Customs, Excise and Gold Tribunal - Delhi
Ericsson India Pvt. Ltd., Mr. Rajeev ... vs Commissioner Of Central Excise, Jaipur ... on 11 March, 2004
Equivalent citations: 2004(96)ECC65, 2004(169)ELT76(TRI-DEL)
ORDER C.N.B. Nair, Member (T)
1. The appellant is a manufacturer of telephone exchange equipment. Telecom service providers like BSNL,MTNL and Reliance are the customers for such equipment.The equipments are supplied in terms of contract from the appellant's factory after payment of Central Excise duty as applicable.
2. Subsequently, it came to the notice of the Central Excise authorities that in addition to supply of domestically manufactured telecom equipment,the appellant has also undertaken import and supply of various items of software. These supplies were also made to the same telecom service providers. Therefore, show cause notices were issued alleging that the appellant was required to include the price of the imported software also in the value of the equipment supplied and pay duty on such combined values. The appellant resisted the demand stating that excise duty is attracted only on the goods manufactured in India and that the software imported and supplied separately cannot from part of the value of the telecom equipment manufactured. It was also pointed out that the imported software did not from part of the equipment and was supplied directly with out taking them to the manufacturing place. It was their contention that excise levy can be only in respect of goods produced in a factory and goods supplied from trading premises could not be treated as part of the goods supplied from trading premises could not be treated as part of the goods supplied from the factory. The appellants also contended that according to the scheme of Central Excise levy, software is required to be assessee separately under heading 8524 (and not alongwith hardware in which the software is used) in view of note 6 of chapter 85.
3. These contentions of the appellants were not accepted in adjudication and Commissioner held that the appellants were supplying complete telephone exchanges to the providers and the software in question was integral to the exchanges and therefore, their value should also from part of the value of telephone equipment. The Commissioner held that the transaction between the parties was for supply of digital telephone exchange i.e. a computerized telephone exchange. The Commissioner therefore, took the view that all items forming part of the computerized telephone exchange, irrespective of whether they were manufactured items or not, should be included for assessment. Based on this finding he has confirmed duty demand and interest on duty short levied. Further, penalty has also been imposed.
4. The submission of the appellants is that the orders of the original authority are clearly erroneous, contrary to facts and settled law. It is being contended the excess duty can apply only to goods manufactured in India and not to goods imported and supplied. It is pointed out that no claim for Central Excise duty could be made since the software in question was never brought to the factory. It is further pointed out that it is well settled that software supplied alongwith hardware is not to be treated as part of the hardware, while subjecting hardware to duty. The appellant have relied on the following decisions in support of their case.
Sprint RPG India Ltd. Vs. CC-I, Delhi (2002-TAXINDIAONLINE-192-SC-CUS) 2000 (116) ELT 6 (SC) PSI Data Systems Ltd. Vs. CCE, (2002-TAXINDIAONLINE-46-SC-CX) 1997 (89) ELT 3 (SC) Commissioner Vs. Barber Ship Management (I) Pvt. Ltd. 2002 (144) ELT A293(SC) Commissioner Vs. BPL Telecom Ltd.2002 (146) ELT A317 Bay Talkitec Pvt. Ltd. Vs. CC, Chennai 2003 (156) ELT 980 Acer India Ltd. & Anr. Vs. CCE, Pondicherry/Bangalore (2003-TAXINDIAONLINE-150-CESTAT-BANG)
5. The appellants have also referred to note 6 of chapter 85 of the Central Excise Tariff and submitted that in terms of this note and the aforesaid decisions, the software in question cannot be treated as part of the telecom equipment manufactured by the appellant. The learned Counsel has emphasized that the use of the software in telephone exchange and its being integral to running telecom services tax no ground for treating the case differently. He also pointed out that the appellant is only a manufacturer of certain equipment and supplier of certain imported software. Telephone exchange as such comes into existence only at the premises of the service provider when the equipment supplied by the appellant is assembled alongwith remaining equipment and the software is loaded or connected to the equipment.
6. We have perused the records and considered the submissions made by both sides. We do not find the revenue's claim sustainable. Duty of excess is in respect of goods manufactured in India. The appellant manufactured certain telephone equipment in its factory and cleared them on payment of duty. The liability to duty ends there. Its import and supply of software to the same telephone service providers is a separate transaction and cannot attract Central Excise duty. The question could arise only in case the imported items were parts or components of the goods manufactured in the factory and these parts were taken to the factory, assembled with the equipment and supplied thereafter as one equipment or equipment in knocked down condition. That is not the case here. Therefore, occasion for raising Central Excise duty did not arise.
7. That apart, integrality on the software for a particular purpose is no ground for including software in the assessment of hardware. This issue remains settled by the decision of the Apex Court in the case of PSI Data Systems Ltd. Vs. CCE, (2002-TAXINDIAONLINE-46-SC-CX). We read the relevant portion of the judgment : -
"13. Secondly, that a computer and its software are distinct and separate is clear, both as a matter of commercial parlance as also upon the material on record. A computer may not be capable of effective functioning unless loaded with software such as discs, floppies and C.D. rooms, but that is not to say that these are part of the computer or to hold that, if they are sold along with the computer, their value must form part of the assessable value of the computer for the purpose of excise duty. To give an example, a cassette recorder will not function unless a cassette is inserted in it; but the two are well known and recognised to be different and distinct articles. The value of the cassette, if sold along with the cassette recorder, cannot be included in the assessable value of the cassette recorder. Just so, the value of software, if sold along with the computer, cannot be included in the assessable value of the computer for the purpose of excise duty."
8. That software is to be classified under heading 8524, which heading is for recorded media is made clear by note 6 to chapter 85. That note reads "records tapes and other media of heading 8523 or 85.24 remain classified in those heading when presented with the apparatus for which they are intended. The telecom equipment manufactured by the appellant in their factory was liable to classification under 8517 which is for Electrical apparatus for telephony or line telegraphy, including line telephone sets with cordless handsets and telecommunication apparatus for carrier-current line systems or for digital line systems; videophones". In view of note 6 above, software cannot find classification under 8517. The impugned orders are against the aforesaid scheme of Central Excise classification.
10. In the view we have taken above, the impugned order are not sustainable. Therefore, they are set aside and the appeals are allowed with consequential relief to the appellants.