IN THE CUSTOMS, EXCISE AND SERVICE TAX by Hfr990Q

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									                         AIT-2011-262-CESTAT
                    IN THE CUSTOMS, EXCISE AND SERVICE TAX
             APPELLATE TRIBUNAL SOUTH ZONAL BENCH AT BANGALORE

                                 Appeal No: C/1884/2010

(Arising out of Order-in-Appeal No: 115/2010 dated 20.5.2010 passed by the Commissioner
                         of Central Customs (Appeals), Bangalore.)

                          M/s. SAP India Pvt. Ltd. - Appellant

                                             Vs.

                 The Commissioner of Customs Bangalore. – Respondent

Shri G. Shivadass, Advocate for appellant.
Shri Harish Kumar, SDR for the revenue.

Coram: Shri M. V. RAVINDRAN, Member (Judicial) and Shri P. Karthikeyan, Member
(Technical)

Date of Hearing: 18.04.2011
Date of decision: 25.04.2011

AIT Head Note:The software in CD form during March to September 2006 was
imported through courier and courier bills of entry were filed. The Customs duty was
paid by the courier on the declared value. Subsequent to September 2006, the
appellants imported CDs containing SAP ERP software and paid customs duty on the
value of licence fee remitted to SAO-AG. During the course of investigations,
authorities of DRI, Bangalore held the view that no duty has been paid for the period
March to September 2006. The appellants thereafter paid duty to the extent of the
55% value sent to the principals. The DRI opined that the duty is payable for the
entire value of the software. The appellants thereafter, paid a sum of
Rs.5,21,98,021/- vide TR 6 challan dated 15.11.2008 relating to CDs imported by
their customers. The appellants have alleged that the DRI authorities are
independently investigating their customers also and demanding duty with interest from
their customers, for the CDs which the appellants have already paid duty. The
appellants’ contention is that the duty could not be recovered twice, once from them
and also from their customers. Thus, the appellants filed a refund claim for refund of
Rs.5,21,98,021/- paid by them.
the revenue authorities have collected the amount of differential duty along with
interest from the importers, which itself secures the revenue’s interest in respect of
alleged differential duty liable to be paid on alleged undervaluation of the CDs by the
importers. The amount paid by the appellant being amount deposited by him towards


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the very same duty which has been again collected by the revenue authorities from the
importers, cannot be retained by the revenue, as there is no show cause notice issued
to the appellant holding him as an importer and that he is liable to pay said duty. In
the absence of any such show cause notice to the appellant holding him as an importer,
holding back of the amount collected from him either under force or paid voluntarily,
cannot be considered as an amount which need to be appropriated against the proposed
penalties. Penalty is not an amount of duty which needs to be secured, as the same is
to be imposed upon the facts of the case.(Para 4.3)
the impugned order which holds that the refund claim is premature is totally incorrect
and is liable to be set aside and we do so. The impugned order is set aside and the
appeal is allowed with consequential relief, if any(Para 4.4)

F I N A L    O R D E R

Per Shri M. V. Ravindran

This appeal is directed against Order-in-Appeal No.115/2010 dated 20.5.2010. The relevant
fact that arise for consideration are the appellant is a subsidiary company of SAP AG,
Germany, the proprietary owner of SAP ERP software and other related software. SAP AG
enters into a Software Distribution Agreement with various SAP entities around the world
for sub-licencing and marketing its ERP software in an agreed territory. The appellants have
thus been granted a licence by SAP AG, Germany to market and sub-licence the SAP ERP
software in India. As per the contractual agreement, the appellants were required to pay a
licence fee to SAP AG at the rate of 55% of the sub-licence fee received by the applicant
from customs in India. The balance 45% was appellants fees towards meeting the expenses
/ profit. The software in CD form during March to September 2006 was imported through
courier and courier bills of entry were filed. The Customs duty was paid by the courier on
the declared value. Subsequent to September 2006, the appellants imported CDs containing
SAP ERP software and paid customs duty on the value of licence fee remitted to SAO-AG.
During the course of investigations, authorities of DRI, Bangalore held the view that no
duty has been paid for the period March to September 2006. The appellants thereafter
paid duty to the extent of the 55% value sent to the principals. The DRI opined that the
duty is payable for the entire value of the software. The appellants thereafter, paid a sum
of Rs.5,21,98,021/- vide TR 6 challan dated 15.11.2008 relating to CDs imported by their
customers. The appellants have alleged that the DRI authorities are independently
investigating their customers also and demanding duty with interest from their customers,
for the CDs which the appellants have already paid duty. The appellants” contention is that
the duty could not be recovered twice, once from them and also from their customers. Thus,
the appellants filed a refund claim for refund of Rs.5,21,98,021/- paid by them. The DRI
has on a query stated that the impugned amount was deposited voluntarily by the appellants
on behalf of their customers, that the show cause notice is yet to be issued and the case to
be adjudicated. In view of the present situation, the refund claim was rejected stating that
the same is premature. Aggrieved by the said Order-in-Original, appellants preferred an
appeal before the learned Commissioner (A). The learned Commissioner (A) after
considering the submissions made by the appellant’s counsel before him and the grounds of
appeal upheld the Order-in-Original which was challenged before him. Hence, this appeal.

