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TMI Blog2012 (7) TMI 233X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Commissioner No. 6/2008 dated 30.04.2008. By the above order, a demand of differential duty of Rs. 9,10,94,185/- along with interest stands confirmed against BHL and penalty of equal amount of duty under Section 114A of the Customs Act imposed on BHL. In addition, the imported goods valued at Rs 98,31,12,721/- stand confiscated with option to redeem the same on payment of fine of Rs. 2,35,00,000/-. 1.3. Appeal No. C/575/2008 is by M/s. Ericsson India Pvt. Ltd. hereinafter called EIL or the third appellant against the order of the Commissioner No. 6/2008 dated 30.04.2008 challenging imposition of penalty of Rs. 10 Crores under Section 112(a) of the Customs Act. 1.4. Six appeals Nos. C/613 to 618/2008, [one appeal each corresponding to each of six show-cause notices] filed by the department seek enhancement of penalties imposed under Section 114A of Customs Act, 1962. It is prayed that penalties should be imposed equivalent to the duty demanded plus the corresponding interest accrued under Section 28AB of the said Act instead of penalties equivalent to the duty demanded . 1.5. As all these appeals arise out of common impugned order passed by a common ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and their parts under sub-heading 85.29. The appellants, paid the applicable customs duty on the hardware imported in terms of the Notification No.21/2002-Cus. dated 1.3.2002 (Sl. No.239). (c) EIL, the third appellant is engaged in providing the services of installation and commissioning of telecom equipments supplied by M/s. Ericsson AB, Sweden. BAL and BHL have entered into separate contracts with EIL for the erection, installation and commissioning of the telecom equipment and software imported from Ericsson AB, Sweden. (d) In and around 2004, the Directorate of Revenue Intelligence, Bangalore conducted enquiries regarding the imports of hardware and software undertaken by the appellants for its GSM network. The officials seized documents like supply contracts, technical literature, installation manual, O&M manual, H-module etc. available at the office premises of the appellants at Bangalore, hardware equipment valued at Rs. 9.94 crores and software in CDs/ODs with a declared value of Rs. 113.50 crores lying in their godown . (e) The DRI officers, on 11.10.2004 inspected the hardware packages and recorded the proceedings in a Mahazar. The software availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the switch software is an intrinsic part of the hardware and these two cannot be separated. EAB themselves call the functions as hardware and software only for the purpose of having a distinction between the two. It was also alleged that the appellant-assessees, in collusion with Ericsson AB, created an artificial transaction of splitting the cost of the equipment and that the value of equipment was suppressed and mis-declared to the customs at the time of import. It was also alleged that separate import of software was only to camouflage the remittances made towards the under invoiced amounts and evade duty. It was also alleged that EIL colluded with appellant-assessees and Ericsson AB in facilitating the splitting of the equipment price as hardware and software by agreeing to prepare the ODs/CDs. 4.6. The Commissioner of Customs Bangalore, who was appointed as common adjudication authority, passed the impugned order dated 15.04.2008/30.04.2008 confirming demands of duty along with applicable interest under Section 28AB ibid as proposed in the show-cause notices. He also ordered confiscation of the imported goods but allowed redemption on payment of fines un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tify and validate earlier action taken. (e) The explanation 2 to Section 28 makes it very clear that any non-levy, short levy for the period prior to amendment (that is prior to 08.04.2011) shall be governed by the provisions of Section 28 as it was prevailing during that time. Since under the earlier section, the ADG DRI did not have the powers of proper officer , the show-cause notices issued by him are ab initio invalid. (f) The ADG DRI was not invested with the powers of assessment during the relevant period. The proper officer , for issue of the show-cause notices under Section 28 will be only proper officer who made the assessment under Section 17. 6. Learned special counsel Shri P.R.V. Ramanan contested the above arguments on jurisdiction , and made the following submissions: (a) The ADG DRI was duly declared as Collector of Customs by Notification No.19/90-Cus.(NT) dt. 26-04-90. The Board has specifically issued Circular No. 4/99-Cus. dated 15.02.1999 empowering ADG DRI to issue show-cause notices in respect of cases investigated by the DRI. (b) The proper officers are to be nominated for performing various functions within the commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de detailed submissions challenging the confiscation, demand of duty, invocation of extended period of limitation and imposition of penalties on the appellants and on related issues as summarized below: 8.1. It was conceded that the required software for equipments like MSC, BSC, BTS were preloaded in the factory at Sweden and were subjected to factory testing . The preloading was done into the hard disc or to the flash memory and not to the integrated chips. Further, the back up of preloaded softwares was taken and kept in the hard disc of the respective hardwares. He claims that such preloading is not the same as etching, embedding or burning. 8.2. Identical copies were made of the preloaded software by recording them in CDs/ODs. The fact that the preloaded software could be recorded in media like CDs/ODs would indicate that the preloaded software cannot be considered as embedded software. 