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Shri Atul Kaushik, Shri Krishan Dhawan, M/s. Oracle India Pvt. Ltd. Versus C.C. (Export) , New Delhi

2015 (9) TMI 317 - CESTAT NEW DELHI

Valuation - Import of Oracle packaged software - condition of sale or condition of use - Whether the licence fee paid by OIPL to its parent company Oracle USA is includible in the assessable value of imported media packs – the licence fee has actually been collected from the customers and a part of it (56%) remitted by OIPL to Oracle USA. Ld. counsel has strenuously argued that the licence fee remitted by OIPL to Oracle USA was not a condition of sale and only a condition of use. - Held that:- l .....

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ully aware that the order has been uploaded/scanned into Oracle Order Management System only after the customer agreed to pay the licence fee for the software and this information was available to Oracle USA as well as Oracle Ireland before the shipment was made. OIPL was incorrect when it claimed initially that it was a case of stock and sale and that the software imported from Ireland could be given to any customer, commercial or non-commercial. It comes out clearly that each software which wa .....

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rm of physical media packs was neither known at the time of import nor was it a condition of sale and therefore licence fee remitted on that account cannot be said to be a condition of sale and hence would not be includible in the assessable value and customs levy thereon would also be hit by the absence of collection mechanism - Decided in favor of assessee.

Non commerical use of Media pack - inclusion of notional licence fee - Held that:- Clearly stated in Software Duplication and D .....

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that:- Supreme Court in case of Tata Consultancy Services [2004 (11) TMI 11 - Supreme Court] held that software even in its intangible form are goods and therefore electronic download of software from server located abroad would get captured in scope of import of goods – From provisions of Customs Act, 1962, it is evident that entire Customs Act provides mechanism/procedure for levy and collection of duty only in respect of tangible goods – Software is intangible, can be downloaded anywhere, fro .....

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o remit 56% of licence fee to Oracle in its FIPB application is certainly indicative of fact that it did not have any intention to hide this fact – Seizure took place when customs could hardly claim that company had not disclosed facts about remittance of licence fee to Oracle – Further fact that appellant had followed same system, procedure and practice of declaring assessable value even during prior periods when there was no duty to be evaded at all – There is evidence on record that company s .....

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], Appeal Nos. C/148 -150/2011-CU[DB] - Final Order Nos. 52353-52355/2015 - Dated:- 29-7-2015 - Hon ble G. Raghuram, President And Hon ble Mr. R.K. Singh, Member (Technical), JJ. For the Petitioner : Shri V. Lakshmi Kumaran, Advocate, Shri S. Vasudevan, Advocate, Shri Rachit Jain, Advocate, Shri Abhinav Jaganathan, Advocate For the Respondent : Shri Govind Dixit, DR, Shri Amresh Jain, DR ORDER Per Mr. R.K. Singh: Appeal has been filed against Order-in-Original No.MIJM/ACE/01/2011, dated 12.01.20 .....

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8.16% and not 8.24% and consequently the differential demand on account of higher rate of duty amounting to ₹ 52,05,030/- was also dropped. (iv) Forty nine consignments seized vide panchnama dated 15.01.2006 at NCT, IGI Airport Complex, New Delhi valued at ₹ 17,78,90,832/- (Rs.17,21,44,516 + ₹ 57,46,316/-) were confiscated under Section 111(m) of the Customs Act, 1962 for mis-declaration of value and allowed to be redeemed on payment of redemption fine of ₹ 17,78,90,832/ .....

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riod March, 2006 to December, 2007 was ordered to be recovered. All such goods cleared involving the said evasion were confiscated for mis-declaration of value under Section 111(m) ibid and as the goods were not available having already been released a fine of ₹ 1,27,35,26,395/- in lieu of confiscation was imposed. (vii) Interest at the applicable rate was ordered to be recovered under Section 28AB ibid. (viii) Penalty of ₹ 1,28,23,31,779/- under Sections 112 and 114AA ibid was impos .....

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er. These consignments used to be delivered to the home customers on the basis of the invoices issued by OIPL. On scrutiny of the said (OIPL) invoices, it was revealed that these invoices were issued by OIPL by adding licence fee to the value of the media pack. Thus, while importing and clearing the goods through Customs, OIPL declared value of the imported goods (media pack) without adding licence fee paid to the Oracle, USA, whereas while delivering the goods to the buyers, separate invoices r .....

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e no licence fee was actually paid by OIPL to Oracle USA, the value of the licence fee notionally payable by OIPL to Oracle, USA was computed for the purpose of computing the duty evaded. Forty nine consignments awaiting delivery were seized on the ground that they were similarly under-valued. The Show Cause Notice was issued on 03.06.2009. The adjudicating authority held that the licence fee paid or payable by appellant to Oracle, USA was includible in the assessable value and that OIPL had del .....

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customers in India on payment of a licence fee for granting right to use the software. During the relevant period, out of the actual receipt of licence fee from the customers in India, OIPL remitted 56% thereof to Oracle Corp., USA. 3.3 OIPL also provides Annual Technical Support (hereinafter referred to as ATS ) services in India wherein OIPL provides version updates and technical assistance to the customers. OIPL charged 22% of the license fee (15% for version updates and 7% for technical ass .....

