TMI Blog2014 (6) TMI 387X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess. As per system integration agreement, the STB integration costs refer to the cost of development of the software, which is required to be supplied by the manufacturer. NDS assists the manufacturer to develop this software to be loaded on to the STB - subscriber access card is the key component of the conditional access system and it is an active security device of the STB and hence an integral part of the STB. Therefore, the cost of the same has to be included in the assessable value of the STB in terms of Rule 6 of the Central Excise Valuation Rules. Pre-loaded operating systems software in the Hard Disk Drive of the laptop forms an integral part of the laptop and therefore, the cost of such pre-loaded software forms part of the value of the laptop - cost of software which has been loaded on to the flash memory which in turn has been soldered onto the PCB of the STB forms an integral part of the STB and therefore, the value of the STB shall include the value of such software also. In these circumstances, we uphold the confirmation of duty demand against the appellant by including the value of remote control, smart card and software in the value of STB. Consequently, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d sold the said goods to M/s Thompson, M/s Thompson had in turn an agreement to sell the STBs to Tata Sky. M/s Tata Sky supplied remote controls and viewing cards to the appellant through M/s Thompson. M/s NDS is a foreign collaborator of Tata Sky and NDS had given access to the appellant to download certain types of software from their server. M/s Tata Sky had agreement with NDS for the use of the software. The software was downloaded into a flash memory by the appellant which was then soldered to the populated printed circuit board of the set top boxes which were cleared to M/s Thompson. Tata Sky had paid royalty/licence fee to NDS for supply of the aforesaid software. The case of the department is that the value of remote control and viewing card supplied by Tata Sky should be included in the assessable value of STBs as they form an essential part of the STB. Further the amount of royalty/licence fee paid by Tata Sky to NDs for the download of the software by the appellant should also form part of the assessable value of the STBs. These two cost elements are addable to the assessable value in terms of Rule 6 of the Central Excise Valuation Rules, 2000 read with section 4(1) (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ol is includible in the STB only if the remote control supplied is used in the production and sale of STB. Since production of STB is complete without remote control, remote control value cannot be added to the value of STB for levy of excise duty. (6) As regards inclusion of value of the viewing card provided by Tata Sky, the viewing card carries a number printed on it. The said number is scanned into a computer which is paired with the STB to enable Tata Sky to maintain the services provided to its customers. Thus at the appellant's end, data entries are made/created linking/pairing the viewing card number with the corresponding STB number. Apart from this nothing is done to the viewing card or STB. The viewing card is merely inserted into the slot provided for it in the STB. Thus the STB is complete even without the viewing card and hence inclusion of value of viewing card in the value of STB does not arise. In the case of STBs exported, viewing card is not supplied which also proves that STB is complete in itself without the viewing cards. The ratio of the decisions relied upon in the case of remote control would apply equally in the case of viewing cards also. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o suppression of facts or intention to evade payment of duty. Hence imposition of equal amount of penalty is very harsh and inequitable. Accordingly it is prayed that the appeal be allowed. 4. The ld. Commissioner (AR) appearing for the Revenue made the following submissions:- (1) M/s. Tata Sky, a joint venture of Tata Group with M/s Newscorp had set up a DTH platform for providing DTH broadcasting services in India under a licence issued by the Govt. of India. Signals in DB broadcasting are received through STB in subscriber premises and Tata Sky had entered into following agreements with NDS Ltd., UK and M/s Thompson Broadband (I) Pvt. Ltd. (a) Agreement between Tata Sky and NDS Ltd. for supply of viewing cards and conditional access module; (b) Memorandum of understanding between Tata Sky and Thompson for supply of DTH STB as per mutually agreed specifications; (c) Statement of work between Tata Sky, NDS and Thompson. (2) As per these agreements, the STB hardware shall comply with the specifications contained in Generic Digital Project and STB interface specifications for use with the smart cards. Statement of work referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enerated and the smart card is inserted inside the set top box. This particular activity is carried out as per the approved customer plan of Thompson. (5) In view of the above factual position, the cost of smart card (viewing card), remote control and software, supplied free of cost by the buyer or on behalf of the buyer, is addable to the assessable value of the goods supplied in terms of Rule 6 of the valuation rules. (6) Reliance is placed on the decision of the Tribunal in the case of Avaya Global Connect Ltd. [2007 (213) ELT 383] wherein it was held that software supplied along with the system, viz., EPROM as embedded in the system, becomes its integral part and therefore the value of such basis software is includible in the assessable value of the system. Similar view has been expressed by the hon'ble Apex Court in the case of Anjaleem Enterprises Pvt. Ltd. [2006 (94) ELT 129] wherein it was held that EPROM is a re-writable integrated chip/memory chip and the programme embedded in it is not easily removable. It cannot be compared to a floppy which is only a dumb box. Therefore, it is classifiable as an integrated circuit and not as software and thus distingu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ian Aluminium Co. Ltd. [1991 (55) ELT 454 (SC)] in support of this contention. Accordingly it is pleaded that the impugned order is sustainable in law and the appeal deserves to be dismissed. 5. We have carefully considered the rival submissions. Our findings and conclusions are discussed in the ensuing paragraphs. 