R.K. Singh ORDER
G. Raghuram, J. (President)
1. Appeal has been filed against Order-in-Original No. MIJM/ACE/01/2011, dated 12.01.2011 in terms of which:--
"(i) The declared prices of the Oracle packaged software imported under Bills of Entry filed by Oracle India Pvt. Ltd. (OIPL) and the subject matter of the Show Cause Notice dated 02.06.2009 were rejected under Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.
(ii) Demand amounting to Rs. 6,82,82,628/- for the period January & February, 2006 was dropped.
(iii) It was held that the rate of duty from 01.03.2006 to 28.02.2007 was @ 8.16% and not 8.24% and consequently the differential demand on account of higher rate of duty amounting to Rs. 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 Rs. 17,78,90,832/- (Rs. 17,21,44,516 + Rs. 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 Rs. 17,78,90,832/-. The bond and bank guarantee filed for release thereof were ordered to be appropriated for that purpose.
(v) Differential customs duty amounting to Rs. 88,05,384/- (Rs. 79,43,437 + Rs. 8,61,947) was ordered to be recovered on account of licence fee paid/payable to M/s. Oracle Corporation on the confiscated goods.
(vi) Under Section 28 ibid, customs duty amounting to Rs. 1,27,35,26,395/-, out of the total demand of Rs. 1,34,70,14,053/- on the clearance of goods made during the period 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 Rs. 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 Rs. 1,28,23,31,779/- under Sections 112 and 114AA ibid was imposed on Oracle India Pvt. Ltd. (OIPL).
(ix) Penalty of Rs. 10 lakhs each was imposed upon Shri Krishan Dhawan and Shri Atul Kaushik under Section 112 ibid."
2. The facts of the case briefly stated are as under:--
"The appellant (OIPL) was importing packaged software (media packs) from its related group company M/s. Oracle EMEA, Dublin, Ireland (also referred to as Oracle Ireland). The consignments used to be imported through M/s. DHL Express and cleared on the basis of invoices sent by the supplier. 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 reflecting the value of media pack and licence fee were issued. Thus, OIPL was not including the licence fee of the software in the import value of the media packs and was thus allegedly indulging in duty evasion because the said licence fee was includible in the assessable value in terms of Rule 9(1)(c)/10(1)(c) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 1988/2007 on the ground that such licence fee was a condition of sale. Even in respect of such media packs where 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 deliberately mis-stated/suppressed the facts and passed the adjudication order demanding the duty and imposing fines and penalties as above."
3. The ld. advocate for OIPL made the following submissions:--
"3.1 Oracle, USA develops software and entered into a Software Duplication and Distribution Agreement dated 01.06.2003 (hereinafter referred to as the SDDA) with OIPL whereby the latter was granted the right to duplicate and distribute Oracle software in India.
3.2 OIPL provides software licences to 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 assistance respectively) for providing the ATS services. The demand in the present case pertains to the basic license fee and the version update fee (i.e. 15% of license fee), whether actually payable or notional. There is no demand on technical support/assistance fee (i.e. 7% of the license fee).
3.4 OIPL follows the following modes for delivery of software in India:--
(i) Electronic Product Download (EPD): It allowed the customer to download Oracle software electronically through a link provided 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 a result of the bundled form, there is no dispute that the payment made towards the licence fee would be a condition of sale. The factual situation in the present case is distinct insofar as the physical import of media pack itself is optional and, therefore, the license fee paid for the software contained in the media pack cannot be treated as a condition of sale.
3.6 Whenever required for delivery of media pack to customer, OIPL availed services of Oracle EMEA, Ireland (hereinafter referred to 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 to Oracle USA.
3.8 A pictorial description of the aforesaid transactions as submitted by OIPL is reproduced below:--
3.9 Various activities undertaken OIPL in India are as follows:
Commercial Transactions
Media pack shipments OIPL supplied software to customers through different modes discussed above. Only in those cases where a customer specifically requested for supply of software in physical form, OIPL provided a media pack. 56% of the license fee collected from customers was remitted to Oracle 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 under media pack category. 56% of the royalty/license fee collected from customers was remitted to Oracle Corp., USA.
Version Updates Version Updates are part of the ATS offered by OIPL. Version updates assisted the customer with bug fixes, patches, version and other technical support. Physical import of media pack occurred only when a customer opted for the same. 56% of the royalty/license fee collected from customers was remitted to Oracle Corp., USA.
Global Deals These transactions are part 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 whatsoever were made to Oracle Corp., USA. Media pack was imported only when physical supply was requested by the customer.
Oracle Partner Network (OPN) Oracle software was supplied to Oracle Partners (IT companies) for providing solutions to their customers. Depending on the level of the partnership, the partners paid an annual fee ranging from Nil to USD 1,995.
Education: Workforce Development Program (WDP) Oracle software was supplied to educational institutions. Such institutions paid an annual subscription 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 fee was not charged by OIPL and there was no remittance of any amount to Oracle Corp., USA.
Free of Charge External Shipments These represent import and supply of media pack/Dox as replacements for defective or damaged media pack/printed certificate. Such imports were for both commercial and non-commercial customers.
3.10 The issue involved is inclusion of royalty/license fee paid by OIPL to Oracle Corp., USA in the value of media pack containing software imported from Oracle Ireland under Rule 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 must be added to the dutiable value of the imported product. The Revenue has used this rule to add additional amounts to the dutiable value of the imported media packs. The additional amounts relate to transactions and can broadly be categorized into three buckets.