8.3. The cost of blank CDs/ODs/Floppy Discs is insignificant. Only the software has substantial value. The software supplied comes with the licence for use of the said software. When the software was imported in CDs/ODs, the same came with the licence permitting use of the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dware was not properly understood by the adjudicating authority. In support of the same, the Technical opinion dated 16.11.2006 by Shri K.S. Ramanujan faculty member of BITS Pilani which is reportedly based on the technology employed by Ericsson, the periodical reviews published by Ericsson, a comparison of the architecture of the telecommunication system and the engineering involved therein with the systems was relied upon. The following are the submissions made: (a) The essential parts of the software are resident in a non-volatile flash memory and/or RAM instead of the conventional disk drives. (b) AXE-10 hardware technology, provides for hands of operation enabling the subscriber to move from one MSC to another without dropping the call. (c) Ericsson built their own proprietary language for software programming of AXE-system called the Programming Languages for Exchanges (PLEX). (d) Typical AXE-10 exchange control software contains about one million lines of PLEX codes from a global library and ten million lines of codes. (e) The technology in software programming has now advanced and an advanced version of PLEX viz., HL-PLEX has been introduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Chapter Note 6 to Chapter 85, prior to its amendment in 2002 and after its amendment in 2002 are as under: 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. 8.11.3. By virtue of this chapter note 6 to chapter 85, the media containing the software even if it has formed part of the machine, the media can never be classified under any heading other than Heading 85.24. The operating and application software which are loaded onto the flash memory would require to be independently considered as recorded media for the reasons stated above. 8.12. Even if the software imported along with the equipment is to be assessed along with the equipment, still the value of the software cannot form part of the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. At no point of time, in any of the Bills of Entry, the appellants have made any incorrect declaration and that too willfully. The appellants, always entertained a bona fide belief that software imported separately, even though loaded onto the hardware was liable to be assessed separately to duty. At best, the present case is a case of change in the basis of assessment and opinion of the Customs Department. For such a change in the basis of assessment based on a classification dispute, extended period of limitation cannot be invoked. On the same grounds, it was submitted that no penalties could be sustained. On Confiscation 8.20. Goods valued only Rs.9.94 Crores has been seized but goods valued over 2200 crores stand confiscated. Confiscation of goods which are not seized is not justified. In this regard, he relies on the following decisions: a) Commissioner vs. Chinku Exports [2005 (184) E.L.T A36 (S.C.)] b) Shiv Kripa Ispat Pvt. Ltd. vs. CCE&C, Nasik [2009 (239) E.L.T 623 (Tri.-L.B.)] c) Sahil Trends Vs. Commissioner of Customs [2004 (177) E.L.T. 732 (Tri.-Del.)] d) Commissioner Vs. G.M. Exports [2004 (174) E.L.T. 101 (Tri.-Del.)] 9.1. Learned Specia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.3. Relying on the decision of the Hon ble Supreme Court in the case of Harbans Lal Vs. Collector of Central Excise as reported in equivalent citation in [AIR 1993 (SC) 2487], the decision of the Hon ble High Court of Gujarat in the case of J.K. Bardolia Mills Vs. M.L. Khunger, Dy Collector of Customs as reported in [1975 (16) GLR 119] and the decision of the Hon ble High Court of Bombay in the case of Mohanlal Devdanbhaichoksey and others Vs. M.P. Mondkar and others reported in [1988 (37) ELT 528 (Bom.)], he submits that Sections 110 and 124 are independent, distinct and exclusive of each other. Therefore, it is not a must that there should be seizure of offending goods preceding confiscation. In the present case, the impugned goods were found to have been mis-declared in respect of value and therefore, have been rightly confiscated as the goods were available with the appellant/assessees for confiscation. Availability for confiscation does not necessarily mean that the goods should be available in the possession of the department before ordering confiscation. 9.4. After recalling the nature of deception carried out, he submits that it is a fit case for invocation of extended pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ports? (d) Whether the value of software preloaded at factory in Sweden before shipment took place requires to be excluded from the value of hardware as claimed by the assessees or to be included as held by the department? (e) Whether decision of the Tribunal in the case of Vodofone is applicable to the facts of the present case or not? (f) Whether all the imported goods are liable to confiscation even though only part of goods were seized? Whether l the imported goods are liable to confiscation even when they were not seized? (g) Whether the quantum of duty has been correctly worked out? (h) Whether extended time limit is applicable and whether penalties are imposable? (a) Whether ADG DRI was competent to issue the impugned show-cause notices? If the ADG DRI had no jurisdiction to issue the show-cause notices under Section 28 of the Customs Act whether amendment dated 16.09.2011 to Section 28 of the Customs Act retrospectively validate the show-cause notices and the proceedings thereafter? 