TMI Blog1995 (9) TMI 171X X X X Extracts X X X X X X X X Extracts X X X X ..... ware 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 came to know of the advantage later and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntrywide 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. shall pay the licensor the initial lice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mported 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/- has been paid as licence fee for cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 order passed by the Asstt. Collec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, therefore such fee charged are exempted as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e - 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 agreement and pointed out that the agreement did not permit reproduction for co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Order No. DETAIL INVOICE TO SUPPLY OF COUNTRYWIDE LICENCE FOR INDIA FOR BANKMASTER WITH THE FOLLOWING MODULES : CENTRAL BANKMASTER FOREIGN EXCHANG COMMERCIAL LENDING LIMITS MONITORING EXTENDED FINANCIAL RETURNS 1 BRANCHPOWER7 EASIXFER1 BANKMASTER QUERY GATEWAY 1 15 CENTRAL BANKMASTER TRAINING MODULE IBSNET MODULE 9 DOS BOOT DISK 1 QUANTITY OF GOODS DISKETTES 46 MANUALS 82 INSURANCE PAID IR 76.50 429.40 FREIGHT PAID IR LICENCING FEE FOR USE AT SINGLE SITE (INCLUDING 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Licensor/Supplier to furnish Software and Documentation for use by SBI. (b) Grant to SBI a non-transferable and non-exclusive licence to use the Software in India. (c) Provide technical assistance to SBI in the implementation of the Software at the Licensed Sites in accordance with the provisions of Article 8. Any other assistance will be on the Licensor s standard terms for service, including payment by SBI of the fees specified in Schedule II Part 2. It also deals about [providing] training in the operation of the Software for suitable qualified persons etc. Part 2.2 of Part II states that SBI shall accept the software and the services referred to in 2.1 above and pay fees and reimburse expenses to the Licensor in accordance with the provisions of this Agreement. Part III of the agreement deals about the LICENCE. Para 3.1 states that the Licensor hereby licenses SBI to use the Software and Documentation in India for the internal requirements of SBI only on a non-exclusive and non-transferable basis at the Licensed 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 unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms and import duties and octroi if any leviable, on the Software and Documentation imported into India under this Agreement shall be paid by SBI, as will any bank charges associated with any payments. Any taxes, duties, or levies imposed by the authorities in Ireland, England (or such other place as any payment may be mutually agreed to be received by the Licensor) on the Licensor whether in respect of the Software or Documentation fees or otherwise will be borne by the Licensor. PAYMENT TERMS : 5.1 The initial licence fees specified in Schedule II shall be paid as follows (a) 10% on signature of this Agreement against a bank guarantee; (b) 35% on the earlier of commencement of delivery of the Documentation and Software to the Support Centre or 30th June, 1991; (c) 35% on the earlier of Acceptance of the Software (including the BRANCHNET module) or 31st December, 1991; (d) 25%, less US $ 100,000, on the earlier of the first commencement of live running at a Licensed Site or 30th April, 1992; (e) US $ 100,000 on delivery by 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to such undertakings by taking appropriate action in respect of breach of any of them. Remote site access shall also be permitted to bona fide customers of SBI in the ordinary course of its business through such remote site facilities as may be or may become available (and agreed to by the parties hereto). (b) Access to and use of the Documentation shall be under conditions of confidentiality, and shall be confined to employees of SBI and the Licensed Sites. (c) In addition to the foregoing, SBI s auditors shall be permitted access under conditions of confidentiality to the Software and Documentation at the Licensed Sites to facilitate audit for SBI. 6.3 SBI shall not maintain or use the Software or Documentation or any part or copy of either of them or permit any of the foregoing for any purpose whatsoever other than for the internal requirements of SBI. 6.4 (a) Without prejudice to the generality of the foregoing, SBI shall not use, print, copy, reproduce or disclose 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 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereof for any purpose whatsoever, nor shall it otherwise endeavour to create or recreate any source program( s) of the Software. 6.8 (a) Where any unauthorised use of the Software or Documentation occurs and the same is attributable to the negligence or lack of reasonable precautions (or failure to maintain the same) by SBI, then without prejudice to the Licensor s other rights and remedies, SBI shall be liable to pay to the Licensor an amount equal to the loss it has suffered, (which shall be no less than the charges which the unauthorised user would have been obliged to pay to the Licensor under its then standard software licence terms had such user been properly licensed from the beginning of the unauthorised use). (b) SBI shall notify the Licensor promptly on becoming aware of any unauthorised possession or use of any part of the Software or Documentation supplied hereunder by any third party. 