Customs, Excise and Gold Tribunal - Bangalore
Asea Brown Boveri Ltd. And Anr. vs Cce on 16 February, 2005
ORDER T.K. Jayaraman, Member (T)
1. Two appeals have been filed in respect of Order in Original No. 21/1999 dated 1.10.1999 passed by the Commissioner (Adjudication).
2. One appeal is filed by the Party M/s. ABB Ltd., Bangalore and the other appeal by the Revenue. The brief facts of the case are as follows:
3. On the basis of investigation, Revenue proceeded against M/s. ABB Ltd. for evasion of Central Excise duty by wrongly availing exemption on the software for Distributed Control System (DCS) and by mis-declaring such software as 'Computer Software'. It was further alleged that M/s. ABB evaded duty by not including Factory Acceptance Test charges in the assessable value of the DCS manufactured and removed by them and by not including Systems Engineering charges in the assessable value of DCS manufactured and cleared by them. The period involved is from 1.4.1994 to 1.6.1998. The Adjudicating Authority confirmed a demand of Rs. 3,37,85.494/- being the duty on the clearances of software for DCS under Rule 9(1) of the Central Excise Rules read with Proviso to Section 11A(1) of the Central Excise Act 1944. Duty was also demanded by including the Factory Acceptance Test charges and Systems Engineering charges. Interest under 11AB was demanded. Penalty under Section 11AC was levied equal to the duty liability with effect from 29.9.1996 i.e. the date of enactment of Section 11AC/11AB. A penalty of Rs. 10 lakhs under Rules 9(2), 173Q and 226 of the Central Excise Rules 1944 was levied on M/s. ABB Ltd. M/s. ABB has strongly challenged the findings of the Adjudicating Authority.
4. Shri G. Shiva Dass, the learned advocate appeared for M/s. ABB and Shri N.K. Bajpai, the learned advocate and Shri L. Narasimha Murthy, the learned SDR appeared for the Revenue.
5. Shri G. Shiva Dass, the learned Advocate made the following submissions:
(1) The learned advocate, at the outset explained the functioning of DCS. The DCS manufactured by M/s. ABB is used in various industries like chemical, paper, petroleum to control the processes like pressure, temperature level, humidity, flow of liquids etc. The DCS is a collection of PCBs consisting of several modules, which in turn consist of micro processors mounted on PCBs, power supply with elements to connect the DCS to the workstation. The present generation of DCS helps in having limited personnel to monitor and supervise the working of the Plant. M/s. ABB along with DCS supplied the work station also. The work stations are specialized computers which are bought from various manufacturers like HP, Zenith. These computers are the normal stand alone standardized computers, which are purchased with the system software loaded on them. The Customers place consolidated purchase orders on M/s. ABB for supply of DCS and software. After receipt of purchase orders from the customers, the appellants undertake the manufacture of the DCS and supply them to their customers on payment of applicable duties. The value of engineering software which is part of the DCS and which is etched in the modules of the DCS is already included in the value of the DCS on which duty is paid. As regards application software, they import the master and MOD 300 software and the same is assessed under heading 85.24 of the Customs Tariff and for the period from 1.3.1997 onwards, they are allowed duty free under Notification No. 11/97-Cus. dated 1.3.1997. The imported software is customzed to the Customer's specific requirement. The customized software is thereafter separately supplied under commercial invoices and gets loaded at the customer's site into the engineering/operator workstation, which are nothing but data processing machines. The software is loaded on to computers using conventional loading devices like CD floppy, tape drive etc., and each of the DCS is identified by way of computer code address.
(2) Upto 1993, they were classifying the DCS under heading 84.71 as Automatic Data Processing Machines. The corresponding application software was classified under sub-heading 8524.90 as Computer Software and the benefit of exemption under Notification 84/89-CE dated 1.3.1989 and 48/94-Ce dated 1.3.1994 was claimed. All the CLs and CDs were duly approved by the Department. Along with the CL, they filed technical write-up for the equipment in question.