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by OIPL. Media pack was not supplied to the customers in this model. (ii) EPD +: The customers downloaded Oracle software electronically. In addition, the customers were provided media pack for back-up purposes. (iii) Ship only: Only media pack was delivered to the customers. 3.5 OIPL made a distinction between shrink wrap software and the media pack imported in the present case. In shrink wrap software, the media (CD) is imported along with the software and the licence key in a bundled form. As .....

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o as Oracle Ireland ) to replicate oracle software on a media pack. For supply of such medial pack, Oracle Ireland raised an invoice on OIPL on the basis of the value of media pack, replication cost and mark-up. OIPL imported the media pack and paid Customs duty on such invoice price. 3.7 This arrangement between OIPL and Oracle Ireland was independent of the SDDA between OIPL and Oracle Corp., USA. The amount charged by Oracle Ireland remained the same whether or not OIPL paid 56% licence fee t .....

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Corp., USA. Dox Imports Dox , also known as license certificate or a certificate of authenticity , is supplied in the following cases: (i) EPD +; (ii) EPD; (iii) Existing customers seeking to increase the number of authorised users/licences. Oracle Ireland used to print the licence certificates (Dox) and supply the same to OIPL for ultimate delivery to the customers in India. The present demand on Dox relates to category (ii) & (iii). Differential duty under category (i) imports is demanded .....

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of global contracts between overseas Oracle entities and multi-national companies. OIPL received a share of the global deal based on the amount of users in India. 56% of this amount was remitted to Oracle Corp., USA. No physical imports were made under this model unless the Indian counterpart booked an order electronically for a version update through a media pack. Non-Commercial Transactions In the following transactions, licence fee was not charged by OIPL. Consequently, no remittances whatsoe .....

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scription fee of USD 500 for becoming part of this programme. Education: Oracle Academy Initiative (OAI) Oracle software was supplied to non-profit educational institutions. Such institutions paid an annual subscription fee of USD 500 for becoming part of this programme. Self Study CD ROMs (SSCD) Oracle software was supplied to IT Professionals on the prices displayed on the Oracle website for such supplies. Internal shipments Oracle software was imported and consumed internally by OIPL. Licence .....

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e 9(1)(c)/10(1)(c) of the Customs Valuation Rules, 1988/2007 (hereinafter referred to as Rule 10(1)(c) of the Customs Valuation Rules ). 3.11 This dispute is not about the dutiable value of the media pack itself, but instead solely whether certain actual and notional royalties should be added to the dutiable value of the media pack. Under Rule 10(1)(c) of the Customs Valuation Rules, if a buyer imports a product and is required to pay a royalty as a condition of sale, the amount of the royalty m .....

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his category, it was not a condition of the sale of the media packs. Instead, the license is a condition of the use of the software. In this bucket, the differential duty demand confirmed by the Ld. Commissioner amounts to ₹ 18,58,24,382/- out of a total demand of ₹ 128,23,31,779/-. The second bucket consists of shipments for which no royalties were due (e.g., replacement media packs for defective/damaged shipments and media packs provided to increase awareness of Oracle products in .....

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mported, there is nothing to value for Customs purposes. This bucket accounts for ₹ 21,07,07,858/- out of the total demand of ₹ 128,23,31,779/-. LEGAL SUBMISSIONS 3.11 ROYALTY/LICENSE FEE PAID TO ORACLE CORP., USA IS NOT ADDABLE TO THE DECLARED VALUE OF THE IMPORTED GOODS. PAYMENT OF LICENCE FEE IS NOT A CONDITION OF SALE OF MEDIA PACK. The declared value of the imported goods (media pack) should be accepted as the relationship between OIPL and Oracle Ireland has not influenced the p .....

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m Oracle Ireland. Thus, licence fee was not a condition of sale of media pack from Oracle Ireland. As per Section 12(2) of the Sale of Goods Act, 1930 a condition of sale is such stipulation, whose breach gives rise to the right to repudiate the contract itself. Following facts show that the payment of licence fee to Oracle Corp., USA is not a condition of sale of media pack by Oracle Ireland. Price charged by Oracle Ireland from OIPL for supply of media pack is same whether or not licence fee i .....

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ustomer does not opt for physical delivery of software in a media pack (EPD mode). Thus, payment of licence fee by Appellant is not linked to or in consideration of import of media pack from Oracle Ireland. As a matter of fact, at present, OIPL delivers software to its customers only through electronic means (i.e., no physical delivery option is given). As a result, there are no media pack imports. Even then OIPL continues to charge licence fee from the customers and in turn remit licence fee to .....

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e media pack is distributed to a commercial customer after importation and OIPL defaults in remitting licence fee (56%) to Oracle Corp. USA, the contract of sale of media pack between OIPL and Oracle Ireland will not get repudiated. In fact, Oracle Ireland would continue to sell the media pack to OIPL as long as it receives the price charged for such media pack. Advisory opinions from the Customs Co-operation Council support the view that royalty cannot be added to value of imported media pack i .....