The first bucket consists of shipments for which there was a physical import and there was a royalty paid (e.g., license sales and version updates with media pack shipments). Although there was a royalty actually paid with respect to this 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 Rs. 18,58,24,382/- out of a total demand of Rs. 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 certain sectors). Given that there is no royalty paid or payable with respect to these transactions, there is nothing to be added to the dutiable value but Revenue has added notional licence fee payable to Oracle USA. This bucket accounts for Rs. 87,69,94,155/- out of the total demand of Rs. 128,23,31,779/-.
The third bucket consists of shipments for which there was no physical imports (e.g., global deals and license certificate transactions). Given that there was no product physically imported, there is nothing to value for Customs purposes. This bucket accounts for Rs. 21,07,07,858/- out of the total demand of Rs. 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 price. This aspect has neither been disputed in the SCN nor in the impugned order.
Licence fee paid to Oracle Corp., USA is for distribution of Oracle software in India. Such payments are outside the purview of Rule 10(1)(c) as explained in the Interpretative Notes.
Licence fee was not payable for import of media pack from Oracle Ireland. Licence fee was paid to Oracle Corp., USA for grant of right to distribute software (either electronically or physically) and not for purchase of media pack from 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 is paid to Oracle Corp., USA. Neither the SCN nor the impugned order has disputed the correctness of the price charged for media pack. The dispute is solely with regard to addition of licence fee to the price of media pack.
Media pack is also supplied by Oracle Ireland for non-commercial transaction where no licence fee is paid. Therefore, payment of licence fee to Oracle Corp., USA is certainly not a condition of sale.
Licence fee is liable to be paid by OIPL to Oracle Corp., USA even when the customer 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 Oracle Corp., USA.
Even in EPD + mode of supply, wherein the customer opts for media pack, the order confirmation categorically provides that licence fee is payable by the customer to OIPL even if the media pack is not delivered.
OIPL is free to distribute the media pack imported from Oracle Ireland to either a commercial or non-commercial customer. If the media pack is distributed to a non-commercial customer after importation, OIPL will not pay any licence fee to Oracle Corp., USA.
Even if the 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 if it is not a condition of sale of imported goods.
Oracle group entities follow the same business model globally. Oracle Software Systems Israel Limited paid licence fee to Oracle Corp. USA, on receipt of fee from its customers on grant of right to use the Oracle software. The issue for consideration before the Israeli authorities was whether such licence fee should be added to the declared value of the media pack. After due consideration, it was held that the declared value of media pack was not 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 v. CC, MANU/SC/1439/1997 : 1996 (88) E.L.T. 609. The Hon'ble Supreme Court in the cases of CC v. J.K. Corporation MANU/SC/0766/2007 : 2007 (208) E.L.T. 485 (SC) and CC v. 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 that every license fee paid by the importer is to be added to the declared value of the imported goods. Fees relatable to the pre-importation stage are includible.
SCN invoked Rule 10(1)(c) for inclusion of licence fee. If licence fee is not includible under the said rule, resort to Rule 10(1)(e) cannot be made. Commissioner of Customs v. Ferodo India Pvt. Ltd., [MANU/SC/0849/2008 : 2008 (224) E.L.T. 23 (SC)].
3.12 IMPORTS UNDER NON-COMMERCIAL TRANSACTIONS ARE NOT IDENTICAL TO IMPORTS UNDER COMMERCIAL TRANSACTIONS.
Even 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 actual. This approach is erroneous. Inclusions under Rule 10(1)(c) are based on actual contractual liability to pay licence fee and not based on assumptions and surmises.
The license value for non-commercial transactions has been theoretically arrived at by summation of the global list price (for one licence) of each and every Oracle software offered to customers by Oracle Corp., USA at a given point of time (regardless of whether such Oracle software was actually contained in the media pack provided to the non-commercial users) to arrive at 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 license but the license provided to the non-commercial users is yearly. Thus, these two transactions are not comparable and value of one cannot be adopted for another. Reliance is placed on the case of Selected Creations v. CC, 2001 (135) ELT 333 (Tri.-Delhi).
3.12 Customs duty cannot be levied on electronic download of software [Refer Digital Equipments India Limited v. CC Bangalore, 2001 (135) ELT 962 (T) and the Geneva Ministerial Declaration of Global Electronic commission Document WT/MIN(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 v. B.C. Srinivasa Setty, MANU/SC/0285/1981 : (1981) 2 SCC 460 wherein the Hon'ble Supreme Court, in the context of income tax, has held that the charging section is not attracted where computation provision is not applicable.
3.14 Customs duty cannot be demanded on free of charge (hereinafter referred to as FOC) external shipment for media pack (imported as replacement for defective or damaged or destroyed media pack), Dox and non-commercial transactions. In case of FOC import for media pack and Dox, licence fee 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.
Neither the SCN nor the impugned order has identified the bills of entry vide which the media packs were imported. Consequently, there is no one to one co-relation between the imported media packs and royalty/licence paid thereon. Further, interest liability also cannot be ascertained in these cases.
Within the commercial transactions, the impugned order has confirmed duty demand on Dox import which is merely a certificate of authenticity issued to the customer who receives Oracle software in electronic 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 transactions on the basis of royalty/licence fee that should have been paid.
The Ld. Commissioner has on its own volition, rejected the transaction value of USD 500 charged by OIPL under OPN WDP and OAI programme as annual registration fee. OIPL never declared the said value as the transaction value. At the time of importation, the price charged by Oracle Ireland for supply of media pack was declared as the transaction value. The Ld. Commissioner has not given any reasons whatsoever to discard 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 the case of non-commercial supplies, OIPL supplied free replacement media packs under OPN and WDP. However, as no payment towards royalty/licence fee was made to Oracle Corp., USA, duty cannot be demanded.
