Central Excise duty. Since in the present case there is no bifurcation of the value representing consideration for transfer of right to use such packaged/canned software, Central Excise duty is required to be paid on the entire value.
(12) Hon'ble Supreme Court in the case of Indian Oil Corporation Ltd. vs Commissioner of C. Ex., Vadodara 2012 (276) ELT 0145 S.C. had specifically held that:
"6. The question whether it was enough to prove to the satisfaction of the Central Excise Officer that the goods are for the intended use specified in the notification of exemption or whether in addition the procedure laid down in Rule 192 of Chapter X of the Rules was also to be complied with for availing concession under the exemption notification was raised before this Court in Thermax Private Limited v. The Collector of Customs (Bombay), New Customs House [1992 (61) E.L.T. 352 (S.C.) = (1990) 4 SCC 440] and a two-Judge Bench of this Court held that the possession of a license or production of a C-2 certificate as provided in Rule 192 of Chapter X of the Rules enables the applicant to secure the necessary concession and that the entitlement to the concession will depend on whether the purchaser is the holder of a L-6 license (or C-2 certificate) or not. These observations made in Thermax Private Limited v. The Collector of Customs (Bombay), New Customs House (supra) were held by a two-Judge Bench of this Court in Collector of Customs, Bombay v. J.K. Synthetics Limited [1996 (87) E.L.T. 582 (S.C.) = (1997) 10 SCC 224] as not laying down principle and held to be limited to eligibility for concession under Rule 192 of the Rules. In the aforesaid decision in the case of Collector of Customs, Bombay v. J.K. Synthetic Limited (supra) this Court took the view that where there was evidence on record that 14 E/85044,85045/2013 show the intended use of the material, the benefit of exemption could be granted. In a subsequent decision in the case of Collector of Central Excise, Jaipur v. J.K. Synthetics [2000 (120) E.L.T. 54 (S.C.) = (2000) 10 SCC 393] a three-Judge Bench of this Court took the view that if there was substantial compliance of the procedure laid down in Chapter X of the Rules, exemption could be granted. In the case of Commissioner of Central Excise, New Delhi v. Hari Chand Shri Gopal [2010 (260) E.L.T. 3 (S.C.) = (2011) 1 SCC 236] a Constitution Bench of this Court considered the decisions of this Court in Thermax Private Limited v. The Collector of Customs (Bombay), New Customs House (supra) and Collector of Central Excise, Jaipur v. J.K. Synthetics (supra) and held that a provision for exemption, concession or exception, as the case may be, has to be construed strictly and if the exemption is available only on complying certain conditions, the conditions have to be complied with. In the aforesaid decision, the Constitution Bench further held that detailed procedures have been laid down in Chapter X of the Rules so as to curb the diversion and utilization of goods which are otherwise excisable and the plea of substantial compliance or intended use therefore has to be rejected.
7. When we strictly construe the exemption notification in this case, we find that the proviso in the exemption notification reads as under:
Provided that where any such exemption is subject to the intended use, the exemption in such case shall be subject to the following conditions namely:-
(i) That it is proved to the satisfaction of an officer not below the rank of the Assistant Collector of Central Excise that such goods are used for the intended use specified in Column (5) of the said Table; and
(ii) Where such use is elsewhere than in the factory of production, the procedure set out in Chapter X of the Central Excise Rules, 1944, is followed.
Thus, the proviso makes it clear that for availing the exemption two conditions must be satisfied: First, that it is proved to the satisfaction of the excise officer that the goods are used for 15 E/85044,85045/2013 intended use specified in Column (5) of the Table annexed to the exemption notification and second, where such use is elsewhere than in the factory of production, the procedure set out in Chapter X of the Rules is followed. We cannot, therefore, accept the contention of the learned counsel of the appellant that if the first condition is satisfied, i... it is proved to the satisfaction of the Central Excise officer that the goods are used for the intended use, the exemption has to be granted. In our considered opinion, unless the second condition is also satisfied, i.e. the procedure set out in Chapter X of the Rules is followed where the use of the goods is elsewhere than in the factory of production, the exemption cannot be granted under the exemption notification".
It is clear from the above judgment that in the present case the appellant had not followed substantial conditions specified in the notification.
(13) In view of the above findings and judgment, I am of the view that the appellants are liable to pay Central Excise duty even on the "Information Technology Software" i.e. software downloads as these are excisable goods covered under Section 2
(d) of the Central Excise Act, 1944 and hence are liable to. Central Excise duty on them. An amount of Rs. 36,38,585/- is recoverable from the appellants under proviso to Section 11A (1) of the Central Excise Act, 1944. Since appellants have already deposited an amount of Rs. 9,09,647/- on 30.08.2011 as per original stay order No. 59&60/M-I/2011 dated 11.08.2011, the same is appropriated and the balance amount is recoverable along with applicable interest.
