ORDER
S.L. Peeran, Member (J)
1. Both these appeals arise from two different orders of the Commissioners (Appeals). The Commissioners (Appeals) have taken up the matter independently against the Order-in-Original passed by the original authority on a matter which was remanded by the Tribunal by its final order No. 2846/99 dated 9.11.1999 by which the Tribunal directed the original authority to readjudicate the claim of the appellants, claiming the benefit of Customs duty under notification No. 11/97 dated 1.3.1997 which had been denied at the time of clearance of the two Bills of Entry in which they had described and imported the item “Application Software for routing ATM Transactions” and “Application Software for POS Transactions” valued at Pound Sterling 1,09,602 and Pound Sterling 52,143 respectively. These software consignments were declared in two Bills of Entry No. 17019 dated 14.3.1998 and 22946 dated 4.4.1998. They were exported by M/s. Interlink as part “Sparrow” “Hawk” systems which is installed at Appellant Bank “For Intercom Project Nations Operation”. The appellants had before importing the items written to Additional Commissioner of Customs by their letter dated 26.3.1998 and 3.4.1998 claiming exemption from customs duty and had filed a detailed technical write up justifying the claim in terms of SI. No. 173 of Notification No. 11/97 which grants exemption to “Computer Software”. The original authority initially at the time of passing the Bill of Entry did not consider the imported items to be computer software and held it to be software other than computer which is re quired for operation of ATM machine for performing a specific function other than data processing. They were aggrieved with the said order of assessment of the AC. Hence, they filed an appeal before the Commissioner (Appeals) who by his adjudication order dated 14.12.1998 confirmed the order-in-original dated 4.7.1998 passed by the AC (Refunds). Before the Tribunal, the appellants produced the additional evidence in the form of technical opinion given by the Professor of IIT Madras, and various supporting documents to justify their claim that it was a “software” and not a computer software required for operation of ATM machine.
2. As the evidence which had been produced before the Tribunal was additional evidence and in view of the fact that technical literature and the opinion of experts have not been examined, therefore the Tribunal set aside the Order-in-Appeal dated 10.12.1998 passed by the Commis sioner (Appeals) and remanded the case for de novo adjudication by final order No. 2846/99 dated 9.11.1999 with specific direction to the original authority to reconsider the additional evidence produced before the Tribunal and also take into consideration the Judgment rendered by the Apex Court in the case of Hyderabad Industries Ltd. v. CC which had laid down that no CVD can be charged on the imported items if the rate of duty on software under the Central Excise Act is ‘NIL’.
3. The original authority i.e. Dy. Commissioner of Customs (Group 5B) Air Cargo Complex by his order in F. No. Section MlSC.130/98/99-Gr. 511 (ACC) dated 23.3.2000 rejected the claim made in both the Bills of Entry, wherein they had claimed the benefit of the notification on the imported softwares with description “Sparrow/Sparrow POS” and “Hawk”. By this order, he upheld their contention that no CVD duty was payable on computer software falling under tariff sub-heading 8524.20 as CET as under this heading the duty chargeable was NIL. He, therefore, allowed partially the claim of the importer on CVD which had been worked out to Rs. 28,43,272/- and directed the same to be refunded. However, with regard to the plea of claim of benefit of Customs Notification No. 11/97-Cus. dated in terms of Section No. 173, he did not accept their plea that the item was a software but held it to be outside the ambit of the term “Computer Software” Although, he agreed that in terms of the technical aspects of computer software imported it was application software for banking applications, but he at the same time held it to be necessary for operation of machines for performing specific function other than data processing and incorporating or working in conjunction with an auto matic data processing machine. The findings recorded by him is repro duced herein below:
I have carefully gone through the records of the case and the submissions made in the appeal.
The CEGAT in its order had observed that the simple issue involved in the appeal is whether the two softwares namely Sparrow/Sparrow POS and Hawk imported by the appellants could be considered as necessary to operate the computer system on which they reside or they would be in the nature of applications software relating to the business activities of the appellants.