11. We hold that the ADG DRI was competent to issue the impugned show-cause notices for the following reasons. (a) We find that ADG DRI has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption fine. The Collector while adjudicating overruled the objection questioning his jurisdiction. On appeal by the party, the Tribunal vide the order dated 4-1-2005 .. allowed the appeal holding as follows : It is very velar that the Commissioner of Customs (Preventive) does not have jurisdiction to issue the impugned show-cause notice and in view thereof he could not have the jurisdiction to adjudicate the matter when imports have taken place at Bombay Customs House. In the Kripa Shankar case, the show-cause notice was issued by the Commissioner of Customs (Prev.) but the adjudication was done by the Commissioner of Customs. The Tribunal held that the show-cause notice was issued by a proper officer under Section 28 of the Customs Act. The Hon ble Supreme Court in the combined decision dated 18.02.2011 in the case of Syed Ali and Kripa Shankar has held that merely appointing a person as an officer of Customs is not sufficient for issuance of notice under Section 28. The said decision did not deal with any show-cause notice issued by ADG DRI. (d) In a matter involving issue of show-cause notice by ADG DRI, the decision of the Mumbai bench of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pursuance of the provisions of the Act at all material times irrespective of issuance of any specific assignment on 6th July, 2011. Further, the amendment to Section 28 was by way of inserting sub-section (11) which reads as under: Notwithstanding anything to the contrary contained in any judgment, decree, or order of any court of law, Tribunal or other authority, all persons appointed as officers of Customs under sub-section (1) of Section 4 before the 6th day of July, 2011 shall be deemed to have and always had the power of assessment under section 17 and shall be deemed to have been and always had been the proper officers for the purposes of this section. (b) Whether adjudication of the show-cause notices by the specially nominated Commissioner, who was earlier the ADG DRI and who issued the show-cause notices was in violation of principles of natural justice? Whether there is violation of principles of natural justice in not allowing the cross-examination of the group of scientists involved in preparing the CAIR report? 12.1. There are no submissions that ADG DRI personally participated in the investigation. Based on the investigation report, ADG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trol system. (b) The telephone sub-system of AXE is called APT. APT comprises of switches, multiplexers, interface components etc. In other words, APT switching system contains all sub-systems dealing with traffic handling, operation and maintenance, charging and other switching oriented tasks. (c) The control sub-system is called APZ. APZ comprises of microprocessors, application specific circuits designed for switching, logic devices specifically programmed for the concerned equipment etc. APZ system, comprising both hardware and software units, controls not only the operation of APT but the whole system. APZ employs Application Specific Integrated Circuits, memories, programmable logic devices, microprocessors and digital processors to control and monitor the operations of a MSC or BSC or BTS. (d) The equipments imported have beeen described as Base Transceiver System (BTS), Base Station Controller (BSC) and Mobile Switching Centre (MSC). All these equipments form part of the mobile telecommunication network manufactured by Ericsson AB in their factory located at Sweden. After manufacture, and before dispatch, Ericsson AB conducts a factory test by loadin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets unlike the present appellants who have not paid any excess amount towards purchase of software. The software is undisputedly in the system imported as hardware along with a backup. It was also available for downloading through internet. Under these circumstances, the need for import of such software separately in ODs/CDs has not been satisfactorily explained! (e). This is not the end of the story. In certain cases, EIL has undertaken copying of ODs/CDs in their office in Gurgaon and dispatched the said ODs and CDs to Sweden for re-despatch to India. No valid reason has been given as to why the same could not be copied in Sweden itself. While sending the ODs/CDs, the value declared was very nominal. When the said ODs and CDs came on the return journey, the value declared was very huge though the said CDs and ODs were destined to lie unopened and unused. (f) Appellants claim that the software which was preloaded in the hard disc/flash memory contained in the imported hardware equipments has no commercial value and that what was imported in ODs/CDs only has such value primarily because of licence permitting use of the said ODs/CDs. To say that what has come preload ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... department? Analysis of Decisions Relied upon: 14.1 Both sides have relied upon a few decisions of the Hon ble Supreme Court and also the decisions of the Tribunal, (some of them relating to computer and its software and others relating to electronic equipments (other than computer) and their software) to canvass their respective points of view on the crucial issue as to whether the value of impugned software should be excluded while determining the value of equipments (hardware). It may be appropriate to discuss the decisions relied upon by both sides at this juncture (by highlighting relevant portions) to understand the ratios of the decisions