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t liable to be enhanced by the amount of licence fee paid by Oracle Software Systems Israel Limited to Oracle Corp., USA. The impugned order has relied on the decision of the Hon ble Supreme Court in the case of Essar Gujarat vs. CC, 1996 (88) E.L.T. 609. The Hon ble Supreme Court in the cases of CC vs. J.K. Corporation 2007 (208) E.L.T. 485 (SC) and CC vs. Toyota Kirloskar Motors 2007 (213) E.L.T. 4 (SC) has clearly clarified that the case of Essar Gujarat (supra) is not for the proposition tha .....

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en if it is held that licence fee is includible for commercial transactions, no additions can be made under Rule 10(1)(c) for non-commercial transactions. This is because indisputedly, no licence fee was paid/ payable by OIPL to Oracle Corp., USA for non-commercial transactions. The Ld. Commissioner has re-determined the value of non-commercial transactions on the basis of the licence fee that OIPL should have paid to Oracle Corp., USA and not on actuals. This approach is erroneous. Inclusions u .....

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a license value for the non-commercial transactions. Such notional licence value worked out for non-commercial transactions is exponentially higher than the actual licence fee charged for any commercial transaction. The amount arrived at with respect to the Free of Charge External shipments double counts the notional license fee as these notional royalties are already taken into account with respect to the original media pack shipment. The license provided to the commercial users is a perpetual .....

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98)DEC/2 dated 25th May, 1998 (98-2148)]. 3.13 In the case of import of Dox, the software was electronically downloaded and only the licence certificate was physically supplied to the customer. There is no mechanism laid down for levy and collection of duties on electronic download of software. Any additions made to the Dox imports, which is equivalent to the royalty/ licence fee paid on electronic download of software, has no basis under law. Reliance is placed on the case of C.I.T., Bangalore .....

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is charged only once from the customers. Whereas in the case of FOC imports for non-commercial transactions, no licence fee is charged either at the time of original import or subsequent import of media pack. 3.15 Other discrepancies on the face of the records: OIPL claimed that severe errors have been made in the duty calculations for commercial as well as non-commercial transactions and submitted details in that regard, adding that the same have not been dealt with in the impugned order. Neith .....

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nic form. OIPL provides Dox to assure the customer that the software downloaded by it is genuine software. For Global Deals, OIPL receives royalty/licence fee on the basis of number of users in India and 56% thereof is remitted to Oracle Corp., USA. The Ld. Commissioner has conveniently assumed that media packs are imported and confirmed duty demand. Despite the fact that no licence fee was remitted to Oracle Corp., USA by OIPL, the impugned order has confirmed the duty demand for non-commercial .....

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d the same. The Ld. Commissioner has not bothered to factually determine the software actually supplied in non-commercial transactions. The value has been re-determined on the basis of value of single user licence (global list price without any discounts) for all the software which could have been provided by OIPL. FOC supplies: In the case of commercial transactions, the Ld. Commissioner has taken the list price and not the discounted price for the purposes of determining the duty liability. In .....

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7 (SC) has held that payments of service tax and VAT are mutually exclusive. By applying the ratio of the decision of the Hon ble Supreme Court in the case of Imagic Creative Pvt. Ltd. (supra), the licence fee remitted by OIPL to Oracle Corp., USA cannot be subjected to both service tax as well as customs duty. The above position has also been clarified by the Board vide Circular No. 15/2011 Cus. dated 18.03.2011. OIPL is paying service tax on the licence fee paid to Oracle Corp., USA under the .....

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pack. It was of a bona fide belief that the licence fee paid to Oracle Corp., USA was not includible in the value of media pack as the royalty payments were not a condition of sale of the imported media pack. CVD on import of software was levied from 01.03.2006. Prior to 01.03. 2006, there was no Customs duty on import of software. OIPL, however, was following the same practice of valuing media pack on the basis of the price paid to Oracle Ireland both prior and post the said date. OIPL made a .....

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g with the SVB submissions. This shows that the allegation regarding non-disclosure of information pertaining to royalty remittance is totally misconceived and factually incorrect. Therefore, extended period of limitation under proviso to Section 28 of the Customs Act cannot be invoked in the present case. PENALTY NOT IMPOSABLE AND INTEREST NOT RECOVERABLE FOR SHORT-PAYMENT OF CVD. 3.18 The entire demand pertains to non-payment/short-payment of CVD levied under Section 3(1) of the Customs Tariff .....

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evied in the absence of penalty provisions being borrowed in a particular enactment has already been upheld by the Hon ble Supreme Court of India and High Court in the following cases: (i) Khemka and Co. (Agencies) Pvt. Ltd. vs. State of Maharashtra 1975 (2) SCC 22; (Page 100, Appeal Memorandum) and (ii) Pioneer Silk Mills Pvt. Ltd. vs. Union of India, 1995 (80) ELT 507, (Del) approved by the Hon ble Supreme Court in Collector Central Excise, Ahmedabad vs. Orient Fabrics Pvt. Ltd., 2003 (158) EL .....

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to not apply for non-payment of special additional duty as has been held in the following cases:- (i) Raj Traders vs. CC, 2002 (144) ELT 130; (ii) I. K. International vs. CC, 2002 (142) ELT 185; (iii) Tarsem Singh Multani & Sons vs. CC, 2001 (134) ELT 753; and (iv) Setia Woollens Pvt. Ltd. vs. CC, 2006 (206) ELT 500. (Page 103, Appeal Memorandum) Interest for delayed payment of duty is not payable in the absence of any substantive provision relating to interest. {India Carbon Ltd. vs. State .....

