2015(08)LCX0218

IN THE CESTAT, WEST ZONAL BENCH, MUMBAI[COURT NO. I]

S/Shri M.V. Ravindran, Member (J) and P.S. Pruthi, Member (T)

ABG SHIPYARD LTD.

Versus

COMMR. OF CUS. (ACC & IMPORT), MUMBAI

Final Order No. A/2646/2015-WZB/CB, dated 18-8-2015 in Appeal No. C/87440/2014-Mum

Cases Quoted -

Commissioner v. Pentamedia Graphics Ltd. - 2006 (198) ELT 164 (S.C) - Relied on [Paras 3, 7.8]
Gayatri Impex Ltd. v. Commissioner - 2007 (215) ELT 0397 (Tribunal) - Relied on | Paras 3, 7.8]
L.M.L. Ltd. v. Commissioner - 2010 (258) ELT 0321 (S.C.)- Not Applicable [Paras 3, 4, 5, 7.9, 7.10]

Advocated By -

Shri Vishal Agarwal, Advocate, for the Appellant.
Shri V.K. Singh, Spl. Counsellor the Respondent.

[Order per : M.V. Ravindran, Member (J)]. -

This appeal is directed against order-in-original number CAO/CC/RS/01/2014 ADJ ACC dated 12-3-2014.

2. The relevant facts that arise for consideration are the appellant herein filed a bill of entry number 752 0979, dated 28-7-2012 for the clearance of goods declared as "designs and drawing is for Hull numbers 398 and 397" through the CHA. The said bill of entry was facilitated by the Risk Management Sistine (RMS) where no assessment and examination was prescribed. The appellant importer had declared the said goods as classifiable under CTH 4906 00 00 claiming benefit of exemption under Serial Number 271 of Notification No. 12/2012-Cus. The Customs authorities in view of the high value of the consignment decided to examine the consignment. Accordingly the goods were examined by the shed staff under supervision of Asst. Commissioner of Customs in the presence of the representative to of CHA. On opening the consignment, in addition to the drawings and designs printed on paper, one number CD was also found. On being asked to explain the contents of the CB the appellant informed the departmental authorities that they had placed an order for supply of designs and drawings for construction of ship and had not placed any order for supplying designs and drawings on CD. Customs authorities not convinced with the explanation given conducted an investigation and after recording various statements came to a conclusion that appellant had tried to evade duty by mis-declaring the description of the goods imported. A show cause notice was issued for classification of the CD under CTH 8523 80 20 as liable for duty, show cause notice also sought to claim interest as also for imposition of penalty on the import by the appellant. The appellant contested the show cause notice on merits making submissions that they had placed an order for design and drawings in printed form never placed an order for the design and drawings in CD form, even if the classification as claimed by the Revenue is correct then also benefit of supplementary note to Chapter 85 will apply as imported goods, i.e., CD will fall under the category of "information technology software", there was no intention to misdeclare the goods as the purchase orders were placed specifically for the designs and drawings in printed form only and that they be allowed to re-export the CD back to the supplier. The adjudicating authority after following the principles of natural justice, did not agree with the contentions raised by the appellant, holding against the appellant confirmed the demand of the Customs duty and interest thereof and also imposed penalties. Aggrieved by such an order appellant is before the Tribunal.

3. Learned advocate appearing on behalf of the appellant would take us through the entire case records. He would draw our attention to the purchase orders placed by the appellant and submit that the said orders were for supply of design and drawings in hardcopy for construction of vessel. He would submit that the appellant had never placed the order for the supply of design and drawings in in CD form. He would specifically draw our attention to the various clauses of the purchase orders and submit that the orders which were placed were for the supply of the designs and drawings in hardcopy only. He would submit that the appellant was not aware that supplier had also despatched the designs and drawings in CD form. It is his submission that the designs and drawings which are received in printed form are correctly classifiable under heading number 4911 99 20 and eligible for nil rate of duty, a finding as recorded by the adjudicating authority is not disputed or challenged by the Revenue. It is his submission that the entire case of the Revenue is that whether the designs and drawings which is come in the form of compact disk containing the soft copy would be classifiable under chapter heading number 8523 80 20. It is his submission that even if it is classifiable under the said heading, the said CD is eligible for benefit of nil rate of duty as it would be falling under the category of information technology software. After taking us to the supplementary note to chapter 85 he would submit that the expression information technology is correctly answered by the CD which is found in the consignment. He would then submit, the statement of Shri Vipul Shrivastava very clearly brings on record that the CD can be manipulated provides interactivity to the user in an automatic data processing machine. He would also demonstrate before us the manipulation that can be resorted to the data on the CD by using software "AutoCAD". It is his submission that entire data on the CD viewed in different dimension, for example measure the length of the drawings of the zoom on a particular area of the drawings, manipulate the length and breadth of the ship, rearrange the machineries. It is his submission that the design and drawings have been recorded in machine readable form and they are capable of manipulation and also provide for interactivity to the user in an automatic data processing machine. He would also demonstrate before us that the dimension in the drawings can be measured, increased or decreased either for length and or breadth, machineries can be rotated, moved, mirrored and trimmed for redesigning the vessel if required. It is also submission that the entire drawings could be transmitted in a soft copy interdepartmentally is in itself an example of the data being manipulatable. He would submit that the adjudicating authority has erred in relying upon the ratio of the case of LML Ltd. ~ 2010 (258) ELT 321. He would submit that in that case what has been imported in the CD was an image of drawing which was not capable of being manipulated or providing interactivity using an automatic data processing machine. It is his submission that case of the appellant squarely covered by the decision of the Supreme Court in the case of Pentamedia Graphics Limited - 2006 (198) ELT 164 and draw our attention to the same. He would submit that the decision of the Tribunal in the case of Gayatri Impex Ltd. - 2007 (215) ELT 397 is directly on the same issue.


