2. The appellants herein imported software in the form of diskettes along with the accompanying manual (Users Guide and Reference). In the Invoice, produced by them at the time of filing of Bill of Entry they had declared 60% value Of the total value towards diskettes and 40% value towards the aforesaid manual as per the established practice of the Customs House which is not denied by the Adjudicating Authority in the impugned order. The goods were examined by the Customs. Software in diskette form was classified by the Customs under Heading 85.24 and the manual in the printed book form under Heading 49.01, as per the said practice.
2. Later on, it appears that the Department had change of mind consequent to decisions in some Collectors' Conference. In August, 1991 they, therefore, issued a show cause notice alleging that the appellants had misdeclared the description of the goods and value by describing the goods in the aforesaid two categories thereby causing an evasion of duty. The goods seized at the premises of the appellants, it further alleged are, liable to confiscation inasmuch as under assessment has resulted due to the wrong declaration of the appellants.
3. On Adjudication, the adjudicating authority has confiscated the goods, has given to the appellants an option to redeem them on payment of fine of Rs. 6.5 lakhs. He has also imposed a penalty of Rs. 3 lakhs on the appellants and Rs. 60,000/- on Shri Rajinder Purchase Manager of the appellant firm. Differential duty of Rs. 7,48,300/- has also been demanded by the Collector under Provisions of Section 125(2) of the Customs Act 1962. Hence these appeals by the appellants.
4. Ld. Consultant Shri R. Parthasarathy, submits that the facts and circumstances do not justify any of the impositions made by the Adjudicating Authority. As already admitted, the prevailing practice of assessment being followed in Custom Houses relating to importation of Software along with manuals was to split up the value for diskettes and manual right up to April 1991. In the present case, the appellants have imported the goods in December 1988 to May, 1990 against 44 Bills of Entry. In view of the established Custom House practice and in view of the fact that the full value in any case was available to the Revenue, the assessment could be resorted to by the Authorities by clubbing the same if the department's view was different. There is no justification in confiscation of the goods and imposition of penalty on the appellants.
5. Ld. JDR, Shri R.S. Sangia reiterates the findings of the adjudicating Authority - "The above discussions will only bring out one fact that the Customs authorities assessed for import duty purposes diskettes and manuals separately classifying them under Chapters 85.21 and 49.01 respectively and for this purpose the split up of 60:40 was being accepted by the Customs authorities for the purpose of apportionment of the value for the two. This position remains undisputed and unchallenged. However, on going through a show cause notice I find that no demand of duty has been issued under Section 28(1) of Customs Act, 1962. The reply of the importer time and again hinges on the aspect of time bar. However, time limit provided under proviso to Section 28(1) of Customs Act, 1962 is not relevant in this case at all. The SCN issued does not propose to recover any differential duty for the imports made from 1989 to 1991 by invoking the extended time limit of 5 years. Had the show cause notice proposed recovery of differential duty by invoking the extended time limit under proviso to Section 28(1) such demand would have been clearly time-barred. However this aspect is not relevant as the differential duty has not been demanded by invoking the extended time limit under proviso to Section 28(1). All the defence and arguments and contentions made by the importer in this regard ?re therefore, off the mark and not relevant to the issues involved. I find that the duty demand is only in respect of goods proposed to be confiscated which have been seized. In such a situation, the point for determination would be whether SCN has been issued proposing confiscation under Section 111 within 6 months of the date of seizure or not. If such a SCN has been issued within 6 months, the SCN is well within the time limit. However, liability to confiscation needs to be adjudged with respect to evidence available on record. After the liability to confiscation has been determined, the demand of duty is not required to be made under Section 28(1) of Customs Act 1962 but it is covered under Section 125(2) of Customs Act, 1962 which provides for recovery of any duty due on the goods which after confiscation are ordered to be released on payment of fine in lieu of confiscation under Section 125 of Customs Act, 1962.