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tions of Customs Tariff Act, 1975. However, there is no amendment in Section 3(8) of the Customs Tariff Act, 1975 relating to CVD. GOODS ARE NOT LIABLE FOR CONFISCATION. 3.19 There is no mis-declaration by OIPL. Therefore, goods are not liable for confiscation under Section 111(m) of the Customs Act. Without prejudice, provisions for confiscation of goods prescribed under the Customs Act, 1962 have not been borrowed for short levy of CVD. Only 49 consignments valued at ₹ 17,78,90,832/- wer .....

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vt. Ltd. vs. Commissioner of Central Excise, 2009 (235) E.L.T. 623 (Tri. - LB). Order for confiscation of the goods is beyond the scope of the Show Cause Notice as the Show Cause Notice did not propose to confiscate the goods imported during the relevant period (other than the seized goods). Departmental s Submissions 4. Ld. Departmental Representative, on the other hand made the following submissions during the hearing and also in the Written Submissions given on 02.06.2015:- (i) It is an admit .....

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to the imported goods that the buyer is required to pay, directly or indirectly, as a condition of the sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable; (iv) Paragraph 1.5 of the Master Service Agreement defines intellectual property right to include patent, copyright, trade secret, trade mark and other intellectual property rights. (v) Article 18 of the said agreement states that Oracle International Corporation US .....

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to distribute/ market its software in India. As per this Agreement, the software belongs to OIC, the Master and not to OIPL its vassal, since OIC controls OIPL through the Master Services Agreement. OIPL is required to pay OIC a royalty on a fixed/pre determined basis @ 56% of the license fees collected by OIPL from customers of Oracle software in India. OIPL imports the software from Oracle, Ireland (a related party) in the form of media packs. Oracle, Ireland charges US$ 59.95 per media pack c .....

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ds that is imported into India. The software always remains on a media, including a server, a hard drive of a computer or a CD on any of which it can be accessed. The CD or the internet makes no difference to the software being goods under Section 2 (22) of the Customs Act, 1962 since software is moveable property . (x) Software being goods was exigible to Excise duty on being developed or manufactured in India. Rule 4 of the Customs Valuation Rules, 2007 stipulates that the value of imported go .....

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e) and similarly, Oracle, Ireland is also a subsidiary of the OIC, USA. The Master Services Agreement governs the business relationship among members of the Oracle Group. OIPL and Oracle Ireland are members of the Oracle Group. (xii) Under the terms of the Master Services Agreement , OIPL was required to pay 56% of the licence fee (royalty amount) collected by it from its Indian buyers. (xiii) The transactions for the import and sale of the Oracle software were designed in a manner whereby the p .....

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IPL. (xiv) Once the terms and conditions were agreed between the sales team and the Indian customer, the customers were required to sign a contract for purchase of the software prior to the actual import of the software. The contract was scanned into Oracle s Order Management System (common Group System for the Oracle Group members) and thereafter the Order was booked by OIPL, in the Oracle Order Management System. The seller, Oracle Ireland used the same system to access and ascertain details a .....

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dian customer is required to pay for the software as per the conditions of the contract entered into by the Indian customer prior to the import. Investigation for the import of Oracle Media pack from Ireland after their interception and seizure by Customs authorities, revealed a lot of facts not known earlier to Customs. Each consignment imported from Oracle Ireland was a mother consignment containing several baby consignments and each baby consignment contained a unique Airway bill number as we .....

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lling the operations undertaken in India by M/s OIPL by issuing documents from Ireland which ordinarily were to be issued from OIPL s office in India. Investigations further revealed that OIPL did not declare that the goods were being imported from a related seller so that the declared transaction values are accepted and not rejected by Indian Customs authorities. The importer did not tell anything about the Master Services Agreement. M/s OIPL also did not declare that 56% of the royalty fees ne .....

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ort of the software from Ireland. Such a condition in the contract can only be termed as a condition of sale for the import of the software into India in terms of Rule 10(1) (c) of the Customs Valuation Rule, 1988. (xvii) The second condition of the same Rule is also fulfilled since the payment of royalty/ license fee was for use of Oracle software by OIPL s Indian customer in terms of a licence granted by OIC. The software was being duplicated and shipped by Oracle Ireland under approval by OIC .....

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le Ireland was not obliged to ship these softwares from Ireland. (xviii) All transactions whether commercial or non-commercial involved the question of royalty/ license fee either PAID or PAYABLE . (xix) Sales team of OIPL negotiated with the Indian customers for sale of Oracle products on the basis of Oracle s Global price list, the terms and conditions for the sale and discounts. Upon agreed terms, the price between OIPL and customer was settled. Oracle s internal approval was obtained to thes .....

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me) able to release the CD pack through Oracle Ireland containing the software to be shipped to OIPL s Indian Customer s address as well as licence for use of software. OIPL would be the legal importer of the CD (media) pack to be delivered to a Customer with whom the price and terms and conditions were negotiated in advance. (xx) Also, at the same time, Oracle s financial software application being fully integrated with the Distribution and Order Management Application, the Accounts Receivable .....

