1. The principal question for consideration in these two appeals revolves around the meaning of the term "IT Software" as defined in Entry 231 of the Table notification 20 of 1999. ONGC Ltd. conducted 3-Dimensional Seismic Survey in Heera, South Heera and Neelam areas of the international waters of the West Coast of India in the course of exploration for oil. Tullow India Operations Ltd. also conducted such surveys in the Gulf of Kutch. The processes, as explained, consisted of creating shock wave by means of controlled explosions which travel through the waters of the sea and the land mass beneath. The response to these waves indicates, by means of past experience and by applying the knowledge of geology, the probability of the presence of oil or gas deposits. The response to the surveys are recorded on magnetic tapes and converted to digital form and thereafter processed at the Processing Centre of the ONGC by using a software applications named Seismos. The Central Processing Centre is located on Indian territory, and these tapes in the form of cartridges were imported by each of these appellants, who claimed exemption from customs duty in terms of the entry in the exemption notification referred to above.
2. The department, after consulting software professionals, was of the view that the goods were not IT software as defined in the Explanation to the notification and hence not entitled to the exemption contained in it and proposed to recover duty of Rs. 49.69 crores from ONGC Ltd. and Rs. 2.12 crores from Tullow India Operations Ltd. The Commissioner did not accept the contentions in the reply of these importers that the tapes were software within the meaning of the definition contained in the notification and came to the conclusion that the benefit of exemption would not be available. He also declined to accept the claim made by Tullow India Operations Ltd. for the benefit of the exemption contained in Entry 184 read with list 11, item 23 of notification No.20 of 1999. He confirmed a demand for duty as indicated above and imposed penalty of Rs. 3 crores on ONGC Ltd. and Rs. 30 lakhs on Tullow India Operations Ltd. Hence these appeals.
3. It is the contention of each of the appellants that the goods are in fact software within the meaning of the definitions. They rely in this connection upon the decision of the Tribunal in Pentafour Software & Exports Ltd. v. CC, 2001 (43) RLT 96. The counsel for Tullow India Operations Ltd. contends in addition that benefit of the exemption contained in Entry 124 of notification 20 of 1990 will be available.
4. The Explanation to notification No. 20 of 1999 defines IT software to mean "representation of instructions, data, sound or image including source code and object code recorded in a machine-readable form and capable of being manipulating or providing interactivity to a user, by means of an automatic data processing machine".. The Commissioner has relied upon his view that "software" is "generally understood as a computer program for instructions that cause the hardware to do a work", quoting from the English Encyclopaedia. He has also relied upon reports submitted by K T Soneji, Chartered Engineer and Prabhat Kitai, an employee of M/s Enhanced Software Solutions, a Mumbai software firm and quoted from their reports. These experts visited the Seismos Data Processing and Interpretation Centre of ONGC at Panvel and submitted a report. He concludes from these reports as follows: "Enhance Software Solutions says that "Data in the cartridges cannot be used independently as a programme. It needs to be used for some other application like Seismos for accessing the data. The cartridges that ONGC imported cannot be classified under the category of software because software is a group of instructions compiled to form a programme and it should have some source or object. Also software is used to process the data and cannot consist of data itself. Hence we can say that what the cartridge contains is set of data useful for the search and some other internal use and does not contain any programme." K T Soneji says "cartridges that ONGC had imported contain only data without any computer software programmes. Format of the data stored in the cartridges interpreted from their header information is 'process of the data'. The header information is not a software but characteristics of recorded data files for the header to enable the data to be recognized and decoded by the computer on which such data is to be used by the system software. Neither the data nor the header information on the ONGC imported data cartridges can be classified as software or computer or automatic data processor. These data are also not capable of manipulating some other information but are being manipulated by the software of computer system at ONGC. In other words, the information in the data cartridges is not software at all by itself.
5. The understanding of the term software in the field of computer engineering and software engineering is that it is a complete programme that is used to manipulate or process data. The Dictionary of Computing Multimedia, and the Internet by the Hutchinson defines "software" as follows: "A collection of programs and procedures for making a computer perform a specific task, as opposed to hardware, the physical components of a computer system. Software is created by programmers and is either distributed on a suitable medium, such as the floppy disc, or built into the computer in the form of firmware. Examples of software include operating systems, compilers, and applications programs, such as payrolls. No computer can function without some form of software." 6. For a data processing machine to be operative, an application software is necessary, which (except at the very initial stages) starts up the machine, tests each of its components (this process is commonly referred to as booting) and makes it ready to make use of application software. The operating software alone is not enough to put the computer to any meaningful use. That is achieved by the application software. The operating software mainly in use is one of the various versions of Windows developed and sold by Microsoft Inc. The application software is one designed to make use of data in order to achieve a particular result. Thus, Internet Explorer, which, although it comes with the Windows operating systems, is really not part of it.
