The Bangalore bench of the Customs Excise & Service Tax Appellate Tribunal ( CESTAT ) held that software licence and software are distinct things and benefit of Nill Customs Duty rate allowable.
M/s. NCR Corporation India Pvt. Ltd., the appellant challenged the classification of goods imported under the Bill of Entry dated 11/02/2009 & 20/02/2009. While filing the Bill of Entry, Respondent sought classification of “IT software” under CTH 85238020 with tariff duty and the “Software License” under CTH 49070030 seeking the benefit of NIL rate of duties under Sl. No.157 of Custom Notification No.21/2002 dated 01.03.2002.
When the appellant objected classification of “Software License” under CTH 49070030, the respondent submitted that the software imported in media form and the licence imported in paper form and licences enabled them to multiple copies of the software are to be classified under CTH 49070030. However, the original authority rejected the classification sought by the Respondent and classified the ‘Software Licences’ under CTH 85238020.
The appellant filed an appeal before the Commissioner ( Appeals ) and the Commissioner ( Appeals ) vide impugned order held that the software license is to be classified under CTH 49070030.
The Authorised Representative ( AR ) submitted that the value declared for the license was the royalty/fee paid for using the software and hence should be included in the value of software in terms of Rule 10(c) of the Customs Valuation Rules, 2007. He also submitted that the software license has an intellectual value which is the outcome of research, which has gone into the development of software.
Hence, the license cannot be compared to a mere paper document and it needs to be treated as part of the software itself, thus classifiable under CTH 85238020. It is further claimed that the license and the software are not two distinct commodities, it is an integral part of the IT software and hence they need to be treated as the same for classification.
The Counsel appearing for the respondent submitted that “Software and the software Licenses imported under the two Bills of Entry are different and are in no way related to each other and are not meant for each other. He submitted that the observation of the authorities that the License and the software are not two distinctive commodities and that one without the other is useless is factually incorrect. It is submitted they are distinct products one is a software and the other is a manual and they are specifically classified under different headings as per the Customs Tariff.
It was submitted that the supplementary notes under chapter 49 state ‘For tariff item 49070030 “Information Technology Software” means any representation of instrument data, sound or image, including source code and object code, recorded in a machine-readable form, and capable of being manipulated or providing interactivity to a user, using an automatic data processing machine.
A two-member bench comprising Mr. P. A. Augustian, Member ( Judicial ) and Mrs. R. Bhagya Devi, Member ( Technical ) observed that documents such as manuals which are meant to be the instructions to activate the software are to be classified under Chapter 49. Therefore, the Commissioner was right in disregarding the fact that only because the value is high cannot be the criteria for classification of the product as software.
The only ground on which an appeal is filed is that the license has an intellectual value and the software and the license should be considered as a set fails in as much as the classification depends upon the description of the product at the time of import. Moreover, the supplementary notes under Chapter 49 supra and the description at all. No.157 of Notification 21/2002 clearly shows that the documents that convey the right to use the software are rightly classifiable under CTH 49.
The CESTAT upheld the order and dismissed the appeal.
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