4. Learned Special Counsel appearing on behalf of the respondent would draw our attention to the impugned order. He would submit that the entire case of the Department is that appellant had imported designs and drawings in paper form as well as in CD and the duty liability arises as the appellant are ineligible to avail benefit of the exemption notification as the product cannot be construed as information technology software. He would submit that the valuation as has been arrived is in accordance with the provisions of the Customs Act. He would draw our attention to Section 19 of the Customs Act, 1962 and submit that Revenue has considered the imported goods as it is in printed as well as in CD. Accordingly, applying the provisions of Section 19C, the entire value has been considered as for the import of the designs and drawings in CD form. He would submit that the exemption as claimed by the appellant is incorrect as data on the CD is nothing but designs and drawings which were imported in printed form also. He would submit that the statements of the various individuals clearly indicate that the data on the CD is nothing but the drawings of the vessel. He would submit that the judgment of the Apex Court in the case of LML Ltd. (supra) will directly apply and read the ratio of the judgment more specifically paragraph numbers 16, 20 and 28.

5. Learned Advocate in rejoinder would submit that the valuation as adopted by the adjudicating authority is erroneous. It is his submission that attributing the entire value to the CD is incorrect as appellant had in fact placed an order for designs and drawings in hardcopy hence application of Section 19C of the Customs Act, 1962 is inappropriate. He would also submit that in the case of LML Ltd. the imports were of drawings in CD ROM which would mean that the said CD was only readable and could not have been manipulated.

6. We have considered the submissions made at length by both Sides and perused the records.


7.1 The issue in dispute in this case is whether the designs and drawings imported by the appellant in printed form and as also sent by the supplier in CD is liable to Customs duty or otherwise.

7.2 Undisputed facts are that appellants had in fact ordered for designs and drawings in hardcopy. Purchase orders placed clearly indicate for the supply of designs and drawings in hardcopy. When the goods were examined it was noticed that in addition to hardcopy, CD was found in the package. The said CD was opened on a laptop before the Customs authorities and it contained the de-signs and drawings in machine readable format.

7.3 It is a case of the Revenue that appellant has misdeclared the consignment by importing CD with the printed form of designs and drawings. It is the case of the appellant that they had not ordered for the designs and drawings in CD, which we find as correctly submitted. This conclusion is based on the perusal of the purchase orders placed by the appellant to the supplier of designs and drawings. The two work orders dated 18-6-2012 issued by the appellant clearly stipulate as under :-

"Drawings need to be dispatched in hardcopy by Air Cargo mode only and relevant Airway Bill to be presented for negotiations."

The description of goods as per the LC as well as the supplier's invoice also clearly state that designs and drawings covered by these documents are those as per appellant's order dated 18-6-2012 which, as mentioned above, specifically states that the drawings are to be hard copies. As such, the claim of the appellant that they had not ordered for a CD and that it had been supplied without their knowledge is not disproved by the department. We also note that the designs and drawings in printed format are not liable to Customs duty as they are exempted or applicable rate of duty is nil.

7.4 Even though the evidence on record proves that the CD was never ordered for, even if the position had been otherwise as held by the Commissioner, the duty liability on such a CD would be 'nil' as such a CD would satisfy the requirements of being "information technology software" falling under Heading 8523 80 10, which attracts 'nil' rate of duty as per the tariff itself. This takes us to the issue of classification and the duty liability on the CD which came along with the consignment. It is a case of the Revenue that the designs and drawings which has come in the form of CD will fall under the chapter heading number 8523 8090 and benefit of supplementary note of chapter heading 8523 is not applicable. It is also the finding of the adjudicating authority that the said note is not applicable in the case in hand as the contents of the CD is nothing but the design and drawing and the ratio of the judgment of the Apex Court in the case of LML Ltd. will be applicable. The adjudicating authority has also held that the statements of the officials of the appellant support the case of the Revenue. On perusal of the records it is noticed that the findings recorded by the adjudicating authority for the confirmation of the Customs duty and interest thereof and imposition of penalty is incorrect for more than one reason.

