1998 (7) TMI 93 - SC - Central Excise

Whether the computers manufactured and cleared by the DSI and Orbit are liable to be treated as the computers manufactured and cleared by the appellant and therefore liable for excise duty at the hands of the Appellant? Whether the value of peripheral devices and/or computer systems sold by Adprint along with computers are includible in the assessable value of the Computer? Whether the amount or value of the service charges recovered by the appellant under service contracts can be included in the assesable value of the computer? Held that - In the case on hand it cannot be disputed that the computers manufactured and supplied by Orbit DSI or the appellant (from May 1982 onwards) were complete computers which had a Central Processing Unit with etched-in or burnt-in software a Key Board (input device) the monitor (output device) and Disc drives. The computers as above were cleared after complying with all requirements under the Excise Law and proper duty as computed was paid. The peripheral devices and other systems software were merely additional devices meant to increase the memory or storage capacity of the computers and other facilities. It is also not disputed by the Revenue that the peripheral devices were imported by the appellant and the appellant had paid countervailing duty on such imported peripherals. In the light of these facts we have no difficulty to apply the ratio in the judgment of this Court in PSI Data Systems ( 1996 (12) TMI 47 - SUPREME COURT OF INDIA ) and grant relief to the appellant. In favour of assessee.

Issues:
1. Liability of excise duty on computers manufactured by third parties.
2. Inclusion of value of peripherals and computer systems in the assessable value of computers.
3. Inclusion of service charges in the assessable value of computers.
4. Correct amount liable for inclusion in the assessable value.
5. Validity of penalty imposed.

Analysis:

Issue 1:
The main contention revolved around whether computers manufactured and cleared by third parties should be treated as manufactured by the appellant and thus be liable for excise duty. The Tribunal held that the supply of specifications and designs by the appellant constituted manufacture. However, the Supreme Court, citing a previous judgment, clarified that the software sold along with computers should not be considered an essential part of the computers for excise duty purposes.

Issue 2:
Regarding the inclusion of peripherals and systems software value in the assessable value of computers, the Tribunal held in favor of inclusion. However, the Supreme Court disagreed, stating that peripherals and systems software were additional devices to enhance computer functionality, not essential parts. The Court emphasized the distinction between a computer and its peripherals, ruling that the value of peripherals need not be included in the assessable value.

Issue 3:
The question of whether service charges could be included in the assessable value of computers was also addressed. The Tribunal's decision to include service charges was overturned by the Supreme Court, citing previous judgments and emphasizing that service charges should not be considered part of the assessable value.

Issue 4:
The Court also considered the correct amount liable for inclusion in the assessable value, ultimately ruling in favor of the appellant based on the facts presented and the legal principles discussed.

Issue 5:
Lastly, the validity of the penalty imposed was questioned. The Supreme Court set aside the demand and penalty, concluding that the contentions presented by the Revenue were not acceptable based on the facts and legal precedents discussed during the proceedings. The appeals were allowed with no order as to costs.

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