9911796707
TMI Blog1995 (9) TMI 171X X X X Extracts X X X X X X X X Extracts X X X X ..... been charged on the licence fee of the software for single site inclusive of cost of Manuals totally valued at Rs. 401047 only. In support of their contention, they had produced detailed invoice showing bifurcation and relied upon Valuation Rules 9(1)(c) and corresponding note of this Rule of G.A.T.T. Code of Valuation. Initially, their claim was rejected by the Asstt. Collector (Refund). On appeal, the Collector (Appeals) remanded the same for reconsideration. 3. The Asstt. Collector heard the appellants and thereafter has passed a detailed order-in-original giving reasons for rejecting their claim. The Asstt. Collector has noted that the goods were originally assessed and cleared in the said invoice with the heading : "To supply of countrywide licence for India" and the invoice shows : "The cost of all Manuals is included in the cost of the software" and sub-total CIF was shown as US $ 40, 84,475/-. The Asstt. Collector has observed that it is not known as to why a detailed invoice of same date was not known available at the time of original assessment. The Asstt. Collector has held that the fact that the duty has not been paid under protest at that time shows the claimant ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , he has ultimately concluded that countrywide use of software and reproduction of software are two different entities and two different processes, and reproduction is the means to achieve the end of countrywide use. He has held that reproduction facilitates countrywide use and functionally they are not the same and they cannot be equated. He further holds that it can be said that countrywide use is achieved through the means of reproduction. The ld. Asstt. Collector goes on to hold that as per contract, storage, removal etc. are under the strict control of the licensor and all the copies are property of the licensor. Hence, he comes to the conclusion that the initial payment and recurring payment are nothing but the fees charged for use of software at the licenced sites; that the initial licence fees and the recurring licence fees are paid for the permission (licence) given by the licensor to use their property by the Importer at their Branches and not for the reproduction of the software as claimed by them, that no clause in the contract says that the fees are charged for reproduction although reproduction under certain conditions is permitted; that contract says that "S.B.I. sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rges for the right to reproduce the imported goods in the country of importation shall not be added to the price actually paid or payable for the imported goods in determining the Customs Value" They contend that they have to reproduce the software programme imported by them and only after such reproduction they can use the said programme countrywide. This reproduction of making copies is unavoidable in their case as they have countrywide computer network which works on "LAN version" and is not a "Mainframe" system. In the case of a Main Frame, it is possible to use the programme countrywide without having to reproduce the software. Even in such a situation, they would have had to pay the licence fee for countrywide use because it is the extent of the use that determines the quantum of licence fee. The act of reproduction is only an intermediary stage in the process of putting the programme to countrywide productive use. The phrase "Productive Use" has been defined in clause 1.8 of the Agreement as productive use shall mean use of software or any part thereof to process all or part of the SBI's actual business transactions, in parallel or live mode. The amount of US $ 36,83,428/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings that the countrywide licence fees paid by the appellants are not the same as the "charges for the right to reproduce" as envisaged in the Interpretative Note to Rule 9(1)(c). It is also clear that total cost incurred should be the transaction value on which Customs duty should be charged. Such a total cost for the purposes of assessment of customs duty would include single site licence fee as well as the country-wide licence fee in the present case. To sum up I observe that Rule 3(1) of the Valuation Rules provides that the value of the imported goods shall be the transaction value, which is defined by Rule 4 to the effect that such transaction value of imported goods shall be the price actually paid or payable for the goods when sold for export to India. Here the amount payable to the supplier was US $ 40,84,475/- and was correctly taken as the assessable value by the lower authority. These discussions settle the appeal and there is no need to examine the other minor points cited by the appellants. I hold that the Asstt. Collector had rightly added the countrywide licence fee to transaction value. For the foregoing