and also draw guidelines to decide the said issue. a) Hon ble Supreme Court in the decision dated 17.12.96 in the case of PSI Data System Ltd. vs. CCE [ 1997 (89) ELT 3 (S.C.)] dealt with tangible software recorded in discs, floppies, CD Roms which were sold along with computers . In the said case, it has been noted that the said software were either bought out or imported. In the said case, the assessee who was manufacturing computers, was supplying such bought-out items along with the computers. In the background of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was classifiable under chapter 8524. This is a case wherein the hardware loses its identity and becomes part and parcel of software. d) Hon ble Supreme Court vide the decision dated 24.9.2004 in the case of Commissioner of C. Ex., Pondicherry vs. Acer India Ltd. [2004 (172) ELT 289 (S.C.)] dealt with the case of valuation of computers supplied after loading certain operational software which was meant to enhance the efficiency of the computer and consequently the issue of excluding the value of such software from the total value of computers supplied to the customers, and elaborately dealt with the meaning of certain terms relating to computer: A Computer : 18. Before adverting to consider the rival submissions at the bar, we may notice the meaning of certain terms as also the functioning of a computer. 19. In Newton s Telecom Dictionary, Application Program has been defined at page 54 as under : A computer software program designed for a specific job, such as word processing, accounting, spreadsheet, etc. 20. In the said dictionary, Firmware has been defined at pages 281-282 as under : Software kept in semipermanent memory. Firmware is used in conjunction with hardw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce a specific order upon the manufacturers of computers for supply of CDs which contain operating softwares like Windows 2000, Windows XP etc. as also the right to use the same under licence. The said softwares indisputably can be purchased separately and loaded in the computer by the purchasers themselves. They can be loaded even at the premises of the purchasers and by persons other than the manufacturers. The computers, however, are also loaded with different types of softwares on to the hard disc along with licence to use, if and when specifically ordered by the customers. Computers and operational softwares admittedly are available in the market separately. For the purpose of this case, however, we would proceed on the premise that all the computers are cleared with the softwares loaded onto the hard disks and with the CDs containing the softwares along with the licence to use. xxxx xxxx xxxx 35. The taxing authorities cannot ignore the legal character of the transaction and tax it on the basis of what may be called substance of the matter . One must find the true nature of the transaction. [See Union of India and Others v. Play World Electronics Pvt. Ltd. and Another, (1989 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly because the informations contained therein are loaded in the hardware. 65. It is not in dispute that operational softwares are available in the market separately. They are separately marketable commodities. The essentiality test or the functional test cannot be applied for the purpose of levy of central excise inasmuch as the tax is on manufacture of goods . The Act being a fiscal legislation an attempt must be made to read the provisions thereof reasonably. Computer comes within the definition of excisable goods. So is a software. They find place in different classifications. The rate of duty payable in relation to these two different goods is also different. 66. In terms of Chapter Note 6 of Chapter 85, as noticed hereinbefore, a software retains its character irrespective of the fact as to whether it is sold with the apparatus, viz., the computer. Once it is held that the essential characteristic of a software is not lost by reason of its being loaded in the hardware; having regard to the different sub-headings contained in different chapters of the Tariff Act, the intent and purport of the legislature, in our opinion, cannot be permitted to be withered away only because th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of software therewith would not arise since what is under assessment is only the computer. To the same effect is the judgment in Photopone Industries Pvt. Ltd. v. CCE, Goa, [1999 (108) E.L.T. 523]. Xxxx xxxx xxxx Conclusion : 79. Computer and operative softwares are different marketable commodities. They are available in the market separately. They are classified differently. The rate of excise duty for computer is 16% whereas that of a software is nil. Accessories of a machine promote the convenience and better utilization of the machine but nevertheless they are not machine itself. The computer and software are distinct and separate, both as a matter of commercial parlance as also under the statute. Although a computer may not be capable of effective functioning unless loaded with softwares, the same would not tantamount to bringing them within the purview of the part of the computer so as to hold that if they are sold along with the computer their value must form part of the assessable value thereof for the purpose of excise duty. Both computer and software must be classified having fallen under 84.71 and 85.24 and must be subject to corresponding rates of duties separat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter the decision in PSI Data Systems (supra) must be held to have correctly been rendered. (e) Hon ble Supreme Court in the decision dated 16.01.2006 in the case of Anjaleem India Pvt. Ltd. Vs. CCE, Ahmedabad considered the issue as to whether a