TMI Blog1988 (8) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... value. And since the respondents had disclosed to the department only that part of the contract with their customers which related to the sale of computer hardware, kept back the other part relating to the technical service charges and software etc. supplied by the respondents in connection with the hardware and issued separate bills for the technical service charges and software from their head office, the Assistant Collector held the respondents guilty of suppression of facts, invoked 5 years time limit for demanding duty and confirmed demands for differential Central Excise duty amounting to Rs. 99,60,141.89 for the entire amount of technical service charges recovered during the period from March 1982 to 16-3-1985. The Assistant Collector also imposed a penalty of Rs. 250/- on the respondents under Rule 173Q of the Central Excise Rules, 1944. The Collector (Appeals) set aside the Assistant Collector s order holding that technical service charges were not expenses incurred by the respondents in manufacturing and marketing of computers but were for optional professional services rendered by the respondents to their customers in using the computers and hence the Supreme Court judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question of technical service charges had been dealt with in detail. In this judgment, the Tribunal held that cost of services having nexus with manufacturing or marketability of the goods, such as pre-manufacturing research, planning and designing, advertisements, warranty service and supply of software was includible in the assessable value while the cost of services having no such nexus, such as selection of skilled personnel for the customer, training of the customer s staff, installation and commissioning of the computer at customer s premises, was not includible. It was also stated in the same judgment that while determining the assessable value, care would have to be taken to see that a part of the real value of the computer system was not recovered by the assessee by inflating the excludible service charges. The learned representative of the department stated that he stood by the Tribunal s earlier judgment in the Sunray case aforesaid and since in the present case the Assistant Collector had included the entire amount of technical service charges collected by the respondents, he requested that the matter may be remanded to the Assistant Collector for re-determination of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el of the computer. The respondents admitted that software was essential for the working of the computer but they pleaded that the cost of only one language and operating system should be included in the assessable value and the additional language, programmes and operating systems supplied to the customer for the computer should be treated as accessories and their cost excluded. The respondents admitted that the additional languages, programmes, and operating systems etc. enhanced the functional utility of the computer to the customer. We do not agree with the respondents. No part of the software could be treated as an accessory. A customer who invests lakhs of rupees on a computer system wants to get maximum benefit out of it. The type and number of software required by a customer is determined by his needs. A customer who goes in for a bigger computer system, does so because all parts of that system are essential for him. Inasmuch as the software actually makes the computer work, the software cannot be treated as an accessory. It is an essential part and parcel of the computer system. A customer wants more than one language, programme and operating system because he wants his co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 10-7-1984 and 7-12-1984 were impliedly superseded by the later show cause notices issued on 11-3-1985 and 15-3-1985, respectively. Though the show cause notices dated 11-3-1985 and 15-3-1985 were titled as Addendum to the earlier show cause notices, the respondents contended that they were, in fact, independent show cause notices and no penalty was proposed to be imposed in the later show cause notices. We do not agree with the respondents. The show cause notices dated 11-3-1985 and 15-3-1985 were not independent show cause notices nor were they issued in supersession of the earlier show cause notices. As very clearly stated in the later show cause notices, they were only in the nature of Addendum to the earliar show cause notices. The basic case of the department, that the respondents had not disclosed and included the technical service charges in the assessable value of computers, was clearly put in the first show cause notices dated 10-7-1984 and 7-12-1984. The Addendum dated 11-3-1985 and 15-3-1985 only added a new ground for the same charge - that the respondents were getting separate orders from their customers for the technical services but were submitting to the departm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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