SERVICE TAX DEMAND ON THE LICENCE FEE PAID TO ORACLE CORP., USA UNDER FRANCHISE SERVICE.
3.16 Both Customs Duty and Service Tax cannot be demanded on the same transaction. The Hon'ble Supreme Court in the case of Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes, MANU/SC/0518/2008 : 2008 (9) STR 337 (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 category of Information technology software Service introduced vide Finance Act, 2008 with effect from 16.05.2008.
ENTIRE DUTY DEMAND IS BEYOND THE PERIOD OF LIMITATION. EXTENDED PERIOD IS NOT INVOCABLE.
3.17 The entire duty demand is barred by limitation as it has been raised beyond the period of six months.
There is no collusion or wilful mis-statement or suppression of facts by OIPL or the foreign supplier. OIPL correctly declared the price, which it was paying to Oracle Ireland for the media 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 complete disclosure in the submissions filed before the Assistant Commissioner of Customs (Group-5B), New Customs House, New Delhi (SVB authority) vide their letter dated 19.01.2007. Information relating to remittance of 56% of license fees to Oracle Corp., US was duly submitted in response to the SVB Questionnaire wherein OIPL has stated in unambiguous words that it remits licence fee to Oracle Corp., USA. OIPL also submitted a copy of the SDDA (in terms of which royalty is to be remitted) along 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 Act, 1975 whereas the provisions for levy of penalty and interest are prescribed under the Customs Act, 1962. Therefore, penalty and interest cannot be levied for non-payment of CVD unless the penalty and interest provisions prescribed under the Customs Act, 1962 are borrowed under Section 3 of the Customs Tariff Act, 1975. Reliance is placed on the case of Tonira Pharma Ltd. v. CCE, Surat, MANU/CM/0459/2006 : 2007 (208) ELT 38. (Page 152, Compilation of Cases and Materials)
The principle that penalty cannot be levied 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. v. State of Maharashtra MANU/SC/0442/1975 : 1975 (2) SCC 22; (Page 100, Appeal Memorandum) and
(ii) Pioneer Silk Mills Pvt. Ltd. v. Union of India, MANU/DE/0538/1991 : 1995 (80) ELT 507, (Del) approved by the Hon'ble Supreme Court in Collector Central Excise, Ahmedabad v. Orient Fabrics Pvt. Ltd., MANU/SC/0990/2003 : 2003 (158) ELT 545. (Pages 124 and 143 respectively, Compilation of Cases and Materials)"
Penalty provision under the Customs Act have been held to not apply in cases of non-payment of anti-dumping duty as has been held in the following cases:--
"(i) Supreme Woolen Mills Ltd. v. CC, MANU/CE/0240/2004 : 2004 (167) ELT 439;
(ii) Silkone International v. CC, MANU/CB/0455/2006 : 2007 (208) ELT 271; and
(iii) Bajaj Health & Nutrition Pvt. Ltd., 2004 (166) ELT 189.
(Page 103, Appeal Memorandum)
Penalty provisions under the Customs Act have been held to not apply for non-payment of special additional duty as has been held in the following cases:--
"(i) Raj Traders v. CC, MANU/CE/0288/2002 : 2002 (144) ELT 130;
(ii) I.K. International v. CC, MANU/CE/0171/2002 : 2002 (142) ELT 185;
(iii) Tarsem Singh Multani & Sons v. CC, MANU/CE/1664/2001 : 2001 (134) ELT 753; and
(iv) Setia Woollens Pvt. Ltd. v. 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. v. State of Assam, [MANU/SC/0790/1997 : 1997 (6) SCC 479]}.
In V. V.S. Sugar v. Government of Andhra Pradesh [MANU/SC/0321/1999 : 1999 (44) SCC 192], the Constitution Bench of the Supreme Court, while dealing with the question of levy of interest for delay in payment of purchase tax on sugar cane, once again re-affirmed principles laid down in India Carbon's case.
Sections 8B, 8C, 9 and 9A of Customs Tariff Act, 1975 were amended by Finance Act, 2009 to borrow provisions relating to interest and penalties from Customs Act, 1962 for these Sections 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 Rs. 17,78,90,832/- were seized and provisionally released under Provisional Duty Bond and Bank Guarantee. The rest of the goods were never seized and no bond or bank guarantee has been provided with respect to these goods. With respect to the goods that were not seized, the confiscation and the redemption fine imposed is not sustainable. Confiscation cannot be done if the goods are not available as has been held in the following cases:--
"(i) CCE v. Raja Impex, 2008 (209) ELT 185 (P&H); and
(ii) Shiv Kripa Ispat Pvt. Ltd. v. Commissioner of Central Excise, MANU/CM/0026/2009 : 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 admitted fact that OIPL, M/s. Oracle EMEA, Dublin, Ireland and M/s. Oracle International Corporation, USA (also referred to as Oracle Corp USA or Oracle USA or OIC) are related persons.
(ii) The Master Service Agreement covers all the three entities.
(iii) Thus, the transactions between Oracle USA, Oracle Ireland and OIPL were related party transactions and hence, the transaction value cannot be accepted under Rule 10(1)(c) ibid. The said sub-Rule states as under:--
Royalties and licence fees related 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 USA (OIC) shall retain all rights, title and interest in the intellectual property rights in the programmes or those arising from any product development system.