programmed or designed EPROM was an integral part of STD-PCO unit and held that the said chip was classifiable as an integral part of STD-PCO unit under heading 85.17 and that the value of the same was includible in the assessable value of STD-PCO unit. The submission of the assessee was noted that the said STD-PCO unit was a computer based equipment. The blank EPROMs were classifiable under chapter heading 8542 as an integral circuit; they were purchased from the market at Rs. 149/- each; the programme for STD-PCO unit was recorded on EPROM which was sold at Rs. 6,450/-; the STD-PCO unit was sold at Rs. 8,453/-. The Hon ble Supreme Court recorded the following findings: 16. The controversy on classification, therefore, is: whether the essential character of the programmed EPROM, in the present case, as an IC changed to become a recorded media or a software under CH 85.24. 17. The main components of a computer system are central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Edition]. According to the Illustrated Dictionary of Computing by Jonar C. Nader - 3rd Edition, ROM is a hardware which is used to store permanent instructions for the computer s general housekeeping operations. A user can read and use the data stored in ROM, but cannot change them. When a computer is turned on, ROM supplies a series of instructions to CPU which in turn performs a series of tests. EPROM, on the other hand, according to the same dictionary, is an erasable programmable ROM. Initially, users had to supply ROM vendor with an inter-connected program so that the vendor could build the ROM. To avoid this high set-up charge, manufacturers developed a user-programmable ROM (PROM). A PROM is just like a ROM. Similarly, as an alternative, with the development of technology, in the year 1973 Intel Corporation came out with EPROM. When the chip was exposed to ultra violet radiation the memory could be erased and replaced by a new memory. Therefore, EPROM is a re-writable memory chip. The only difference between ROM and EPROM is that EPROM holds its content without power. EPROM chips are written on an external programming device before being placed on the circuit board [See: ww ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r CH 85.42. In the former case, the program is a software because a floppy is a storage in which software plays the dominant role whereas in the case of IC the programme is embodied in the IC which can perform various functions only when fixed to the mother board and is not removable like a floppy from VCR. According to Encyclopaedia of Technology Terms by Whatis.com, an IC can function as an amplifier, oscillator, timer, microprocessor etc. On the other hand, a floppy disk is only a storage. Moreover the essential character of IC does not change with the programme being embedded in the IC and hence the IC remains classifiable under CH 85.42. This distinction is also brought out by tariff items referred to above (See: Dictionary of Computing by Prentice Hall). 24. An embedded system is a programmed hardware device. Software written for embedded systems, especially those without a disk drive is called Firmware, the name for software embedded in hardware devices e.g. in ROM IC chips. Many embedded systems avoid mechanical moving parts, such as, disk drives, switches or buttons because they are unreliable as compared to ROM or Fast Memory IC chips. It is kept outside the reach of hum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogramme is a software. However, a ROM with a particular circuit in which a programme is structured remains an IC. .. 30. Before concluding, we reiterate that in the present case, the levy is on a computer based embedded system. The software embedded in the programmed EPROM, which is an IC chip, constitutes the brain of the system. The programmed EPROM is an integral part of the system. The levy is on the unit. The levy is not on the programmed EPROM. The programme embedded is not an easily removable. Hence, it will not fall in the category of recorded media under tariff item 85.24 and remains an IC under tariff item 85.42. (f) Hon ble Supreme Court in the decision dated 30.08.2007 in the case of Commissioner of Customs, Chennai Vs. Hewlett Packard India Sales (P) Ltd. [2007 (215) E.L.T. 484 (S.C)] considered the issue of valuation of laptop and particularly the issue as to whether the preloaded operating system recorded in HDD in the laptop formed an integral part of the laptop, and approved the department s stand and held that when a laptop is imported with inbuilt preloaded operating system recorded on HDD, the said item forms an integral part of the laptop (computer sys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s would be classifiable as data processing machines and not with reference to the machines in which they may be incorporated on in conjunction with they may work. The software for such machines would be in any case be software for data processing machines. We must also note that the tariff nowhere provides for classification of computers . The terms it uses are data processing machines and equipment therefor. In construing the meaning of the term in notification which is not found in the tariff, we must apply its meaning as generally understood. That is what we have done. This is made clearer by the fact that the notification was amended by notification 103/98. After the amendment software required for operation of any machine performing a specific function of data process by incorporating or working in conjunction with an automatic data processing machine is specifically excluded by the explanation. However, this explanation was not present when the software in question was imported. The software in question was entitled to exemption under notification. The