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ices at DHL s Distribution Centre in Gurgaon and attached the invoice (along with the consignments) to be sent to OIPL s Indian Customer with the true and correct value (including licence fee) before delivery to the ultimate Indian customers. (xxiii) OIPL, knowingly suppressed the information relating to the actual valuation of the goods by never disclosing to the department (Customs) the information regarding remittance of 56% of the licensee fee to M/s. Oracle USA in accordance with the Master .....

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period of limitation while also demanding the interest thereon under Section 28AB of the Customs Act, 1962. 5. The ld. Departmental Representative also contended that:- (i) OIPL has relied upon the wrong advisory opinion of the Technical Committee on Customs Valuation (TCCV) of the WCO. The correct and most applicable Advisory Opinion is 4.15 of the CCV specifically concerning royalty and licence fee under Article 8.1(c) of the WTO CVA (Customs Valuation Agreement). The contention of the Revenu .....

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quent version updates, what is material is the first licence agreement entered into by the customer along with the global price list for the software. There were no pure air to air transactions and every Dox import and subsequent version updates was a link to the initial physical import of the Media Pack. This was confirmed by the statement of Mr. T. Srinivasan, Vice President, to the effect that licences are sold by OIC through OIPL in respect of databases and no databases are sold without lice .....

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tware who paid annual fee ranging from USD 500 to USD 1995. Wherever software is supplied to non-commercial customer under Section 14 of the Customs Act, 1962 and the Customs Valuation Rules, 2007 assessable value for imported goods is to be determined on the basis of identical goods under Rule 4 of the 2007 Rules. In the present case, the identical goods for determining value are the commercial supply of the same software (identical goods) imported from outside India by OIPL. (v) OIPL did not d .....

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d therefore, advisory opinion and commentaries of the US cross rulings referred to by the Departmental Representative are not really applicable. As regards Hasbro-II ruling, US customs stated that the licence fee for the use is not a condition of sale. OIPL is free to dispose of its media pack as it pleases and neither Oracle India or Oracle Inc., US can object to the sale. As regards version updates, the same is optional as the customer may or may not procure the software. The statement of Mr. .....

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be assessed on a provisional basis. Ld. counsel for the appellants placed reliance in the cases of Haryana Ship Breakers Pvt. Ltd. Vs. Union of India [1997 (96) ELT 5 (Guj.)], Union of India and others Vs. Tata Iron and Steel Co. Ltd. [1978 (2) ELT (J439)(SC)] and Kinetic Engineering Ltd. Vs. CCE, Pune, Nagpur, Nashik [2012 (283) ELT 29 (Tri. Mumb.)]. 7. OIPL had all along disclosed the fact of imports being made from related persons and even in 2005 it had made detailed information to SVB in t .....

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e in the assessable value of imported media packs in terms of rule 9(1)(c)/10(1)(c) of the Customs (Determination of Value of Imported Goods) Rules, 1988/2007 as applicable during the relevant period. (ii) Whether custom duty is payable on the software electronically downloaded and if yes, then whether the licence fee paid by OIPL to its parent company Oracle USA in respect of the software so downloaded is includible in the assessable value. (iii) Whether in respect of the electronic software im .....

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nd circumstances of the case and whether the whole or part of the demand is hit by time bar. (v) Whether provisions of Customs Act, 1962 with regard to confiscation, interest and penalties are applicable in relation to the impugned CVD. (vi) Whether the value of software on which service tax has been charged can be included in the assessable value of media packs imported for the purpose of assessment under Customs Act, 1962. (vii) Whether redemption fine can be imposed in respect of goods which .....

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y or indirectly, as a condition of the sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable; As per the aforesaid Sub-Rule, only such royalties and licence fees are includible in the price actually paid or payable for the imported goods which a buyer is required to pay directly or indirectly as a condition of sale of the goods being valued. Thus to add royalties/ licence fees in the price actually paid/payable, two cond .....

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fee cannot be added to the price actually paid or payable for import of such media packs on the ground that the software imported in such media packs is identical/similar to a software imported under commercial transactions. The adjudicating authority on the other hand has observed that (i) It is not for Customs to go into what is the sale price of OPIL to its buyers in India. (ii) These goods are identical goods vis-a-vis those in respect of which licence fee was paid and therefore these shoul .....

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ime being in force, the value of the imported goods and export goods shall be the transaction value of such goods, that is to say, the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation, or as the case may be, for export from India for delivery at the time and place of exportation, where the buyer and seller of the goods are not related and price is the sole consideration for the sale subject to such other conditions as ma .....

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is evident that the provisions for adding licence fee/loyalty, transportation charges, loading/loading charges, insurance charges, etc. to the price actually paid or payable, are in the proviso which provides for their addition to such price in accordance with the Customs Valuation Rules even when the buyers and sellers are not related. In the present case, the price paid by OIPL to Oracle Ireland has not been found to have been influenced by the relationship between Oracle Ireland and OIPL and .....

