TMI Blog1994 (6) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... hich they ascribed to the hardware. In the show-cause notice dt. 2-8-1991 it was alleged that the value of the software was includible for the purposes of arriving at the duty liability on the computer system. It was observed therein that their software was very much essential for the working of their computer; hardware without software will not make the computer workable, and that the total value of software plus hardware will form the assessable value of the computer system. The Asstt. Collector of Central Excise, Panaji, Goa, in his Order-in-Original dated 27-9-1991 observed that as their softwares were bought out items, were classifiable separately/independently, and enjoyed exemption from central excise duty, the value of the software could not be clubbed for arriving at the assessable value of computer system. On appeal the Collector of Central Excise (Appeals), Bombay under his Order-in-Appeal dated 11-3-1993 came to a finding that the software supplied by the assessee as per their contracts, was an essential component for the computer system to function, and the software and the hardware were cleared as one functional unit/system as per contracts. He held that the value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ftware. There were also single contracts showing separately the prices of software and hardware. In some cases they had only supplied hardware. Sometimes the list of software was annexed with the contract, while at other times no such list was annexed. Relying upon the Supreme Court decision in the Sales Tax case - State of Uttar Pradesh v. Kores (India) Ltd. - AIR 1977 SC 132, the learned Sr. Advocate pleaded that the software, as typewriter ribbon in that case, was an accessory and not a part of the computer system. In that case the Hon. Supreme Court had stated that just as aviation petrol is not a part of the aeroplane nor diesel is a part of a bus, in the same way ribbon is not a part of the typewriter, though it may not be possible to type out any matter without it. The learned Sr. Advocate however, admitted that without the systems software the computer will not work, and that the computer was useless without the systems software. The learned Sr. Advocate summarised that (1) the software could not be taken as part of the computer, (2) earlier decisions of the Tribunal in the cases of Sunray Computers, Wipro and PSI Data Systems, were not applicable to the present case, (3) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re provisional under High Court s orders and that they had furnished bank guarantee and executed bond. 6. Shri Prabhat Kumar the learned SDR referred to the legal submissions made by the learned Senior Advocate and stated that the reliance placed on Chapter Notes in the Tariff for valuation purposes was not proper. The Chapter notes were only for classification, and the valuation was independent of it. He referred to the Tribunal decision in the case of Col-Tubes (P) Ltd. v. Collector of Central Excise, Indore - 1994 (72) E.L.T. 342 (Tri.) = 1994 (2) RLT 129 (CEGAT-A), wherein it has been held by the majority decision that valuation has to be done in accordance with the valuation provisions, and that the valuation is independent of the classification aspect. The learned SDR referred to the Tribunal decision in the case of Andhra Pradesh Paper Mills Ltd. v. Collector of Central Excise - 1993 (65) E.L.T. 447 (Trib.), wherein it has been held that classification of goods and valuation are two different concepts covered by their respective rules. Relying upon Tribunal s decision in the case of Bata (I) Ltd., Calcutta v. Collector of Central Excise - 1986 (25) E.L.T. 559 (Trib.) - it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Excise, New Delhi, 1994 (70) E.L.T. 764 (Trib.) - wherein it has been held that the regulators when sold alongwith the electric fan were an integral part thereof and were assessable at the same rate as electric fan. In the Jay Engineering Works Limited v. Govt. of India - 1982 (10) E.L.T. 378 (AP) - it has been held that the cost of regulator was includible in assessable value of fan. In the case of Paharpur Cooling Towers v. Collector of Central Excise, 1986 (24) E.L.T. 611 (Tri.) = 1987 (13) ECR 1044 (CEGAT-SB-B1) - it has been held that assessable value of industrial fans has to include the value of gears which are important components. In the case of Bajaj Auto Limited v. Collector of Central Excise, 1989 (44) E.L.T. 763 (Trib.) - it has been held that the value of footrest was includible in the assessable value of scooters. This decision of the Tribunal has been confirmed by the Hon. Supreme Court as reported at 1993 (44) ECR page 23J. In the case of Auto Control (P) Ltd. v. Collector of Central Excise - 1993 (63) E.L.T. 156 (Trib.) - it has been held that daizy wheel being an essential part of electric typewriter, and not an accessory, the value thereof was includibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n our due thought and consideration to the submissions made by both the sides. 9. At the outset we may mention that in the present case we are concerned only with that type of software which is known as systems software. In the grounds of appeal before the Collector of Central Excise (Appeals), Bombay, it had been stated as under :- It is contended that the party had contracted for supply of softwares which are essential for imparting the capability to the data processing machines (the hardware), for performing the functions for which they are designed. In fact a perusal of the supply contracts shows that the party has supplied software packages which do not solve any specific problems but which are designed to control the operation of the computer system. This type of software known as systems software is distinct from application software which is developed by the users for specified application only. Without the system software the application software cannot be run on the computer system. The Collector of Central Excise (Appeals) in his order-in-appeal has also observed as under : The department argues that the software supplied by the respondents