Deciding Authority : Supreme Court
Date of Judgement : 11/01/2000
Bench : S.P, BHARUCHA & D.P. WADHWA & N. SANTOSH HEGDE
Facts : SBI imported a consignment of Computer Software and Manuals from Kindle Software Ltd., Dublin, Ireland (’Kindle’ for short) of the value of US$ 4,084,475.00 (equivalent to Rs. 10,75,70,267.25). SBI filed a Bill of Entry No. 5209 dated July 19,1991 along with the Invoice of Kindle bearing No. 910701 dated July 3, 1991 for the aforesaid amount and after paying customs duty of Rs. 12,04,78,699 on July 25, 1991 cleared the goods for home consumption. On August 7, 1991 SBI filed an application before the Additional Collector of Customs, Bombay claiming refund of customs duty of Rs. 10,86,49,119. SSI, therefore, said that though it had paid customs duty on the total value shown in the Bill of Entry, the basic cost of software which was to be installed at one site in Bombay was US $ 401,047 while the rest of the amount of US $ 3,683,428 was payable only as licence fees for its right to use the software for the bank country-wide, SBI, therefore, said that it was required to pay customs duty for the consignment of software on an amount of US $ 401,047 only which included the cost of Manuals, Diskettes and licence fee and not on the whole amount shown in the Bill of Entry. SBI stated that it corresponded with Kindle and thereafter received the second invoice showing the breakup of the single site fee and the country-wide licence fee for use by copying and on that basis filed its claim for refund of the excess amount of customs duty amounting to Rs. 10,86,49,119.
By order dated February 29, 1992, the Assistant Collector rejected the refund claim of the SBI. It filed an appeal before the Collector (Appeals). In the meantime a press note dated March 17,1992 was issued by the Government of India in the Department of Electronics which according to SBI, directed that customs duty was not to be levied on reproduction charges. By order dated October 12, 1992, Collector (ap-peals) remanded the matter back to the Assistant Collector Now again after examining the matter in detail and after giving personal hearing to the SBI, the Assistant Collector by his order dated June 21,1993 dismissed the claim of the SBI for refund. Appeal was taken to the Collector (Appeals) who by order dated July 7,1994 upheld the order of the Assistant Collector. Further appeal was taken to the Tribunal which, by the impugned judgment dated September 29, 1995, dismissed the same.
Judgement : The court while examining the various terms of the Contract interpreted various legal provisions and rules .The court while examining Section 14 of the Customs Act stated “The whole thrust of Section 14 of the Customs Act is to find out the value of the goods being imported for the purpose of assessment of duty of customs. In view of sub-section (1A) of Section 14 Rules have been framed, In the present controversy we are only concerned with the interpretation of Rule 9(l)(c) read with the Note of the Rules. These Rules apply to imported goods where a duty of customs is chargeable by reference to their value. “Trans-action value” under clause (f) of Rule 2 has been defined to mean the value determined in accordance with Rule 4. Rule 3 says that for the purposes of these Rules the value of imported goods shall be the transaction value.
Under Rule 4 transaction value of the imported goods shall be the price actually paid or payable for the goods when sold for export to India, adjusted in accordance with the provisions of Rule 9 of the Rules. Rule 9 provides,in so far as it is relevant, that in determining the transaction value there shall be added to the price actually paid or payable for the imported goods, royalties and licence fees that the buyer is required to pay, directly or indirectly,as a condition of the sale of goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable. This is Rule 9(l)(c)”.
The Bench referred to the interpretative Note relating to Rule 9(1)(c) it says that royalties and licence fees may include, among other things, payments in respect to patents, trade marks and copyrights. There is, however, an exception which says that the charges for the right to reproduce the imported goods in the country of importation shall not be added to the price actually paid or payable for the imported goods in determining the customs value. Further payments made by the buyer for the right to distribute or resell the imported goods shall not be added to the price actually paid or payable for the imported goods if such payments are not a condition of the sale for the exports to the country of importations of the imported goods.
The purpose for the Press Note is two fold : (1) to bring down the prices of the imported software (2) to save precious foreign exchange outflow on server copies of imported software. With this object in view Central Government decided to allow duplication/reproduction of imported software in India. That being so, duplication will not attract any excise duty. The royalty payable on duplicate copies of the software will be paid with the foreign exchange arranged by the party. No customs duty will be leviable on the royalty paid. But then the Indian Party will ensure that the royalty paid for each copy is not more than that what is being charged by the manufacturer/owner from other customers elsewhere in the world. Master Copy imported for duplication purposes will be assessed to customs duty as per existing procedure. From the reading of the press note, it is apparent that it would apply when there is commercial exploitation of the imported software. The Court further examined agreement between M/s Kindle Software Ltd., Dublin, Ireland and the State Bank of India for supply of software and the Rules regarding valuation as contained in Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 and the Press Note , and were of the opinion that the stand of the Revenue was correct.
Held : Appeal Dismissed . With Costs .
Tejasv Anand , IV th Year , AMITY LAW SCHOOL , DELHI.
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