1. In this appeal, the appellants have challenged the classification adopted by the Commissioner in respect of Voice Boards and Fax Boards under the Customs Tariff sub-heading 8517.90 as parts of line telephony instrument and the CDs/floppies which have come along with the package imported under the Bill of Entry No. 194258, dated 1-2-2000 and imported separately but attributable to the voice boards and the fax boards (PPCB) imported under Bill of Entry Nos. 197878, dated 17-2-2000 and 197879, dated 17-2-2000 as classifiable under CTH 8524.99 as "Other" under the heading "Records, tapes and other recorded media for sound or other similarly recorded phenomena, including matrices and masters for the production of records, but excluding products of Chapter 37." 2. The Commissioner has noted that Invoice No. 6619289, dated 19-1-2000 covering value of springware software relating to the PPCBs of the Bill of Entry No. 194258, dated 1-2-2000 and the Invoice No. 669248, dated 21-3-2000 covering value of springware software related to PPCBs imported under Bill of Entry Nos. 197878, dated 17-2-2000 and 197879, dated 17-2-2000 is totally attributable to the voice boards and fax boards. The Commissioner has ordered for confiscation of the goods under the respective Bills of Entry stated in the order but has granted release of the same on payment of a fine of Rs. 3 lakhs. A further duty amount of Rs. 26, 73, 161/- has been confirmed and Rs. 5 lakhs has been adjusted which has been paid by the appellants. Appellants have been imposed a further penalty of Rs. 30, 87, 209/- under Section 114A of the Customs Act, 1962.
3. We have heard Id. Counsel Shri A.K. Jain for the appellants and Smt.
R. Bhagya Devi, Id. SDR for the respondent-revenue.
4. Ld. Counsel has filed the written prepositions and the said written propositions are noted herein below :- (A) Even when software has been permanently stored in hardware (though it is not so in our case) it would still be assessed as softwar under sub-heading 85.24 by applying Chapter 85 - Note 6 and Interpretative Rule 3.Sprint RPG India Ltd. v. Commissioner of Customs-I, Delhi (PageBarber Ship Management India Pvt. Ltd. v. Commissioner of Customs, ACC, Mumbai (Page (B) Since voice mail card is used inside the computer, it is classifiable under sub-heading 8524.90 even after insertion of explanation class to the Notification No. 11/93-Cus. vide Notification No. 3/98-Cus. 2002 (142) E.L.T. 258 (Tri.) in the case of BPL Telecom Limited v. Commissioner of Customs, Cochin confirmed by SC in 2002 (146) E.L.T. A317 (Page 17).
(C) If an item is to be connected to ADP machine. It is to be classified under sub-heading 84.73, but not to be classified as a part of the machine incorporating or working in conjunction with the ADP machine.Jindal Aluminium Ltd. v. Collector of Customs, Bangalore (Page (D) An expert's certificate given to the department (Pages 30, 31, 89) cannot be brushed aside without bringing on record any contrary opinion of another expert. It is also important to mention that no Commissionerate in India has established that the Voice/Voice Fax boards imported contains software embedded on to it even though regular imports still continue.Panama Chemical Works v. Union of India (Page 2. 2002 (49) RLT 265 (Guj. - DB) in the case of Mangal Textile Mills Ltd. v. Union of India (Page 26).Mahindm Sintered Products Ltd. v. CCE, Pune (Page 4. 2000 (115) E.L.T. 530 (Tri.) = 1999 (35) RLT 181 (Tri.) (Paras 8 and 10) in the case Medwin Imageology Center Ltd. v. CC, Hyderabad (Page 33).Life Line Systems Pvt. Ltd. v. CC, New Delhi (Page (E) After finally assessing 41 Bill of Entries under Section 47 the Customs department can upset the same only by resorting Section 129D.Collector of Customs, Cochin v. Arvind Export Pvt. Ltd. (PageBest & Cromptron Engineering v. Commissioner of Customs, Madras (Page (F) If splitting of value was done in accordance will established practice of the department and when the department itself did not ask any further information in the form of product manual or detailed write up before doing assessment, extended limitation would not be in-vocable.Tata Infotech Ltd. v. Commissioner of Customs, Mumbai/New Delhi (Page 2. 2000 (68) ECC 74 (Tri.) in the case of Kirloskar Electric Company Ltd, v. Commissioner of Centra! Excise, Bangalore (Page 53).