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2. The learned counsel appearing on behalf of the appellant would submit that the refund
claim filed by the appellant which has been dismissed by both the lower authorities as
premature is incorrect. It is his submission that the appellant had in fact paid the amount
which is not payable by them. It is his submission that it is undisputed that the appellants
are not the importers but the importers are appellant’s purchasers of ERP software. It is
his submission that the amount of Rs.5.22 crores was paid by the appellant in order to
safeguard their business interest by requesting the investigating authority not to
investigate the matter with their purchasers. It is his submission that the investigating
authorities has done exactly the same i.e., they collected an amount of Rs.5.22 crores from
them and also investigated the customers of the appellant and have also taken pre-deposit
of the amounts of duty payable by the appellant’s customers as importers. He would draw
our attention to two samples show cause notices dated 26.8.2009 issued to M/s. Reliance
Communications Ltd. and show cause notice dated 31.8.2009 issued to M/s. Raymond Ltd. He
would draw our attention to the various paragraphs in the show cause notices wherein it is
indicated that the revenue authorities have collected the amounts of data from M/s.
Reliance Communications Ltd. as well as M/s. Raymond Ltd. He would also draw our attention
to the paragraph in the very same show cause notice wherein it has been accepted by
revenue authorities that the appellant has deposited Rs.5.22 crores. It is his submission
that the show cause notices issued to the various customers for the demand of duty has
been issued to them as importers and the appellant is only held to be liable for penalty
under provisions of Customs Act. It is his submission that an amount of penalty cannot be
pre-determined and hence, the amount of Rs.5.22 crores paid by the appellant under
protest needs to be refunded back to them. He would rely upon the following decisions for
this proposition.

       (i) Vodafone Essar South Ltd. Vs. UOI     2009 (237) ELT 35 (Bom.)

       (ii) Ganesh Enterprises Vs. CCE, Ahmedabad - 2009 (240) ELT 106 (Tri.-Ahmd.)
       (affirmed by Hon ble High Court of Gujarat as reported at 2010 (255) ELT A118

       (iii) Gee Kay International Vs.UOI - 2008 (230) ELT 590 (P & H)

       (iv) Raghu Exports Vs. UOI - 2008 (229) ELT 655 (P & H)

It is his submission that an amount which is not due from the appellant nor is liable to be
recovered from the appellant as duty, as the appellant is not an importer, the said amount
should not be retained by the authorities and should be refunded back to them. It is also
his submission that the appellants are also entitled to interest for the delayed refund, since
the refund claim was filed on 12.5.2009 and the said refund is not sanctioned till date. He
would rely upon the following judgments.

       (i) Commissioner Vs. ITC Ltd. - 2005 (179) ELT 15 (SC)

       (ii) Jayant Glass Inds. Pvt. Ltd. Vs. Commissioner - 2003 (155) ELT 188 (Tri.-LB)



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       (iii) CCE, Bangalore Vs. Motorola India Pvt. Ltd. - 2006 (206) ELT 370 (Tri.-Bang.)
       affirmed by Hon ble High Court of Karnataka as reported at 2008 (221) ELT 489
       (Kar.)

3.      The learned departmental representative on the other hand would take us through
the facts of the case as has been reproduced by us. It is his submission that the appellant
herein had initially deposited an amount of Rs.4.4 crores declaring to the investigating
authorities that they are liable to pay the duty on the 55% of the amount recovered from
their clients. It is his submission that the appellant was aware that the imported value was
being suppressed in imports made in the name of their clients which indicates duplicate
nature of mis-declaration. It is his submission that anticipating a legal litigation, imposition
of penalty and possibility of launch of prosecution against them, appellant proposed to
deposit additional amount of Rs.5.21 crores on behalf of their individual customers (177 in
number), without going into the merits of the case, indicating that they are given relief
under Sub Section 2B of Section 28 of the Customs Act, 1962. It is his submission that
such relief cannot be given to the appellant as there was willful mis-statement and
suppression of facts. It is also his submission that their appeared no bonafide ground which
would have been granted to the appellant or their clients from declaring true nature of
transaction before Customs authorities and claim any exemption or relief on merits. It is his
submission that in view of the above, the appellant did not appear to be eligible for any
relief. He would draw our attention to the various letters written by the appellant while
making a deposit and submitted that all these payments were made voluntarily and there
was no force. He would draw our attention to the paragraphs of the said letters and submit
that the amount which has been paid by the appellant is levies, which are liable to be paid
when the goods were imported and not paid. He would submit that the adjudication
proceedings has been set in motion by the lower authorities by issuing show cause notice to
the various customers of the appellant and also proposing to impose penalties on the current
appellant in the very same show cause notice. It is also his submission that the refund claim
filed by the appellant is premature since the issue of correct determination of assessable
value and the actual duty liability is yet to be decided by the Adjudicating Authority. The
assessee has challenged the inclusion of sub license fee in the assessable value for the
purpose determination of Customs duty, which has to be ascertained and determined by the
Adjudicating Authority. It is also his submission that the appellant’s claim that the
department has collected the customs duty on the same transaction thrice is incorrect. It
is his submission that since the transaction value declared at the time of import was not
correct, on investigation the duty has been quantified and the customs duty short paid was
ascertained and process was initiated for its recovery by the investigating authorities. It is
his submission that the appellant’s tried to use offer of pre-deposit of the amounts of
Rs.5.22 crores to get the investigations terminated premature for their own benefit and
the amount paid by them and deposited by them towards differential duty is amount
calculated by them based on their own records, which needs to be adjudicated before
arriving at a conclusion.