(3) The investigation into the classification of software was in pursuance to the issue of Circular No. 7/98-Cus. dated 10.2.1998 in connection with exemption granted from customs duty under Notification No. 11/97 dated 1.3.1997 as amended by Notification No. 3/98-Cus. clarifying the scope of expression Computer Software.
(4) The application software supplied by the appellants is only Computer Software. The application software is admittedly used only in the computer or the workstation at the customer's site. This software works on the operating software already loaded in the computer and which functions as a platform to enable further operations. The application software cannot be etched as such on EPROM. Thus, the application software supplied by M/s. ABB is to be considered as Computer Software only.
(5) Computer software has not been defined in the Central Excise Tariff. The Central Excise Tariff does not make any distinction between Computer Software to be used with computers classifiable under Chapter heading 84.71 and any other software which is to be used elsewhere. Therefore the distinction sought to be made by the department between Computer Software and other software is totally unwarranted and irrelevant. The term has to be understood in the matter known in common parlance.
(6) In Notification 3/98-Cus. an explanation clarifying the scope of Computer Software was added. This explanation is not applicable to Central Excise Tariff. The Tribunal, in the case of ANZ Grindlays Bank v. CC, Chennai 2002 (148) ELT 758 : 2002 (102) ECR 199 (T), has specifically taken note of the fact that Computer Software being unconditionally exempt under Central Excise Tariff, has upheld the non-levy of CVD on Computer Software imported into India.
(7) The software that is excluded from the exemption in the Customs Notification is that software which is required for the operation of any machine performing any function other than data processing and which contains within itself an Automatic Data Processing machine or works in conjunction with an automatic data processing. For example, ATMs installed by various banks. In the instant case, the software is not loaded on to a machine but is loaded on to a computer that works in tandem with the machine. This would not be excluded from the Notification merely because of the reason that the software is customized for the machine. It was submitted that the software in question is supplied separately in disks, floppies and tapes for loading on to the work station which are nothing but Computers/Automatic Data Processing machines. Thus the software in question cannot, even on merits, considered to be anything other than Computer Software.
(8) In the following cases, the software imported was capable of being put to use only with the specific machines classifiable under Chapter headings other than 84.71 and not with a computer or a stand alone Automatic Data Processing machines classifiable under Chapter Heading 84.71, but in those cases the customs exemption was extended.
(i) BPL Mobile Communications Ltd. v. CC 2000 (126) ELT 986 (T) Affirmed by SC in
(ii) BPL Telecom Ltd. v. CC Affirmed by SC in
(iii) CC v. Secure Meters Ltd. 2002 (149) ELT 884 Affirmed by SC in
(iv) Pentafour Software and Exports Ltd. v. CC
(v) Hutchison Max Telecom Ltd. v. CC
(vi) CC v. Malvika Steel Ltd.
(vii) Bay Talkitec Pvt. Ltd. v. CC (9) The entire demand is barred by limitation as the appellants filed declaration from time to time declaring both DCS and the software. The functioning of the goods in question has also been fully explained to the authorities. The department has approved the CL/declaration all along. Both the appellants and the department were under the belief that the application software in question was nothing but Computer Software. But for the issue of Board's Circular dated 10.2.1998, there would have been no change in the view of the department. Therefore the allegation of suppression with intention to evade payment of duty cannot be substantiated.
(10) If duty had been paid on the software, the same would have been taken as modvat credit by the buyers. Hence the entire exercise is one of revenue neutrality. In this regard, he relied on the following decisions:
(i) CCE v. Mahindra and Mahindra Ltd.
(ii) Amco Batteries Ltd. v. CCE 2003 (153) ELT 7 (SC) : 2003 (107) ECR 190 (SC)
(iii) BPL Ltd. v. CCE (F.O. No. 761/2004 dated 8.4.2004) : 2004 (114) ECR 669 (T-Bang)
(iv) CCE v. BPL Sanyo Utilities and Appliances 2004 (62) RLT 293 (11) The System Engineering Charges relate to activity undertaken by the appellants at site in connection with the lay out of the DCS, site engineering. It is not connected with the manufacture of DCS at all. Hence, the same is not includible in the assessable value.