(vi) Since the payment of licence fee was the condition of import of the goods, the same was includible in the assessable value.
(vii) Oracle USA develops the software being imported by OIPL (OIPL) and is a copyright holder of that software. OIC has entered into a Distribution Agreement with OIPL whereby OIC has granted a license to OIPL 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 containing the software. The media is generally in the form of a Compact Disk (CD) earlier referred to as media pack.
(viii) Software is goods as has been unambiguously held by the Hon'ble Supreme Court of India in the case of Tata Consultancy Services v. State of Andhra Pradesh [MANU/SC/0950/2004 : 2004 (178) E.L.T. 22 (S.C.)].
(ix) Thus, software of any kind being intangible (like electricity) when brought into India from a place outside India, whether on a CD or downloaded electronically would be undoubtedly goods 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 goods shall be the transaction value, i.e. the price actually paid or payable for the imported goods. The Rule further states that the transaction value declared by the importer at the place of importation would be acceptable if the buyer or seller are not related or where the buyer and seller are related, the transaction value is not influenced by their relationship.
(xi) In the present case, OIPL and Oracle, Ireland are related. OIPL is a wholly owned subsidiary of OIC, USA (owner of the software) 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 pre sales and sales teams of OIPL met and negotiated with the prospective Indian customers of the software, offering them necessary information and demonstration of the software prior to its actual import. The sales team used the Indian price list converted from the global price list which states the price in US$, to offer terms of purchase of the software to prospective buyers including offers of higher or special discounts. The negotiated terms by the sales team were submitted for approval to OIPL.
(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 about the software users in India negotiated by the OIPL team and on the basis of information fed by OIPL into the Oracle System, it shipped the software through DHL to India. The sorting and further despatch of the software as per OIPL's instructions and list of Indian buyers for every mother consignment sent by Oracle Ireland was done at DHL's sorting centre in Gurgaon.
(xv) Wherever the Indian customer opted to have a physical media pack, Oracle, Ireland shipped the media packs to OIPL. The Indian 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 well as a document issued by Oracle, Ireland for each baby shipment. This document from Oracle, Ireland contained details of ultimate individual buyers in India including their names, Indian address, Delivery Order No., date of booking, Unique Order No., date of shipping, P.O. No. and interestingly also the description of the goods and their value in Indian Rupee for Octroi purposes. Being part of the Oracle Group and governed by the Master Services Agreement, Oracle Ireland was indirectly controlling 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 negotiated with Indian Customers in advance of the actual import into India was to be paid to OIC, U.S.A. (the parent company). Being a condition of import of the software agreed in advance of its actual import, the licence fee was a part of the transaction value of the imported media packs.
(xvi) All these show clearly that the Indian Customer had no choice but to agree to the payments of royalty at the time of entering into the contract in advance of actual shipment and much before the actual import 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. Moreover, the sequence of events regarding the import transaction demonstrates unambiguously that Oracle Ireland shipped the software to India only after the contract stipulating payment of consideration in the form of price of media packs declared to Indian Customs authorities as well as royalty was paid and thereafter was entered into the Oracle Order Management System (Group System). Without the generation of the Unique Order No. for OIPL's Indian customer in the Oracle Group's System, Oracle 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 these terms and conditions. Thereafter, a written agreement was signed between OIPL and the Indian customer. The signed agreement was scanned in the Oracle system so that the Order Number (Unique Number for each order) was generated. On the basis of the order booked in the Oracle System, shipments were shipped from M/s. Oracle Ltd., Ireland to M/s. OIPL. Once the order was entered into the Oracle System, the order would be integrated with Oracle's Distribution software application. OIC was (in real time) 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 data for the OIPL's Indian customer would be updated in real time when the media packs were actually shipped from Ireland.
(xxi) OIPL knowingly suppressed the information relating to true value of goods in question.
(xxii) OIPL at the initial stages of the investigation took a plea that the imported software (media pack) were imported for stock and sale and their sale price was not available with them. However, later it was gathered by the department that the importer i.e. OIPL switched the invoices 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 Services Agreement. This fact was neither disclosed by OIPL to the department at the time when OIPL requested for provisional release of the seized goods under PD Bond/BG nor in OIPL's reply to the SVB questionnaire. This fact of non declaration of License Fee amount remitted by OIPL to OIC emerged only through the investigations conducted. Therefore, the proviso to Section 28 of the Customs Act, 1962 is squarely applicable in the present case to demand the CVD from OIPL invoking the extended 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 Revenue is also supported by Commentary 25.1 on WTO Valuation Agreement and Commentary N 11 regarding addition of amounts of Royalties and Licence Fees in the EU. Also, the Revenue's arguments are supported by Hasbro-II Ruling of the US Customs according to which a three pronged test has been laid down to determine whether royalty payment was a condition of sale. This is a complete reversal by U.S. Customs of its earlier ruling in Hasbro I.
(ii) In case of what is called Dox imports or import of subsequent 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 licences.
(iii) OIPL is not a buyer of the media pack. It is merely a facilitator/agent of OIC. The generation of the Unique Order Number for each sale of media pack showed that there was a privity of contract between OIC and the Indian customer and not between OIPL and the Indian customer.
(iv) Annual fee charged ranging from USD 500 to USD 1995 was not a correct transaction value. This transaction value has to be rejected on the ground that several restrictions were imposed on the users of the software 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 disclose its true relationship with Oracle Ireland as members of the Oracle group until the department undertook its investigations against OIPL. Penalty was therefore rightly imposable as proposed in the Show Cause Notice."