(14) Hon'ble CESTAT in the case of M/s. Bharat Roll Industry (Pvt.) Ltd. vs Commr. of C. Ex., Haldia 2008 (229) ELT 0107 Tri.-Cal had specifically held that:
"10. As regards the extended period, the ratio of the Hon'ble Supreme Court's decision in Modipon Fibre Company (cited supra) also has a bearing on this case. It has been held therein that the extended period is not invocable for demanding duty if the assessee categorically informs the Department. In this case, the appellants did not inform the Department that they are collecting the Central Sales Tax from the buyers and not paying
16 E/85044,85045/2013 the same. In the prescribed RT-12 returns also, the appellants did not intimate the facts in this regard to the Department. As a result, it is not permissible for them to claim limitation having not disclosed the relevant information to the Department". (Emphasis supplied) 4.3 Undisputedly the software is specifically covered under the Central Excise Tariff Headings in Chapter 8524/ Chapter 8523. For the purpose of attracting levy of Central Excise duty, goods must satisfy the definition of "excisable goods" under Section 2(d) of the Central Excise Act. As per Section 2(d), excisable goods mean goods specified in the First Schedule and Second Schedule to the Central Excise Tariff Act, 1985 as being subject to duty of excise and includes salt. In order to satisfy the definition of "excisable goods" under Section 2(d) of the Central Excise Act, goods must be specified under First Schedule and Second Schedule to the Central Excise Tariff as being subject to duty of excise. It has been settled by various judicial pronouncements that for the goods to be treated as "excisable good" they should first be goods i.e. capable of being brought and sold in the market.
4.4 The software supplied electronically or the software allowed by the appellants to be downloaded by their customers through internet on a consideration, are not specified anywhere in the First Schedule or Second Schedule to the Central Excise Tariff. Hence, such software permitted to be downloaded through internet for a consideration are not excisable goods and therefore, are not liable to Central Excise duty under Section 3 of the Central Excise Act.
4.5 Relevant portion of Heading 8524 and 8523 as they existed at the relevant times are reproduced below:
8524 Records, tapes and other recorded media for sound or other similarly recorded phenomena, including matrices and masters for the production of records, but excluding products of Chapter 37.
8524 91 ---For reproducing phenomena other than sound or image Software:
8524 91 11 ----Information Technology on floppy disc or cartridge tape 8% 8524 91 12 ----Information Technology software on disc or on CD ROM - 8% 8524 91 13 ----Information Technology software on other media 8% 17 E/85044,85045/2013 8524 91 19 ----Other 8% 8523 Discs, tapes, solid-state non-volatile storage devices, "smart cards" and other media for the recording of sound or of other phenomena, whether or not recorded, including matrices and masters production of discs, but excluding products of chapter 37 85238020 Information technology software 4.6 From the above heading description it is also evident that only software recorded on media is covered by the said headings and not software per se. Above is also echoed in the Budget Speech 2006-07 of the Hon'ble Finance Minister at para 138.
Para 138 of the Finance Minister's speech is as under:
"138. I propose to impose an 8 per cent excise duty on packaged software sold over the counter. Customized software and software packages downloaded from the internet will be exempt from this levy."
4.7 Hon'ble Finance Minister in his Budget speech of 2008-09, at para 151, had specifically referred to the proposal to levy service tax at 12% on the software supplied digitally or electronically. Relevant portion of the Finance Minister's speech is as follows:
"151. Similarly, I propose to increase the excise duty on packaged software from 8 percent to 12 per cent to bring it on par with customized software which will attract a service tax of 12 per cent.
4.8 Vide Circular No. 344/1/2008-TRU dated 29.2.2008, it was clarified that supply of software electronically or digitally would be covered under the proposed service namely, information technology software service. In the Memorandum explaining various proposals of the Union Budget for 2006-07, was clarified that software downloaded from the internet would not attract excise duty. Relevant portion is extracted below:
Chapter 85 - Electrical machinery (2) Excise duty of 8% is imposed on packaged software, also known as canned software on electronic media (software downloaded from the internet and customized software will not 18 E/85044,85045/2013 attract duty). [S. No. 27 of the Notification No. 6/2006-C.E. refers].