(12) Revenue, in its appeal, has sought imposition of mandatory penalty for the period prior to 28.9.1996 also. It is now well settled that mandatory penalty equal to duty can be imposed only for the clearances after 28.9.1996. Case Law CCE v. Elgi Equipments Ltd. 2001 (128) ELT 52.
6. Shri N.K. Bajpai, the learned advocate urged the following points:
(1) Although the Classification Lists (CL) and Classification Declarations (CD) field by M/s. ABB described the software manufactured by them as 'Computer Software', neither the production of software was entered in the RGI register nor were the removals shown in the RT 12 returns, which are actually mandatory requirements under the Central Excise Rules. These allegations made in the Show Cause Notice have not been rebutted in the reply.
(2) The description of the items given in the commercial invoice is different from that given in the classification list/declaration. In the Cl, for claiming the benefit of exemption under Notification 48/94-CE dated 1.4.1994, the description given was Computer Software whereas in the invoices they are described in the following manner.
(a) Software for Controller Data Acquisition System
(b) Software for Operator Interface Subsystem
(c) Software for engineering interface
(d) Foreign Device Interface Software
(e) Software to meet all functional requirement of the DCS, PLC etc. Since M/s. ABB were claiming the exemption, they were duty bound to give the correct description in the CL so that the Authorities could have examined whether the goods were actually Computer Software.
(3) Since DCS was not to be classified under sub-heading 84.71 which is the entry for Automatic Data Processing Machines (Computers), the software used in DCS could not, by the same logic, be treated as Computer Software. In fact, DCS is classifiable under sub-heading 90.32.
(4) Since Systems Engineering charges are towards certain activities related to and incidental to the manufacture and supply of DCS, they should form part of the assessable value as rightly concluded by the adjudicating authority.
(5) In view of the mis-declaration of the software for DCS as Computer Software, the longer period under proviso to Section 11A(1) is invokable.
(6) In view of the retrospective amendment of Section 11A by the Finance Act 2000, a notice under Section 11A for short levy could be validly issued even when the CL had been approved by the proper officer. The Constitutional validity of amendment to Section 11A has been upheld by Supreme Court in ITW Signode India Ltd. v. Collector of Central Excise
7. We have heard the rival contentions. The short point in this case is whether the software for DCS manufactured and cleared by M/s. ABB is classifiable as Computer Software for Central Excise purposes. The period of dispute is from 1.4.1994 to 1.6.1998. During the period from 1.4.1994 to 22.7.1996, the term Computer Software was not mentioned in the Tariff at all. However there was an exemption Notification 48/94-CE dated 1.4.1994 exempting Computer Software from Central Excise duty. Computer Software was classified under 8425.90. With effect from 23.7.1996 up to 1.6.1998, there was an entry "Computer Software" under 8524.20 in the Tariff with NIL rate of duty. The notification was rescinded with effect from 2.6.1998. The entry "Computer Software" was amended to "Software" only. In view of this change, Revenue holds the view that "Computer Software" is different from Software. It should also be borne in mind that the term "Computer Software" has not been defined either in the Central Excise Tariff or in the Notification during the disputed period. Before deciding the issue in this appeal, it is worthwhile dwelling on what "software" is. Only in recent times, the term "software" has become part of the common English vocabulary. Bloomsbury Publishing Ltd., London has published a dictionary of new words (EOLOGISMS) formed in the English language since 1960. This dictionary indicates that the term "software" has come into usage since 1960. According to this Dictionary, software means "the programs which give instructions to the hardware and which actually make it work, without which the machine is still effectively dumb, albeit immensely a complex collection of electronics." Further, it is stated that software means packages that have been worked out in advance to take advantage of the ability of the machine to perform a wide variety of tasks like word processing, calculations, spreadsheets, data desk management etc. In simple words, the various physical components of a computer are known as hardware. In order that the computer functions, what is required is software. Software is always associated with computer. Nowadays, all the English dictionaries contain the word 'software' as computers have invaded all aspects of our lives in the present century. The Oxford Advance Learners' Dictionary defines Software as programmes used to operate a computer. The Wikipedia, a free encyclopedia on Internet gives very useful information on Computer Software. According to the above encyclopedia, Computer Software (or simply software) refers to one or more computer programmes