6. The appellants made the following further submissions in response to the contentions put-forth by the Revenue:--
"(i) Royalty payments are for the right to distribute or use the copyright software in India and thus, such payments are not linked to pre-importation activity and 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. Srinivasan was not read in a proper context and the statements of other officials have also incorrectly summarized in the impugned order..
(ii) If the argument of Revenue that increase in the number of users subsequently are to be linked with the original agreements is accepted then the assessment will never be finalized, a situation, which is not acceptable as one of the basic canons of taxation and its fundamental principle will be frustrated if the CD containing the software would perpetually be assessed on a provisional basis. Ld. counsel for the appellants placed reliance in the cases of Haryana Ship Breakers Pvt. Ltd. v. Union of India [MANU/GJ/0012/1995 : 1997 (96) ELT 5 (Guj.)], Union of India and others v. Tata Iron and Steel Co. Ltd. [MANU/SC/0316/1975 : 1978 (2) ELT (J439)(SC)] and Kinetic Engineering Ltd. v. CCE, Pune, Nagpur, Nashik [MANU/CM/0382/2011 : 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 the context of import of VPN hardware. As regards non-disclosure of licence fee, it was clearly disclosed in reply to the SVB questionnaire submitted on 19.01.2007.
Analysis of Evidence/Arguments/Contentions/Pleadings.
8. We have considered the evidence on record and contentions/arguments/pleadings of both sides. The issues involved in this case which are required to be adjudicated upon are summarised as under:--
"(i) Whether the licence fee paid by OIPL to its parent company Oracle USA is includible 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 imported in the form of media packs or downloaded electronically in respect of which no licence fee was paid or required to be paid by OIPL to Oracle USA, the value of the (notional) licence fee can be included in the assessable value on the ground that same should have been paid and whether the licence fee neither paid nor required to be paid by OIPL to Oracle USA can be held to be payable in the given circumstances.
(iv) Whether the extended period of limitation is invokable in the given facts and 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 were released without any bond and are not available for confiscation.
(viii) Whether, in the given facts and circumstances, confiscation and penalties are warranted in respect of seized goods."
9. As the entire issue is predominantly based on the interpretation of Rule 9(1)(c)/10(1)(C) of the Customs Valuation Rules, 1988/2007 the said sub-Rules is reproduced below for the sake of convenience:--
"Royalties and licence fees related 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;"
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 conditions are to be satisfied simultaneously:--
"(i) The buyer is required to pay directly or indirectly the royalties/licence fees related to the imported goods which are sought to be added the price actually paid/payable and
(ii) The buyer is required to pay such royalties/licence fees as a condition of sale of the goods being valued."
10. OIPL has argued that the valuation of media packs imported in case of non-commercial transaction where no licence fee was paid or required to be paid, the licence 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--vis those in respect of which licence fee was paid and therefore these should also be assessed at same value as per Rule 4 of the Customs Valuation Rules. (iii) Consequently all the goods imported for different users are to be assessed at a value inclusive of licence fee which should have been paid and hence was payable. We find a basic fallacy in this argument. Section 14 of the Customs Act deals with valuation of imported goods and is reproduced below:--
"14. Valuation of goods (1) For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time 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 may be specified in the rules made in this behalf:
Provided that such transaction value in the case of imported goods shall include, in addition to the price as aforesaid, any amount paid or payable for costs and services, including commissions and brokerage, engineering, design work, royalties and licence fees, costs of transportation to the place of importation, insurance, loading, unloading and handling charges to the extent and in the manner specified in the rules Made in this behalf:
Thus, it 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 has not been altered by the Customs and thus the only dispute was the includibility of royalty/licence fee (paid by OIPL to Oracle USA) in the said price. As per Rule 3 (1) of the Customs Valuation Rules, subject to Rule 12, the value of imported goods shall be transaction value adjusted in accordance with provisions of Rule 10. It is seen that even for transactions where licence fee was actually paid the value declared in the Bills of Entry has not been found to be wrongly declared per se; only 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 for adding license fee/royalty on notional basis on the ground that the same should have been paid even though for certain transactions, the customers were not required to pay directly or indirectly any royalty/licence fee. The primary adjudicating authority has however held that the license fee which was not paid in respect of such non-commercial transactions was payable. The primary adjudicating authority has however not given any basis to conclude that the license fee was payable in respect 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 licence fee was due or paid or remained unpaid by Indian customers to OIPL and by OIPL to Oracle USA in respect of such transactions. Even if it was argued for the sake of argument that the parent company may not care to collect all the licence fees from its subsidiary company as both are related but even in that scenario the parent company or the subsidiary company would certainly collect the licence fee from the customers (which are not related) in case such licence fee was indeed required to 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 Software Duplication and Distribution Licence Agreement between Oracle USA and OPIL that Royalty/sub-licence fee shall not accrue on licences put to internal use or issued to clients/partner as trial/demonstration licences. All the judgments/opinions cited by the appellants/Revenue essentially hold that licence fee actually paid/payable as a condition of sale is includible in the assessable value. That is a settled legal position with which both sides are in agreement and therefore we are not discussing/analysing those judgments 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 internet cannot be sustained. Having thus held, we need not go into the question whether the quantification of (notional) licence fee (held to be payable by the adjudicating authority in respect of non-commercial supply of software) was correctly done as that remains of no consequence.
