TMI Blog2014 (4) TMI 465X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Appellant : Shri V. Sridharan, Senior Advocate assisted by Shri Raghavan Ramabhadran, Advocate For the Respondent : Shri P.R.V. Ramanan, Special Counsel ORDER Per Mathew John; Two early hearing petitions and two stay petitions filed by two different parties are being considered in this proceeding. Since the stay petitions are being taken up for hearing for disposal, the early hearing petitions are disposed of as infructuous. 2. The two stay petitions involve identical facts, circumstances and issue in dispute and therefore they were taken up together. Since there are apparently contradicting final orders of the Tribunal as argued by the Counsel for applicants the matter was heard fairly at length though only stay petition was being considered. In such circumstances submissions also are recorded in a fairly detailed manner. 3. Both the applicants are providers of mobile telecom services. They imported certain equipment and software for running such equipment. The equipment imported by the applicants can be broadly described as follows:- S. No. Name of Equipment Tariff Heading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 007. The Note before the amendment and after the amendment are reproduced below:- Pre-amendment:- 6. Records, tapes and other media of heading Nos. 85.23 and 85.24 remain classified in those headings, whether or not they are presented with the apparatus for which they are intended. Post-amendment:- 6. Records, tapes and other media of heading 85.23 or 85.24 remain classified in those headings when presented with the apparatus for which they are intended. This Note does not apply to such media when they are presented with articles other than the apparatus for which they are intended. 7. The contention of the applicant is that notwithstanding the fact that the software was preloaded, it had to be classified under CTH 85.24 in view of Chapter Note 6 as above and that is the reason why they declared software separately and classified it under 85.24. Since the software has to be classified separately, even in a situation when software was preloaded in the equipment it followed automatically that the rate of duty as applicable to the value of software would apply for its import and only the value of hardware could be subjected to duty at the applicable rate which they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment but was upheld by the Supreme Court. 10. The learned Advocate further pointed out that the facts of similar imports as in this case was before the Tribunal in the case of Vodafone Essar Gujarat Ltd. Vs. Commissioner of Customs 2009 (237) ELT 458 and the Tribunal held that the contention of Revenue that the value of software should be clubbed with the value of hardware and charged to duty at the rate applicable to hardware was not sustainable. However, the learned Advocate pointed out that in almost similar facts the Bangalore Bench of the Tribunal in the case of Bharti Airtel Ltd. Vs. Commissioner of Customs - 2012 (286) ELT 270 held a diametrically opposite view without referring the matter to a Larger Bench of the Tribunal. The learned Advocate submits that the decision in Bharti Airtel (supra) is per incurium inasmuch as it did not consider the decision of the Larger Bench of the Tribunal in Digital Equipment (supra) and that of the Honble Supreme Court in the case of Acer India (supra) and incorrectly interpreted Note 6. 11. The learned Senior Advocate pointed out that the Tribunal while deciding the case of Bharti Airtel (supra) ignored the decision in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he instant case the BTS software was imported in a Flash memory card and not in a flash memory (which has a very little capacity to store). Hence decision in Anjaleem Enterprises which dealt with an Integrated Circuit or EPROM which performed intelligent functions is clearly not applicable in the instant case and in the case of Bharti Airtel as well. 12. For the reasons as above, the learned Senior Advocate submits that the decision of the Tribunal in Bharti Airtel (supra) is per incurium of the decision of the Larger Bench and the decisions of the Apex Court and should not be relied upon. 13. The learned Advocate also submits that the fact that compact discs or optical discs containing the software were imported and these physical imports were totally ignored by the Department and the Department has sought to include the value of the software in the value of hardware. He argues that when an intangible item is loaded on a tangible medium it is to be treated as separate goods with separate identity with separate value. Reliance is placed in this respect on the following decisions:- (a) Associated Cement Companies Ltd. Vs. CC - 2001 (128) ELT 21 (SC) (b) Tata Consultancy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant time warranted classification of software separately even when such software was loaded in the equipment. (d) There is no doubt that telecom software was to be considered as computer software and the same wass classifiable under Heading 8523 and was exempted from duty at the relevant time. (e) The demand is time-barred since it is issued invoking the extended period. 17. Opposing the prayer the learned Special Counsel for Revenue submits that the dispute involved is about the valuation of goods imported rather than classification. His submission is that there was no separate existence for the software for which huge value has been declared and exemption from customs duty claimed. He points out while filing Bills of Entry for clearance of the goods imported, the applicants did not declare that the equipment were preloaded with the necessary software but in fact they mislead the Revenue officials by importing the software separately in media whereas such media was not put to any use. 18. It is his contention that the software in question was not just preloaded into the equipment but it formed part of the firmware of the equipment and thus an integral part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... separately. He points out that the Product Marketing Library for BTS and the Student Text for BTS indicate that software was loaded at the factory on a flash card, which is non-volatile memory. This type of software is called firmware. The installation and integration manual also clearly indicate that software is available in the flash card of the BTS/RBS. It is argued that the BTS software is actually firmware and it comes loaded on the imported equipment and the value of the software has to be added to the value of the hardware as at the time of import the software is an intrinsic and integral part of the BTS equipment and other equipment. ACL has resorted to splitting the value of the equipment into hardware and software from September 2001 and this has been specifically done to avoid the duty on the value of the software. 