department s appeal against the order of the Tribunal was dismissed. The Tribunal decision was to the effect that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted for classification is to be based on easily understandable parameters. (b) The decisions in respect of software and hardware in relation to computer are to the effect that if any software is embedded/etched/burnt then it has to be included as part of the hardware and cannot be treated as stand-alone software and that the value of such embedded software should be part of the value of computer. However, it cannot be concluded that only the value of software which is embedded/etched/burnt is to be included in the value of the computer. (c) It is not as if essentiality is an irrelevant criterion for determining the classification/valuation and at the same time essentiality is not the sole criterion for deciding the classification or determination of value. (d) In the matter of valuation, one of the important aspects to be taken into account is the condition of the goods/product at the time the goods leave the factory (as held by Hon ble Supreme Court in para 13 of Anjaleem case). Similarly, in respect of imported goods, the condition of the goods/product at the time of import is relevant. (e) In certain circumstances, software loses its identity as softwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is treated as integral part of computer and there is no question of separate classification or excluding the value of the same from the computer (as could be inferred from para 24 & 25 of the judgment in the case of Acer). This is a case where the software loses its identity and becomes part of hardware. (b) However, the software in the form of disks, floppies, CDs sold along with the computer is not to be included in the assessable value of the computer as such software is distinct and separate from the computer and is also being sold independently in the market (as held in the case of PSI Data Systems). (c) Hard disc loaded with software installed in a laptop, has to be treated as integral part of the laptop and cannot be subject to separate classification and grant of exemption (as held in the case of Hewlett Packard case). d) Tangible software recorded in disks, floppy, CD Rom are being bought and sold in the market separately. A person may separately buy this software and use the same in his computer. On certain occasions, such tangible software can be sold along with computers . In such a situation, the software in disk, floppy, CD Rom has separate id ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcel of cell phone, but not about the software which gives the cell phone its identity. 16.1. Scientists and engineers work hard to invent more and more complicated systems and devices so that the life of customers who use them become more and more simple. 16.2. In particular, improved versions of crucial storage device ROM (read only memory) namely PROM, EPROM, EEPROM and flash memory have been invented. ROM stands for read only memory . ROM became programmable by the user himself leading to the emergence of PROM which stands for programmable read only memory . Further development led to discovery of method for erasing the programme in ROM using ultraviolet light and thus EPROM (Erasable, Programmable Read Only Memory) came to be invented. From EPROM which was erasable using ultraviolet light, electrically erasable PROMs came to be invented and thus EEPROM came into existence. Flash memory is a specific type of EEPROM. 16.3. The storage devices meant for storing data/programmes have thus evolved over a period of time. What was considered permanent became erasable either by using ultraviolet light or electrically. What was usable once has become usable many ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not a case where the equipments have been presented with software. On the other hand, it is a case of importing equipments which contained essential software/intrinsic software giving the functional identities to the imported equipments. In view of the above, the chapter note 6 to Chapter 85 of the Indian Customs Tariff has no relevance to the present case. (e) Whether the decision of the Tribunal in the case of Vodafone is applicable to the facts of the present case or not? 18.1. It is the contention of the appellants that the facts of the case in the present appeals are substantially the same as the facts of the Vodafone case. Therefore, the Tribunal should follow the decision of the coordinate Bench. However, if the Bench forms a different opinion, the matter requires to be referred to a Larger Bench. In this regard, the learned advocate has relied on the decision of the Hon ble High Court of Allahabad in the case of Xerox India Ltd. vs. CCE, Meerut-II : 2011 (270) ELT 651 (All.). 18.2. On the other hand, the department is of the view that the present case is based on certain facts discovered during investigation, technical material recovered/obtained f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under heading 85.17/85.25, and the software for the same is closely integrated and assembled with the constituents of the machines/equipments, more tightly than even the laptops. 