Value of Software and Concerned Services are to form a Part of the Imported Machine: Supreme Court [Read Judgment]

The Supreme Court of India in the case of Indusind Media and Communications Ltd v. Commissioner of Customs held the value of software and the concerned services are to be taken as a part of the importation.

The appellant imported Multiplexor Satellite Receivers, test and measurement equipment at Delhi and on a subsequent receipt of information from SIIB Air Cargo Complex Mumbai that investigations had been commenced against the appellant for import of similar goods at Mumbai, the provisional assessment was ordered under Section 18 of the Customs Act. The investigation undertaken at Mumbai revealed that each set of equipment taken together constituted ‘Head End’ for cable TV operations meriting classification under Customs Tariff Heading 8543 8999 in light of Note 4 to Section XVI and hence were mis-declared.

The Department issued SCN alleging the importer to have fabricated documents by way of the splitting of the value of the goods and declared a lesser value to the Customs Department with the sole intention to evade payment of Customs Duties. Also, on the ground that the importer failed to make true declarations, the importer’s goods were liable to be confiscated. The Principal Commissioner of Customs further rejected the declaration by the appellant on the ground that the appellant intentionally did not declare the true and correct value and correct classification of imported goods and also imposed a penalty upon the appellant. The CESTAT also concluded in similar lines, against the appellant, stating that the imported consignment does not constitute a complete Head End and that each component is to be classified under the relevant Chapter Heading.

The issue before the Apex Court is the determination of whether the CESTAT has erred in failing to consider the primary submission of the Appellant, that the 19 different items imported by the Appellant, even if taken together do not form one composite ‘Head-end’ and that each item has an individual function, and each item is to be classified under the Chapter Headings CTH 85175010, CTH 85281299, CTH 85438910, CTH 84717010 and CTH 85249112.

Mr. Aman Lekhi, learned Additional Solicitor General appearing for the respondent submitted that though the invoices in the case did mention individual items, the dominant intent had to be seen whether the intended user was of individual items or they were supposed to be used collectively as part of one apparatus.

The Bench comprising of Justice Uday Umesh Lalit and Justice Vineet Saran upheld the view taken by the Department to conclude that the principle stated under Note 4 shall be applicable. The Bench considered the imported items as part of one apparatus or machine to be classifiable under the heading appropriate to the function.

The bench also observed that “after considering the purchase order in the instant case, the Tribunal found that apart from supply of equipment, necessary software had to be embedded in the equipment before the supply was effected. The facts also disclose that out of 19 items indicated in the Bill of Entry, only 8 items were physically presented while the rest were already embedded in the main unit. These facts are not only reflective that the individual components were intended to contribute together and attain a clearly defined function as dealt with in Note 4 of Section XVI as stated above, but also indicate that software that was embedded through cards in the main unit, was not any post-importation activity. The value of the software and the concerned services were therefore rightly included and taken as part of the importation.”