Extended Limitation & Penalty Unsustainable in Software Valuation Disputes: CESTAT set aside Differential Duty Demand on Wipro [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai Bench held that extended limitation and penalties cannot be sustained in software valuation disputes arising out of bona fide differences of interpretation and partly allowed the appeal filed by Wipro Infotech Group.

The assessee imported networking equipment from Radware Ltd.Israel during the period from July 2006 to April 2010. In the Bills of Entry the appellant split the value of the transaction into hardware and software paying customs duty separately.

The department gave a Show Cause Notice for undervaluation on the ground that the software was embedded firmware that was an integral part of the hardware. On this ground a differential duty of ₹39.77 lakh was demanded under the proviso to Section 28(1) of the Customs Act along with confiscation under Section 111 and penalty under Section 114A.

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Further, it claimed that the software was only pre-loaded on hard disks and not embedded in ROM and hence the value of the software was not includible in the value of the hardware. It was submitted that the bifurcation was made transparently with full disclosure in the Bills of Entry and purchase documents based on a bona fide legal interpretation.

The appellant also disputed the denial of personal hearing and that there was no suppression or wilful misrepresentation to warrant extended limitation or penalty.

The department claimed that the networking devices were supplied as a ready-to-use system and could not work without the software which was embedded firmware.

The Tribunal comprising Vasa Seshagiri Rao, [Technical Member] and P. Dinesha, (Judicial Member), based on its previous decision in ITI Ltd. held that while the value of software is to be included in the assessable value of hardware, the case at hand presented a thin line of distinction.It held that there was no suppression of facts or evasion of duty as the appellant had disclosed all the facts.

Therefore, the Tribunal set aside the invocation of extended limitation and penalties, restricted the demand to the normal limitation period and remitted the case for requantification.

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