4.9 Software is treated as intangible unless it is recorded on media. If software is contained on media, Courts have held such software to be goods. Heading 8523 covers software contained in media. Therefore, only when the software is recorded on media, can it be considered as excisable goods. when the software is downloaded from / through internet, none of the provisions of Central Excise Act would apply as the entire provisions of Central Excise Act contemplate physical removal of excisable goods from factory of manufacturer. Hence, demand of Central Excise duty on software downloaded from / through internet is incorrect and unsustainable in law.
4.10 The decision of the Hon'ble Supreme Court in case of Tata Consultancy Services Vs State of Andhra Pradesh - 2004 (178) ELT 22 (S.C.) is not applicable to the present case. The issue involved in the aforesaid decision was as to whether the software recorded on the cassette or disc or CD is goods or not for the purpose of levy of sales tax. It was argued by the assessee that software is an internal property and therefore, it is not tangible goods in order to levy sales tax. Hon'ble Supreme Court rejected this contention by observing that the software recorded on media like CD, disc etc. would be goods liable to levy of sales tax when such software is sold. However, in the present case, the issue involved is as to whether the software allowed to be downloaded through internet for a consideration can be treated as excisable goods liable to levy of Central Excise duty. The said decision has been rendered by the Hon'ble Supreme Court by referring to the specific provisions made in A P Sales Tax Act. The same provisions do not exist in the Central Excise Law and hence the reliance placed by the revenue on the said decision is totally misplaced.
4.11 Revenue has incorrectly proceeded on the basis that since the appellants had paid sales tax on software supplied specifically, therefore such software was liable to Central Excise duty as goods. As already submitted above, software made available to customers from / through internet does not qualify as "excisable goods" in terms of Section 2(d) of the Central 19 E/85044,85045/2013 Excise Act. Software supplied electronically is not covered by the description of any of the Headings of the Schedule to the Central Excise Tariff and therefore, the same is not specified in the First and Second Schedule. Hence, the software supplied electronically is not excisable goods.
4.12 The fact that Tariff Item 8523 80 20 under Heading 8523 mentions software not be sufficient to treat all software as excisable goods. It is settled law for the goods to be held a excisable goods the same should be qualify the test of being goods i.e. they should be capable of being brought and sold in market. Thus, software recorded on any media and brought to the market for being bought and sold alone and covered by relevant Sub-heading and Tariff Item of Heading 8523 or 8524 would be excisable good as per Section 2d The software supplied electronically is not cleared by recording it on any media and would not qualify as excisable goods.
4.13 Demand of Rs.18,128/- in respect of export sales to Nepal, cannot be upheld as we have upheld the contention of the appellants that software downloads are not excisable goods within the meaning of Section 2(d) of the Central Excise Act and therefore, duty is not liable to be discharged on such clearances / downloads in Nepal.
4.14 Demand of Rs.8,03,479/- on packaged software recorded on CD-ROM and disc and cleared during the period from April 2006 to June 2006 has been made by denying the exemption under Notification No.8/2003-CE. As we have held that the software supplied electronically through internet is not excisable good thus its value could not have been added for the purpose of computing aggregate value of goods cleared during the preceding financial year i.e., 2005-06. As per the declaration filed by the appellant the aggregate value of excisable goods cleared by the appellants during the period 2005-06 is Rs.3.74 crores much below the limit of Rs 4 crore provided in Notification No.8/2003-CE the benefit of exemption could not have been denied in the Financial Year 2006-07.
4.15 Majority demand of duty is beyond the normal period of limitation of one year and will be barred by limitation. Undisputedly appellant had vide letter dated 05.04.2006, filed 20 E/85044,85045/2013 the declaration and intimated the nature of software sold. They declared that the software was cleared by recording it on CD- ROM/ disc and the software was also supplied electronically through internet. Thus, the department was fully aware of the fact that the appellants were also supplying software electronically through internet. When all the facts were in the knowledge of department from 05.04.2006 show cause notice issued on 17.11.2009 invoking extended period of limitation cannot be sustained. The finding of suppression of facts with intent to evade payment of duty is without any basis. As we hold that extended period could not be invoked, imposition of penalty under Section 11AC is not justified. As has been held by the Hon'ble Supreme Court in the case of Rajasthan Spinning and Weaving Mills Ltd. [2009 (238) ELT 3 (SC)].
4.16 As demand is not sustainable on merits, imposition of penalty on Managing Director of the appellants under Rule 26 of the Central Excise Rules, in Appeal No. E/85045/2013, is also not justified.
5.1 Appeals are allowed.
(Order pronounced in the open court) (Sanjiv Srivastava) Member (Technical) (Dr. Suvendu Kumar Pati) Member (Judicial) tvu