7.5 Firstly, in order to appreciate whether the claim of the appellant that the information on the CD is nothing but information technology software or otherwise, we have to consider the supplementary note to chapter heading number 8523 which is as under.

Supplementary Note :
For the purposes of heading 8523, "Information Technology software" means any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form and capable of being manipulated or providing interactivity to a user, by means of an automatic data processmg machine.

(emphasis supplied)

It can be seen from the above reproduced note that the information contained in the CD in question is definitely a data, image and is recorded in machine readable form. It is not the case of the Revenue that the data on the CD is not machine readable. The data on the CD if is read in an automatic data processing machine would mean that the data on the CD is machine readable. The CD containing the designs and drawings is definitely satisfying the first limb of the definition of information technology software. The term "information" has been defined in Section 2(1 )(v) of the Information Technology Act, 2000 to include data, message, text, images, sound, voice, codes/computer programmes, software and data basis and microfilm or computer generated Micro fiche.

7.6 Secondly, the 2nd limb of the definition of information technology software requires that the representation of instructions, data, sound or image is capable of being manipulated. In the course of the hearing, it was demonstrated before us that the drawings contained in a CD form, when used in conjunction with AUTOCAD software provides interactivity to the user and the data in such a CD is also capable of being manipulated. The printed literature pertaining to AUTOCAD software, as extracted in the synopsis filed by the appellant, shows that a user can change a drawing, i.e., manipulate it by giving different commands: These commands are extracted below :

It was also submitted that the drawing in the CD in conjunction with AUTOCAD could be used for viewing cross-section area, i.e., viewing how an object would appear from the top, from the front, from the left side, from the right side. This helps viewing what lies behind an object. This is clear from the feature of viewing of cross-section as appearing in the printed literature pertaining to AUTOCAD, as extracted in the synopsis filed by the appellant, which is as under :

It is an admitted position in the Commissioner's order that the data contained in the CD is "soft" and it was possible to even view a cross-section area. The relevant finding of the Commissioner in this regard is in para 47.4 which reads thus:
"Also admittedly the CD has been supplied by the supplier to provide the following supporting/enabling features to the customer (Importer).

(i) Dimension could be measured on drawing.
(ii) Particular area could be zoomed to see more details.
(iii) Printout could be taken.
(iv) Could be used for transferring soft copy inter-department.
(v) Could also view cross-section area.

We find that the above features of the CD were explained in the course of investigation by Mr. Vipul Srivastava, Deputy General Manager in his statement dated 13-8-2012. We therefore, find that the features of AUTOCAD software, as demonstrated before us, are consistent with the evidence on record. We find considerable substance in the argument that a drawing in a "soft" form which enables a user to view cross-section when used to in conjunction with AUTOCAD software is information technology software, providing interactivity to the user as well as being capable of manipulation.

7.7 We find that the data on the CD imported is capable of manipulation as was demonstrated before us. We find that the design and drawings of the vessel on the CD can be manipulated in the computer to change the length and the breadth, repositioning of the machineries like engine, cabin, tank and a conclusion can be reached as to the correct design that needs to be presented to the clients and also for arriving at the conclusion as to how the ship or vessel will appear to a purchaser. In our view, the demonstration which was presented before us would indicate that the data or images on the CD are capable of being manipulated by an automatic data processing machine, by a software known as "AutoCAD". The manipulation to data on CD that could be undertaken as was demonstrated to us indicates that after the manipulations, the automatic data processing machine culls out immense information with respect to so many aspects of the vessel. The drawings and the designs on the CD is in a software form as stated above and can be manipulated to suit to the requirements of appellant's customer or the user. The interactivity of the information on the CD can be also gauged from the fact that the appellant can entirely change the design and use the new design and also work of the minutest detail, a fact undisputed by the lower authorities. The adjudicating authority seeks to deny the benefit to the appellant only on the ground that the CD does not have any source code or on object that would have inherent capability/feature of manipulated; and relied upon the definition of word manipulation. We find that these findings of the adjudicating authority are without any basis. The definition of information technology service talks about including of source code and object code; which we find is not required in the case in hand, inasmuch that when the CD is capable of being manipulated without having a source code or and object code would in itself mean that the said codes are built in the designs and drawings as found in the CD. The definition of manipulation, as per Black Law Dictionary also talks about alteration in the data, which we find can be done in the case in hand. The interactivity to the user is demonstrated from the fact that three-dimensional picture is presented on the screen after required changes are made to the data on the CD. The fact that software AutoCAD is being used by the importer to manipulate the information on CD is itself a indicator that the designs and drawings on the CD are interacting with the automatic data processing machine.