The lower authority in his order has discussed at length the manner in which the software imported is put to use and the appellant also concedes that the lower authority has fully appreciated the technical aspects of the software. In other words, mere is no dispute with regard to the observations of the lower authority as to how the software imported is used by the importer. As seen from the technical write-up and also, as confirmed by the order of the lower authority, the Sparrow/Sparrow POS/Hawk Softwares are applications software which are used by the importer for banking operations; the function of the Sparrow being to accept and process transactions, sent across communication network from ATMs and POS devices, maintain the financial database and channel variety of operations and MIS reports and the main banking operations facilitated by Sparrow are online or offline cash withdrawal, cash deposit, transfer between accounts, bill payments, issuing travellers cheques, etc. The main function of Hawk module is to format the messages as per the service requested for by the customers and send it to the communication sub-system on the ATM for forwarding to Sparrow. This software, inter alia, generates mini-accounts statement, maintenance of accounts balance, bill payment, transfer of funds between accounts etc. As seen from the write-up as well as submissions, the manner in which the imported software is used clearly puts it into the category of software which is required for operation of a machine, the machine, in this case, being the automatic teller machine, which performs specific banking functions in conjunction with automatic data processing machines. Thus, the imported software would be in the nature of applications software relating to the business activities of the appellant. As per the explanation in Notification 11/97, “computer 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 processing machine falling under heading 84.71 but does not include software required for operation of any machine performing a specific function other than data processing and incorporating or working in conjunction with an automatic data processing machine”. It is clear therefrom that while the Notification does not specifically refer to applications software, it does exclude software which are required for operations of machines performing specific function other than data processing and incorporating or working in conjunction with an automatic data processing machine. The appellant’s contention that the software imported by them is, no doubt, application software but due to the fact that they do not operate the machine on which they are loaded, they are entitled to the exemption is not a proper interpretation that can be given to the wordings of the Notification which clearly excludes all software used for operation of machines performing specific function along with automatic data processing machines. The expert opinion (from Professor of Computer Science and Engineering, IIT, Madras) cited in this regard by the appellant which they state supports their view, in fact, confirms that Sparrow/Sparrow POS handles the format-led output from Hawk and has a generalised business application and Hawk handles the data processing relating to banking transactions. This technical opinion does not, in any way, support the view that the software imported falls outside the exclusion clause in the Notification. In fact, it confirms that the software is required for banking applications and also works in conjunction with the data processing machine.
In the light of the above, I find no infirmity in the order of the lower authority denying the benefit of the exemption under Notification 11/97.
4. This order was appealed by the appellants with regard to rejection of benefit of customs notification referred to supra before the Commissioner of Customs (Appeals), Chennai who by her order-in-original No. C. Cus. 458/2000 dated 27.6.2000 upheld the Dy. Commissioner’s order denying the benefit of the Customs notification by holding as follows:
I have gone through the records of the case carefully. The imported goods will have to be classified in terms of Chapter Note 6 to Chapter 85. The imported goods being recorded media are correctly classifiable under CTH 8524. Benefit of notification No. 11/97 is available to Computer Software covered by the explanation. Other computer software will not be eligible for the benefit of notification. However, they continue to be remain classified in their respective sub-heading depending on the media in which the computer software is recorded and duty is chargeable.
I agree with the technical aspects of the computer software imported. Sparrow/Sparrow POS/Hawk are application software for banking applications. They are not system software. It is pertinent to note that the softwares were imported vide Bs/E No. 17019, dt. 14.3.1998 and 22946, dt. 11.4.1998. During the relevant period, the notification which was applicable, namely Notfn. No. 11/97, dt. 1.3.1997, SI. No. 173 was in its amended form. Computer software per se was no longer eligible for exemption of customs duty. The explanation is read as ‘”Computer 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 processing machine falling under heading No. 84.71 but does not include software required for operation of any machine performing a specific function other than data processing and incorporating or working in conjunction with an automatic data processing machine.
Computer software for the purpose of exemption under Section No. 173 of Notfn. 11/97, no longer included software required for operation of any machine performing a specific function other than data processing and incorporating or working in conjunction with an automatic data processing machine. This explanation was amplified by Board’s Circular No. 7/98, dt. 10.2.1998 at Para 4, wherein it was laid down that the exemption will not cover software required for operation of any machine performing a specific function other than data processing and incorporating or working in conjunction with an automatic data processing machine. More specifically, software for telecom, medical or other applications is not eligible for exemption from duly.
