SC upholds inclusion of value of software/ related services as a part of imported apparatus/ machine

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Synopsis: In the matter of Indusind Media & Communications Ltd. v. Commissioner of Customs, New Delhi, the Hon’ble Supreme Court held that the Appellant has rightly included that value of software/ related services as a part of apparatus or machine imported and upheld classification of Multiplex or Satellite Receivers, test and measurement equipment etc under Tariff Item 8525 as “Transmission Apparatus”.

Facts:

Indusind Media & Communications Ltd. (“the Appellant”) imported certain goods at air cargo complex, New Delhi and filed Bill of Entry 2660085 dated June 26, 2003. They declared the goods as Multiplex or Satellite Receivers, test and measurement equipment etc. and attached six invoices covering 19 items imported. They indicated individual classification for the various items under Chapter 84/85 of the Customs Tariff. The Bill of Entry was assessed as per declaration and applicable Customs duty was paid.

Investigation was conducted which revealed:

“The importer had placed the order at UK for purchase of equipments – one set for Mumbai and another set for Delhi. Each set of equipment, taken together constituted ‘Head End’ for cable TV operations. The ‘Head End’ was an equipment at a local TV office that originates the cable TV services and cable TV modem services to subscriber though Conditional Access System (CAS). All imported equipments taken together contributes towards a clearly refined function i.e. ‘Head End’ for cable TV operations. The complete set of equipment together merits classification under Customs Tariff Heading (CTH) 8543 8999, in the light of Note 4 to Section XVI. Thus, it appeared that individual classification indicated for 19 imported items amounts to mis-declaration. The search operation carried by SIIB, ACC, Mumbai at the premises of importer further revealed that the importer had also mis- declared the value of the imported consignments at Delhi and Mumbai. They had suppressed the value of embedded software as well as value of services payable to the foreign supplier for carrying out integration of the system prior to shipment and provide complete commission and installation services at the customers premises. Further, it was noticed that the purchase order placed by the importer was revised to show as CIF instead of FOB.”

Issue involved:

Whether valuation of the imported goods was correct?

Held:

The Hon’ble Supreme Court in Civil Appeal No. 2498 of 2018 decided on September 27, 2019 held as under:

  • The court observed that apart from supply of equipment, necessary software had to be embedded in the equipment before the supply was effected. The facts also disclose that out of 19 items indicated in the Bill of Entry, only 8 items were physically presented while the rest were already embedded in the main unit. These facts are not only reflective that the individual components were intended to contribute together and attain a clearly defined function as dealt with in Note 4 of Section XVI of the First Schedule of the Central Excise Tariff Act, 1975 (“Central Excise Tariff Act”), but also indicate that software that was embedded through cards in the main unit, was not any post-importation activity. The value of the software and the concerned services were therefore rightly included and taken as part of the importation.
  • Court accepted the Revenue’s argument that though the invoices in the case did mention individual items, the dominant intent had to be seen whether the intended user was of individual items or they were supposed to be used collectively as part of one apparatus, in which event Note 4 to Section XVI of the First Schedule of the Central Excise Tariff Act would provide guidance.
  • Rule 9(1)(b) of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 (“1998 Rules”) in Commissioner of Customs (Port), Chennai v. Toyota Kirloskar Motors P. Ltd. 2007 [(213) ELT 4 (SC)] case shows that the value in respect of “materials, components, parts and similar items incorporated in the imported goods” has to be added while determining the transaction value. Said Rule 9 is almost identical to Rule 10 of Customs Valuation (Determination of Price of Imported Goods) Rules, 2007. Thus, even if the governing rule is taken to be Rule 9 of 1988 Rules, there would be no difference in the ultimate analysis.