7.8 We find that the judgment of the Apex Court in the case of Pentamedia Graphics Ltd. (supra) is directly on the point. Their Lordships in the said
judgment in paragraph numbers 14 and 15 held as under.

"14. Random House Compact Unabridged Dictionary refers to "software" as anything that is not hardware and is used with hardware. Encyclopedia Britannica refers to "software" to designate non-hardware items, namely internal programmes or routines and programming aids. Thus the programming aids are also known as software and thus the goods in question would fail within the meaning of the word "software". The goods under import are admittedly data recorded on tapes. Under the existing Notifica-tion No. 20/99 any kind of data in a machine readable form and capable of being by means of an automatic data processing machine would be covered by the term "Information Technology Software".

15. For the reasons stated above, the goods under import are computer software recorded in a machine readable form and capable of being manipulated by means of an automatic data processing machine. We do not find any infirmity in the impugned order of the Tribunal."

We find that the above ratio has been followed by this Bench in the case of Ga-yatri Impex Ltd. (supra).

7.9 The adjudicating authority as well as the special counsel for the Revenue has heavily relied on the judgment of the Apex Court in the case of LML Ltd. (supra) to hold gainst the appellant. On the first blush, we would have also agreed with the propositions as put forward by the learned Counsel, but on careful reading of the judgment of the Apex Court, we find that the case of LML Ltd.,
the issue was of classification of "CD ROM" containing images of drawing and designs of engineering goods. Their Lordships are in paragraph 18 after considering the meaning of the word software applied the same in the facts and circumstances of the case of LML Ltd. and in paragraph numbers 20 and 21 held as under :

"20. In the light of the aforesaid background, the question that arises for our consideration is whether the data in a Compact disk falls within the meaning of the term software. It is needless to reiterate that data at issue in this case are images of drawings and designs intended to be used for engineering projects, therefore, the core issue to decide is whether such drawings, designs intended to be used for engineering projects be termed "software" so as to entail the benefit of the aforesaid Notification No. 17/2001-Cus., dated 1-3-2001.

21. There can be no doubt that such engineering drawings and designs do not provide instructions for the computer hardware to perform. At best, the said drawings and designs can be said to be are by-products and outputs of the computer software, which generate the designs and drawings. Therefore, such engineering drawings or designs data in a CD cannot be placed in the category of the term "software". It is therefore, held that the engineering drawings and designs contained in a CD ROM will not be covered under Heading 85.24 of the Tariff."

7.10 The facts and circumstances of that case clearly indicate that what was brought in by the appellant therein was "CD ROM", is an indicator that the CD containing the designs and drawings of engineering goods was on a "read only memory"; in computer language ROM, that is to say the information on the CD can only be read and is non-manipulatable. The judgment and the ratio of the Apex Court in the case of LML Ltd. was considering the peculiar facts of that case; while in the case in hand before us, it is undisputed that the information contained on the CD is manipulatable and interactive with the user.

7.11 We find that the facts and circumstances of this case are more akin to the facts and circumstances as was in the case of Pentamedia Graphics Ltd. (supra) and in the case of Gayatri Impex (supra), and needs to be followed. In view of this, we find that the designs and drawings contained in the CD were correctly classifiable under Heading 8523 80 20 and attracts 'nil' rate of duty as per Customs Tariff. The requirements of supplementary note to Chapter 8523 are therefore, satisfied. Since designs and drawings in paper form as well as in the CD form attract nil rate of duty, the finding of the Commissioner about the applicability of Section 19 of the Customs Act, 1962 becomes irrelevant since the rate of duty applicable to both goods even assuming them to be constituting a set, is 'nil' in view of the classification determined by us. The question whether a separate value could be attributed to the CD also becomes irrelevant in view of the classification under Heading 8523 80 20 of the Tariff.

7.12 As we have disposed of the appeal on merits as recorded hereinabove, we are not recording any findings on the various other submissions made by both sides before us on other points.

8. In view of the foregoing and the judicial pronouncements more akin to the facts and circumstances of this case, in our view the impugned order is unsustainable and is liable to be set aside and we do so. The impugned order is set aside and appeal is allowed with consequential relief if any.

(Pronounced in Court on 18-8-2015)

Equivalent 2016 (332) ELT 0849 (Tri. - Mumbai)