Splitting Value of Modem Artificially as value of Hardware and Value of Software so as to Evade Payment of duty: CESTAT upholds Excise Duty Demand [Read Order]

The Bangalore Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) upheld the excise duty demand as there was splitting value of modem artificially as value of Hardware and value of the software so as to evade payment of duty.

The appellants, MRP-TEK Ltd, are engaged in the manufacture of Data Communication Equipment such as ‘Modem’ and ‘Network Terminators’ classifiable under Chapter Subheading 8517 of Central Excise Tariff Act, 1985. Also, they have been engaged in trading from adjoining premises of Modems, Routers, Multiplexes, Switches, etc. During the period July 1999 and August 1999, the appellant had manufactured and cleared/sold Modems against purchase Orders of the customer.

They had divided the total value of Modem viz. value of hardware and value of software. Alleging that such bifurcation of value is with intention to evade payment of duty as the software was invoiced as “software for PC”, show cause notice was issued to them on 2.8.2004 alleging short payment of duty of Rs.4,75,000/- and proposed to appropriate deposits made by them on 20.07.2004 towards the duty.

The advocate, B. V. Kumar for the appellant submitted that even though the learned Commissioner (A) in the impugned order has wrongly held that the manufacture and clearance of the modems took place in 1999, the judgment of the Hon’ble Supreme Court in Acer India Ltd. case was delivered in 2004, hence, there could not be any reason to accept the contention of the appellant that the duty was not paid under bona fide belief.

A Two-Member Bench of the Tribunal comprising DM Misra, Judicial Member and R Bhagya DeviTechnical Member observed that “Even though the purchase orders by the customers were for the total value of the Modem, and the software is embedded to the Modem being indispensable, it is the appellant who has knowingly split the value of modem artificially as value of Hardware and value of Software so as to evade payment of duty. In these circumstances, we do not find merit in the contention of the learned advocate for the appellant that the Appellant were under a bonafide belief in declaring the value of software separately. Hence, there is no reason to interfere with the order of the Commissioner.”

To Read the full text of the Order CLICK HERE

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