5.1 In the present case the value of the STB manufactured and supplied by the appellant is sought to be enhanced in terms of the provisions of Rule 6 of the Central Excise Valuation Rules, 2000. It would be, therefore, useful to examine the said Rule which reads as follows:- RULE 6. Where the excisable goods are sold in the circumstances specified in clause (a) of sub-section (1) of section 4 of the Act except the circumstance where the price is not the sole consideration for sale, the value of such goods shall be deemed to be the aggregate of such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee. Explanation 1 - For removal of doubts, it is hereby clarified that the value, apportioned as appropriate, of the following goods and services, whether suppli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be treated as an additional consideration flowing directly or indirectly from the buyer to the assessee. It is in the light, the said Rule has to be applied to the facts of the case in hand. 5.3 As per the MOU between Tata Sky and Thompson dated 17-1-2006, Clause 9.1 of the MOU stipulated that the STB supplied to Tata Sky shall conform to the mutually agreed specification as attached in Schedule 2 to the MOU. The said specification is the Surya Product Development Specification, Space TV. Clause 6 of the said specification deals with Conditional Access and Security. The relevant extracts therefrom are reproduced below:- The STB shall feature a conditional access system developed by NDS. This system uses a detachable smart card and several hardware and software components within the STB. The subscriber access card complies fully with ISO-7816 standards, including authentication procedure, which prevent the use of unauthorized cards. 6.1 Subscriber Access Card The subscriber access card is the key component of the conditional access system, containing secret user information, entitlements and authorizations, and other pieces of information which are used by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be soldered on the main Digital Receiver Board. The use of sockets and removable component mountings is not acceptable. All NDS technology shall be an integral part of the main board. A separate printed circuit assembly containing NDS technology is not acceptable. As per the agreement for the supply of viewing cards and conditional access modules entered into between Tata Sky and NDS, Conditional Access Module (CAM) is a hardware device that contains NDS software and which hardware device plugs into a common interface slot in a receiver decoder service, which is compliant with BIS standards for a digital STB for DTH is 15377:2003. Further NDS CAM means the NDS software, third party equipment and NDs hardware to be supplied by NDS to be used for encryption and decryption of programming within the DTH service in support of Tata Sky's pay-TV business. STB means a digital set-top box decoder, supplied by the manufacturer for the purpose of availing DTH service which receives, decodes and accesses programming and data signals transmitted by Tata Sky for use with the NDS Conditional Access system. 5.6 From these documents available on record, which are self explanatory, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the technical literature submitted by the appellant during the proceedings, it is seen that the flash memory used in the present case is an integrated chip consisting of Voltage generators, voltage detectors, timers, decoders, gates and so on. Thus it is an integrated circuit and not merely a media for storage of software. 5.9 As regards the question whether the cost of remote control supplied free of charge by the buyer can be added in the value of STBs supplied by the appellant to the buyer, the appellant has relied on the decisions in the case of Shriram Bearings, Essel Propack, Electronics Corporation, Kamal Engineering Works and TI Diamond Chains, etc. (supra). On a perusal of these decisions, it is seen that all these decisions dealt with situations pertaining to the period prior to 2000. Prior to 1-7-2000, the valuation rules did not provide for addition of costs in respect of goods supplied free of charge by the buyer to the assessee. With effect from 01/07/2000, the new Central Excise Valuation Rules came into force. As per Rule 6 of the said Rules, the value of materials, components, parts and similar items relatable to the goods under clearance, when supplied free by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld in paragraph 5.4 that the subscriber access card is the key component of the conditional access system and it is an active security device of the STB and hence an integral part of the STB. Therefore, the cost of the same has to be included in the assessable value of the STB in terms of Rule 6 of the Central Excise Valuation Rules. 5.12 The next question for consideration is with regard to the inclusion of cost of software which were downloaded and incorporated in the flash memory chip which was soldered onto the PCB of the STB. As per the literature available, flash memory is EPROM (Erasable Programmable Read Only Memory) and is an integrated chip. Thus, it is a rewriteable memory chip on which programmes are written with an external programming device before being placed on the PCBs. Thus, the flash memory is an integral part of the STB and therefore, its cost would include the cost of software loaded on to it. It is in this factual context, the decisions relied upon by the appellant have to be examined. The appellant has relied on the decisions of the Apex Court in the case of PSI Data Systems and Acer India Ltd. wherein it was held that software has independent existence a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quipment, it is not a case of charging duty on software but it is a case of charging duty on the equipment which includes the value of such basic software. In the Hewlett Packard Sales (P) Ltd. case, the Hon'ble Apex Court once again reiterated the above view, wherein it was held that pre-loaded operating systems software in the Hard Disk Drive of the laptop forms an integral part of the laptop and therefore, the cost of such pre-loaded software forms part of the value of the laptop. Accordingly, the Hon'ble Apex Court held that when a laptop is imported with inbuilt pre-loaded operating system recorded on the hard disk, the said item forms an integral part of the laptop and has to be classified as laptop and not as computer software separately. Applying the ratio of these decisions to the facts of the present case, it becomes abundantly clear that the cost of software which has been loaded on to the flash memory which in turn has been soldered onto the PCB of the STB forms an integral part of the STB and therefore, the value of the STB shall include the value of such software also. In these circumstances, we uphold the confirmation of duty demand against the appellant by i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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