reasons, I see no reason to interfere with the impugned or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the countrywide licence fee is a fee for permission from the supplier computer firm to the appellants to distribute the software purchased by them (by reproducing or copying the same) to the various licensed sites under the agreement. The ld. Counsel submitted that ld. Collector (Appeals) has wrongly interpreted in holding that the act of reproduction is only an intermediary stage in the process of pulling the programme to countrywide production use. He submitted that the fee has been paid in effect for the right to reproduce the programme. He submitted that it is an accepted international trade practice that fees are paid on intellectual property such as software or are paid for the right to reproduce the software at diverse places. He also submitted that `the Collector (Appeals ) has wrongly drawn a distinction between the "right to reproduce" referred to in Rule 9(1)(c). The ld. Counsel submitted that appellants had not paid for and acquired the absolute and unfettered right to reproduce. He clarified that it is not necessary that the right to reproduce should be absolute or unfettered. As the right to reproduce had been granted by the supplier under the agreement, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .L.T. 315 (viii) Asia Foundation v. Collector of Central Excise - 1991 (56) E.L.T. 655 (ix) Herschel Rubber v. Collector of Central Excise - 1987 (30) E.L.T. 454 (x) Food Corpn. of India v. Collector of Customs - 1985 (22) E.L.T. 461 7. Ld. SDR submitted that both the authorities have given detailed findings and all the grounds given for rejecting their claim is sustainable and it requires to be upheld. He submitted that the agreement clearly disclosed that the licence fee in the form of price is being charged on the basis of its single place use or on the basis of the use nationwide. Licence fee is not for the reproduction as separate charges are incurred by the importer and such expense of reproduction, by merely transferring the details of a software to a disc, would hardly be negligible and no supplier would collect such huge fee as reproduction charge, unless it is the price, in the form of licence fee for its large and extensive use to which it is put to. He submitted that the goods were not imported for the purpose of reproduction but they were meant for use. Licence fee does not include copying, duplicating or reproduction charges. He referred to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill of Entry for goods imported against Bill of Lading No. 12310200, dated 12-7-1991 are in accordance with the Invoice No. 910701, dated 3-7-1991. The Bill of Entry was accompanied by a declaration, which gave the break-up of the value of the consignment, as under : Particulars Cost Indian Rs. 46 Diskettes and 82 Manuals US $ 14,300/- Rs. 3,76,600.17 Licencing fee for use of the software at single site US $ 3,86,747/- Rs. 1,01,85,524.00 Total cost of the software for use at one site (including Diskettes and Manuals) US $ 4,01,047/- Rs. 1,05,62,124.37 Licencing fee for use of software countrywide US $ 36,83,438/- Rs. 9,70,08,142.89 Total : US $ 40,84,475/- Rs. 10,75,70,267.00 9.The importer by their refund application dated 19-8-1991 sought refund of the excess amount of Customs Duty of Rs. 10,86,49,119/-. The letter was accompanied by Form A. The details given in Form `A' in Column 5 & 6 are filled in hand writing and the same reproduced hereinbelow : Amount of Refund claimed and how arrived at Rs. "5. 10,86,49,119/- * Customs duty payable over single site Licence Fee of Software (US $ 4,01,047 + 1% landing charges Rs. 1,05,62,124.37. The Customs du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DING COST OF MANUALS AND DISKETTES - US $14,300) 401,047.00US $ LINCENCING FEE FOR FREIGHT TO USE COUNTRY-WIDE US $ 3,683,428.00 Sub Total US $ 4,084,475.00 KINDLE SOFTWARE LIMITED VAT Sd/- Total US $ 4,084,475.00 Authorised Signatory It is further submitted that the consignment of the software comprised of 11 modules one of which is the Bankmaster Query. The said Bankmaster Query was not acceptable to the appellants, as during the acceptance test the Bankmaster Query Module was not found to be functioning satisfactorily. Hence they rejected this module and it necessitated its return. They conveyed their non-acceptance to M/s. Kindle Software Ltd. by their letter dated 23-9-1992. They mutually agreed to withdraw the same from the contract and the amount paid for it would be adjusted against the other payments due to the supplier. 