Relief for ITI Ltd: CESTAT Rules No Misdeclaration in Software Valuation for Telecom Imports [Read Order]

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that there was no misdeclaration by ITI Ltd. in the valuation of software imported as part of telecom equipment, and upheld the original adjudication, dropping the customs duty demand and penalties.

ITI Ltd., the respondent, had imported components for telecom systems, including parts of Mobile Switching Centres (MSC), Base Station Controllers (BSC), and Base Transceiver Stations (BTS), along with associated software, through Chennai Air Cargo Complex in 2004. The company filed Bills of Entry and declared the software value separately, claiming exemption from Basic Customs Duty under Notification No. 21/2002-Cus and a nil rate of duty on software under a separate entry for Information Technology Software.

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Following an investigation by the Directorate of Revenue Intelligence (DRI), a show cause notice was issued alleging that the company split the value of hardware and software with the intent to evade customs duty. It was proposed to add the software value to the hardware under the Customs Valuation Rules, deny the exemption benefit, and demand differential duty under the Customs Act. The department also sought to confiscate the goods and impose penalties under Sections 114A and 112(a).

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The company responded to the notice, explaining that the software value had already been declared in the Bills of Entry and that duty had been paid voluntarily, along with interest, upon realizing a duplication error. The company submitted that there was no intention to evade duty and that the software was not preloaded but supplied separately, as evidenced by documentary records and correspondence with DRI.

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The Commissioner of Customs (Airport), Chennai, accepted ITI’s explanation and dropped all proceedings through Order-in-Original No. 781/2006. The revenue appealed this order before CESTAT, claiming that the appellant had intentionally misdeclared the imports to wrongfully claim exemptions. The revenue counsel cited Supreme Court rulings in Anjaleem Enterprises Pvt. Ltd. and Acer India Ltd. to support its position.

The two-member bench comprising P. Dinesha ( Judicial Member ) and M. Ajit Kumar (Technical Member), after reviewing the records, observed that the DRI itself had acknowledged the error in duplication of software value and confirmed that the duty was correctly paid.

The tribunal found that the revenue had failed to mention this key correspondence in its appeal, which went to the root of the issue. The tribunal observed that the case did not involve suppression or misdeclaration, and the facts were distinguishable from the precedents relied on by the department.

The tribunal held that there was no merit in the department’s appeal. It explained that when duty has been paid, disclosures have been made, and the exemption is properly claimed, there is no basis to allege misdeclaration. The appeal filed by the revenue was dismissed.

To Read the full text of the Order CLICK HERE

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