12. We shall now discuss whether the software electronically downloaded via internet will qualify to be called goods imported and if so, whether the same will be liable to customs duty on the same lines as the duty 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 declaration and its extension was to be decided by consensus. Ld. Departmental Representative strenuously argued that electronic download of the impugned software tantamounts to import of goods and relied heavily on the judgment of the Supreme Court in the case of Tata Consultancy Services (supra). The Hon'ble Supreme Court in para 24 of its judgment stated as under:--
"24. In our view, the term goods as used in Article 366(12) of the Constitution of India and as defined under the said Act are 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 to sales tax. Even intellectual property, once it is put on to a media, whether it be in the form of books or canvas (in case of painting) or computer discs or cassettes, and marketed would become goods. We see no difference between a sale of a software programme on a CD/floppy disc from a sale of music on a cassette/CD or a sale of a film on a video cassette/CD. In all such cases, the intellectual property has been incorporated on a media for purposes of transfer. Sale is not just of the media 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 includes both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed etc. The software programmes have all these attributes."
It further observed in paras 34 and 74 as under:--
"34. The definition of goods in Sale of Goods Act is also of wide import which means every kind of moveable property. Property has not been defined therein to mean the general property in goods and not merely a special 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 dispute that when a programme is created it is necessary to encode it, upload the same and thereafter unloaded. Indian law, as noticed by my learned Brother, Variava, J., does not make any distinction between tangible property and intangible property. A goods may be a tangible property or an intangible one. It would become goods provided it has the attributes thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of transmitted, transferred, delivered, stored 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 judgment, 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 Declaration at a WTO conference does not have legal force of overruling a legislated mandate. However, in case of electronic downloads of software, it has not been ascertained whether server from where it was downloaded was actually located abroad. Even presuming it to be so, we need to see whether mechanism exists to levy and collect customs duty on such downloads. The Customs Act, 1962 contains several provisions for operationalising the levy and collection of customs duty. For example for the date 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 specifying the limits of any customs area. Section 31 provides that imported goods are not to be unloaded from any vessel unless entry inward is granted. Section 32 provides that no imported goods can be unloaded unless they are mentioned in the import manifest or import report. Section 33 provides for loading and unloading of goods at approved places only and Section 34 provides that goods are not to be unloaded or loaded except under supervision of customs officer. Section 36 puts restrictions for loading 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 having even a nodding acquaintance with the Customs Act, 1962 will not dispute that in its present form, it totally lacks the mechanism to levy and collect duty on electronic downloads. It is well settled principle of taxation that in absence of mechanism for collection of tax, the levy fails [refer e.g. the judgment of Supreme Court in the case of CIT, Bangalore v. B.C. Srinivasa Setty (supra)]. Thus, we hold that electronically downloaded software is not liable to customs duty. Consequently, 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 18.03.2011 and such paper licences under Chapter 49 are fully exempt from customs duty.
13. It now leaves us to deal with the impugned demand only related to the commercial physical imports of media packs where 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. He has cited several judgments/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 judgments 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 payment is a condition of sale of the imported goods, such licence fee/royalties are includible. While discussing a situation only somewhat similar, U.S. Customs in its Ruling HQ W548692 of March 2, 2007, inter alia observed as under:--
"For example, if the buyer pays a third party for the right to use, in the United States, a trademark or copyright relating to the imported merchandise, and such payment was not a condition of the sale of the merchandise for exportation to the United States, such 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 the imported merchandise for exportation to the United States."
CBP has established a three-part test for determining the dutiability of royalty payments. This test appears in the General Notice, Dutiability of Royalty Payments, Vol. 27, No. 6 Cust. B & Dec. At 1 (February 10, 1993) (Hasbro II ruling). The test consists of the following questions: 1) was the imported merchandise manufactured under patent; 2) was the royalty involved in the production or sale of the imported merchandise; and 3) 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 judgments/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 both sides also agree and therefore we do not need to refer to each of those judgments/opinions. As it is, whether the licensee fee paid or was required to be paid as a condition of sale is essentially more a question of fact than of law. None of the judicial pronouncements are directly on the issue at hand. In other words, none of the judgments cited decide whether the licence fee remitted abroad in the facts and circumstances obtaining in this case is includible in the assessable value. The Supreme Court in the case of CC (Port), Chennai v. Toyota Kirloskar Motor Pvt. Ltd. [MANU/SC/2855/2007 : 2007(213) ELT 4(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 given not as a condition of sale but on request and therefore the payment therefor was not held to be includible in the assessable value of the capital goods. However in the case of State Bank of India v. Collector of Customs, Bombay [MANU/SC/0017/2000 : 2000(115)ELT 597 (SC)], State Bank of India filed a Bill of Entry for one set of diskette of software program along with manual and countrywide license fee but subsequently invoice of the same number and date giving breakup for the licence fee for use at single site and 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 present case is that for media packs imported under commercial imports (where licence fee was collected from the customers and 56% of that was remitted by OIPL to Oracle USA as per the Software Duplication and Distribution Licence Agreement) as the licence fee was a condition of sale. It is seen that as per the prescribed procedure followed by OIPL, the pre-sale and sales teams of OIPL met and negotiated with perspective Indian customers offering them necessary information and demonstration prior to 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 shipment was then made by Oracle, Ireland. Thus, in every case of software import (including commercial imports), this unique order number was generated. In case of commercial imports, such order was scanned into the system and unique order number generated only after the Indian customer signed the agreement to pay not only the price of the software (paid by OIPL to Oracle Ireland) but also the licence fee. In other words, in every case of commercial imports, Oracle USA and Oracle Ireland were fully 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 shipped was in the knowledge of Oracle USA and each shipment came for a particular Indian customer identified by the unique order number generated. In case of commercial transactions, the unique order number was generated only after the agreement was signed by the customer to pay the licence fee also. It needs to be re-emphasised that each commercial shipment, came for an identified customer as per the unique order number generated and that number was generated only after the customer signed to 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 v. Union of India [MANU/TN/7867/2006 : 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 customers is nothing but sale of software to customers to use the same as without being able to use, buying of software by customers is meaningless because Oracle USA retains all right, title and interest in all intellectual property rights such as those embedded in or used by the programs.... as per Article 18 of the Master Service Agreement. In the case of CCE, New Delhi v. Living Media India Ltd. [MANU/SC/0947/2011 : 2011 (271) ELT 3 (SC], it was held by Supreme Court that royalty became payable as soon as cassettes/CDs were distributed/sold and hence being condition of sale, such royalty was includible in assessable value. This judgment was followed in the case of Star Entertainment Pvt. Ltd. v. 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 judgments referred to in regard to includibility of royalty in assessable value involve identical facts and circumstances and therefore we have laid primary emphasis (and essentially relied) upon the first principles to determine whether in the given set of facts and circumstances, the licence fee remitted by OIPL to Oracle USA was paid/required to be paid as a condition of sale. The opinion of Israeli authorised cited by the appellants is just an opinion of a particular nation's administration. Even the opinions of international bodies like World Customs Organisation (WCO), though of greater 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 charging customs duty. In the wake of the factual matrix of the case, we hold that in respect of commercial imports of media packs, the licence fee remitted by OIPL to Oracle USA was includible in the assessable value.