(G) Catalogue that too obtained from some undisclosed source could not be used in the Order-in-Original when the same has not relied upon in the SCN.Pure Metal Exports v. CC, Kandla (Page 2. 2003 (154) E.L.T. 370 (Bom. - DB) in the case of Jhonson & Jhonson Ltd. v. Deputy Chief Controller of Imports & Exports (Page 56).
(H) Commissioner could not ignore CBEC Circular 87/95-Cus., dated 31-7-1995 (Page 93 despite being sited) to refer the matter to the agencies like NIC for their views on the issue involved in this case (which has now been, obtained and filed as additional evidence) (Page 58).
(I) Appearance of the expression 'accessories' under sub-heading 8473.30 [1999 (105) E.L.T. 362 (Tri.) in the case of Commissioner of Customs, New Delhi v. H.C.L., Hewlett Packard] (Page 59) and that of the expression 'electrical' in Heading 85.17 could not be ignored by the Commissioner (despite her saying that the boards "no doubt have to be used along with an ADP machine" (on Page 108)).
(I) Confiscation and penalty could not be imposed in the above circumstances and also when provisional assessment was involved and different custom houses are assessing differently.Commissioner of Customs, Madras v. Aradhi Associates (Page (K) Commissioner could not ignore the letter from the authorised representative of the foreign supplier given to her (Pages 90 to 92).
(L) Commissioner also ignored the HSN Explanatory Note under (sub-heading 84.73) (Page 78) defining accessories to mean articles designed to mounted on ADP machines (which fact has been admitted on Page 108). She also ignored the fact that sub-heading 85.17 covers apparatus (which the board is not) and that too electrical and not electronic having a circuit connecting the transmitting stations to the receiving stations, which is not so in the case of the board in question.
(M) In the SCN and in the Order-in-original there is a reference of some statement of Anil S. Sabnis but this was never given to the appellant even when pointed out in reply to SCN.5. Elaborating his argument on, the basis of above legal propositions propounded, the learned Counsel submitted that the issue is fully covered by the judgment of the Apex Court rendered in the case of Sprint RPG India Ltd. v. CC, Delhi, 2000 (116) E.L.T. 6 (S.C.). The Counsel also referred to the technical opinion given by the National Informatics Centre (NIC), dated 10-3-2003; clarification given by Bharat Sanchar Nigam Ltd. (BSNL), dated 27-2-2003 and the one given by South Central Railways, dated 4-3-2000. On the basis of these three opinions, Id. Counsel submitted that the classification which had been adopted by them in the Bills of Entry is a correct pne and, therefore, the proceedings initiated by the department on the alleged misdeclaration is totally incorrect and requires to be set aside. He pointed out that even in terms of Board's circular, the department was bound to have obtained the technical clarification from NIC which they have failed to do so. He submitted that even otherwise the opinion of BSNL and that of South Central Railways was before the Commissioner and the Commissioner having referred to the same in the order has ignored it and has not given any finding on it. He contended that the Commissioner has wrongly interpreted the catalogue and the catalogue was never referred to in the show cause notice. Therefore, the order is beyond the allegations made in the SCN and requires to be set aside on this ground also. Ld. Counsel filed a copy of the catalogue and pointed out that even in terms of the catalogue, it is very clear that the item imported was not embedded in the voice board/fax board. It is his contention that even in the judgment rendered by the Apex Court in Sprint RPG India Ltd. v. CC-I, Delhi (supra), the same facts were available and even in that case spring software was embedded in the hard disk and yet the Apex Court held that it did not form as a computer software. He submitted that they are parts of computer and software was required to be considered as computer software alone. He also referred to the judgment of Barber Ship Management (I) Pvt. Ltd. v. CC, ACC, Mumbai, 2000 (117) E.L.T. 456 (T), wherein also the Bombay Bench has clearly held that the storage device software with software recorded thereupon is classifiable under Heading 85.24 of the CTA, 1975 and eligible for benefit of Notification No. 23/98-Cus. He read out the orders and stated that they are applicable to the facts of the case. He also submitted that the Commissioner admitted that the software was required to be placed inside the computer and when that is the case then, it cannot be considered as a part of line telephony instrument.
