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3.4 OIPL follows the following modes for delivery of software in India:-

(i) Electronic Product Download (EPD): It allowed the customer to download Oracle software electronically through a link provided by OIPL. Media pack was not supplied to the customers in this model.

(ii) EPD +: The customers downloaded Oracle software electronically. In addition, the customers were provided media pack for back-up purposes.

(iii) Ship only: Only media pack was delivered to the customers.

3.5 OIPL made a distinction between shrink wrap software and the media pack imported in the present case. In shrink wrap software, the media (CD) is imported along with the software and the licence key in a bundled form. As a result of the bundled form, there is no dispute that the payment made towards the licence fee would be a condition of sale. The factual situation in the present case is distinct insofar as the physical import of media pack itself is optional and, therefore, the license fee paid for the software contained in the media pack cannot be treated as a condition of sale.

3.8 A pictorial description of the aforesaid transactions as submitted by OIPL is reproduced below:-

3.9 Various activities undertaken OIPL in India are as follows:

Commercial Transactions Media pack shipments  OIPL supplied software to customers through different modes discussed above. Only in those cases where a customer specifically requested for supply of software in physical form, OIPL provided a media pack. 56% of the license fee collected from customers was remitted to Oracle Corp., USA.

34. The definition of goods in Sale of Goods Act is also of wide import which means every kind of moveable property. Property has not been defined therein to mean the general property in goods and not merely a special property. It is not much in dispute that goods would comprehend tangible and intangible properties, materials, commodities and articles and also corporeal and incorporeal materials articles and commodities. If a distinction is sought to be made between tangible and intangible properties, materials, commodities and articles and also corporeal and incorporeal materials, the definition of goods will have to be rewritten, of comprising tangible goods only which is impermissible. 74. It is not? in dispute that when a programme is created it is necessary to encode it, upload the same and thereafter unloaded. Indian law, as noticed by my learned Brother, Variava, J., does not make any distinction between tangible property and intangible property. A goods may be a tangible property or an intangible one. It would become goods provided it has the attributes thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of transmitted, transferred, delivered, stored and possessed. If a software whether customized or non-customized satisfies these attributes, the same would be goods. Unlike the American Courts, Supreme Court of India have also not gone into the question of severability. From this judgement, it is clear that software even in its intangible form has been declared to be goods by the Supreme Court and therefore electronic download of software from a server located abroad would get captured in the scope of import of goods. A Ministerial Declaration at a WTO conference does not have legal force of overruling a legislated mandate. However, in case of electronic downloads of software, it has not been ascertained whether server from where it was downloaded was actually located abroad. Even presuming it to be so, we need to see whether mechanism exists to levy and collect customs duty on such downloads. The Customs Act, 1962 contains several provisions for operationalising the levy and collection of customs duty. For example for the date for determination of rate of duty and tariff valuation of imported goods, Section 15 provides that in case of goods entered for home consumption under Section 46, it will the date on which Bill of Entry for such goods is presented. As per Section 7, CBEC appoints ports and airports which alone shall be customs ports and airports for loading and unloading of goods. Section 8 provides for approval of proper places in any customs ports, airports for loading or unloading of goods and for specifying the limits of any customs area. Section 31 provides that imported goods are not to be unloaded from any vessel unless entry inward is granted. Section 32 provides that no imported goods can be unloaded unless they are mentioned in the import manifest or import report. Section 33 provides for loading and unloading of goods at approved places only and Section 34 provides that goods are not to be unloaded or loaded except under supervision of customs officer. Section 36 puts restrictions for loading and unloading of goods on holidays, etc. From the above (illustrative) provisions of Customs Act, 1962, it is evident that the entire Customs Act in the present form provides mechanism/procedure for levy and collection of duty only in respect of tangible goods. Software is intangible, can be downloaded anywhere, from anywhere, at any time and none of the above referred provisions of Customs Act, 1962 are capable of being applicable/ enforceable in respect of such downloads. Indeed, anyone having even a nodding acquaintance with the Customs Act, 1962 will not dispute that in its present form, it totally lacks the mechanism to levy and collect duty on electronic downloads. It is well settled principle of taxation that in absence of mechanism for collection of tax, the levy fails [refer e.g. the judgement of Supreme Court in the case of CIT, Bangalore Vs. B.C. Srinivasa Setty (supra)]. Thus, we hold that electronically downloaded software is not liable to customs duty. Consequently, the demand of service tax relating to electronically downloaded software is not sustainable even for such downloads in respect of which OIPL remitted licence fee to Oracle USA. The reasoning is also squarely applicable with regard to duty demand in relation to what is referred to as global deals mentioned in paras 3.11 and 3.15. Incidentally, paper licences (for software already downloaded) are classifiable under Chapter 49 as has been opined by CBEC also vide Circular No.15/2011-Cus, dated 18.03.2011 and such paper licences under Chapter 49 are fully exempt from customs duty.