However, any subsequent (post importation) increase in the number of users of the software imported in the form 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 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 judgment of Supreme Court in the case of Imagic Creative Private Ltd. (supra) in support of this contention. The said judgment essentially laid down the ratio that payment of service tax and VAT are mutually exclusive. The said ratio laid down by the Supreme Court cannot be extrapolated to mean that customs duty and service tax are also mutually exclusive. In this regard it is pertinent to recall once again the observation of the Supreme Court in the case of CC, Chennai v. Toyota Kirloskar Motor Pvt. Ltd. (supra) that a decision is an authority 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 Supreme Court judgment 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 different taxes. The only question is whether demand of tax is sustainable under the particular statute, as claimed by Revenue. The licence fee being a condition of sale is includible in the assessable value of the media packs in terms of the Customs Act, 1962 and the Rules made thereunder and there is no provision warranting exclusion from the assessable value for customs purposes, on the ground that service tax has become chargeable on such licence fee under a different statute.
15. Coming to OIPL'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 obligation, of the assessee. Thus imposition of redemption fine in lieu of confiscation when the goods cannot be confiscated on account of not being available for confiscation is an empty, non-executable and meaningless exercise (except when there had been provisional release of goods on execution of bond). Confiscation of goods requires physical presence there of. In the case of CC, Amritsar v. Raja Impex [2008 (229) ELT 185 (P&H)], Punjab and Haryana High Court held that Section 125 of Customs Act, 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 v. Sudarshan Cargo Pvt. Ltd. [MANU/MH/1394/2010 : 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 has also held the view that confiscation and redemption fine are not imposable when goods are not available for seizure [Commissioner v. Finesse Creation Inc.{2010(255) ELT A120 (SC)}]. Accordingly we hold that redemption fine cannot be imposed in respect of goods which had already been cleared and were not available for seizure/confiscation. In any case, the Show Cause Notice did not propose any redemption fine on goods already cleared and it is settled law that adjudicating authority cannot travel 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 enactment, the appellants cited the judgments in the case of Khemka & Co. (supra) and Pioneer Silk Mills Pvt. Ltd. (supra). We are in agreement with this proposition and therefore we refrain from discussing the said judgments. The appellants also cited the judgment in the case of Supreme Woollen Mills Ltd. (supra), Silkone International (supra) and several others to advance the proposition that penalty provisions of Customs Act were not applicable to the cases of non-payment of anti-dumping 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 judgments. 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 the provisions of Customs Act, 1962 and the rules and regulations made thereunder including those relating to interest, penalty, confiscation. In the case of Pioneer Silk Mills (supra), the duty involved was the one levied under the Additional Duties of Customs (Goods of Special Importance) Act, 1957 and its Section 3(3) only borrowed the provisions relating to levy an collection from the Central Excise Act, 1944 and in view of that it was held that the provisions relating to confiscation and penalty could not be applied with regard to the duties collected under the said act of 1957. None of these judgments 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 relating to drawbacks, refunds and exemption from duties shall, so far as may be, apply to the duty chargeable under this section as they apply in relation to the duties leviable under that Act."
It is evident from Section 3(8) of the Customs Tariff Act, 1975 quoted above that all the provisions of Customs Act, 1962 and the rules and regulations made thereunder have been clearly borrowed into the said Section 3 to apply to the impugned CVD and so it is obvious that provisions relating to fine, penalty 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. v. CCE, Surat, CESTAT set aside penalty for evasion of Anti-dumping duty, CVD and SAD (para 16 of the judgment) 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 of CESTAT regarding CVD suffered from a fatal internal contraction in-as-much-as CESTAT itself in para 14 of the said judgment had expressly taken note of the fact that vide Section 3(8) of the Customs Tariff Act, 1975, the provisions of Customs Act, 1962 and the rules and regulations made thereunder had been made applicable to CVD charged (under Section 3 of Customs Tariff Act, 1975). In the light of this analysis, we hold that this contention of the appellant is legally not sustainable.