and data held in the storage of a computer for some purpose. Software is divided into two big classes. System Software and Application Software. All other Sub-classes belong to these two classes. System Software helps run the computer hardware and computer system. It includes operating systems device, drivers, programming tools servers, windowing systems, utilities and more. Application software allows a user to accomplish one or more specific tasks. Typical applications include business software, educational software, data base and computer games etc. The term software was first used by John W. Turkey in 1957. Colloquially the term is often used to mean Application Software. In computer science and software engineering. Computer Software is all information processed by computer system, programmes and data. We have given the above details only to indicate the popular understanding of what Software is. In all the standard textbooks and encyclopedias, no distinction has been made between 'Software' and 'Computer Software'. In the instant case, the software developed by M/s. ABB is for the Distributor Control System. This DCS has application sin various process industries for controlling the various parameters like pressure, temperature, flow of liquids etc. From the literature available, it is seen that the software developed by M/s. ABB are supplied in tapes, floppies or disks and are loaded into the workstations which are nothing but computers. Under these circumstances, we fail to understand how the Revenue excludes them from the scope of the term "Computer Software". In other words, the Central Excise Tariff does not differentiate between 'Software' and 'Computer Software' for the reason that in the common parlance and also as understood by computer processionals, any software is Computer Software. Of course, for customs purposes, a restricted meaning has been given to Computer Software in view of amendment to Notification 11/97 and Board Circular dated 10.2.1998. The above mentioned Board Circular clarifies the meaning of computer software in the following manner:
4. Having regard to the discussion above, it is clarified that for the purposes of the exemption under Section No. 173 of Notification No. 11/97-Cus. dated 1.3.1997, 'Computer Software' is to be taken to mean 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 an automatic data processing machine falling under Heading 84,71. Thus, the said exemption will not cover software required for operation of any machine performing a specific function other than data processing and incorporating or working in conjunction with an automatic data processing machine. More specifically, software for telecom, medical or other applications is not eligible for exemption from duty. However, software containing encyclopedia, games, books, etc. will be eligible for the exemption wherever they satisfy the interactivity criterion.
8. We do not want to have a detailed discussion on the scope of Computer Software as per Board's Circular because the same is confined to customs purposes only. Moreover the learned advocate Shri Bajpai said that he is not pressing much on the clarification issued on the customs side. In the Show Cause Notice, there is a constant refrain that the DCS software cannot be used on a general purpose computer. The Central Excise Exemption Notification does not say that softwares used on general purpose computer only are entitled for exemption. Hence, the fact that the DCS software cannot be used in our home computes does not dis-entitle the same for exemption. From the statements given by the officers of M/s. ABB, it is very clear that they were also under the bonafide belief that DCS software is included in computer software and, therefore, is entitled for the exemption. While filling the classification list, they had given the technical literature to the Department. The Department did not raise any objection at that time because the department was also having the same view. The genesis of the Show Cause Notice itself is on account of the introduction of the definition of Computer Software in the Customs Notification. In such circumstances, a charge of mis-declaration by M/s. ABB has no force.
9. Summing up, we hold that as far as the Central Excise Notification No. 48/94-CE dated 1.4.1994 is concerned, all Software are eligible for exemption and one cannot import the definition of Computer Software in the Customs Notification to deny the benefit of exemption to DCS software. The charge of mis-declaration also cannot be sustained. As regards non-inclusion of Systems Engineering charges, there is force in the appellants' contention that such activity has been undertaken at site in connection with the layout of the DCS and is in no way connected with the manufacture of the DCS. In view of this, we allow the party's appeal with consequential relief.
10. The Revenue's appeal is with regard to the quantum of penalty imposed under Section 11 AC and interest demanded under Section 11AB. Since we have set aside the OIO. Revenue's appeal is rendered infructuous. The Revenue's appeal is dismissed.
(Pronounced in open Court on 16.2.2005).