TMI Blog2008 (7) TMI 385X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and Shri T.K. Jayaraman, Member (T) S/Shri V.J. Sankaram, B.V. Kumar and B. Venugopal, Advocates, for the Appellant. Shri K. Sambi Reddi, JDR, for the Respondent. [Order per : T.K. Jayaraman, Member (T)]. - We are taking up the nine appeals filed by the appellants together for disposal, as the issue involved in these appeals is one and the same. There are actually two Orders-in-Original decided by the Commissioner of Customs Central Excise Hyderabad-II Commissionerate. The details of all these appeals are given in the following Tabular Column: Appeal No. Name of the Parties Impugned Order No. Date Amount involved 1.C/573/06 M/s. Bhagyanagar Metals Ltd. v. CCE, Hyderabad-II Commissionerate O-I-O No. 19/2006-Cus. dated 19-9-2006 by CC CE, Hyderabad-II Differential Duty amount: Rs.40,07,856 u/s 114A Interest u/s 28AB RF: Rs.2,00,00,000/- 2.C/574/06 Shri Narender Surana, Managing Director, M/s. Bhagyanagar Metals Ltd. v. CCE, Hydbd-II Commissionerate -do- Penalty: Rs.20,00,000/- 3.C/575/06 Shri S. Balasubramanian, Vice-President (Mktg.), M/s. Bhagyanagar Metals Ltd. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the software should be excluded from the value of the phone to arrive at the assessable value. Suppose the value is Rs. 100/-, the appellants have split up that Rs. 100/- to Rs. 70/- and Rs. 30/-. Rs. 70/- represents the value of the hardware portion and Rs. 30/- is the value of the software portion. Since software is exempted from Customs Duty, they would like to pay duty only Rs. 70/-, even though the payment made for one telephone is Rs. 100/-. This is strongly challenged by the Revenue on the basis of the detailed investigations carried out. The software necessary for the functioning of the telephone is already embedded in it. The appellants in collusion with the suppliers had artificially split up the value of the telephone into value of hardware and value of software with an intention to evade the Customs Duty. Several incriminating documents were seized. Expert opinions were also obtained. On a careful consideration of the materials on record and also the submissions made by the appellants, the Original Authority came to the conclusion that the entire value of the telephone has to be taken up for assessment to Customs Duty. He held that 'the impugned goods are liable for con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of the software which was already embedded in the instrument. Mr. K.K. Khushwaha deposed that the case of the appellant was distinguishable from those of Reliance and Tata and that in the latter cases, there was only single technology provider which was on PAN network basis, under a single Network Topology, whereas the BSNL had four different technology providers namely Huawei, Lucent, LGE and ZTE. (d) Once the misconception being harboured by the learned Commissioner that the software contained in the imported CD-Roms were integral part of the phones themselves stand removed, his consequent finding on the under valuation by splitting the phone into hardware and software, cannot sustain. Clearly, the software contained on the CD-Roms was to cater to future functionality/exigency if, as and when, it arose and was not an integral part of the phones or required to make phones functional per se. There can be no justification, therefore, to include the value of the said CD-Roms in the assessable value. There could be no fault in the decision of LGED to separately charge the software. The separate pricing cannot be regarded as amounting to splitting of the value of phones in an art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the CD-Rom value. Hence, the purchase order did not require any testing of the CD-ROMs by the TEC. (g) In view of the above submissions, there is no justification for penalty under Section 114A of the Customs Act, 1962. (h) In similar circumstances, the issue was considered by Mumbai Tribunal in the case of Bhagyanagar Metals Ltd., reported in 2005 (180) E.L.T. 370 (Tri.-Mum.) and it has been held that the value of software cannot be included. This decision has been appealed to the Supreme Court and the issue regarding valuation was remanded to the Tribunal. The CESTAT Mumbai by order dated 22-2-2007 [2007 (210) E.L.T. 707 (T)] held that the valuation of software cannot be taken into account for assessing the value of the telephone. Thus, the matter reached finality by the order of the Mumbai Bench. However, the Revenue had filed an appeal before the Apex Court and the Apex Court had not stayed the order of the Mumbai Bench on valuation. It is therefore relevant that in the facts and circumstances it has been held that the valuation of CD-Roms cannot be added. In such circumstances, the Commissioner ought to have kept the matter in abeyance till the disposal of the rema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n behalf of M/s. Huawei Technologies Company Ltd. In the Order-in-Original 17/2006-Cus. dated 18-8-2006, a penalty of Rs. 1,00,000/- only has been imposed on this appellant under Section 112 of the Customs Act, 1962. Certain documents were recovered from the premises of Huawei which are also mentioned in paras 7 and 23 of the Show Cause Notice dated 29-11-2004. One Shri P. Ramu of M/s. Huawei gave a statement. After narrating the circumstances under which the appellant received two separate purchase order (revised) one for software and another for hardware in the ratio of 30:70, it was stated "upon receipt of the revised PO's placed by STL on