18.3. We have carefully considered the submissions from both sides on the issue as to whether the facts of Vodafone case and the present case are substantially the same or different. No doubt, in the Vodafone case also, the equipments imported are MSC classifiable under Chapter Heading 85.15, BSC and BTS classifiable under Chapter Heading 85.25. They came with preloaded software required for operating the said equipments. They also imported the same software in media in the form of CDs/tapes separately and sought classification under Chapter Heading 85.24 and claimed the benefit of exemption under Sl. No.157 of Notification No.21/02-Cus. The imported CDs/tapes were not even opened for more than six years and it was held that the same was never required and was not of any use. However, in the present case some of the evidences relied upon are significantly different from what was relied upon in Vodafone case. The Tribunal has specifically noted the following submission made on behalf of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... getting the same back as if a genuine import and allowing the same to gather dust as e-waste. Further, we find that the Tribunal in the case of Vodafone came to the conclusion that the software was contained only in Winchester hard disc and therefore, could not be considered as embedded or etched software. In the present case, we find that the software meant for BTS is contained in the flash memory which is a form of EEPROM. Therefore, in the light of evidence produced, we find, the facts of the present cases are different from the facts of Vodafone case. Similarly, the Tribunal in the said case came to the conclusion that the software in the form of tapes/CDs having come separately in CDs and Tapes was not embedded or etched. In the present case, we have noticed that there is fraud in preparation of ODs and CDs and sending them to Sweden and re-importing the same to be dumped as e-waste. (It is settled law that fraud nullifies everything.) This crucial fact also distinguishes the present case from Vodafone case. (f) Whether all the imported goods are liable to confiscation or only goods which were seized by the department are liable to confiscation? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here it is not practicable to seize any such goods, the proper officer may serve on the owner of the goods an order that he shall not remove, part with, or otherwise deal with the goods except with the previous permission of such officer. . SECTION 111: Confiscation of improperly imported goods, etc. The following goods brought from a place outside India shall be liable to confiscation: (a) to (l) .. (m) any goods which do not correspond in respect of value or in any other particular with the entry made under this Act or in the case of baggage with the declaration made under section 77 in respect thereof, or in the case of goods under transhipment, with the declaration for transhipment referred to in the proviso to sub-section (1) of section 54; (n) to (p) SECTION 124. Issue of show cause notice before confiscation of goods, etc. No order confiscating any goods or imposing any penalty on any person shall be made under this Chapter unless the owner of the goods or such person - (a) is given a notice in writing with the prior approval of the officer of Customs not below the rank of an Assistant Commissioner of Customs, informing him of the grounds on which it is proposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods are in the safe custody of agencies like Port Trust, Airport Authority of India or like custodians and such goods shall not be allowed clearance even in the normal course without grant of out of charge by the customs authorities. In such a situation, the offending goods can be confiscated without effecting seizure but after issuing show-cause notice under Section 124. (c) The offending goods are seized and provisionally released on execution of bond with security like bank guarantee, etc. In respect of goods which were seized and provisionally released in the said manner to the owner before adjudication, the owner of the goods is liable to return the goods at the time of adjudication in terms of his undertaking and, in the event of failure to produce the same, fine in lieu of confiscation can be imposed as settled by the Hon ble Supreme Court in the case Weston Components Ltd. Vs. Commissioner of Customs, New Delhi [2000 (115) E.L.T. 278 (S.C.)]. (d) The offending goods may be outside the jurisdiction of Indian Customs authorities as in the case of goods which have been illegally exported. In such a situation, the authorities may not be able to pass an order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the confiscation, however considering that the goods were imported over a long period August 2001 to April 2006 and that the order of confiscation was made in April 2008, and that the goods were meant for the importers own use for rendering services and not for sale, we are of the view that there is some scope for reducing the quanta of redemption fines imposed by the Commissioner. 19.12. It was pointed out during arguments that, out of the seized equipments of value Rs. 9.94 Cr., approximately Rs. 3.30 Cr related to Microwave equipment, against which there was no proposal for confiscation as conceded by the Department. This fact is also being taken into account while reducing the redemption fines. (g) Whether the quantum of duty has been correctly worked out? 20.1. The appellants, alternatively, submit that the duty demand computed is based on a highly excessive and arbitrarly value. It is claimed that the average value of the software imported is approximately 25% of the aggregate value of imports of hardware and software during the period 2003 to 2006. It is the contention that, at the time of import, the equipments were imported by declaring unit price, i.e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hardware is Rs.36,61,08,454; assessable value of software is Rs.35,98,45,026 and thus the combined assessable value to be Rs.72,59,53,480. (d) In respect of show-cause notice dated 29.05.2006 issued to MSC, BSC, BTS, it is claimed that assessable value of hardware is Rs.4,05,85,06,183; assessable value of software is Rs.1,44,20,48,167 and thus the combined assessable value to be Rs.5,50,05,54,350. (e) In respect of show-cause notice dated 31.05.2006 issued to MSC, BSC, BTS, it is claimed that assessable value of hardware is Rs.14,97,33,088; assessable value of software is Rs.19,96,12,962 and thus the combined assessable value to be Rs.34,93,46,050. (f) In respect of show-cause notice dated 31.05.2006 issued to MSC, BSC, BTS, it is claimed that assessable value of hardware is Rs.9,41,98,927; assessable value of software is Rs.16,29,60,315 and thus the combined assessable value to be Rs.25,71,59,242. 