6.9 Productive Use of the Software 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 appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orised to license and will continue to own or be so duly authorised to license the copyright and other intellectual property rights in the Software, Documentation, modifications and new releases and that it neither has nor will it acquire any interest in them of any kind save to the extent expressly granted and then only for the duration of this Agreement. 15.5 All copies of the Software provided by the Licensor or made by SBI (including, without prejudice, translations or compilations or partial copies within modifications, derivative works and updated works) are the property of the Licensor or have been duly authorised to the Licensor and may not be distributed, disclosed, or used in any way whatsoever by SBI without the Licensor s prior written consent save to the extent expressly permitted by this Agreement. SBI will reproduce and include any copyright and restricted rights notices on any copies made by SBI in 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 perm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly stated that their invoice value for use of the software as per invoice value is US $ 4,084,475.00. They have been given an Annexure of split-up of values in this letter. They again wrote another letter dated 19-7-1993 to the Asstt. Collector of Customs, wherein also they have requested for granting permission of re-export BM Query Module. This letter also speaks about the detail break-up of the various modules to RBI. They have stated that they estimate that the present market value will be definitely at least 10% more than the cost at which they had procured from the supplier as they had obtained special concession for the countrywide licence and that two years have elapsed since then. They filed their claim for duty drawback under Section 74 of Customs Act. By their letter dated 20-6-1994 wherein also they have stated that they paid the said customs duty under the said invoice amount of US $ 40,84,475.00 on account 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e) and charges payable by SBI for making/reproducing and further copies thereof as per the terms of the said agreement to be used by SBI at any of the licenced site in India (countrywide licence) as per the terms of the said Agreement. 13. On a careful consideration of the entire terms and conditions of the agreement, and also the details furnished by the appellants to the Asstt. Collector of Customs for Duty Drawback, it is very clear that the licence fee for the supply of computers software was correctly arrived at by the parties as per the terms of Agreement as US $ 40,84,475.00. This is the correct assessable invoice value and it does not represent a different connotation and meaning inasmuch as the cost of the software for single site inclusive of cost of manuals totally valued at US $ 401,047/- only. As the lower authorities have observed, it is clearly an after-thought which is unsupportive and totally 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be noticed from the letter dated 31-7-1991 addressed by the M/s. Kindle Software Ltd. to Shri B.B. Saksena. The term use of the Software Modules as that of SBI can only mean that SBI are having several branches all over India and for the use of software Modules supplied, they can make copies of any portion of software by feeding it in a machine or support or transmitting them to a machine for processing of the same for instructions, statements or data contained in such materials or the use, of any Documentation. The term productive use has also been explained in the Agreement to mean use of software or any part thereof to process to part of SBI s actual business transactions in parallel or live mode. The terms `use `productive use and `Use `Licensed Module denotes that the licence fee is being paid separately other than the reproduction charges and that the reproduction charges [do] not represent the value 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imported goods in determining the Customs Value. In this case as per the agreement, the licence fee for the supply of software alongwith five copies of documentation cost US $ 40,84,475/-. The bank is making subsequent copies and reproduction of the software for use in the branches and subsidiaries, which is a subsequent event and the same is not added at all to the invoice value by the Customs Deptt. The supplier is also not charging any licence fee for such reproduction of software copy and Documentation, as the same is being done by the SBI for the use in their branches and subsidiaries as per the terms of the agreement. The SBI are holding licence for use of software in their branches by making its copies as it is not possible for the bank to use the software in condition in which it has been imported to be used simultaneously in all the branches without making copies. The licence fee clearly represents the invoice value declared by them and not the reproduction charges and the claim of the appellants is not borne out from the terms of the agreement or from the correspondence in this case. In that view of the matter, we do not find any merits in this appeal. Therefore, while co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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