The Board’s circular clarifies that software for other application is not eligible for exemption from duty. Not only software required for operation of any machine but also application software for medical, telecom and other application stand excluded from the purview of the notification. In view of this position, the computer software in question being banking application software falls out of the ambit of the explanation under Section No. 173 of Notification 11/97-Cus., and is eligible for levy of customs duty. Goods have correctly been classified under 8524 and duty charged @ 40% + 5%. Coming to the Central Excise Tariff, the classification of the goods will again be 8524. However, 1 find that a separate sub-classification exists for computer. This sub-classification 8524.20 is for computer software for any media. There is no restriction as to the eligibility for classification under this sub-heading other than the fact that the goods are computer software. In this case, the goods are computer software. In terms of Notification No. 11/97, the CVD as applicable will have to be applied. Even in the absence of any notification, the goods would have been classified under 8524.20. At the time of importation, the CV Duty on Computer Software of all types was ‘Nil’. In view of this, the CV Duty already collected at the time of assessment is not correct. The same has to be refunded. I, therefore, agree with the importer that as per the Central Excise Tariff on the relevant date, no CV Duty was payable on computer software under 8524.20. This duty, which has already been collected (B/E No. 17019. dt. 14.3.1998 : Rs. 19,18,223/- & B/E No. 22946, dt. 4.4.1998 : Rs. 9,25,049/-: Total Rs. 28,43,272/-) may have to be refunded to the importer.
In view of the above, I pass the following order.
ORDER
Computer software in question is leviable to Customs duty at the rate of 40% + 5%. Therefore, I confirm the customs duty levied and collected under Section 12 of the Customs Act ’62. Benefit of notification No. 11/97, SI. No. 173, is not eligible to the goods.
I order that the amount of Rs. 28,43,272 (Rs. 19,18,223/- + Rs. 9,25,049/-) being the CV duty collected to be refunded to the Importer as no duty was payable for computer software under CHTH 8524.20.
5. Appellants are aggrieved with the rejection of the grant of benefit of customs notification and hence they have filed one appeal in C/602/2000 claiming the benefit of the notification on the ground that the imported item is a mere software and it is an “application software for ATM transactions” and “application software for POS transaction” and not meant for operating computer machines as has been held by both the authorities. It is their specific plea that the terms of the remand order has not been properly followed in as much as the entire technical literature and the expert opinion including the supplier’s literature has not been looked into. It is pleaded that Shri C. Pandu Rangan, Head of the Department of IIT, Department of Computer Science and Engineering, Chennai by his opinion dated 20.10.1999 categorically stated on examination of the imported item that it is to be considered as a generalised business application performing only data processing related operations. The opinion given by Shri C. Pandu Rangan, HOD, IIT is reproduced herein below:
INDIAN INSTITUTE OF TECHNOLOGY, MADRAS
Department of Computer Science and Engineering
Chennai, 600 036, India
Tel: 445-8330
Fax: 445 8352; Telex: 41 8926
Email: rangan@iitm.ernet.in
Date: 20.10.1999
C. PANDU RANGAN
HEAD OF THE DEPARTMENT
Report on the Sparrow/Sparrow POS/Hawk used by
ANZ Grindlays Bank
I have read the report (Interlink Architecture V.2.0) handed over by ANZ Grindlays Bank and my observations on the package are as follows:
1. Sparrow/Sparrow POS which are residing in the server, appear to have the functionality independent of the hardware and handle the formatted output from Hawk. They may be considered as a generalised business application performing only data processing related operations.
2. Hawk, which is residing on the ATM, handles several data processing related banking transactions. Moreover Hawk is capable of Proximity detection and Alarm which involves controlling, enabling/disabling devices beyond the scope of normal business data interacting with special electronic devices other than business data processing devices.