is indispensable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that without the systems software, the computer will not work, and that the computer was useless without the systems software. At page 61 of their paper book they have stated - The software was loaded on the machine only at the customer site post delivery to make the machine operational. Thus it has been admitted that their computer system will not be operational without their software - the system software, with which we are concerned in this appeal. The software supplied by them was the system software, and without this systems software, the other wares supplied were of no use. 11.From the scrutiny of the various documents filed by the appellants, the following facts emerge : (1)The software was manufactured by them with United States technology on the condition that they may not be re-exported without prior approval from the United States Authorities (refer pages 30, 40, 80 and 98 of the compilation of documents). (2) There was a single contract for hardware/software/support requirements (refer pages 45, 67, 80, 90, 92, 116, 134, 150, 246 and 254 of the compilation of documents). (3)The prices were for the configuration (refer page 18 of the compilation of documen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd bolts of a system. A computer is only a dumb box with a bunch of electronics in it. All the talk about the marvellous things computer can do is really only talk about all the marvellous things software can do. The Tribunal observed that without software the hardware is incomplete, a mere dumb box and of no use at all to the customer." They held that if there is a single contract for the supply of computer including software the total value of the computer including that of the software would have to be assessed to duty irrespective of the fact whether the software part is supplied along with the hardware or in a separate lot and irrespective of the fact whether a single invoice is made for both hardware and software or a separate invoice is made for the software. 15. In the case of Collector of Central Excise, Bangalore v. Wipro Information Technology Ltd., 1989 (39) E.L.T. 113 (Trib.) - the Tribunal had relied upon their earlier decision in the case of Sunray Computers, and have held further that 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. 16. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d irrespective of the fact that no expenditure was incurred by the manufacturer on such components. The Hon. Supreme Court added that the assessable value would take into account the full commercial value. The nexus with the manufacturing activity of the assessee while assessing the final product in which bought-out items are used is not a relevant criteria in a case where the bought-out items are an essential part of the final product. In fact there are so many cases wherein the manufacturers are engaged only in the assembly of various bought-out items to bring into existence a new excisable commodity. In the case of Kirloskar Brothers v. UOI - 1992 (59) E.L.T. 3 (SC) = 1992 AIR SCW 1324 the appellant carried on business of manufacturing power-driven pumps and mono block pumps. For manufacturing mono block type power driven pump sets and power driven pumps, they were purchasing electric motors from another company. Although that matter related to old Section 4 of the Act the observations of the Hon. Supreme Court that the value of the excise duty paid on the electric motor is not deductible while arriving at the assessable value under Section 4(a) of the Act , are of general appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny exemption notifications in the Tariff which provide exemption to various parts, components, auxiliaries, accessories etc; but the products in which/with which they are used, are dutiable. Similarly exemption has been provided in favour of various inputs, parts or other goods subject to the condition that they are used in the manufacture of specified goods - exemption to component parts of diesel oil operated internal combustion engines, parts of weigh-bridges, gas compressors, internal combustion engines, electric motors or parts of electric motors etc. etc. In the case of Hico Products Ltd. v. Collector of Central Excise, 1994 (71) E.L.T. 339 (SC), the Hon. Supreme Court have held that exemption by means of notification does not take away the levy or have the effect of erasing levy of duty (para 3). In para 15 of their judgment it has been held that : those goods are exempt from payment of excise duty because of the language of the notification binding it to a particular item and not universally. In the case of Hind Plastics v. Collector of Central Excise, Bombay, 1994 (71) E.L.T. 325 (SC), the Hon. Supreme Court have held that double taxation was not illegal (para 16). In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etation Section notes and Chapter notes, whereas the value has to be determined in terms of Section 4 of the Central Excises and Salt Act, 1944, read with Central Excise Valuation Rules. In the case of Collector of Central Excise v. Metrowood Engg. Works - 1989 (43) E.L.T. 660 (Trib.) (Relied upon by the appellants with regard to the relevancy of chapter notes for classification), the Tribunal has observed in para 11 that : Change in Tariff does not change the nature of the goods. In the case of Andhra Pradesh Paper Mills Ltd. v. Collector of Central Excise, 1993 (65) E.L.T. 447 (Trib.), the Tribunal in para 8 of their decision have held as under : It has to be observed that Section 4 exclusively deals on principles of valuation and the factors governing valuation need not necessarily govern the aspect of classification, as classification of items are done on the basis of a separate legislation, namely Central Excise Tariff Act, which lays down interpretative rules and chapter notes for the purpose of classification of goods. 21. In the light of the above discussion the view taken by the Asstt. Collector of Central Excise, Panaji that as the softwares were classifiable s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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