TMI Blog2003 (3) TMI 233X X X X Extracts X X X X X X X X Extracts X X X X ..... ther penalty of Rs. 2,00,000/- on the appellants under Rule 173Q of the Rules ibid. He has also appropriated a sum of Rs. 4.5 lakhs out of the security amount furnished for the B11 bond as the appellants have not produced the provisionally released goods for confiscation. He has also confiscated the plant and machinery with an option to redeem the same on payment of fine of Rs. 10,000/-. The sum of Rs. 20,00,000/- paid vide TR 6 Challan, dated 6-1-97 and 22-2-97 was ordered to be adjusted against the above levies. 3.The brief facts of the case are that that the appellants herein have set up a 100% EOU for the manufacture of CD ROMs on their own and also on a job work basis. They were issued with a licence stipulating that 100% of their production shall be exported for a period of five years. They were also permitted to import various capital goods, raw materials/components etc. for the purpose of manufacture and export of the goods. Appellants have manufactured and cleared Compact Disc CD Audio, CD video and CD ROMs classifiable under Heading 85.24 and valued at Rs. 97,10,315/- without payment of duty leviable under Section 3 of the C.E. Act, 1944, during the period from 30-7-199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken place is without any basis and in disregard of the orders of the Department of Electronics. (i) All the records required by law were maintained and the same were furnished to the department which shows the bona fide of the appellants and there was no clandestine removal of the goods. (j) Penalty both under the provisions of Section 11AC and Rule 173Q cannot be imposed. (k) Appropriation of an amount of Rs. 4.5 lakhs has been done in disregard of the bona fide belief of the appellants. 4.During the arguments on 25-9-2002 Shri A.S. Sundararajan, learned Counsel referred to the judgment of the Hon'ble Supreme Court in the case of PSI Data Systems Ltd. v. CCE reported in 1997 (89) E.L.T. 3 (S.C.) wherein it was held that value of software sold along with the computer, not includible in the assessable value of computers since there is a distinction between computer and its software. He has invited our attention to page 75 of the paper book wherein they have explained the manufacturing process of CD plant and CD ROM. He has also invited our attention to page 2 of the order in original, para 2 dealing with the facts of the case. He has also referred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... International Ltd. v. CCE, reported in 2002 (139) E.L.T. 172. He has also referred to the Circular No. 330/46/97-CX, dated 20-8-97 issued by the CBEC wherein it is stated that transaction value under Rule 3(1) of the Customs Valuation Rules, 1988 should be accepted by the assessing officer with respect to DTA clearances. According to the learned Counsel appellants have only undertaken replication of the mind product into CD ROMs "and not converting the mind into music and hence royalty paid to the mind cannot be added to the assessable value" and as the appellants are only replicaters, they do not have any copy right. He has also invited our attention to Notification No. 3/98 which amended Notification No. 11/97 and also to the Notification No. 2/95-C.E., dated 4-1-95 dealing with exemption to all excisable goods produced in 100% EOU, FTZ, EHTP or STP units sold in India. He has also submitted written submissions before the Court on 10-10-2002 wherein inter alia it is stated that during the personal hearing before the Commissioner on 19-2-98, attention was invited to the letter of the IIT wherein they have expressed their inability to give any opinion as the same had already been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this case is 30-7-96 to 28-10-96 and 29-10-96 to 24-12-96. Therefore the question of applicability of Notification No. 11/97 dated 1-3-97 would not fall for consideration. It is submitted that this is an obiter findings on which this Hon'ble Tribunal may not record any findings. However, reliance is placed on the decision of the Hon'ble Tribunal in the matter of BPL Mobile Communication Ltd. v. CC, 2000 (126) E.L.T. 986 (T). Para 9.3 : Whether CVD can be charged on the 'hardware' if CD's contents are in the nature of Computer Software? Para 9.3 : The adjudicating authority had dealt with the question whether CVD can be charged on the Hardware if CD's contents are in the nature of Computer software. Even though he has posed this question to himself he does not appear to have answered the same. However, the fact remains that this question does not arise for consideration in the Show Cause Notice and therefore this Hon'ble Tribunal may not answer the same. Para 9.4 : Whether concessional rate of 50% as provided under Notification 2/95-Central Excise, dated 1-4-95 can be extended to the goods? The Commissioner has answered the same in the negative in para 22 of the order. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1988. Copy of the Circular enclosed, in this connection. It is submitted that the provisions of Section 4 of the Central Excise Act have also been amended to provide for assessment based on transaction value, which appears to be in consonance with the aforementioned Circular of the Board. There could be no other basis for the valuation as the value of the proprietary item would not be known to the replicator whose job is only to carry out a mechanical replication of the CD Audio/video/ROMs irrespective of the contents thereof. The valuation has to be on a firm basis and cannot be left to an imaginary formulas. Paras 9.6 and 9.7 : Whether duty on the goods can be demanded under proviso to Section 11A(1) of C.E. Act, 1944 and Whether the unaccounted CD Audios, CD Videos and CD ROMs (valued at Rs. 44,47,047) which have been released provisionally are liable for confiscation under Rule 173Q(1) of C.E. Rules, 1944? His findings are to be found in para 27, wherein he has rejected the contention of the appellant that the errors of omission or commission was due to communication gap between various departments of the appellant. He has held that the proviso to Section 11A of the Act can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r contravention of any provisions of the Act or the Rules made thereunder with intent to evade payment of duty. In this case the ingredients for invoking Section 11AC are not specified in the Show Cause Notice nor the same has been recorded by the adjudicating authority. Therefore the provisions of Section 11AC per se are not applicable. The mandatory penalty imposed is therefore not sustainable. Without prejudice to the same there is no justification for 100% penalty. In addition to mandatory penalty under Section 11AC the adjudicating authority has also imposed a penalty of Rs. 2 lakhs under Rule 173Q of the Central Excise Rules. In this connection, it may be seen that Rule 173Q specifically states that the same is "subject to the provisions of Section 11AC of the Act". Since Section 11AC has been invoked and, as submitted, there is no case establishing that there was wilful misstatement or there was intention to evade payment of duty, the said provision is not invokable. Therefore the penalty imposed both under Section 11AC of the Act as well as under Rule 173Q of the Rules are not sustainable. He has in para 30 ordered confiscation of Plant and Machinery and allowed redempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this regard are in their favour. It is stated that the other question is whether certain clearances effected to the DTA without debiting the PLA would call for penal proceedings. It is further stated that the appellants at the material time was the only manufacturer of such goods and they had bona fide sought clarification/permission from the ELCOT and the jurisdictional Central Excise Officer. It is further stated that the depositions of the Departmental Officers clearly established that the appellants maintained all the records and hence there was no mens rea on the part of the appellants. It is also stated that the department had issued instructions for levy of duty on the transaction value and there was no relationship between the buyer and the seller and it is not the case of the department that there was any mutuality of interest. It is further stated that in the circumstances there was no case for invocation of the provisions of Section 11AC and Rule 173Q(1). 6.Shri A. Jayachandran, learned DR for the Department defended the impugned order. He has also invited our attention to para 24 of the order in original wherein the Commissioner has dealt with aspects regarding valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... body asks for CD and they ask for CD of a particular singer". He submitted that the main issue is naming the goods cleared. He has also made written submission before the Court on 10-10-2002, which are reproduced here in below : - "1. Pentafour Software has cleared CD ROMs, Audio CD and Video CD. Whether these items can be called as software is the issue. Before understanding software, it is necessary to see the definition of hardware. Hardware is equal to physical parts of our body. Software is like mind of our body. CPU, monitor, keyboard, mouse etc., are called hardware. Mind used to operate these hardware are called system software. (Say type A) DOS, Windows, Linux fall under this category. By utilizing hardware and system hardware one can run certain software which are meant for collection, storing and manipulating of dates. These types of software are called utility software. (Say type B) MS Word, Excel, Oracle, Adobe etc., falls under this category. Besides these two types of software, there is in existence of one more type of software which carries Audio albums full time motion pictures and certain books on CDs. 2. All these software are stored in magnetic tapes like fl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellants are not entitled to clear the goods carrying NIL rate of duty. The appellants have taken the plea that since the period of dispute is 30-7-96 to 28-10-96 and 29-10-96 to 24-12-96, the Notification No. 11/97, dated 1st March, 97 which has been amended by Notification No. 3/98, dated 11-2-98 would not fall for consideration. We observe that according to Sl. 161 of the Table to the Notification 36/96, dated 23-7-96. Computer Software carries a rate of duty of 10% and vide Sl. 162 thereto, Compact Disc - Read Only Memory (CD ROM) also carries a rate of duty of 10%. We also observe that vide Sl. No. 173 to the table Annexed to Notification 11/97, dated 1st March, 1997. Computer Software carries 'Nil' rate of duty and vide Sl. No. 174 thereto, Compact Disc-Read Only Memory (CD ROM) the rate of duty is 10% as was provided in the Notification No. 36/96. The question to be decided is whether the goods involved in the present case viz. CD Audio, CD Video and CD ROMS are Computer Software or not. We observe that the issue to be decided in the case is highly technical in nature and therefore, the adjudicating authority had to be guided by expert opinion. The expert opinion was therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rforming a specific function other than data processing and incorporating or working in conjunction with an automatic data processing machine. From the above explanation it is clear that any software representation which can be manipulated or interfered or providing with interactivity can be called a Computer Software and any software required for operation of a specific function other than data, processing cannot be called a Computer Software, example CD ROM. Therefore, just because a clarification has been issued on a later date, that by itself does not alter the factual position as to what is meant by Computer Software and what is meant by CD ROM. Further according to Notification No. 36/96, dated 23-7-1996 even Computer software was chargeable to duty of 10%. Therefore, Computer Software was also not exempted from CVD. It was only by Notification 11/97, dated 1-3-97 that nil rate of duty was chargeable to Computer Software. Explanation by issue of Notification 3/98, dated 11-2-98 was issued to set at rest any doubt as to what constitutes "Computer Software". The items cleared by the appellants are not Computer Software as the items in question cannot be manipulated or inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supdt. of Central Excise that the appellants should clear the goods on payment of duty under Section 3 of the C.E. Act, 1944 without the benefit of the Notification No. 2/95, dated 4-1-95 equal to the aggregate duties of Customs which would be leviable under Section 12 of the Customs Act, 1962. Further, the contention of the appellants that the goods have been cleared on provisional basis cannot be accepted since it is not the case of the appellants that they have followed the procedure laid down under Rule 9B of the C.E. Rules, 1944 for provisional payment of duty. It is an admitted fact that the appellants have cleared the goods to DTA without payment of duty for the period from 30-7-96 to 28-10-96 and from 29-10-96 on payment of duty less than the applicable rate though the appellants claim that in the invoice they had mentioned that duty shall be payable as determined by the authorities. However, the concession has been denied to the appellants on the ground of value addition as noted above and the Commissioner has not adverted to the conditional permission granted to them to clear the goods to DTA viz. without the benefit of Notification No. 2/95. However, in view of the rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he invoice, then proviso to Section 11A(1) can be invoked. (g) Whether the unaccounted CD Audios, CD Videos and CD ROMs which have been released provisionally are liable for confiscation under Rule 173Q(1) of the C. Ex. Rules ? We find that finished goods viz. CD ROMs valued at Rs. 44,47,047/- had not been accounted for in the statutory records. This act on the part of the appellants cannot be said to be without the intention of clearing the same clandestinely. Therefore, confiscation of the goods have been correctly ordered. (h) Mandatory penalty under Section 11AC and penalty under Rule 173Q. In this case the Commissioner himself in the impugned order has held in para 11 that since Section 11AC was introduced with effect from 28-9-96 only a portion of the period of dispute is covered by this Section and accordingly he has limited the penalty under this Section to Rs. 14,38,561/-. We find that this quantum is more than the maximum permissible limit. We observe that the issue with regard to imposition of penalty under Section 11AC is mandatory or not is no longer res integra and the authorities have discretion to impose a lesser penalty as has been held by the Hon'ble Su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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