For example, if the buyer pays a third party for the right to use, in the United States, a trademark or copyright relating to the imported merchandise, and such payment was not a condition of the sale of the merchandise for exportation to the United States, such payment will not be added to the price actually paid or payable. However, if such payment was made by the buyer as a condition of sale of the merchandise for exportation to the United States, an addition will be made. As a further example, an addition will be made for any royalty or licence fee paid by the buyer to the seller, unless the buyer can establish that such payment is distinct from the price actually paid or payable for the imported merchandise, and was not a condition of the sale of the imported merchandise for exportation to the United States. CBP has established a three-part test for determining the dutiability of royalty payments. This test appears in the General Notice, Dutiability of Royalty Payments, Vol. 27, No.6 Cust. B & Dec. At 1 (February 10, 1993) (Hasbro II ruling). The test consists of the following questions: 1) was the imported merchandise manufactured under patent; 2) was the royalty involved in the production or sale of the imported merchandise; and 3) could the importer buy the product without paying the fee? Affirmative responses to factors one and two and a negative response to factor three would indicate that the payments were a condition of sale and, therefore, dutiable as royalty payments. Consistent sum and substance of all these judgements/opinions is that licence fee is includible in the assessable value only if it is paid or required to be paid as a condition of sale. As stated earlier, it is a settled legal position with which both sides also agree and therefore we do not need to refer to each of those judgements/opinions. As it is, whether the licensee fee paid or was required to be paid as a condition of sale is essentially more a question of fact than of law. None of the judicial pronouncements are directly on the issue at hand. In other words, none of the judgements cited decide whether the licence fee remitted abroad in the facts and circumstances obtaining in this case is includible in the assessable value. The Supreme Court in the case of CC (Port), Chennai Vs. Toyota Kirloskar Motor Pvt. Ltd. [2007(213)ELT4(SC)] has cautioned that (i) the ratio of a decision is to be understood in factual metrics involved therein, (ii) the ratio of a decision is to be culled out from facts of given case and (iii) a decision is an authority for what it decides and not what can be logically deduced therefrom. In that case [i.e., Toyota Kirloskar Motor Pvt. Ltd. (supra)], the technical assistance and know-how was to be given not as a condition of sale but on request and therefore the payment therefor was not held to be includible in the assessable value of the capital goods. However in the case of State Bank of India Vs. Collector of Customs, Bombay [2000(115)ELT597(SC)], State Bank of India filed a Bill of Entry for one set of diskette of software program along with manual and countrywide license fee but subsequently invoice of the same number and date giving breakup for the licence fee for use at single site and additional licence fee for countrywide use was filed and refund was claimed on the ground that duty was payable only on the cost of diskette and manuals and the licence fee for single site use and no duty was payable for the production of the software in the country of importation for countrywide use. The Supreme Court held that the licence fee charged towards countrywide use of the same software was includible in the assessable value of the imported software. Revenues contention in the present case is that for media packs imported under commercial imports (where licence fee was collected from the customers and 56% of that was remitted by OIPL to Oracle USA as per the Software Duplication and Distribution Licence Agreement) as the licence fee was a condition of sale. It is seen that as per the prescribed procedure followed by OIPL, the pre-sale and sales teams of OIPL met and negotiated with perspective Indian customers offering them necessary information and demonstration prior to import. The negotiations of the sales teams were submitted for approval of OIPL. Once the terms and conditions were agreed between the sales team and the Indian customers, the customers were required to sign a contract for purchase