He also relied on the judgment of BPL Telecom Ltd. v. CC, Cochin (supra), wherein also the item being the same, the classification as claimed by the assessee has to be upheld. Further reliance was placed on the judgment of Jindal Aluminium Ltd. v. CC, Bangalore (supra), wherein also the item populated printed circuit board was held to be classified under Heading 84.73 as parts of data processing unit and the Bench had also held that the item cannot be classified as part of machine incorporating or working in conjunction with the Automatic Data Processing machine and per-forming a specific function to merit exclusion under Heading 84.71. Ld. Counsel pointed out that the expert opinion cannot be rejected as held in the judgment of Panama Chemicals Works v. UOI (supra). He also referred to all the technical opinion and submitted that they are required to be accepted. He also submitted that page 1304 of the Explanatory Notes also supports his case. He pointed out that Heading 85.17 refers to "Electrical apparatus for line telephony or line telegraphy, including line telephone sets with cordless handsets and telecommunication apparatus for carrier-current line systems or for digital line systems; video-phones" which cannot be adopted for classifying the items under import. He also submitted that the extended period is not invocable as it was the practice of the department right through and even now to classify the hardware and software separately. He referred to the following judgments on time-bar :-Kirloskar Electric Co. Ltd. v. CCE, Bangalore He also referred to the correspondence of the appellants with the supplier who have clearly stated that the item cannot be considered as part of the machinery but is required to be classified as a 'software'.
The letter issued by M/s . Intel at page 91 of the paper book is referred to by them, wherein it was clearly answered that dialogic voice and fax boards do not have springware software embedded on to them, when it was supplied to the appellants. They also stated that CD contains springware software. They also clarified that springware is not embedded software but what was given in the data book is more of a jargon and it is not technically correct. The data book also calls springware as downloadable firmware. Springware is definitely not embedded on to the voice/fax processing boards such as d41/h, VFX, D 160/SC etc. at the time selling those boards. They also clarified as to why they were given separate pricing for hardware and software as a marketing strategy and it was not specific to the appellant alone. The pricing policy was decided by the manufacturer M/s . Dialogic and it was not customer's specific. It was also clarified that springware software on its own cannot carryout any function. The user has to develop his own application software which will interact with the springware to perform the function desired by the user. They also clarified that the very purpose of the springware is to provide interactivity to the developers, developing software. The developer can program all the functions of the springware software. Without this interactivity there is no use of this as springware itself does not perform any function without the command from the application software developed by the user. They also clarified that the item spring-software is not a simple driver software like what comes with a printer or modem. It contains whole lot of downloadable firmware, drivers, software development kit consisting of APIs, DLLs, Libraries help files and documentation to help the developer to develop the software. They also clarified that highly complicated applications can be developed by using this programming frame work.
6. Ld. Counsel submitted that line telephony instrument can function even without these iteMs. He also submitted that the information available in cell phone cannot be downloaded. He also submitted that the value of the software was very high and that the valuation on software has not been disputed by the Revenue and, therefore, there was no misdeclaration on the valuation part and hence the question of denying the benefit of notification or re-classifying the product on misreading of the catalogue by the Commissioner does not arise. He, further, submitted that the catalogue was not relied upon in the show cause notice and hence, it cannot be the basis for demanding duty.
