Windows 7 may now pass through Customs – Board issues important instructions.
IN DDT 1220 -21.10.2009, we commented,
In his Budget, the Finance minister said, “The IT industry has pointed out that it is facing difficulties in the assessment of software which involves transfer of the right to use after the levy of service tax on IT software service. To resolve the matter, I propose to exempt the value attributable to the transfer of the right to use packaged software from excise duty and CVD.”
And Notification No. 80/2009-Cus., Dated: July 7, 2009 exempted packaged software or canned software, falling under Chapter 85 of the First Schedule of the Customs Tariff Act, 1975 (51 of 1975), from so much of the additional duty leviable thereon under sub-section (1) of section 3 of the said Customs Tariff Act, as is equivalent to the duty payable on the portion of the value of such goods determined under section 14 of the said Customs Act, or the rules made thereunder, read with sub-section (2) of section 3 of the said Customs Tariff Act, which represents the consideration paid or payable for transfer of the right to use such goods.
Windows 7, one of the most anticipated launches in recent times from Microsoft, is ready for a worldwide launch tomorrow, but India may miss the launch because of the above beneficial notification.
Now the Board has come up with a very important clarification in this regard.
It was brought to the notice of the Board that some of the importers of shrink wrapped software have faced certain difficulties in availing of Notification No. 80/2009-Customs dated 7.07.2009. Their live consignments are held up, especially at Mumbai and Chennai cargo complexes. From the documents submitted by them it appears that two major objections have been raised at Mumbai and Chennai respectively.
The first proviso of the notification states that the exemption would be limited to that much of value which is towards right to use such software for commercial exploitation including the right to reproduce, distribute and sell such software and the right to use software components for creation of and inclusion in other information technology software products.
In Mumbai, a view has been taken that the benefit of the notification is available only if all the activities, viz., right to reproduce, right to distribute, right to sell and right to use the software component for creation of and inclusion in other IT software products are fulfilled. Thus a conjunctive meaning of the term ‘and' has been taken and it has been held that since the importer did not fulfill all the conditions, they should be denied the benefit of the notification.
In Chennai, where fully packed product (FPP) was imported by a company which produced split value (i.e., one value for media and other for right to use software) in a single invoice shown separately, the jurisdictional authorities have refused to accept such split value for the purpose of claiming notification No.80/2009-Customs and taken the view that CVD should be charged on entire amount.
The Board feels that these instances show that the field formations have failed to appreciate the scope of the said notification.
In the first case, the view taken by officers is legally untenable because the phrase used in notification No.80/2009-Cus is inclusive in nature and it is a well-known principle that in an inclusive expression, the word ‘and' is to be understood as ‘or' and that even if one of the activities (such as right to reproduce, right to distribute, right to sell etc.) mentioned in the said inclusive portion is carried out, it would satisfy the condition of commercial exploitation, thus making the import eligible for notification No.80/2009-Customs.
As for the second case, the notification No.80/2009-Cus itself envisages splitting of the value of the imported goods into that pertaining to software on media and the one pertaining to right to use. In such cases, there is no rationale for the department to deny splitting of value unless there are reasons to believe that such a splitting has been done in order to evade payment of duty.
Board wants assessment of the shrink wrapped packaged software to be done keeping in view the above directions.
Such an important clarification and the Board is again shy of a public circular and this clarification is contained in a private letter to Chief Commissioners and Commissioners and now some of the Commissioners may even take a view that it is not even a Board Circular and is not binding on them!
CBEC Letter in F.No.354/189/2009-TRU Dated: November 04, 2009