Sd/-
C. Pandu Rangan
6. They also relied on the opinion given by NCR Corporation India Pvt. Ltd., dated 9.9.1999 to the appellant bank clearly indicating that the item can operate as a standalone unit–i.e., without being connected to a bank host or a financial transaction switch. It is stated in the opinion that this mode of operation is called “Standalone-Offline” and offers all the regular ATM transactions such as Cash Withdrawal, Deposits, Balance Enquiry, Account Transfer, PIN change etc. They have also produced the report and samples of the both the softwares and how it functions. The details of both the software and the affidavit of the Manager-in-charge of the operation have also been filed. However, the Commissioner as seen from the extracted order, has not looked into all these evidences and has merely upheld the findings given by the lower authority i.e. Dy. Commissioner, holding the item to be required for operation of machines for performing specific function other than data processing and incorporating or working in conjunction with automatic data processing machine. Hence, this appeal. They contend that the order of both the authority is against the technical opinion, affidavit and literature produced by the appellants. It is contended that the software is not required at all for operating the data processing machine but it is an independent software for maintenance of accounts and different types of financial transactions of customers. They contend that the authorities have failed to take note that Interlink POS Application Software runs on HP K 570 UNIX Data Processing Machine installed in the bank’s processing Centre at Chennal and the Interlink POS application software is not required for operating the data processing machine as it is not a operating system. Further, they contend the Interlink POS software in-house for processing financial transactions or the point of sale of credit cash transactions in shops across India, thus the point of sale terminals are independent of the central interlink software and do not require it to operate. They refer to the financial reports of the transactions which had been processed on the data processing machine. It is pleaded that this software maintains customers data and generates letters and management information reports and processes financial transactions from other devices. It is pleaded that the authorities failed to see that due to its versatile financial process capabilities, Sparrow Software can also be used for basic branch banking functions such as balance enquiry and disbursements and thus the applications software is capable of processing different financial transactions. They claim that the software is not hit by the exclusion clause of the terms of the notification and the evidence is clinching, which requires to be accepted and the benefit of customs notification should be extended. They further contend that after the Order-in-Original was passed by the Dy. Commissioner accepting their plea that no CVD is liable to be paid as Central Excise duty was not chargeable in the matter as it carried NIL rate of duty, they filed the refund claim in terms of the Judgment of the Tribunal and subsequent benefit given by the Dy. Commissioner for refund of amount of Rs. 28,43,272/- which had already been paid by them.
7. However, the department issued show cause notice calling upon them to explain as to why the refund claim should not be rejected as time barred and on account of the fact that burden of duty has been passed on to the consumers. It is contended that they filed detailed reply pointing out that question of time bar does not arise, as they had filed their claim for refund much well in time and after the matter was adjudicated and remanded by CEGAT, the Dy. Commissioner had accepted their plea partially and as a consequence of their success in appeal, automatically the refund is required to be given in terms of claim which was already processed and adjudicated. They further contended that the imported item was lor their own use and not for sale and they filed all documents to prove that there was no unjust enrichment. However, the Dy. Commissioner by order F. No. Section Misc. 130/98/99-Gr. 5B (ACC) dated 23.11.2000 rejected their claim as time barred under Section 27 of the Act and also on the ground that demands were hit by unjust enrichment. He has given a finding that appellants did not produce any evidence to establish that there was no unjust enrichment in the matter. This finding is seriously contested before the Commissioner (Appeals) by the appellants. However, the Commissioner (Appeals) by Order-in-Appeal No. 202/2001 dated 30.3.2001 rejected their claim on the same ground by upholding the order of Dy. Commissioner. Hence, a separate appeal in C/241/2001 has been filed.
