TMI Blog2019 (3) TMI 1532X X X X Extracts X X X X X X X X Extracts X X X X ..... hat is BSNL separately. Therefore, whatever software that has been imported is remained in the system and is not separated before delivery of the equipment to M/s. BSNL. Therefore, the transaction is inclusive of the software that is loaded by ZTE Corporation prior to supply of goods to the appellants for import. The appellants have contested the use of words firmware by the learned Commissioner. Whatever be the connotation of the software the important point to be seen is whether or not the same is preloaded, embedded etc in the equipment. Such a system with preloaded software has certainly more intrinsic value then a system which is not loaded with the same. Therefore, the essentiality test is to see the condition in which the system or equipment is cleared from the factory - In the instant case, the equipment were preloaded with the software and CVD was paid on the value which included the value of software. Therefore, such software irrespective of its nomenclature has become integral part of the system or equipment and has enhanced the intrinsic value of the system or equipment. The appellants are under a contract with the Government company i.e., BSNL. They have claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been issued a show-cause notice demanding differential duty on the alleged artificial splitting of the price of goods supplied to BSNL. Commissioner of Central Excise vide Order-in-Original No.05/2007 dated 15.3.2007 has confirmed Central Excise duty of ₹ 2,89,62,572/- and imposed equal penalty under Section 11AC of the Central Excise Act, 1944. The learned Commissioner has held that the software supplied is in the nature of firmware and the value is to be included in the value of excisable goods, as the so-called software is already loaded on the hardware and that, no software has been cleared separately. The appellants have filed appeal No. E/417/2007 against this order. 2. The learned counsel for the appellants submitted, in the case of the Customs Appeal that they claimed no refund of the Additional duty of Customs (CVD) paid as they have already availed CENVAT credit; that they are challenging the imposition of penalty. On the Central Excise appeal, the appellants contended that the learned Commissioner had not considered the Supreme Court‟s decisions in the case of PSI Data Systems Ltd. vs. CCE: 1997 (89) ELT 3 (SC) and CCE vs. Essar India Ltd: 2004 (172 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Notification No.36/96 dated 23.7.1996, they did not disclose the same to the Central Excise authorities and have given an impression that the hardware and software were cleared separately. Therefore, the intention of the appellants to evade duty was very clear. 4. Heard both sides and perused the records of the case. We find that at the time of import, Customs authorities have found that the goods imported by the appellants were an integrated business of CDMA WLL technology equipment consisting of BTS/BSC/MSC consisting of obvious hardware and software with the software loaded into the hardware. Though the billing was purported to be separate, the Customs Authorities have concluded that the software was not treated separately and there was no separate transaction for the hardware and software and the price paid was an integral price or value for the unit as a whole. Accordingly, the Customs Authorities have charged duty on the imported hardware and software and the same was paid by the appellant and goods were cleared. The Ld. Commissioner of Customs has confirmed the demand of duty. After clearance of the goods the appellants have carried out activities like assembly, inspect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has relied upon the Apex Court‟s ruling in M/s. Acer India Ltd. and M/s. Anjaleem Enterprises Pvt. Ltd . (both supra). 6. The appellants have vehemently contested that the Commissioner has used the word software, firmware, hardware etc without going into the exact nature of the same and used options or alternatives like ROM/EPROM/EEPROM. However, the appellant submitted that what was required to be determined was whether the value of software supplied in whatever mode BT CDS or IT units, form a part of the transaction value. We find that as per the statement of Shri B. Sreenivasappa dated 01.02.2004, the appellants have received information from JTE that they have loaded/embedded the concerned software into the equipment which will be converted and made functional during the integration and testing. The appellants also submitted that in the trade of such items the price includes the component of hardware and software. Sometimes the value of the software may go up to 60% were required to be done by the Department was to challenge the production net instead of doing that the learned Commissioner has held that the software supplied along with equipment was firmware. 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating to classification/valuation, the following important guidelines/principles emerge apart from the meanings of various relevant technical terms : (a) In classification of products, the commercial understanding is more relevant than technical specifications except in respect of commodities for which such specifications are prescribed requiring the assistance of experts in the respective fields. In other words, the method to be adopted 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 dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Tariff item 85.24 and remains an IC under Tariff Item 85.42. 10. The appellants have contested the use of words firmware by the learned Commissioner. Whatever be the connotation of the software the important point to be seen is whether or not the same is preloaded, embedded etc in the equipment. Such a system with preloaded software has certainly more intrinsic value then a system which is not loaded with the same. Therefore, the essentiality test is to see the condition in which the system or equipment is cleared from the factory. In the instant case we find that the equipment were preloaded with the software and CVD was paid on the value which included the value of software. Therefore, such software irrespective of its nomenclature has become integral part of the system or equipment and has enhanced the intrinsic value of the system or equipment. We find that Hon‟ble Supreme Court in the case of Anjaleem Enterprises Pvt. Ltd. Vs. CCE, Ahmedabad - 2006 (194) E.L.T 129 (SC) h as observed that- 13. Secondly, that a computer and its software are distinct and separate is clear, both as a matter of commercial parlance as also upon the material on record. A comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorised Representative, that in an analogous situation a manufacturer of excisable goods using either exempted goods or non-excisable goods in the manufacture of excisable goods removed, may claim that a part of the price related to such goods and hence, duty is not payable on the same. Therefore, we find that as held by the Hon‟ble Supreme Court in Anjaleem s case(Supra) The Learned Commissioner has rightly upheld the demand of duty on the goods supplied by the appellants to M/s. BSNL in spite of the fact that the price was split between hardware and software in the invoices. 12. Coming to the other issues involved in the case, we find that the appellants are under a contract with the Government company i.e., BSNL. They have claimed that in terms of the contract, they were billing the hardware and software separately. The Customs authorities have rightly held that the splitting up of value between hardware and software was not correct and the goods must be valued as per the transaction value. The learned Commissioner has confirmed the duty to the tune of ₹ 4.08 crores and has imposed penalty of ₹ 50,00,000/-. We find that the learned Commissioner has held th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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