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2016 (11) TMI 1325 - CESTAT MUMBAI

2016 (11) TMI 1325 - CESTAT MUMBAI - TMI - Demand - import of kits containing CDs software - royalty - exemption under Notification No. 6/2006- CE - Held that: - the exemption under serial No. 27 of said notification is available only to software which are developed from basic building blocks resulting in emergence of new software product. However in this case it is a customized software and not specific software and hence not eligible for exemption under the said notification. - Valuation - .....

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given to the Appellant as relied upon document which acts as a bench mark to calculate the assessable value. We therefore direct the lower authorities that while arriving at assessable value in terms of Rule 8 the appropriate adjustment towards expenses, taxes and profit margins has to be given to the Appellant. - Confiscation of goods and Imposition of penalty - Held that: - the confiscation has been ordered in respect of only those Bill of Entries which were provisionally assessed. Further .....

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ules, 1988 after taking into consideration the Appellant’s submission on appropriate adjustment towards expenses, taxes and profit margins - appeal allowed by way of remand. - C/88315/14 - A/93186/16/CB - Dated:- 17-10-2016 - Mr Ramesh Nair, Member(Judicial) and Mr. C.J. Mathew, Member(Technical) Shri. Sridharan, Sr. Advocate with Ms. Srinidhi Ganeshan and Shri. T. Vishwanathan, Advocate for the Appellants Shri. V.K. Singh, Special Counsel for the Respondent ORDER The present appeal has been fil .....

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uthorized replicator appointed by M/s Microsoft Licensing (Microsoft) a wholly owned subsidiary of M/s Microsoft Corporation to reproduce Microsoft products under certain terms and conditions. The Appellant imported kits containing CDs software from M/s Mediagate, Singapore/ Data Pulse, Singapore and COA from M/s Dealrue, UK. The COA were printed on the labels and all the three were packed in a kit for onwards sale to OEM (Original Equipment Manufacturer) or Distribution Service Partners who has .....

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hard disk crash or system breakdown. The OEM while billing to their customer charges the cost of such software packs purchased from appellant as well as Royalty amount paid by them to M/s Microsoft. Some of the OEM like M/s HCL Infosystems Ltd. and others also directly import replicated packs where the entire value is charged on invoice and no royalty is paid on such direct imports as it is included in the cost of software and they pay excise duty on same while clearing from factory. In case of .....

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ftware in terms of Rule 4 (2) read with 10 A of the Customs Valuation (Determination of price of imported goods),Rules 1988 and to re-determine the same under Rule 8 of the said Rules; to demand and recover differential custom duty of ₹ 24,91,25,321/-; to confiscate the imported goods under Section 111 (d) and 111 (m) of the Customs Act and to recover interest under Section 18 (3) read with Section 28AB of the act; to impose penalty under section 112 (a)/ section 114A; to finally assess th .....

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t with M/s Microsoft. The revenue relied upon the retail sale price charged by DSPs to their customers in India. The show cause notice was adjudicated by the Commissioner of Customs (Import). The Appellant filed appeal before the CESTAT who vide order dt. 15.10.2012 remanded the case back to the adjudicating authority to decide the matter afresh after supplying the documents on the basis of which the duty was redetermined. The adjudicating authority vide Order-in-Original dt. 16.04.2014 again co .....

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on given by the CESTAT in its Order dt. 15.10.2012 and that the request of the Appellant to supply the same was ignored by the adjudicating authority. That though the Commissioner has stated that the documents mentioned in the CESTAT remand order has been supplied and personal hearing was done in comprehensive manner, the same is incorrect. The department has adopted the sale Price of DSPs namely Ingram Micro India (P) Ltd., Redington India Ltd., and Essys Information technology Ltd. and has giv .....

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who are not related to them or M/s MS. The price charged by them consist of cost of media and cost of recording the software on the media and the price is indicated in the invoice raised by the suppliers on the Appellants. They have presented the invoice before custom authorities for clearance of goods. This practice was adopted even before excise duty on software. He submits that the payment of royalty by OEM and DSPs is a matter between M/s Microsoft and OEM/ DSPs and the Appellants have no ro .....

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le 4 (2) (a) of the Valuation Rules is not applicable as there is no restriction as to disposition or use of imported goods imposed by the supplier and that conditions or considerations relating to the production or marketing of the imported goods shall not result in rejection of transaction value. That therefore licence fees is not includible in value of goods. He submits that Rule 9 (1) (c) of Customs Valuation Rules can be invoked only if licence fees/ royalty is relatable to the imported goo .....

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it that the declared value represents the media value is known to the department and the present proceedings are on account of change of department and hence extended period is not invokable. He submits that there is no wilfull misstatement or suppression of fact with intention to evade duty and hence extended period cannot be invoked. He submits that the duty is determinable under Rule 7 of Valuation Rules as the price at which the goods have been sold to OEM and DSP should be taken into accoun .....