8. It is contended in this appeal C/241/2001 that question of time bar in the present case does not arise for the reason that they had filed refund claim immediately after deposit of money and clearance of the Bills of Entry. The same had been initially rejected both on the claim of benefit of customs notification and on CVD being not leviable. They had appealed to the Commissioner (Appeals) and thereafter to CEGAT. The CEGAT remanded the matter to the original authority to reconsider the technical opinion and appellant’s claim. The Dy. Commissioner had by his order-in-original accepted their plea with regard to CVD and the consequence was that the amount was required to be paid. There was no question of time bar as already their claim had been adjudicated and it was not a fresh claim filed by them. Both the authorities have noted these points including remand of the matter by CEGAT. However, they have misconstrued and misunderstood the provisions of Section 27(2) of the Customs Act with regard to limitation. It was contended that limitation has to be computed from the date of fresh application which was adjudicated initially by the original authority rejecting their claim by the AC vide OIO No. Section Misc. 130/98-ACC dated 4.7.1998. It is their submission that question of unjust enrichment does not arise as they had produced enormous evidence to substantiate their claim but the evidence has not been examined at all and hence both the authorities have committed serious error in rejecting their refund claim which was allowed by the Dy. Commissioner by his order F. No. 130/98-99 Gr. 5B (ACC) dated 23.3.2000. They pointed out to the affidavit of Shri B.S. Nair dated 20.3.2001 and various documents filed by him in support of the plea that there is no unjust enrichment. There are 12 annexures which have not been referred to by the authorities. They contend that they had filed bank statements, ledger excerpts, certified internal accounts, certificate from the auditors and other documents certifying that the income of Rs. 72,56,562.30 during the year in question consists of various heads of income but does not include any specific charges for the use either imported software or the ATM. It was certified that customs duty involved in the import of the software for ATM of Rs. 1,24,82,067.30 was debited under the heading “Other Operating Expenses” and there has been general profit and loss account and included in the consolidated statement of the bank. Such valuable certificate, showing true financial position and proving contentions of the bank in terms of Chartered Accountant’s certificate is valid and binding. Revenue had not produced any contrary or rebuttal evidence nor dealt with this aspect of the matter. They contend that duty has not been passed on to third parties and the doctrine of unjust enrichment is not applicable in respect of imported items used within the four walls of the assessee. They contend that the total duty paid has been taken as expenditure under the heading “Other Operating Expenses”. The same finds its place in the internal account list. Therefore, they pleaded that since the books are clear, refund ought to have been granted and denial of same is contrary to law and justice.
9. We have heard Shri. M.S. Krishnan and M.V. Srinivasan, Learned Counsels for the appellants and Shri A. Jayachandran, Ld. DR for the Revenue.
10. Ld. Counsels rely on all the grounds made in the appeal memo and contended that the technical opinion of the Professor of IIT Chennai has not been challenged that imported item is a software and does not require to run the ATM machine or data processing machines and ‘Hawk module’ or; the ATM. The software is required only for accounting work in preparing various reports. The Counsels point out to the Order-in-Original No. 57/2000 (ACC) dated 23.3.2000 wherein the Dy. Commissioner has agreed with the technical aspect of the computer software imported. However his rejection on the ground that it is required for activating automatic data processing machine falling under heading 84.71 is totally not based on any evidence and hence it is a perverse finding.
11. They further pointed out that question of time bar with regard to refund of CV duty does not arise nor it is hit by unjust enrichment and documentary evidence has been scrutinized and both the orders are not speaking orders with regard to refund claim alone by the Dy. Commissioner on CV duty which was later rejected by another Dy. Commissioner which was not justified and legal. They rely on the Life Line Systems Pvt. Ltd. v. CCE.– wherein it is held that once the documents are not rebutted, all the claims are required to be accepted.
12. Ld. DR defended the order on the ground that the software is required for the purpose of operating machines and they work in conjunction with an automatic data processing machine. On being pointed out by the Bench as to why the technical literature and the opinion of the professor of IIT and other evidences were not rebutted by the Revenue, Ld. DR only points out to the findings and submissions that findings were given after due deliberation and there is no infirmity in the order. Likewise, he defended the order with regard to rejection of claim on CVD on the ground of time bar and unjust enrichment.