It is designed for and used to access various sites on the World Wide Web. There is application software for various purposes - Word is used for word processing, in order to compose and deal with words and documents containing words. Excel is a software to deal with figures or other data in tabular form. Music Match Jukebox is a widely used software for playing, recording and editing music. The list is virtually endless and new types of software are being developed every day. Data, on the other hand, would mean any piece of information in the form of bits and bytes. A bit is a single piece of digital information, represented as a zero or one. A byte refers to 16 bits.
Now, when a person, by using the Word application, types a letter or number on his screen, what he has created is data. That data however by itself is not software. Software, as the Commissioner has said quoting from the English Encyclopaedia, is a computer programme and instructions that cause the computer to do the work. He has also, as we have noted, relied on the opinions of two experts.
7. It is clear that the goods are not software as it is understood by persons creating and dealing with it. The question now is whether the definition in the exemption notification that we are concerned is the definition of software or anything else. The definition in the notification which has been quoted above can be resolved into the following components: - It must include source code and object code and must be recorded in machine-readable form; It must be capable of being manipulated or providing interactivity to user by means of an automatic data processing machine.
8. The Random House Webster's Computer and Internet Dictionary has this to say about source code (at page 521) and object code (at page 5.386).
"Source code Program instructions in their original form. The word source differentiates code from various other forms that it can have (for example, object code and executable code)." "Initially, a programmer writes a program in a particular programming language. This form of the program is called the source program or, more generically, source code . To execute the program, however, the programmer must translate it into machine language, the language that the computer understands. The first step of this translation process is usually performed by a utility called a compiler. The compiler translates the source code into a form called object code; sometimes it needs to be translated into machine language by a utility called an assembler." "Source code is the only format that is readable by human. When you purchase program you usually receive them in their machine language format. This means that you can execute them directly, but you cannot read or modify them. Some software manufacturers provide source code, but this is useful only if you are an experienced programmer." "Object Code The code produced by a compiler. Programmers write programs in a form called source code. The source code consists of instructions in a particular language, like C or FORTRAN. Computers, however, can execute only instructions written in a low-level language called machine language.
To get from source code to machine language, the programs must be transformed by a compiler. The compiler produces an intermediary form called object code. Object code is often the same as or similar to a computer's machine language. The final step in producing an executable program is to transform the object code into machine language, if it is not already in this form. This can be done by a number of different types of programs, called assembler, binders, linkers and loaders." 9. Generally there are two kinds of files that a data processing machine dealt with - interactive files and batch files. Interactive computer systems or programmes allow users to enter data or commands.
Most popular programmes such as word processor and spread sheets applications are interactive. A non interactive programme is one when started continues without requiring human contact. In its decision in Multimedia Systems Pvt Ltd v. CCE a bench of this Tribunal had occasion to consider the meaning of the term "interactive" and observed as follows: "It is not possible to accept the Commissioner (Appeals) view that the software in question is not interactive. The difference between the interactive software and other software is clearly explained in Dictionary of Computer Terms, Third Edition as under: Batch Processing: In batch processing the user gives the computer a 'batch' of information, referred to as a job for example, a program and its input data on punched cards and waits for it to be processed as a whole. Batch processing contracts with interactive processing, in which the user communicates with the computer by means of a terminal while his program is running. The crucial difference is that with batch processing the user must put all of the data into the computer before seeing any of the results, while with interactive processing the user can decide how to handle each item on the basis of the results obtained with earlier items.