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not applicable as goods cannot be confiscated and Section 114 A is not invokable as no mens rea has been established. Alternatively he also submits that it has been held by the Tribunal in case of CCU (Import) Vs. Videomax Electronics that Section 112 and Section 114A are mutually exclusive and hence penalty under both section cannot be imposed simultaneously. 3. Shri. V.K. Singh, Ld. Special Counsel appearing for the revenue submits that M/s MSLI is a wholly owned subsidiary company of M/s Mic .....

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directly usable. That the authorized replication services agreement shows that Appellant can sell goods only to those OEM and distributors who has valid agreement with Microsoft. Appellant cannot sell the goods to any party who does not have agreement with Microsoft and thus there is restriction on sale of goods. As per Section 4 (2) the transactional value of the goods is accepted if there is no restriction on sale of goods. In this case there is restriction on sale of goods and hence the trans .....

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ed by MSLI. That OEM means the Original equipment manufacturer with a customer agreement with MSLI for software and is located in the applicable region. That the Appellant can import goods under reference from the authorized replicators of MSLI only. The OEM have been given limited right to order package from authorized replicator and the order for packages is listed on current royalty and price list. The OEM cannot deliver package to any other distributor who has as effective Microsoft OEM Dist .....

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ant period. The value for the purpose of assessment should be the value of the media, the cost of replication and cost of software recorded on media. He places reliance on judgments in case of C.C (Import), Mumbai Vs. Excell Products Audio Visuals Pvt. Ltd 2014 (314) ELT 366 (TRI - MUM) and Associated Cement Companies Ltd. Vs. Commissioner of Customs 2001 (128) ELT 21 (SC). He submits that subsequent to detection of case one of the distributor M/s Ingram Micro India started importing these goods .....

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evading payment of duty on the total value. That as the quantifiable data for greatest aggregate quantity is not available, the value can not be determined in terms of Rule 7 and the Rule 8 has to be resorted to. That the authorised replicators are from whom Appellant has imported goods were appointed by M/s MSLI only and importer cannot get goods from any other person. The price to be paid by Appellant is decided by M/s MSLI, therefore for all practical/ legal purposes import is from MSLI only. .....

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was only after comprehensive investigation that the facts came to knowledge of the department and since the Appellant has made wrongful declaration they are liable for penalty and invocation of extended period. The Appellant has not produced any document that they had bonafide belief. That the original authority has confiscated only those goods which were provisionally assessed and which were released under Bond. Therefore such goods can be confiscate and Redemption fine can be imposed. He submi .....

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rating system can be put to work. It is only after entry of COA / product Key number in the system bought from the Appellant that the computer starts working. If the OEM or DSPs has no licensing agreement, the system will not work as it is only after agreement of royalty of OEMs and DSPs that the whole process of software loading can be initiated. Further it is only after CD kit/ software pack is purchased from the Appellant and product key issued by the Appellant is entered that the system work .....

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t shell it shows that the royalty charges are part of the cost of software. If there is no licensing agreement for payment of royalty the software cannot be operated. 6. We find that as per Appellant s Authorized Replication Service (OEM) agreement No. 5000027843 dt. 17.08.2006 Para 2 a MSLI grants company licence to deliver finished goods to customer in applicable region. As per Para 1 (g) of the same Customer has been defined as (i) OEM (ii) Other Authorized Replicators have current and valid .....

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ellant there is no restriction on use of software provided they have licensing agreement with the MSLI. It is an undisputed fact that all the OEMs had agreement with the MSLI known as Microsoft Distribution channel agreement that the OEM had to sell unopened and unaltered package as received from Appellant as no further processing was required. The Distributors in turn while selling these goods added royalty paid or to be paid by them to M/s MSLI. This clearly shows that the Software package is .....

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MSLI is planned in a way that it may show that the Appellant, OEMS/DSPs and Microsoft are not connected even though the every benefit is accruing to M/s MSLI. The Royalty is payable on each software package sold by the Appellant and if no software is sold there would be no commensurate royalty. Thus the royalty is an integral part of the package sold by Appellant. Further as seen from the statement of General manager of M/s Ingram Micro they were importing retail packs from MSLI while purchasing .....

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OEMs were charging ₹ 3000 to 4600 per piece after inclusion of royalty amount for the same product. This shows that the selling price of the goods was determined by the Royalty amount which in the instant case has to be added to the value of the imported goods. The goods imported by the Appellant is not blank CD but is consisting of complete software alongwith the product key and no further action is required. The value of CD is not only the value of CD but it must also include the value o .....

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serial No. 27 of said notification is available only to software which are developed from basic building blocks resulting in emergence of new software product. However in this case it is a customized software and not specific software and hence not eligible for exemption under the said notification. 8. As regard the method to be adopted for re-asssement of the assessable value, we find that the Appellant has objected the method of valuation under Rule 8 adopted by the adjudicating authority. It .....

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m Micro have been given to the Appellant as relied upon document which acts as a bench mark to calculate the assessable value. We therefore direct the lower authorities that while arriving at assessable value in terms of Rule 8 the appropriate adjustment towards expenses, taxes and profit margins has to be given to the Appellant. 9. As regard imposition of penalty we find that the adjudicating authority has imposed penalty on the ground that in column of Bill of Entries - condition on restrictio .....

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