The basic issue therefore for determination would be whether the computer software under seizure is liable to confiscation under Section 111. If there is enough evidence in support of the allegation that goods are liable to confiscation under Section 111 and the goods are ultimately ordered to be confiscated, the choice will be for the importer to redeem the goods on payment of fine or to leave the goods in the hands of the Central Government and not opt to exercise the option to redeem the goods. While exercising the option to redeem the goods, the owner has to pay the differential duty in addition to the fine in lieu of confiscation in terms of Section 125(2) of Customs Act, 1962. Thus, all the labour of the importer in arguing their case on the point whether the extended period under proviso to Section 28(1) is applicable or not is not relevant to the issue. All the arguments and defence in this regard are an exercise in futility. There could hardly be any dispute about the point that once a classification practice has been continuing and the Department changes it at some stage, differential duty has to be demanded in respect of past clearances within a period of 6 months only and extended time limit cannot be applied in such a situation. However, the issue involved in the issue of SCN is not the payment of duty but liability to confiscation under the provisions of Customs Act, 1962.
The records of the case and the various submissions made reveal that the practice of splitting up the value of diskettes and manuals in the ratio of 60:40 in the import of computer software has continued since September, 1989. However,-the Department has been inquiring into the aspect of split up right from 1989 itself. It remains without saying that the Department has a right to go into the reasons for a split up. Whether the split up in the proportion of 60:40 is correct and truthful can be determined only after causing enquiries. It therefore, follows that the split up of value into 60:40 proportion was not at the instance of the Customs authorities but was the creation of the importer himself. Customs authorities might have accepted. This split up while assessing the goods to import duty. However, Customs authorities were not barred from causing necessary investigations and enquiries to determine whether this split up was correct or not. The Directorate of Revenue Intelligence conducted searches in February, 1991 in the premises connected with the importer and seized the computer software which is the subject of this SCN. It therefore follows that on the basis of enquires conducted for which information was supplied by the importer himself to the Customs authorities, the Department arrived at a tentative conclusion that the split up of the value in the proportion of 60:40 was not correct. The Deptt therefore in order to gather the necessary evidence regarding the aspect of split up which led to the evasion of Customs duly conducted searches in the connected premises. On the basis of searches conducted incriminating documents were seized. It is therefore, not possible to accept the contention that searches or seizure were not legal and were without the authority of law. It would be seen from this sequence that the decision to reclassify the goods followed the Tariff Conference in April, 1991 which led to change in assessment practice. However, the premises of the importer had been searched in February, 1991 itself to unearth the evidence against the importer company. The decision to issue the SCN in question is not the result of the deliberations of Tariff Conference held in April, 1991 but it is a consequence of the investigations made pursuant to the searches and seizures effected in February, 1991, which themselves were the result of enquiries conducted by the Department." We have carefully considered the pleas advanced from both sides. It is clear from the brief facts as narrated above that the appellants having, regard to the practice, which has not been denied by the Adjudicating Authority but rather positively admitted to it in para 30 of the impugned order declared the split up value for assessment of duty. Consequently there was no wilful misdeclaration or suppression of facts on the part of the appellants herein. Even if it is assumed that there was misdeclaration in respect of split-up of value between the diskettes and the accompanying manual, the total value was still available to the Deptt. and they could have clubbed the two values and assessed the goods as alleged in the show cause notice and has been done in the Collector's impugned order on the basis of the declaration of the Appellants themselves. In this view it will be totally illegal and unjust to confiscate the goods and demand differential duty.
Collector's, reasoning to ignore Section 28 and demand duty on the basis of provisions under Section 125 of the Customs Act is not correct in law. A bare reading of Section 28 indicates that duty has to be recovered under Section 28 within the period of limitation laid down if there has been a short levy. It is the case of the Revenue that there has been a short levy. Simply because the goods duly cleared by the authorities are available for seizure and confiscation Section 28 cannot be ignored for recovery of differential duty. Section 125 in our view will apply in the cases where the date of short levy or importation is not available and the confiscated goods are not proved to be duty paid. This section is not applicable in the facts and circumstances of this case. Accordingly we set aside the confiscation of goods and the differential demand of duty. As a result, there is no case for imposition of penalty on the appellants. In short, appeals are allowed with consequential relief to the appellants.