8. We have carefully considered the submissions made by both sides and have perused the order. It is seen that the appellants had filed the Bill of Entry in February, 2000 on the basis of entire material and other details claiming the benefit of Notification No. 20/99 under Sl.
No. 231 at Nil rate of duty under the Tariff Heading 8473.30 as parts and accessories of the machine of Heading 84.71 in respect of computer software, Dialogic System Software, the claim was under Heading 8524.99 as "Other" under the heading "Records, tapes and other recorded media for sound or other similarly recorded phenomena, including matrices and masters for the production of records. The department has assessed the same and had cleared for home consumption except for a few of the software which had been kept in the warehouse. Subsequently, the department took up the investigation and proceeded to issue show cause notice on the ground that they are all parts of line telephony instrument classifiable under sub-heading 85.17 as electrical apparatus for line telephony or line telegraphy etc. and proposed to deny the benefit of Notification Nos. 20/99 and 23/98 (Sl. No. 206) in which the item had been declared with Nil rate of duty. The further ground was that total package value was bifurcated/split as Hardware/Software value for the purpose of evading customs duty to the extent of 70% of the total FOB value. It was also alleged that subject hardwares were declared as PPCBs of Personal Computer and claiming CTH 8473.30 as a part of computer which is not correct while the item is required to be used for processing the voice in conjunction with line telephone and thus are to be classified under 8517.90 as part of line telephony instruments. The appellants had given various judgments in their support including the technical data and opinion to sustain the argument that there is no misdeclaration and the item was not parts of electrical apparatus for line telephony or line telegraphy etc. under tariff Heading 85.17. However, the Commissioner has only read the catalogue which did not form the basis of show cause notice and upheld the charge without even considering the opinion given by the Professor & Head of Department (ECE), Regional Engineering College, Warangal and the Business Development Manager, Intel Asia Electronics whose opinion were produced before the Commissioner and had been recorded in the order. It is the contention of the appellants that the opinion obtained from these authorities clearly supports their case which requires to be accepted. Counsel pointed out that the issue is covered in their favour in terms of the Apex Court rendered in Spring RPG India Ltd. v. CC-I, Delhi (supra); Tribunal's judgment rendered in the case of Barber Ship Management India Pvt. Ltd. v. CC, ACC, MumbaiBPL Telecom Ltd. v. CC, Cochin and 9. On a careful consideration of the submissions of the material on record, we are required to analyse the expert opinions furnished by the appellants which is reproduced as below : The opinion given by the Professor & Head of Department (ECE), Regional Engineering College, Warangal which is at page 89 is reproduced herein below :- With reference to the above, I have gone through the data sheets pertaining to Dialogic Card and also the Software CD of Dialogic Corporation. On going through the same, I conclude that the Dialogic Board does not have any Non-Volatile storage devices such as EPROMs or PROMs on it. Hence, there is no way that the firmware can be stored on the board.
However, the board is having Read Write Memory (RAM) on it. Due to this reason, it cannot store software, whenever the power is switched off. It is confirmed that the Firmware has to be down loaded into the on board RAM (Read Write Memory), whenever required.
To answer your specific question as to whether the board can come with the software, my answer is No.The question and answer given by the Business Development Manager of Intel to the appellants in respect of goods have already been brought out by the Counsel in the arguments, and noted down supra which clearly described that the item springware is not embedded software and what is given in the data book is more of a jargon and it is not technically correct. The data book also calls springware as downloadable firmware and that it is definitely not embedded on to the voice/fax processing boards. Further clarification given by M/s . Intel was that the pricing for hardware and software was more than as a marketing strategy and the pricing policy was decided by the Management of Dialogic and it was not a customer's specific. There are various clarifications given to show that this item is computer software and not part of line telephony instrument. The Commissioner ought to have taken the certificates produced by the party, while recording the findings. The details furnished in the catalogue was not relied in the show cause notice and the Commissioner ignored these two pieces of evidences which were before her which clearly shows that the impugned order is not at all correct one and the order requires to be set aside. The opinion given by Dr. N.S. Murthy, Prof. & Head Department of ECE, Regional Engg.