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y that the said value has not been adjusted in accordance with provisions of Rule 10 to arrive at the assessable value for the purpose of charging duty. In other words the only issue in dispute which has been decided by the primary adjudicating authority has been whether that value can be adjusted in terms of Rule 9(1) (c) / 10 (1)(c) of the Customs Valuation Rules, 1988/2007 by including the license fee paid or payable by OIPL to M/s Oracle, USA. In terms of the said Sub Rule, there is no scope .....

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of consignments of media packs where it was admittedly never paid by OIPL to Oracle USA. We do not find any document to even suggest that in respect of such non-commercial consignments the license fee was required to be paid. The word payable as per Websters comprehensive dictionary means due and unpaid that can or will be paid . There is not even an iota of evidence that any such licence fee was even due from the customers who were supplied the software without charging any licence fee. Thus no .....

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be paid by them (i.e., customers) in respect of such transactions. It thus clearly comes out that the licence fee in respect of non-commercial transactions , i.e., the transactions in respect of which the customers were not required to pay directly or indirectly, any licence fee and where it (i.e., licence fee) was neither collected nor was it due from the customers can be categorised as payable for the purpose of adding to the assessable value. Indeed , it is clearly stated in para 5 of the So .....

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discussing/ analysing those judgements individually. 11. In the light of our analysis above, we hold that no licence fee was payable nor admittedly paid by the customers to OIPL (and no licence fee was payable nor admittedly paid by OIPL to Oracle USA) in respect of non-commercial media pack imports or non-commercial (software) electronic downloads and therefore the demand in respect of non-commercial supply of the impugned goods either in the form of media packs or by electronic download via in .....

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leviable on such software imported as media packs. In the case of Digital Equipments India (supra), CESTAT held that e-mail transfers not being transfer of movable property are not to be regarded as goods. The WTO Ministerial Conference Declaration on Global Electronic Commerce No.WT/Min(98)/Dec/2, dates 25.05.1998 also stated that we also declare that Members will continue their current practice of not imposing customs duties on electronic transmission . The General Council was to review this d .....

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e very wide and include all types of movable properties, whether those properties be tangible or intangible. We are in complete agreement with the observations made by this Court in Associated Cement Companies Ltd. (supra). A software programme may consist of various commands which enable the computer to perform a designated task. The copyright in that programme may remain with the originator of the programme. But the moment copies are made and marketed, it becomes goods, which are susceptible t .....

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which by itself has very little value. The software and the media cannot be split up. What the buyer purchases and pays for is not the disc or the CD. As in the case of paintings or books or music or films the buyer is purchasing the intellectual property and not the media i.e. the paper or cassette or disc or CD. Thus a transaction sale of computer software is clearly a sale of goods within the meaning of the term as defined in the said Act. The term all materials, articles and commodities incl .....

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ial property. It is not much in dispute that goods would comprehend tangible and intangible properties, materials, commodities and articles and also corporeal and incorporeal materials articles and commodities. If a distinction is sought to be made between tangible and intangible properties, materials, commodities and articles and also corporeal and incorporeal materials, the definition of goods will have to be rewritten, of comprising tangible goods only which is impermissible. 74. It is not in .....

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tored and possessed. If a software whether customized or non-customized satisfies these attributes, the same would be goods. Unlike the American Courts, Supreme Court of India have also not gone into the question of severability. From this judgement, it is clear that software even in its intangible form has been declared to be goods by the Supreme Court and therefore electronic download of software from a server located abroad would get captured in the scope of import of goods . A Ministerial De .....

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ate for determination of rate of duty and tariff valuation of imported goods, Section 15 provides that in case of goods entered for home consumption under Section 46, it will the date on which Bill of Entry for such goods is presented. As per Section 7, CBEC appoints ports and airports which alone shall be customs ports and airports for loading and unloading of goods. Section 8 provides for approval of proper places in any customs ports, airports for loading or unloading of goods and for specify .....

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ading and unloading of goods on holidays, etc. From the above (illustrative) provisions of Customs Act, 1962, it is evident that the entire Customs Act in the present form provides mechanism/procedure for levy and collection of duty only in respect of tangible goods. Software is intangible, can be downloaded anywhere, from anywhere, at any time and none of the above referred provisions of Customs Act, 1962 are capable of being applicable/ enforceable in respect of such downloads. Indeed, anyone .....

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the demand of service tax relating to electronically downloaded software is not sustainable even for such downloads in respect of which OIPL remitted licence fee to Oracle USA. The reasoning is also squarely applicable with regard to duty demand in relation to what is referred to as global deals mentioned in paras 3.11 and 3.15. Incidentally, paper licences (for software already downloaded) are classifiable under Chapter 49 as has been opined by CBEC also vide Circular No.15/2011-Cus, dated 18. .....

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s/opinions (including the extracts from Customs valuation Commentary on GATT Customs Valuation Code by Saul L. Sherman and Hinrich Glashoff) all of which essentially hold that royalty / licence fee paid or required to be paid can be added to the assessable value only if it is paid or required to be paid as a condition of sale. Various judgements and rulings including rulings of U.S. Customs referred to by the ld. Departmental Representative are also to the effect that only if licence fee/royalty .....