20.3. From the above, it is clear that the claim of the appellants for the first time before the Tribunal that the value of software is about 25% of the composite value is contradictory to the figures furnished by them and thus their claim is unsubstantiat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te commodity, it was incumbent on them to declare the same as software and claim separate classification and claim the benefit of nil rate of duty/exemption notification. This was not the case. They have not declared the fact of importing the equipments with preloaded software. On the other hand, they have followed a highly deceptive practice of importing software in CDs/ODs declaring high values and then dumping them as waste . The said CDs/ODs were lying in original packing, unopened and unused as they did not find any need for use of the software so imported separately. The imported telecom equipments contained the necessary software along with backup, and it was also claimed that the latest software was available to be downloaded through internet. In these circumstances, the assessee-appellants deceitful intention to underdeclare the value of imported goods is evident and their plea of bona fide belief is bereft of bona fides as there was no justification for them to hold an opinion that the practice followed by them was covered by the ratio of any of the cited decisions. Therefore, the invocation of extended period of limitation and imposition of penalties on the appellant-ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 114A envisages penalty on the person who is liable to pay the duty or interest, as the case may be, as determined under sub-section 8 of Section 28 . The Commissioner was not in a position to determine the interest amount at the time of passing the impugned order. Therefore, his imposing penalties equal to the duty determined is in order. 21.4. The role of EIL, as per the show-cause notice and the order-in-original is limited to copying of ODs/CDs in their office at Gurgaon and dispatching them to Ericcson AB, Sweden for re-despatch to India. The filing of Bills of Entry has been done by appellants (1) and (2) based on split invoices issued by Ericcson AB. Appellants (1) and (2) have failed to declare that the equipments imported by them contained preloaded software. They have also devised a deceptive practice in importing totally redundant CDs/ODs said to contain the same software which was preloaded in the imported equipments. In all these activities, the role of EIL is only limited to copying of the software in ODs and CDs at the instance of Ericcson AB of Sweden. No other evidence which could indicate that EIL had knowledge of intention of the importers or that, by an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r period prior to September 2001. (e) The programs that make the switching equipment function are not independent software and cannot be marketed separately. Similarly, the programs required to make the BTS functional are loaded on to flash drive and are integral part of BTS equipment. (f) The separately imported softwares are found to be dupes copied in EIL, Gurgaon. Undisputedly, the impugned software is proprietary software. It has not been explained as to how the same was permitted to be copied by a third party, namely, EIL. It was claimed that it might be a cost-saving measure adopted by Ericsson AB Sweden. Allowing copying of proprietary software by a third party (even if the said party happens to be a subsidiary) was not a cost-saving measure but part of a design to evade customs duty. No records were kept for such copying of software. The copied software was sent to Sweden and dispatched back to India. The CDs/ODs were not in proper packing and not properly labelled defeating the claimed status of the software. They were not opened and not used till they were seized by the DRI authorities. The appellants have not chosen to ask for provisional release of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame to the functional apparatus/equipment. The software is written in a specialized language PLEX which is proprietary in nature. The software is machine-specific and the same is mandatorily required for working of the said machine. It has not been shown that there is separate identity for the impugned software marketable as a separate commodity. We have not been shown that there was an option to buy the impugned software separately. (l) There is no justification for excluding the price of preloaded software from the value of equipments as claimed by the assessee-appellants. (m) There is clear evidence of deliberate underdeclaration of value of the imported equipments by the assessee-appellants through a grossly deceptive method with intention to evade payment of duty. In view of the above, the invocation of extended period for demand of duty, confiscation of the imported goods, and imposition of penalties on the assessees are justified. 23. In view of the above, the issues framed in para 10.2 are to be answered as follows: (a) ADG DRI had jurisdiction to issue the show-cause notices and the show-cause notices have been validly issued. (b) There is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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