The software such as telephone director etc that the appellant manufacture red is clearly interactive. The user has necessarily to communicate with the computer while the program is running, in order to locate the number of a particular subscriber among many with a similar name, to give an example." 11. Let us now examine whether the data under consideration satisfies each of these requirements. It has satisfied the first clause, being the representation of instructions, data, sound or image. The material on the tape is by definition "data." It has not satisfied the second requirement that it must include a source code or object code. Such data does not contain any source code nor is it disputed that it contains source code or object code. It would only contain source code if it were written by a human programmer. The data on the source is nothing other than the response to the seismic waves which have been generated, which has been digitized, i.e. converted into zeros and ones. It is far from being a programme written by human compiler, which would contain source code or that assembled machine language which is object code. The data clearly does not satisfy the last criterion either. It does not provide interactivity to the user. In the form in which this data is contained, it cannot even be loaded on to the computer or other data processing machine as installed. It therefore cannot be manipulated or provide interactivity.
12. The data that we are concerned with lacks source code and object code and is not an executable programme. It is nothing other than a collection of data in digital form. It therefore cannot be interactive at all. Such data in fact cannot even be loaded on to a computer in the absence of a machine code and it cannot be manipulated and it is certainly not interactive. This requirement would be available in the seismos programme that is on the computer of the ONGC. It is only with this programme mat this data can be manipulated, arranged or interpreted etc. It has not the contention raised before us that such data contained source code or object code or was machine readable. The imported goods therefore do not, in our opinion, comply with the definition contained in the Explanation.
13. We will now consider the judgments that have been relied upon. We are unable to see the significance of the judgment of the Supreme Court in Sprint RPG India Ltd v. CC 2000 (116) ELT 6 to the facts before us.
The Supreme Court, in that judgment, was concerned with classification and valuation of the computer software loaded on hard disc drives which were imported were to be classified as hard disks or as computer software. That is not the issue before us. In Pentafour Software and Exports Ltd v. CCE 2001 (130) ELT 110, the Chennai bench of this Tribunal was concerned with the definition "software" that we are concerned with. It does not discuss the nature of the product that was under consideration before it. From the extract produced of the order of the Commissioner (Appeals) which was impugned before it, it appeared to consist of a data file containing "files containing positional information i.e. certain actors are asked to perform with sensors attached to their bodies and these motions are shot with the help of infrared cameras and recorded in the tapes." "In other words, the goods imported are in the nature of data recorded in the tapes which can only be transferred to other objects using software which is not part of the imported consignment. It is significant that the goods imported do not consist of a programme which would enable the manipulation of the files. In that sense, in the condition in which they have been imported, they are not capable of being manipulated but remain mere information. Thus, even though files contain data in a machine readable form they are not capable of manipulation. They also do not provide interactivity to the user, as it is only a data and no programme or set of instructions contained in the cartridge." The Tribunal has relied, to a considerable extent, upon the difference between the definition of software contained in the Explanation to notification 23/98 and that contained in the Explanation contained in notification 20/99. It had noted that the Explanation to notification 20/99 omitted the words "occurring in notification 23/98 to the following extent "but does not include software required for operation of any machine performing a specific function other than data processing, and incorporating or working in conjunction with an automatic data processing machine." 14. The result of the omission of the words quoted above in the Explanation to notification 20/99 is no doubt that the scope of the coverage of notification 20/99 is considerably wider than that of notification 23/98. The earlier notification would not apply to software required for operation of machines specifically having other data processing and incorporating or making any conjunction with the automatic data processing machine. Thus, for example, as the circular no. 7/98 dated 10.12.1998 extent software meant for such purpose such as telecommunication and other applications other than data processing would not be covered by the exemption. In the case before us, however, that is not the issue. The exemption had been denied not on the ground that it was not used for data processing, but on the ground that they were not software at all. This part of the decision therefore will not be relevant.