17. 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 it was not includible. (iv) In the FIPB approval application it had been clearly mentioned that 56% of the licence fee will be remedied to Oracle USA. (v) They had been following the same system even prior to 01.03.2006 when no countervailing duty was leviable and at that time there was no reason for them to indulge in wilful misstatement or suppression of facts. (vi) The issue involves interpretation of law and therefore allegation of suppression and imposition of penalties cannot be sustained; several judgments (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 give it to any user commercial or non-commercial and that this contention was misleading in as much as all the imports where in accordance with unique order numbers which related to specific customers. (iii) The very fact that OIPL was issuing another invoice while delivering the software to the customers shows that it was hiding from revenue the fact of charging the licence fee from the customers. (iv) All this establishes wilful mis-statement/suppression on the appellant's part.
18. The allegation 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 Rs. 128 crores out of which we have in effect held that only demand of the order of about Rs. 19 crores is sustainable on merit. Further, the very fact that OIPL had made complete disclosure regarding its commitment to remit 56% of licence fee to Oracle USA in its FIPB application is certainly indicative of the fact that it did not have any intention to hide this fact. We are aware that disclosure before FIPB authorities would not amount to disclosure before the customs authorities but it does lend credence to the appellants contention that having obtained FIPB approval after declaring the fact regarding OIPL's commitment to remit 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 (SVB s) questionnaire. Even earlier on 22.09.2005, OIPL wrote to Dy. Commissioner of Customs, Gr. VB, New Custom House, New Delhi in response to his letter No. VIII(12)/I&G/07/GRVC/CH-85/03/PD/05, dated 12.04.2005 in connection with the import of VPN hardware from Oracle Ireland that both are related as group companies and in both of them Oracle USA was a majority shareholder. Indeed it would be incredibly naive on the part of the well known company like Oracle to believe that OIPL could successfully 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 and practice of declaring assessable value even during the period prior to 01.03.2006 when there was no duty to be evaded at all, goes a long way in support of the contention of the appellants that there was no intention on their part to wilfully mis-state or suppress any facts. In any case, there is evidence on record that in September, 2005 and January, 2007 they submitted the details about OIPL's relationship with Oracle Ireland and Oracle USA to Customs and so the allegation that OIPL suppressed 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 v. CC, Chandigarh [MANU/SC/3646/2007 : 2007 (216) ELT 177 (SC)] observed that any incorrect statement cannot be equated with wilful misstatement. In case of Nestle India Pvt. Ltd. v. CCE [2009-TIOL-26-SC-CX], Supreme Court observed that there must be conscious or deliberate withholding of information to invoke longer period of limitation. That when the issue involved is interpretational, no penalty is imposable has been held in a series of judicial pronouncements like Delphi Automotive Systems v. CCE, NOIDA [MANU/CE/0683/2003 : 2004 (163) ELT 47 (Tri. Del)] and Prem Fabricators v. CCE, Ahmedabad [MANU/CS/0188/2009 : 2010 (250) ELT 260 (Tri. Ahd)]. Supreme Court in the case of Tolaram Relumal v. State of Bombay [MANU/SC/0057/1954 : 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, it almost axiomatically follows that even extended period cannot be invoked in such cases. Indeed we do not find even marginal support/evidence to sustain the charge of wilful mis-statement/suppression of facts and therefore we hold that the allegation of wilful mis-statement/suppression of facts is not sustainable and penalties relating thereto are not imposable. As a result, the demand even in relation to commercial physical imports of media packs (except those which were seized) is hit by 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 mutual relationship. It has been clearly brought out in the preceding paras that this case involves interpretation regarding includibility of the licence fee remitted by OIPL to Oracle USA in the assessable value of media packs and is devoid of mens rea. Thus, essentially, as it turns out, it is not a case involving evasion of duty but a case of mere possible short payment of duty in respect of commercial imports of media packs involving a purely interpretational issue where OIPL has made an arguable case that there was no short payment as the licence fee was not includible in the assessable value notwithstanding our finding that such licence fee remitted by OIPL to Oracle USA is includible in the assessable value. Such cases devoid of mens rea are simple demand cases involving bona fide interpretational difference of opinion. Non-desirability of imposing of penalty in such cases can be inferred from the case laws discussed/analysed earlier and when penalty is not justified, then as a corollary nor is confiscation. We may observe in passing that the Customs tendency, often noticed, to raise a pure interpretational disagreement regarding valuation to the status of an offence case of evasion alleging suppression, etc. does not augur well for the image of taxation department and negatively impacts the case-of-doing-business environment of the country and therefore even in public interest such tendencies need to be discouraged.
20. In view of the discussion above, we pass the following Order:--
"(i) The extended period of limitation is not invokable.
(ii) No Customs duty is chargeable on electronic download of the software via internet.
(iii) Even in respect of physical imports of software, licence fee on notional basis is not includible in the assessable value where no licence fee was actually paid or required to be paid.
(iv) The demand of differential duty as would arise by adding 56% of the licence fee to the assessable value of only those goods (out of the 49 consignments which were seized) in respect of which licence fee was actually charged from the customers is sustainable and sustained. The assessing officer shall compute the differential duty accordingly after hearing OIPL only on this limited aspect and inform it of the amount of differential duty so computed.
(v) Rest of the impugned demands, redemption fines and penalties on the appellants are set aside."
(Pronounced in the Open Court on 29.07.2015)
© Manupatra Information Solutions Pvt. Ltd.