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payment will not be added to the price actually paid or payable. However, if such payment was made by the buyer as a condition of sale of the merchandise for exportation to the United States, an addition will be made. As a further example, an addition will be made for any royalty or licence fee paid by the buyer to the seller, unless the buyer can establish that such payment is distinct from the price actually paid or payable for the imported merchandise, and was not a condition of the sale of t .....

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) could the importer buy the product without paying the fee, Affirmative responses to factors one and two and a negative response to factor three would indicate that the payments were a condition of sale and, therefore, dutiable as royalty payments. Consistent sum and substance of all these judgements/opinions is that licence fee is includible in the assessable value only if it is paid or required to be paid as a condition of sale. As stated earlier, it is a settled legal position with which bot .....

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reme Court in the case of CC (Port), Chennai Vs. Toyota Kirloskar Motor Pvt. Ltd. [2007(213)ELT4(SC)] has cautioned that (i) the ratio of a decision is to be understood in factual metrics involved therein, (ii) the ratio of a decision is to be culled out from facts of given case and (iii) a decision is an authority for what it decides and not what can be logically deduced therefrom. In that case [i.e., Toyota Kirloskar Motor Pvt. Ltd. (supra)], the technical assistance and know-how was to be giv .....

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d additional licence fee for countrywide use was filed and refund was claimed on the ground that duty was payable only on the cost of diskette and manuals and the licence fee for single site use and no duty was payable for the production of the software in the country of importation for countrywide use. The Supreme Court held that the licence fee charged towards countrywide use of the same software was includible in the assessable value of the imported software. Revenue s contention in the prese .....

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import. The negotiations of the sales teams were submitted for approval of OIPL. Once the terms and conditions were agreed between the sales team and the Indian customers, the customers were required to sign a contract for purchase of software prior to the actual import of it. The contract so signed was scanned into Oracle Order Management System (common system for Oracle group). On the basis of the order so uploaded, a unique order number for a particular Indian customer was generated and the s .....

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lly aware that the order has been uploaded/scanned into Oracle Order Management System only after the customer agreed to pay the licence fee for the software and this information was available to Oracle USA as well as Oracle Ireland before the shipment was made. OIPL was incorrect when it claimed initially that it was a case of stock and sale and that the software imported from Ireland could be given to any customer, commercial or non-commercial. It comes out clearly that each software which was .....

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the agreement agreeing to pay the licence fee also. Thus, it is evident that in case of commercial imports of media packs, payment of licence fee was a condition of sale. In case of Indo Overseas Films Vs. Union of India [2007 (210) ELT 308 (Mad)], Madras High Court in effect held that royalty payable on imported feature films was includible in the assessable value as without right of exploitation imported goods would be of no use. Indeed, in the present case also, the sale of software to custo .....

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/CDs were distributed/sold and hence being condition of sale, such royalty was includible in assessable value. This judgement was followed in the case of Star Entertainment Pvt. Ltd. Vs. CC, Mumbai [2014-TIOL-583-CESTAT-Mum] to hold that royalties/licence fees paid for the import of beta/digibeta tapes containing films are includible in assessable value. We must again mention here that none of the judgements referred to in regard to includibility of royalty in assessable value involve identical .....

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r persuasive value, are not binding on the (quasi) judicial authorities of member states. Further, the opinion of Israeli authority cited by the appellants is not even directly relevant as it is an opinion dated 31.12.2008 given by National Supervisor of Technical Department VAT to a lawyer Mr. Moti Eilon and is in relation to VAT. It does not pertain to the interpretation of relevant Customs Valuation Rules regarding includibility of such licence fee in the assessable value for the purpose of c .....

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ondition of sale and hence would not be includible in the assessable value and customs levy thereon would also be hit by the absence of collection mechanism as per the discussion in para 12. 14. Coming to the contention that from 2008 OIPL was paying service tax on the licence fee paid by it to Oracle USA and therefore the value of the licence fee could not be added in the value of the media packs imported, we find that OIPL has relied upon the judgement of Supreme Court in the case of Imagic Cr .....

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ty for what it decides and not what can be logically deduced therefrom. We are not even for a moment suggesting that mutual exclusivity of customs duty and service tax can be logically deduced from the Superme Court judgement in the case of Imagic Creative Pvt. Ltd. (supra). No constitutional provision is brought to our notice inhibiting levy of taxes under different statutes on the same transactions. It is axiomatic that the same transaction may inhere distinct taxable events, exigible to diffe .....

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s contention that no redemption fine can be imposed when the goods have been cleared without any bond and are not available for confiscation, we find force in this contention. On the first principles, redemption fine this imposed in lieu of confiscation. In other words, the assessee is given an option to redeem the goods confiscated on payment of redemption fine. Thus even when the goods are available and are confiscated, redemption on payment of redemption fine is an option and not an obligatio .....

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1962 is applicable only in those cases where goods have been cleared subject to furnishing undertaking/bond etc. The High Court set aside the redemption fine in respect of goods which were cleared without execution of any bond/undertaking. The Bombay High Court in case of CC Vs. Sudarshan Cargo Pvt. Ltd. [2010 (258) ELT 197 (Bomb)] observed that the order of confiscation and redemption fine can be passed only if goods are available for confiscation and consequently redemption. The Supreme Court .....

