Electronic Download of Software Not Liable to Customs Duty: CESTAT Rules in HCL Technologies Case [Read Order]
CESTAT ruled that software delivered through electronic download is not liable to customs duty, as electronic transmission does not constitute import of goods under the Customs Act in the HCL Technologies case.
The New Delhi Principal Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that software delivered through electronic download is not liable to customs duty as it does not constitute the import of goods under the Customs Act.
HCL Technologies Ltd., the appellant, is engaged in providing software-led IT solutions and remote infrastructure management services. To carry out these operations, HCL entered into an End-User License Agreement (EULA) with SAP India Pvt. Ltd. for a non-exclusive license to use SAP’s proprietary software.
The agreement provided for software delivery primarily through electronic download, with the option of receiving physical CDs only upon request.
During the relevant period, HCL obtained SAP software electronically under specific appendices of the EULA. The Directorate of Revenue Intelligence (DRI) initiated proceedings and argued that the software imported electronically should attract customs duty, alleging that the license fee paid for such software represented the transaction value.
The appellants’ counsel argued that the delivery of software through electronic means does not amount to the import of tangible goods and, hence, is not subject to customs duty. The appellants’ counsel explained that electronic transmission is distinct from the physical import of goods and falls outside the scope of customs valuation provisions.
The revenue counsel argued that even though the software was transmitted electronically, it had a commercial value and should be subject to customs duty similar to imported physical media.
The two-member bench comprising Justice Dilip Gupta (President) and Hemambika R. Priya (Technical Member) agreed with the appellant’s position. The tribunal observed that customs duty is chargeable only on goods brought into India in a tangible form. Since electronic downloads are intangible and not covered under the definition of imported goods, they cannot be subjected to customs duty.
The tribunal pointed out that the primary mode of software delivery in this case was electronic download, and no physical import took place.
The tribunal explained that customs duty provisions do not extend to electronically transmitted software, as such transmissions are not assessable under the Customs Act. The appeal was allowed in favor of HCL Technologies.
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