College, Warangal also satisfies the question that the item is not a part of Line Telephony Instrument. He has clarified that Dialogic Board does not have any Non-volatile storage devices such as EPROMs or PROMs on it and that there is no way that the firmware can be stored on the board.
10. The Commissioner ought to have obtained the opinion from National Informatics Centre (NIC) with regard to the item as per Board's circular which has not been done. The appellants have obtained the same and have produced the same before us, which is reproduced herein below :- This has reference to the above letter seeking clarifications on the Dialogic Board Software used in the IVRS SysteMs. Following are the answers to your queries : Ans : As these cards are ADD ON cards and taking power from the PC, these cards cannot work without a PC. 2. Does the Dialogic Voice/Fax Boards come with software embedded on to the board itself? Ans: The Dialogic software comes on CDs and this gets downloaded on to the RAM of the card on an appropriate command, Since this card does not have a permanent storage device the software cannot be embedded on to the card.
3. Can the Dialogic Voice/Fax Boards work without the software (Springware) given in the CDs? Ans : No. The "Springware" Software given in the CD is required to be downloaded during the use.
4. Does the Springware software gets downloaded when the PC is Powered ON and appropriate command given? Ans : Yes, the software gets downloaded when the PC is powered ON either from CD or Hard disk when appropriate command is given.
5. Once the Dialogic board is powered off by switching off the PC on which it is installed, can the board retain the software? Ans: Dialogic Card cannot retain the Software when the PC is powered off as there is no permanent storage device on it.
11. The opinion of BSNL furnished by appellants is as follows :-Sub.: Clarifications regarding Dialogic Board and software.
With reference to your letter seeking clarification on the Dialogic Board software used in the IVRS systems you have supplied to Bangalore Telecom District the following clarifications are offered : Ans : Dialogic Voice/Fax boards are PC add on cards. The power supply itself is derived only from the PC and the interface connector is a PC bus connector. The card has to be plugged into the PC for working. There is no way the Cards can work without a PC. 2. Does the Dialogic Voice/Fax boards come with software embedded on to the board itself? Ans: The software comes on the CDs. Once the card is plugged into the PC and software is installed from the CD, on appropriate command the software gets downloaded on to the RAM of the board. Since the board does not have any permanent storage device, the software cannot be embedded on to the board.
3. Can the Dialogic Voice/Fax Boards work without the software (Springware) given in the CDs? Ans : No, the boards cannot work without the springware software on the CDs. The entire intelligence to the board is provided in the software, which come in the CDs.
4. Does the Springware a software gets downloaded when the PC is powered ON and appropriate command given? Ans: Yes, the software gets downloaded when the PC is powered ON and appropriate command is given. It is also possible to load the version of the software, power the PC OFF and load a different version of the software.
5. Once the Dialogic board is powered off by switching OFF the PC on which it is installed, can the board retain the software? Ans : As mentioned earlier the board does not have any permanent storage device which can store the software. Each time the software gets downloaded when the board is powered ON.12. We also extract the opinion of South Central Railways obtained by appellants as follows :- This is to clarify on the technical specification of Dialogic Voice/Fax cards. To the best of my knowledge, the information given below is correct.
No. The Dialogic/Voice Fax boards cannot work without PC. Dialogic Voice/Fax boards are Add on cards for PC. The power supply for these boards is derived only from the PC and the interface connector is a PC bus connector. The card needs to be plugged into the PC for working.