Huawei, Huawei had sent an e-mail to STL dated 31 May, 2004 stating that Huawei has no intention to claim any benefit or loss relating to Customs duty on account of software part. Further, while shipping 40,000 CDs, Huawei had sent another e-mail to STL dated 11th August 2004 [Exhibit XI pg.153] reiterating that STL has to pay all applicable Customs duties as applicable under the Indian Customs Regulations, while clearing the consignment from the Customs and further clarified/reconfirmed that Huawei do not intend to obtain any Customs duty ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TNL (c) When Huawei came to know that under the Indian Customs Regulations, it is against the law of the country to split the value of Hardware and Software, Huawei made it very clear vide their e-mail dated 31-5-2004 that Huawei have no intention to obtain any benefit or loss relating to Customs duty on account of Software part and STL shall be held solely liable and responsible for their actions. (d) Further, it is only after they took this stand on 31-5-2004, the impugned imports from Huawei took place during the period 3-6-2004 to 24-8-2004. (ii) Under the circumstances, it is submitted that it is not correct to allege that Huawei colluded with STL or committed any acts of omission or commission, which would render them punishable under the provisions of Section 112 of the Customs Act, 1962. 12. The learned SDR stated that all these cases are similar to the one decided by this Bench in the case of Indian Telephone Industries Ltd. v. Commissioner of Customs, Bangalore - 2008 (223) E.L.T. 254 (Tri.-Bang.). Further, he said even the supplier in this case is the same as that of the ITI case decided by this Bench. At the insistence of the importers, the foreign supplie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tailed examination of the available evidence has succinctly given the following finding in para 39 of his order, which is reproduced below: "39. I, therefore find that - * The item in question, namely the IFWT Model LSP 340E has been supplied contemporaneously by the same supplier to other equally big importers in comparable quantities at a single integral price with out any reference to any separate value for the so-called software; * The so-called software shipped separately by means of a CD is not technically required inasmuch as the TEC have confirmed that no such separate CD was supplied when the goods were presented to them for validation; * The software is already embedded in the telephones as imported; * The so-called software is not a separately tradable commodity and no such evidence in this regard about its being a separately traded commodity has been produced. * The so-called software does not carry any value or price and whatever be the cost of such software, is already included in the integral price of the IFWT; * It is not possible in the course of international trade to purchase the so-called hardware portion separately at US$ 65 per pc. and the softwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urana Telecom, the officers found no stocks of phones, but 25,000 numbers of CD-Roms all in sealed condition indicating that the CD-Roms purportedly containing software did not really serve any purpose. In other words, with each telephone instrument, a CD-Rom is not supplied to the ultimate consumer. It is not disputed that whatever software is necessary for functioning of the telephone is already embedded in it. The DGM of BSNL in his letter dated 20-10-2004 confirmed that the CD-Rom is not an accessory of phone and is not supplied with the phone to the customer. The Tata Tele Services and Reliance also had imported similar phones and they paid the duty on the entire value, this is on record. The appellants tried to distinguish the facts of Tata and Reliance Import from the present one on the grounds that their network is single one, whereas in the case of the appellants, there are four different networks. It has also been stated that when the customer migrates from one region to another, there is need for loading the instrument with appropriate software. We are not convinced of these arguments, in the light of overwhelming evidence for artificial splitting up the value of the tel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d like to discuss the imposition of penalties on the various appellants. 15. There is sufficient evidence to show that the splitting up of value has been done by the appellants in order to evade Customs Duty. Therefore, the imposition of mandatory penalty under Section 114A on M/s. Bhagyanagar Metals Ltd. in Appeal No. C/573/2006 and Surana Telecom Ltd. Appeal No. C/487/2006 is upheld. The confirmation of differential duty and demand of interest under Section 28AB of the Customs Act is upheld. The redemption fine imposed in respect of the goods is less than 10% of their values. Hence, I do not find it very excessive. Hence, the redemption fine is upheld. 16. As the investigations have clearly revealed that the foreign suppliers resorted to splitting up of the value only at the behest of the importers, we do not find any justification for imposing any penalty on them. Therefore, the penalties imposed on M/s. LG Electronics and Huawei Technologies are set aside. Hence, Appeal Nos. C/491/2006, C/556/2006 and C/473/2006 are allowed with consequential relief, if any. 17. Taking into account the facts and circumstances of the case, the penalties on Narendra Surana and Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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