Customs, Excise and Gold Tribunal - Ahmedabad
Avaya Global Connect Ltd. vs C.C.E. on 28 March, 2007
Equivalent citations: 2007(213)ELT383(TRI-AHMD)
ORDER M. Veeraiyan, Member (T)
1. These two appeals are on identical issues relating to different periods of the same appellants and accordingly, they are being dealt with by a common order.
2. Appeal No. E/1996 of 2005 arising out of the order in original No. 09/Commr(Adjudication)/2005 dated 28.4.2005 relates to the demand of duty of Rs. 21,27,128/- relating to the period 1991-92 to 1996-97 on account of basic software contained in telecom equipment namely, consoles as against the demand of duty of Rs. 43,71,016/- on account of software in the show cause notice and imposition of penalty of Rs. 20 lakhs on the appellant company.
3. Appeal No. E/2988 of 2005 arises out of the order in original No. 10-29/Commr (Adjudication)/2005 dated 7.6.05 covering 20 show cause notices issued on various dates from 26.2.97 to 11.3.2004, confirming demand of duty of Rs. 10,64,653/- on account of value of basic software not included in the telecom equipment namely, consoles during the period September 1996 to March, 2001 as against the total demand of duty of Rs. 1,58,53,528/-on this issue in the show cause notice.
4. Learned Advocate for the appellants inter alia, submitted the following:
(a) They have not manufactured software and therefore, is not liable to duty on account of software; software as such, is liable to nil rate of duty and classifiable only under heading 85.24; software is nothing but a bought out item, there can be no levy of duty on the software which is not permissible in law. The charge for software would amount to nullifying the statute which is totally exempted from the duty liability by giving nil rate of duty.
(b) He relies on the judgment of the Hon'ble Supreme Court in the case of C.C.E., Pondicherry v. ACER India Ltd. . He particularly, draws our attention to para 55 of the judgment of the Hon'ble Supreme Court which is reproduced below;
55. It must be borne in mind that central excise duty cannot be equated with sales tax. They have different connotations and apply in different situations. Central excise duty is chargeable on the excisable goods and not on the goods which are not excisable. Thus, a 'goods' which is not excisable if transplanted into a goods which is excisable would not together make the same excisable goods so as to make the assessable liable to pay excise duty on the combined value of both. Excise duty, in other words, would be leviable only on the goods which answer the definition of 'excisable goods' and satisfy the requirement of Section 3. A machinery provision contained in Section 4 and that too the explanation contained therein by way of definition of 'transaction value' can neither override the charging provision nor by reason thereof a 'goods' which is not excisable would become an excisable one only because one is fitted into the other unless the context otherwise requires.
5. Learned SDR for the department submits that the case relating to ACER India Ltd. is distinguishable from the case of the present appellant. He relies on the judgment of the Hon'ble Supreme Court in the case of Anjaleem Enterprises Pvt. Ltd. v. C.C.E., Ahmedabad which considered the earlier judgment of the Supreme Court relating to ACER India Ltd.
6.1. Commissioner has held that value of application/operative software which is in the nature of secondary software is not liable to be included in the value of equipment. However, he held that the basic software without which computer will become a dead box and the software which constitutes basic intelligence of the computer and is generally stored in EPROM is to be considered essential part of the equipment includible in the value of the console. The console will not be able to function in the absence of the basic software. This software acts as an integral part of the console. He concluded that the basic software supplied after burning the same into the consoles is liable to the included in the assessable value.
6.2. His finding in this regard is reproduced below:
25.6. I find that M/s TTL has paid duty on consoles without including the value of system software which was loaded in the systems. The dispute is whether the software is integral part of the consoles or it is in the nature of an optional accessory. It is on record that Shri Jayesh Chitania, Manger, Manufacturing Engineering of M/s TTL vide his statement dated 17.1.96 has stated that basically there were two types of software which were used in and along with the electronic exchanges manufactured by M/s TTL; that first category was 'system software' and second was 'application software'; that system software resided in the EPABX system and it was it's intelligence; that V3, V6, V9 and V4EB 131 were different versions of system software used in various EPABX manufactured by M/s TTL It was also clarified that software for PSX/PMX resided in EPROM (Erasable Prgrammable Read Only Memory); that, first the EPROM was removed from the system and brought to the factory of M/s TTL where the earlier version was erased by using an erasing equipment and the desired version viz. V6 was copied on the EPROM with the help of master data and the programming machine. Similarly, software for IDX resided in floppy diskette; that for upgrading, the floppy diskette was brought to the factory and the earlier version was over written with the desired version viz. V4 EB 131 with the help of an IDX system.
25.7. From the above, it is clear that the system software constituted the intelligence of the console and it was an essential part of the equipment. The customer may be having choice of one of the system software but he has to take one of the software to make the equipment function. It cannot be termed optional rather it was residing in EPROM Erasable Prgrammable Read Only Memory) and was not optional like the application software.