of software prior to the actual import of it. The contract so signed was scanned into Oracle Order Management System (common system for Oracle group). On the basis of the order so uploaded, a unique order number for a particular Indian customer was generated and the shipment was then made by Oracle, Ireland. Thus, in every case of software import (including commercial imports), this unique order number was generated. In case of commercial imports, such order was scanned into the system and unique order number generated only after the Indian customer signed the agreement to pay not only the price of the software (paid by OIPL to Oracle Ireland) but also the licence fee. In other words, in every case of commercial imports, Oracle USA and Oracle Ireland were fully aware that the order has been uploaded/scanned into Oracle Order Management System only after the customer agreed to pay the licence fee for the software and this information was available to Oracle USA as well as Oracle Ireland before the shipment was made. OIPL was incorrect when it claimed initially that it was a case of stock and sale and that the software imported from Ireland could be given to any customer, commercial or non-commercial. It comes out clearly that each software which was shipped was in the knowledge of Oracle USA and each shipment came for a particular Indian customer identified by the unique order number generated. In case of commercial transactions, the unique order number was generated only after the agreement was signed by the customer to pay the licence fee also. It needs to be re-emphasised that each commercial shipment, came for an identified customer as per the unique order number generated and that number was generated only after the customer signed to the agreement agreeing to pay the licence fee also. Thus, it is evident that in case of commercial imports of media packs, payment of licence fee was a condition of sale. In case of Indo Overseas Films Vs. Union of India [2007 (210) ELT 308 (Mad)], Madras High Court in effect held that royalty payable on imported feature films was includible in the assessable value as without right of exploitation imported goods would be of no use. Indeed, in the present case also, the sale of software to customers is nothing but sale of software to customers to use the same as without being able to use, buying of software by customers is meaningless because Oracle USA retains all right, title and interest in all intellectual property rights such as those embedded in or used by the programs.... as per Article 18 of the Master Service Agreement. In the case of CCE, New Delhi Vs. Living Media India Ltd. [2011 (271) ELT 3 (SC], it was held by Supreme Court that royalty became payable as soon as cassettes/CDs were distributed/sold and hence being condition of sale, such royalty was includible in assessable value. This judgement was followed in the case of Star Entertainment Pvt. Ltd. Vs. CC, Mumbai [2014-TIOL-583-CESTAT-Mum] to hold that royalties/licence fees paid for the import of beta/digibeta tapes containing films are includible in assessable value. We must again mention here that none of the judgements referred to in regard to includibility of royalty in assessable value involve identical facts and circumstances and therefore we have laid primary emphasis (and essentially relied) upon the first principles to determine whether in the given set of facts and circumstances, the licence fee remitted by OIPL to Oracle USA was paid/required to be paid as a condition of sale. The opinion of Israeli authorised cited by the appellants is just an opinion of a particular nations administration. Even the opinions of international bodies like World Customs Organisation (WCO), though of greater persuasive value, are not binding on the (quasi) judicial authorities of member states. Further, the opinion of Israeli authority cited by the appellants is not even directly relevant as it is an opinion dated 31.12.2008 given by National Supervisor of Technical Department  VAT to a lawyer Mr. Moti Eilon and is in relation to VAT. It does not pertain to the interpretation of relevant Customs Valuation Rules regarding includibility of such licence fee in the assessable value for the purpose of charging customs duty. In the wake of the factual matrix of the case, we hold that in respect of commercial imports of media packs, the licence fee remitted by OIPL to Oracle USA was includible in the assessable value.