15. A programme contains features which can be applied to data (as distinct from a programme) for being manipulated or to provide interactivity. Thus, for example, the "Word" programme of Microsoft does not itself contain raw data that it can be manipulated. The data is provided by means of the user, for example someone typing a letter or a document on his computer. The data in digital form '0' and '1' that the person types becomes visible as letters, punctuation marks etc on his computer screen only because it is so processed and manipulated as to be able presented in this manner. The view that, a user's computer would contain its programme and since the data that it imported could be manipulated in that computer, it sufficient, would lead to very different conclusions as regards the same data. Thus, the same data imported by one person who has the application necessary to process that data his computer would be software for him, it would not be software if imported by some other person who does not have that computer. This would lead to arbitrary results. This point does not appear to have been urged before the Tribunal and we are satisfied that had it been, a different result could well have been forthcoming. In any event, the decision has not considered the other reasons for which the Commissioner (Appeals) confirmed the denial of the exemption. Apart from that, we have noted in the present case, the absence of the source code, object code, machine readability and interactivity in regard to the data that was imported. These aspects are not seen to have been considered in Pentaf CCE v. Novapan Industries Ltd our Software and Exports Ltd v. CCE 2001 (130) ELT 110 which must therefore be confined to the facts of the case.Multimedia Systems Pvt Ltd v. CCE is again of no assistance to the appellant and it also does not help the appellant's case. In that decision, the Tribunal was concerned with whether the compact disc that contained such material as encyclopaedias were interactive or not within the meaning of the Explanation Entry 231 of notification 23/98 and it concluded, after considering the meaning of the term "interactive", that such were files of interactive and therefore were interactive. The Tribunal in that case was concerned with applications software. We do not find anything in that decision that would lead to the conclusion that data does not contain source code or object code and is not capable of manipulation or being interactive can be considered to be software.
17. It has therefore to be concluded that the goods imported by the two appellants were not software as defined in the Explanation to the notification and denial by the Commissioner (Appeals) of the exemption has to be confirmed.
18. The counsel for Tullow India raised an alternative contention. This is that the Commissioner (Appeals) has denied to it the exemption contained in Entry 184 of the Table to notification 20/99 on the ground that the document required for extending the extension a certificate from the Directorate General of Hydrocarbons of the Government of India was not produced at the port at the time of importation but later. He relies upon a decision of the Tribunal in SKF Bearings India Ltd v. CC 1999 (109) ELT 774.
19. The entry exempts from duty goods specified in the Table subject to the importer producing to the Assistant Commissioner of Customs "at the time of importation" a certificate from a duly authorised officer from the Directorate General of Hydrocarbons in the Ministry of Petroleum and Natural Gas, Government of India that the goods are required for such petroleum operation and have been imported under the contract signed under the New Exploration Licensing Policy and the certificate, in the case of a contract entered into by the Government of India and a foreign company or companies, or the Government of India and the consortium of an Indian company or companies or a foreign company or companies, no foreign exchange remittance is made for the import of such goods undertaken by the foreign company or companies. The Commissioner (Appeals) has said that these certificates were not produced at the time of importation and that no evidence has been produced to show that they had applied to the authority for such certificates prior to the import.
20. In the decision cited by the appellant, the majority of the bench of the Tribunal has held that the benefit of the exemption from duty of imported goods contained in various notifications should not be denied merely on the ground, that the certificates subject to production of which the exemption was available were not produced at the time of importation. The departmental representative contends that notifications under consideration by that bench did not require, as does notification under consideration in this appeal, that the certificates should be produced at the time of importation of the goods. It is not clear from the reported decision whether the notification did require a certificate to be produced at the time of importation or it did not contain this requirement. The majority has held, relying upon various judgments of the Courts and the Tribunal, that such certificates are only in the nature of evidence to show that the goods are entitled to exemption and that production of such evidence is a procedure requirement which cannot be considered to be the substantive condition of the notification. That ratio, in our opinion, applies equally to the notification under consideration by us as it did to the notification under consideration by the bench which passed that order. The delay in production, subsequent to importation of the certificate from the Directorate General of Hydrocarbons, therefore is no bar for applying the exemption. It was also contended before us that the notification does not provide for issue of the other certificate to the effect that any foreign exchange shall remitted to be issued by any specified official of the Government and that therefore the certificate to this effect by the importer would suffice.
The Commissioner has not has the benefit of these certificates and we think that it is he who, in the first instance, is to satisfy that they comply with the requirement contained in the notification.
21. We therefore allow the appeal of Tullow India, and set aside the impugned order as far as it is concerned and remand the matter to the Commissioner. He shall after considering the submissions that this appellant may make before him within two months from the receipt of this order, pass orders on the acceptability of these certificates and consequently upon the availability of the exemption and related matter.
22. So far as ONGC is concerned, while denying the benefit of the exemption, we do not find it possible to justify the imposition of penalty. There is no finding that this appellant, which is a wholly owned Corporation of the Government of India sought to evade duty by any clandestine act. It could well have believed that the goods that it imported were software within the meaning of the relevant notification.
We therefore set aside the penalty imposed on it.
23. Accordingly appeal 1210/01 allowed and the other appeal allowed in part.