21. The Product Marketing Library for the switching system shows that the products are based on a system known as AXE system for telecommunication services. The AXE system is described in the document LX/D-93.006 C - LK/XX-96.020A. the description starts on page 3 under Section 2 of the document. Under the heading General AXE Modularity , the modula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s hardware cannot be used without the associated embedded software. (b) Software viz. Billing Gateway, Operation Support System (OSS), Netman (Network Management) Software used for cell site planning etc. are application software used for the purposes of operation support billing, database. These software can be installed on commercial PC like any other software and are generally interactive. 23. The learned special counsel further made a comparison between the facts of this case and the facts of Bharti Airtel (supra) as follows:- * In both cases, the goods in question (i.e. mobile telecom equipment) are identical but for the difference in configurations * Equipment have been supplied by EAB around the same time. * Supply contracts between EAB and Bharti as well as EAB and the present applicants are similarly worded. * Technical literature, installation and testing manuals referred to and used are the same for the equipment in both cases. * EIPL is the agency engaged to provide erection and installation services in both cases. * Engineers of EIPL engaged in erection/installation work for ACL averred that the Switch SW (MSC/BSC) is non-interactive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities that the equipment were embedded systems distinguish the facts in the cases of Bharti Airtel and present applicants from that in Vodafone Essar. The preparation of CDs/DDs of SW by EIPL, their dispatch to EAB Sweden and the re-import of the same by the telecom service providers declaring a very high value for the same was in fact the practice followed by EIPL, wherever there were requests from Field Support Officers posted with various telecom service providers. Besides, in the case of the present applicants, separately marketable software like Netman and OS Software have material numbers whereas MSC software, BSC software, RBS/BTS software do not have material numbers, indicating that they are not marketable separately. In certain instances where the equipment/systems were imported, it was found that embedded software for which corresponding software imports were not made but purchase orders were raised as per the contact. There are also instances where software has been imported but not cleared from customs. There are also instances where the contracts indicate split prices for hardware and software but only hardware at the split price was imported. 26. As a rejoinder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he applicants that the evolution of the duty rates on computer software would indicate that the Governments policy was to consider telecom software also as computer software. But the central issue in this appeal is whether such software had a distinct identity different from the hardware in the facts of the present case. 29. Further we take note of the scope of the dispute dealt with in the case of PSI Data Systems Ltd (Supra) as recorded in para 11 of the decision as under: 2. The question, principally, is in relation to the inclusion of the value of software sold with the computer in the assessable value thereof. It is not the contention of the appellants that the firm or etched software that is implanted into a computer is not to be taken into account in the valuation thereof for the purposes of excise duty. It is their case that the value of the software, such as discs, floppies, C.D. roms and the like, that they may sell along with the computer is not to be taken into account for the aforesaid purpose. 30. The scope of the dispute in the case of Acer India Ltd was also the same as can be seen from para 11 of the decision in Acer India Ltd, reading as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have also considered the submissions of the applicants that the demand is time barred. Prima facie the facts suggest that the applicant had not disclosed that software was pre-loaded in the system. Further there was an attempt to show separate import of software in media when such software was not put to use. So prima facie we see force in the argument of Revenue in this matter. If the import of software was a sham transaction the argument that it had value appears to be prima facie unsustainable. 35. In view of the above analysis we are of the view that the applicants have failed to make out of case for waiver of pre-deposit. So we adopt the decision of the Tribunal in Bharti Airtel (supra) and also note that the Hon ble Apex Court while admitting appeal against this order has directed pre-deposit of the disputed duty amount as reported at 2012 (286) ELT A175 (SC). Therefore, we direct the parties to predeposit duties demanded - M/s Aircel Cellular Ltd. is to make a deposit of Rs.10,21,25,614/- and M/s Aircel Limited is to make a deposit of Rs.24,67,77,929/- for admission of appeal. Deposits are to be made within 8 weeks from the date of pronouncement of this order. Subject t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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