13. On a careful consideration of the submissions, and on perusal of the entire orders, we notice the following facts:
(a) that the appellant bank had imported “Sparrow/Sparrow POS” and “HAWK” software for operating business activities and for generating accounts and other balance sheets. There is no dispute that the software is exempt under the notification but it excludes those softwares which are required to be loaded on a data processing machine and for maintaining and running the data processing machine i.e. software should work in conjunction with the data processing machine. It means that the computer installed has to work with hard disk in conjunction with the imported software. If it does so, then the benefit of is required to be disallowed. In the present case, appellants have produced evidence in the form of opinion dated 20.11.1999 given by Shri C. Pandu Rangan, Head of the Department, Department of Computer Science and Engineering, Indian Institute of Technology, Chennai which is extracted already above. The opinion has been given after due examination of the package. He has clearly opined that ‘Sparrow/Sparrow POS which are residing in the server, appear to have the functionality independent of the hardware and handle the formatted output form Hawk.’ He has opined that ‘they may be considered as a generalised business application performing only data processing related operations’. He has observed that ‘Hawk’, which is residing on the ATM, handles several data processing related banking transactions. Moreover, ‘Hawk’ is capable of Proximity detection and Alarm which involves controlling, enabling/disabling devices beyond the scope of normal business data interacting with special electronic devices other than business data processing devices”. There is a letter issued by M/s. Diebold HMA Pvt. Ltd., Chennai dated 14.8.1999 addressed to the appellant bank, clarifying that Diebold ATMs supplied to the appellant with PACE application software, which provides their Diebold ATMs, if installed in the ATM, (conforms to) the Stand Alone functionality. M/s. NCR Corporation India Pvt. Ltd., by their letter dated 9.9.1999 has also informed the appellants that “Standalone Operation” of NCR persona ATMs can operate as a standalone unit–i.e. without being connected to a bank host or a financial transaction switch. They have further addressed that this mode of operation is called “Standalone Offline” and offers all the regular ATM transactions such as Cash Withdrawal, Deposits, Balance Enquiry, Account Transfer, PIN change etc. Appellants have also produced the Sparrow POS representative samples as well as the HAWK report/samples giving the details which are generated from the software. They have also filed detailed technical literature pertaining to the item which clearly discloses that it is an independent software and not required to be worked along with data processing machine. An affidavit of the Head Central Procurement (India) i.e. namely Shri B.S. Nair has been filed. The affidavit clearly explainesthe manner in which the software is used, when it is having any functions with the data processing machine. It is seen that revenue has not appreciated the evidence placed as per remand order of CEGAT in Order No. 2846/99 dt. 9.11.1999 wherein it had been clearly indicated that as this was the additional evidence, the same required to be examined. The original authority could have called for an expert for cross examination or could have posed queries, if they so desired to, seeking clarification, if any. They have also not obtained rebuttal evidence by getting the software examined through experts. In view of evidence produced by the appellants and the technical opinion rendered by the HOD department of Computer Science and Engineering of IIT Chennai, supported by supplier’s letter and technical literatures and also samples of “sparrow software” having been produced, the plea of the appellant that the imported item is only a software and not a software to work in conjunction with data processing machine or to run the computer machine is required to be accepted. Appellants have proved their case and established that they are entitled to the benefit of the notification and hence their Appeal C/602/2001 is allowed with consequential relief, if any, as per law.
(b) As regards Appeal C/241/2001, appellants have clearly demonstrated that refund arose as a result of their application which was adjudicated on remand by CEGAT by the Dy. Commissioner allowing their claim on CVD. The department have rejected it on two grounds i.e. on limitation and on unjust enrichment. In so far as the ground of limitation is concerned, we are not agreeable with the department’s stand that refund application is time barred. The refund application was filed immediately after the payment of duty within SIX months, which was initially adjudicated by rejecting their claim. The matter had come up before CEGAT and it was remanded for de novo consideration. On de novo consideration, the Dy. Commissioner has categorically upheld their claim. The same was not challenged by the Revenue by filing an appeal before the Commissioner (Appeals). Therefore, question of holding the claim to be time bar does not arise. The claim was within time and it was duly adjudicated.
(c) The only ground to be considered is whether the claim is hit by unjust enrichment. To prove that the duty has not been passed on to the customers, appellants have produced enormous evidence in as much as 12 annexures, besides affidavit and balance sheets have been filed. These evidences have not been scrutinized and the original authority has based his case solely on the Mafatlal Industries Ltd. case and Solar Pesticides case. Though the Judgment of the Apex Court which has nowhere laid down a law that all claims are required to be held as hit by unjust enrichment, even if duty has not been passed on to the customers/consumers. Both the authorities have not applied the law correctly and have not analysed the evidence produced by the appellants to show that there is no unjust enrichment and duty element has not been passed on. We are now constrained to set aside the impugned orders and remand the matter to the original authority to reconsider the evidence adduced by appellants to show that CVD has not been passed on to the customers/consumers. The evidence appears to be clinching and acceptable. On scrutiny, if the same is found to be acceptable, and refund is due, the same is required to be granted to the appellants. Thus, the Appeal C/241/2001 is remanded for de novo consideration to the original authority. The original authority shall hear the appellants and pass a detailed a speaking order.
14. Thus, both the appeals are disposed of in the above terms.
(Order pronounced in open court on 31.8.2001)