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ravel beyond the Show Cause Notice. 16. The appellants have also contended that penalty, interest and confiscation cannot be invoked in respect of evasion of countervailing duty (levied under Section 3 of the Customs Tariff Act, 1975) on the ground that the provisions relating to these aspects have not been borrowed into Section 3 of the Customs Tariff Act, 1975. In support of the principle that the penalty cannot be levied in the absence of penalty provision having been borrowed in a particular .....

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ing duty and that the same principle is applicable with regard to leviability of interest (India Carbon Ltd. (supra) and V.V.S. Sugar (supra). We have perused these judgements. Many of them dealt with Anti-dumping duty/Special Additional Duty (SAD) leviable under various sections (but not Section 3) of Customs Tariff Act, 1975 and in those sections of the Customs Tariff Act, 1975 or in the said Act itself, during the relevant period, there was no provision to apply to the Anti-dumping duty/SAD t .....

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penalty could not be applied with regard to the duties collected under the said act of 1957. None of these judgements actually deal with the CVD levied under Section 3 of the Customs Tariff Act, 1975. The impugned countervailing duty was levied under Section 3 of Customs Tariff Act, 1975. Sub-section 8 of section 3 of the said Act even during the relevant period stipulated as under:- S. 3 (8) The provisions of the Customs Act, 1962 and the rules and regulations made thereunder, including those r .....

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alty and interest contained in Customs Act, 1962 are expressly made applicable with regard to the impugned countervailing duty. We must, however, fairly mention that in case of Torrent Pharma Ltd. Vs. CCE, Surat, CESTAT set aside penalty for evasion of Anti-dumping duty, CVD and SAD (para 16 of the judgement) on the ground that penal provisions of Customs Act, 1962 had not been borrowed in the respective sections of Customs Tariff Act, 1975 under which these duties were levied, but this decision .....

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We now come to the issue of wilful mis-statement/ suppression and time bar. The appellants have contended that (i) there was no wilful mis-statement or suppression of facts on their part with any intention to evade payment of duty. (ii) During the Special Valuation Branch (SVB) investigation they had declared that OIPL is related to Oracle Ireland in Sept 2005/January 2007. (iii) Licence fee remitted to Oracle USA was not included in the assessable value because of their bona fide belief that i .....

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several judgements (mentioned earlier) were cited to that effect. The Ld. Departmental Representative on the other hand strenuously argued that (i) OIPL did not declare while filing the Bills of Entry that the goods were coming from a related person and also did not disclose the payment of licence fee to Oracle USA. (ii) When investigation started, OIPL s officials stated that the import was on the basis of the stock on sale meaning thereby that they could import the software, stock it, and then .....

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gation of wilful mis-statement/ suppression of facts needs careful analysis as it is a mixed question of facts and law. Every misstatement need not necessarily be wilful and to evade customs duty and every not telling does not necessarily mean suppression. It is relevant to note that the total demand confirmed vide the impugned order is approximately ₹ 128 crores out of which we have in effect held that only demand of the order of about ₹ 19 crores is sustainable on merit. Further, t .....

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56% of licence fee or Oracle USA, it would not have attempted to hide this fact from Customs. In fact, in January, 2007, OIPL disclosed this fact during SVB investigations (in its reply to SVB questionnaire). The seizure took place in January, 2008 when customs could hardly claim that OIPL had not disclosed the facts about its relationship with Oracle Ireland or about the remittance of licence fee to Oracle USA when these facts were made known to Customs SVB in January, 2007 in response to its ( .....

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essfully hide its relationship with Oracle Ireland by not declaring the relationship in the Bills of Entry when their respective names were so demonstrative of they being related. On the other hand, in the given circumstances, it sounds incredible that a professional organisation like Indian Customs should claim that it did not / could not realise that the imports by OIPL from Oracle Ireland were from a related person. Further, the fact that the appellant had followed the same system, procedure .....

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ssed the fact of it being related to Oracle Ireland stands pretty much negated by this evidence alone. It is also more than evident from the analysis above that the issue is purely and undoubtedly interpretational. Thus, the claimed bona fide belief on the part of the appellants that the licence fee remitted to Oracle USA was not includible in the assessable value cannot be called unreasonable or hallucinatory. The Supreme Court in the case of Continental Foundation Joint Venture Vs. CC, Chandig .....

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Tri. Del)] and Prem Fabricators Vs. CCE, Ahmedabad [2010 (250) ELT 260 (Tri. Ahd)]. Supreme Court in the case of Tolaram Relumal Vs. State of Bombay [AIR 1954 SC 496] way back in 1954 observed that it is a well settled rule that when two reasonable constructions can be put upon the penal provision, court must lean towards that construction which exempts subject from penalty rather than one which imposes penalty . When no penalty is held to be imposable when the issue involved is interpretational .....

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y time bar. 19. We shall now take up the issue of confiscability of seized goods and the duty leviable thereon. It has been brought out that OIPL had disclosed their relationship between OIPL, Oracle USA and Oracle Ireland way back in 2005. As brought out earlier, the price charged by Oracle Ireland from OIPL as declared in the Bills of Entry has not been questioned/ altered by the adjudicating authority which shows that the price charged by Oracle Ireland from OIPL was not influenced by their m .....

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