10. On a perusal of the agreement, the following details would be necessary to be extracted for the purpose of examining the pleas of the appellant : DEFINITIONS : "1.3 "Documentation" shall mean the standard user manuals for the software supplied from time to time by the Licensor, together with agreed functlional requirement doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sites in the Operating Environments specified in Schedule I. It also states that SBI shall be permitted to authorise use of the Software and Documentation under the terms and conditions of this Agreement to its subsidiaries carrying out banking activities in India for the internal requirements of such subsidiaries as if such use by such subsidiaries was [use] by SBI itself, and further that branches or offices of such subsidiaries shall be deemed to be those of SBI itself for the purpose of this Agreement so that the same shall constitute Licensed Sites. Part IV deals about the `FEES' and Part V deals about 'PAYMENT TERMS'. Part VI deals about the 'USE'. The understanding of these terms [is] necessary in order to appreciate the controversy raised by the appellants 'SBI' and therefore, the entire terms are reproduced herein below: `FEES' SBI shall pay the Licensor the initial licence fees and the recurring licence fees specified in Schedule II to this Agreement for a countrywide licence for India for the Software Modules specified in Schedule I in accordance with and for use under the provisions of this Agreement. SBI shall pay such other fees and expenses as arise in this Agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Licensor to the support Centre of a six digit customer number facility; (f) 25% on the earlier of commencement of live running at the tenth Licensed Site or 10th April, 1993. However if delivery of the aforementioned six digit number facility and the modifications referred to in Article 11.3 of this Agreement has not occurred by such date due to the fault of the Licensor then such 25% payment may be delayed by SBI until such delivery occurs. 5.2 The recurring licence fees commence on 1st October, 1991 and are payable quarterly in advance. 5.3 Training fees (specified in Schedule III) shall be paid on a course by course basis. On presentation of the Licensor's invoice in advance of each course. Training fees (as specified in Schedule II, for any further training shall be paid on presentation of the Licensor's invoice in advance of the provision of such training. 5.4 Fees for implementation assistance shall be paid quarterly in advance (at the rates specified in Schedule II) in accordance with the Licensor's estimate which shall be based on the work programmes agreed from time to time by the Licensor and SBI). Any work in any quarter exceeding that estimate sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Software or Documentation, in whole or in part, except as is expressly permitted by this Agreement; nor shall SBI permit any of the foregoing. (b) Save as is expressly permitted in this Agreement SBI shall not, directly or indirectly, disclose, transmit, share or otherwise allow access to the Software or Documentation in whole or in part, without the written consent of the Licensor, nor shall SBI permit any of the foregoing. (c) SBI shall not sell, charge or otherwise (save to the extent expressly permitted by this Agreement) make the Software or Documentation available to any person. . 6.5 (a) SBI shall not copy or permit the copying of the Software supplied by the Licensor save as may be strictly required for delivery to Licensed Sites and such further sites as are referred to in this paragraph (a), and for operational security and back-up purposes. The terms of this Agreement shall apply to any copies. SBI shall reproduce the Licensor's intellectual property notices on all such copies. Copies may not be stored other than at licensed Sites or the Support Centre nor may any copy be removed therefrom without the express written permission of the Licenso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or any part thereof shall not be permitted prior to Acceptance. Where Productive Use occurs prior to Acceptance contrary to this prohibition, the Software shall be deemed to have met the Acceptance Tests. 6.10 The terms of this Article shall apply with equal force to modifications and new releases prior to Acceptance. Part VII of the agreement deals about the SITE & SUPPORT CENTRE PREPARATION. Part VIII deals about the DELIVERY. Part IX deals about `ACCEPTANCE' Part X deals about `SUPPORT', Part XI deals about `MODIFICATIONS', Part XII deals about `SECURITY & CONFIDENTIALITY, Part XIII deals about `DEFINITION OF MODULES ', Part XIV deals about `TRAINING'. Part XV about INTELLECTUAL PROPERTY ; The same is required to be understood also. Hence para XV pertaining to `INTELECTUAL PROPERTY' is reproduced : "XV. INTELLECTUAL PROPERTY 15.1 The Licensor warrants that it has the right to licence the Software in India. The Licensor shall have the right to control and direct the defence of any claim that the Software infringes any copyright or patent, and will indemnify SBI against direct expenditures incurred in defending any such claim, SBI shall endeavour to give the Licensor ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with