2. Does the Dialogic Voice /Fax boards come with software embedded on to the board itself? The software is supplied on the CDs. Once the card is plugged into the PC and software is installed from the CD, the software gets downloaded on to the RAM of the board, through a command. As the board does not have any permanent storage device, the software cannot be embedded on to the board.
3. Can the Dialogic Voice/Fax Boards work without the Software (Springware) given in the CDs? No, the boards cannot work with out Springware software, that comes along with Dialogic Card in the form of a CDs. The board derives its intelligence only from the software provided on the CD. 4. Does the Springware software gets downloaded when the PC is powered ON and appropriate command is given? Yes. The software gets downloaded when the PC is powered ON and appropriate command is given. It is also possible to load one particular version of the software, switch OFF the PC and load a different version of the software.
5. Once the Dialogic board is powered off by switching OFF the PC on which it is installed, can the board retain the software? No. Dialogic Card cannot retain the Software when the PC is powered OFF. Because, the board does not have any permanent storage device which can store the software. So, whenever PC is powered ON along with Dialogic Card present in it, the software gets downloaded into RAM present on the board itself. The software thus loaded will be lost when the board is powered off.
13. On a cumulative reading of technical details furnished, it is clear that the item is a computer software and parts thereof which are required to be classified under the heading provisionally assessed by the department as claimed by the party. They are not parts of Line Telephony Instrument. The same item came up for consideration before the Apex Court in the case of Sprint RPG India Ltd. v. CC-I, Delhi (supra). In that case also the valuation on the entire software had been assessed at a very high value so also in the present case. The Apex Court has gone into great detail on all aspects of the matter and upheld the classification as claimed by the party and held that the item cannot be classified as part of the hardware.Barber Ship Management India Pvt. Ltd. v.CC, ACC, Mumbai (supra) which has since been approved by the Apex Court, the Tribunal has clearly held that storage device with software recorded thereupon is classifiable under Heading 85.24 of the Customs Tariff Act, 1975 and eligible for the benefit of Notification No.23/98. The Tribunal have ruled out the classification as parts under 84.71.BPL Telecom Ltd. v. CC, Cochin (supra), wherein the very item came up for classification and the Tribunal upheld the classification as claimed by the party.
16. In the case of Jindal Aluminium Ltd. v. CC, Bangalore (supra), the Tribunal rejected the claim of the department for classifying the parts of data-processing unit as part of machines incorporating or working in conjunction with an automatic data processing machine and held that they are not to be classified under Heading 84.71.
17. The judgment rendered in CC, New Delhi v. HCL Hewlett Packard (supra) pertaining to the classification of Sound blaster cards work as accessories to computer under chapter sub-heading 8473.30 of CTA, 1975 and the finding is that it is not covered under sub-heading 8519.99.
This citation also applies to the facts of this case.
18. The Commissioner is not justified in disregarding the technical opinion furnished by the appellants and such disregarding of expert opinion has not been approved by the Madhya Pradesh High Court as rendered in the case of Panama Chemical Works v. UOI (supra); Mangal Textile Mills Pvt. Ltd. and Anr. v. UOI (supra); Medium Imageology Center Ltd. v. CC, Hyderabad (supra) and that of Life Line Systems Pvt.
Ltd. v, CC, New Delhi (supra).
19. We also agree with the Id. Counsel that in the present case the extended period of limitation is not invocable when the split up value of the item had been furnished and there was no challenge to the valuation taken up by the department. The valuation has been accepted.
Therefore, it cannot be held that there was any suppression in the matter. In this regard, the citation referred to by the Counsel is applicable i.e. Tata Infotech Ltd. v. CC, Mumbai/New Delhi (supra).
20. The order of confiscation is also not sustainable in the light of thejudgment rendered by this Bench in the case of CCE, Madras v. Aradhi Associates (supra).
21. In that view of the matter, the contention of the appellant is accepted and the impugned order is set aside by allowing the appeal with consequential relief, if any. Ordered accordingly.