7. We have carefully considered the findings of the Commissioner, submission of the learned Advocate and those urged by the learned SDR.
8.1 It is noticed that the appellant company had manufactured and cleared various types of consoles, e.g., call charge consoles, administrative consoles, maintenance consoles etc. for the working of which software was built in them; that such consoles were manufactured to function in conjunction with the electronic exchanges manufactured by the appellant; software used in such consoles was supplied separately by them for PS-XT based, call charges facility and in respect of call charges/administrative consoles, value of such software was not separately available as the same was included in the value of consoles. It is also noticed that console was an apparatus working in conjunction with apparatus on the light telephony system; the software used in such consoles process, manipulate and interpret and data generated by the electronic exchanges; software constituted integral software of the consoles inasmuch as they reside in EPABX system and it was its intelligence.
8.2 Software supplied separately as such no doubt is subject to nil rate of duty. However, when such software is in the native of basic software which is embedded in the system and which has become integral part of the computer or other equipments, then they become part and parcel of the computer or other equipment. It is not a case of charging duty on the software but it is a case of charging duty on the computer/equipment which includes the value of such basic software.
8.3 Similar views have been expressed by the Hon'ble Supreme Court in this judgment in the case of Anjaleem Enterprises Pvt. Ltd. cited supra. The relevant portions of the judgment are extracted below:
29. In the case of ACER India Ltd. (supra) the demand raised by the department was for the period July 2001 to May, 2002. In the year 2000 the Excise Act was amended and the concept of 'transaction value' came to be introduced for the first time. Further, the argument on behalf of the department was that the loading of operational software was includible in the value of the computer manufacture by the assessee after 1.4.2000 when the concept of transaction value came to be introduced In the circumstances, the judgment of this Court in ACER India Ltd. (supra) has no application to the facts of the present case. Further, in the case of ACER India Ltd. (supra), the subject-matter of the levy was a computer whereas the subject-matter of the levy in the present case is STD-PCO unit. The concurrent finding of all the courts below indicate that, in the present case, the programme was etched in a particular form of circuit known as ROM which is required to be fixed to the mother board and only on such fitment the STD-PCO unit became operational. Therefore, the judgment of this Court in ACER India Ltd. (supra) has no application to the facts of the present case. In fact, in the judgment of this Court in ACER India Ltd. (supra), the Court was not required to examine the scope of CH 85.42.
30. Before concluding, we reiterate that in the present case, the levy is on a computer based embedded system. The embedded in the programmed EPROM, which is an IC chip, constitutes the 'brain' of the system. The programmed EPROM is an integral part of the system. The levy is on the unit. The levy is not on the programmed EPROM. The programme embedded is not an easily removable. Hence, it will not fall in the category of recorded media under tariff item 85.24 and remains an IC under tariff item 85.42.
9. Therefore, on merits, the decision of the Commissioner in holding that the value of the basic software which is reportedly a part of EPROM (Erasable Programmable Read Only Memory) is includible in demanding duty on the equipment is legal and proper.
10. It is noticed that in respect of demand relating to the period covered by Appeal No. E/1996 of 2005 initial demand proposed in the show cause notice was Rs. 43,71,016/- on account of proposed addition of value of software. The Commissioner has excluded software which were separately supplied to the users and confined the demand only to those which were separately supplied to the users and confined the demand only to those which are held by him as constituting integral part of the consoles supplied. However, while arriving at the value of basic software he appears to have gone on the average basis as mentioned in para 15.2 of his order, Commissioner has also held that in several cases during this period, the appellant has quoted price to the customers, indicating that excise duty would be chargeable on value of software and collected the amount from the buyers inclusive of excise duty at the applicable rate but failed to pay duty to the department (para 48.2 and 48.6 of his order) and failed to inform the Department these facts and hence invoked the extended period of time. This decision is justified and cannot be found fault with.
11. In respect of the demand relating to the period related to the Appeal No. E/2988 of 2005 covered by 20 show cause notices, all of which issued within the normal period of limitations Commissioner has restricted the demand only on the value of basic software but excluded the value of application of software amounting to Rs. 1,32,35,999/- (as furnished by the assessee). The demand confirmed by the Commissioner, therefore, appears to be in order and does not deserve to be interfered with.
12.1 Appeal No. E/2988 of 2005 is rejected.
12.2. Appeal No. E/1996/05 is rejected on merits as well as on limitation. However, as the duty demand has not been worked in a transparent manner, unlike in the case of later period, the matter is remanded to requantify the duty. As the penalty imposable will be in relation to duty evaded, the same shall also be re-determined. The appellant is free to make submission on these issues before the Commissioner who shall hear the appellant before arriving at the decision.
13. The appeals are disposed of on the above terms.
(Pronounced in the open Court on 28.3.2007)