the instructions of the Licensor; 15.6 SBI will not provide or otherwise make available any Software in any form without the Licensor's written consent except to SBI employees or the Licensor's employees (and to such other persons as are expressly permitted access and use in this Agreement and only to the extent so permitted) and only for purposes specifically related to SBI's permitted use of the Software. Part XVI deals about `SOURCE CODE; Part XVII deals about `EXPORT LICENCE', Part XVIII deals about `LIABILITY', Part XIX `ARBITRATION', Part XX `GOVERNING LAW' Part XXI `NOTICES', Part XXII deals about `FORCE MAJEURE', Part XXIII `TERMINATION', Part XXIV `WORLDWIDE OPTION', The same is noted herein below : XXIV. WORLDWIDE OPTION Where SBI requests licences for use the Software for its branches or subsidiaries outside of India at any time within five years of the date of execution of this Agreement it shall be entitled to receive a discount of 80% per site per module from the per site list price specified in Schedule I for such of the licensed modules as are so marked in Schedule I. Part XXV deals about `ENTIRE AGREEMENT', Part XXVI `ENFORCEMENT, Part XX ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of countrywide licence for use of the software in respect of the software modules received. In the Annexure also, they have given the split-up value and cost of software - all modules "countrywide", cost of software - all modules (single site). In this letter, they have not mentioned about anything about the reproduction charges being different in the assessable value of the software. They again filed a letter dated 20-9-1994 claiming duty drawback under Section 74 of the Customs Act in respect of the said Bankmaster Query. In this letter, they have given the entire details of the agreement as well as the cost of the entire project but they have not raised the dispute as well presently. This was followed by another letter dated 30-9-1994 pertaining to duty drawback on the said export of the claim. In this letter, there is no mention about the value being duty. 12. The supplier by their letter dated 31-7-1991 to Shri B.B. Saksena, General Manager, State Bank of India has informed them about having mutually signed copy of the detailed invoice No. 910701, dated 3-7-1991 covering the software consignment despatched to them on 17-7-1991, as per the terms of the Software Licence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y uncorroborated by any piece of evidence. The supplier has not come forward to clarify and support the appellant's claim that the value of the entire software supplied to them is not US $ 40,48,475/- but is only US $ 401,047/-. They are giving a different meaning to the words reproduction charges to mean that the value of the software is only US $ 401,047/- and that they are paying the balance of huge amount as only reproduction charges and it is not the invoice value for supply of the software. This is totally unbelieveable, unsupportive and uncorroborated and in contradiction to the terms of the Agreement. The Agreement clearly specifies the licence fee and the Recurring Fee specified in the Schedule II of the Agreement. The Schedule II of the Agreement in para 1 states that the Initial Licence Fee for a countrywide licence for India for the Software Modules specified in Schedule I (excluding the IQ Module) for use under the provisions of the Agreement shall be US $ 4,710,000/-. The Initial Licence Fee for IQ Module shall be US $ 125 per site. Para 1.2 of the Schedule II states that from 1-10-1991 until the expiry of five years from the date of receipt by the Licensor of the pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of the software. The terms of the Agreement clearly show that the appellants are not making any payments towards reproduction charges separately to the supplier. The licence fee represents the value of the goods as can be seen clearly from the terms of the agreement and the same is paid in terms of the Agreement and not on the basis of copies, which are being taken out by SBI for use for their different branches. The licence fee represents the transmission value of intellectual property. It represents the charges of the appellants for the entire technical work supplying the software and for its use for five years. For subsequent use, the suppliers are giving them concession, and on such concessions as indicated the use of software is extended. The suppliers are not collecting reproduction charges but collecting licence fee for the use of their intellectual property. 14. Both the lower authorities have rightly construed, understood and applied the definition of transaction value as appearing in Rule 4 of the Customs Excise Rules read with Rule 9(1)(c) of the Customs Valuation Rules, 1988. Rule 4(1) clearly states that the price actually paid or payable for the goods when s ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