3.1    As regards the case laws relied upon by the learned counsel, he would submit that
the facts of the case in Vodafone Essar South Ltd. (supra); Gee Kay International (supra);
Raghu Exports (supra) and Ganesh Enterprises (supra), it is his submission that the facts

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are totally different and in all those cases, the amount so collected was directed to be
refunded after securing the government’s interest. It is also his submission that the minor
variation in the facts of the case would be a major issue which needs to be dealt while
following the precedent law. As regards the judgment of the Hon’ble High Court of Punjab
and Haryana in the case of Gee Kay International (supra), it is his submission that the same
was stayed by the Hon’ble Supreme Court on a SLP filed by the revenue as reported at 2009
(238) ELT A85.

4.     We have considered the submissions made at length by both sides and perused the
records. It is undisputed that an amount of Rs.5,21,98,021/- was paid by the appellant
herein vide TR6 challans dated 15.11.2008 in State Bank of India. The said challan is
annexed at page 29 of the appeal memorandum and in the Column of full particulars of the
remittances, appellant has mentioned as under : payment under protest of countervailing
duty of customs relating to the dispatches of cds/dvds made by SAP AG to the customers
of SAP India Pvt. Ltd. on behalf of the alleged importers (DRI F. No.S/IV/31/2007) . The
said amount has been credited to the Customs account is evident from the letter dated
22.7.2009 issued by the State Bank of India to the appellant.

4.1    It is undisputed that the CDs which were imported and which were allegedly to have
been undervalued for the discharge of Customs duty were imported by the customers of
the appellants. The declaration in the Bills of Entry and invoices were filed by the
customers of the appellant, which indicate that the appellant was not importer of said CD.

4.2     On this background, we have to now consider the appeal filed by the appellant. Since
it is undisputed that the appellant is not importer but was only collecting the fees from
importers for the CDs from SAP AG and retaining some amount with him and repatriated
the balance amount to the appellant company in Germany. It cannot be held that the
appellant is the importer as it is on record that the revenue authorities have issued show
cause notices to different customers of the appellant. The sample show cause notice dated
26.8.2009 issued to M/s. Reliance Communications Ltd. in paragraph 13.2 clearly indicates as
under:

       “The total deposit of Rs.1,16,61,220/- (Rs.88,64,062/- towards duty of plus
       Rs.27,97,158/- towards interest) made by RCL vide RT-6 challan dated 24.12.2008
       needs to be appropriated against the differential duty liability of Rs.88,63,845/-
       plus interest of Rs.27,97,158/- which are demandable / chargeable as mentioned
       supra.”

In the very same show cause notice, it is also indicated in paragraph 14.7 as under:

       “The total amount of Rs.9,61,98,021/- deposited by SAP India (vide RT-6 Challan
       dated 31.01.2008 - Rs.1,20,00,000/- TR-6 Challan dated 25.2.2008 -
       Rs.3,20,00,000/- TR-6 challan dated 15.11.2008 - Rs.5,21,98,021/- ) needs to be
       appropriated towards the penalty proposed above against SAP India.”




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In the show cause notice dated 31.8.2009 issued to M/s. Raymond Ltd. in paragraph 13.2
indicates as under :

       “The total deposit of Rs.70,19,299/- made by Raymond Ltd. vide TR-6 challan dated
       10.12.2008 needs to be appropriated against the differential duty liability of
       Rs.54,16,628/- plus interest at appropriate rates, which are demandable /
       chargeable as mentioned supra.”

In the very same show cause notice, it is also indicated in paragraph 14.6 as under:

       “The total amount of Rs.9,61,98,021/- deposited by SAP India (vide TR-6 challan
       dated 31.1.2008 - Rs.1,20,00,000/-, TR-6 challan dated 25.2.2008 -
       Rs.3,20,00,000/- TR-6 challan dated 15.11.2008 - Rs.5,21,98,021/-) needs to be
       appropriated towards the penalty proposed above against SAP India.”

It can be seen from the above reproduced paragraphs of the show cause notices issued to
the two customers of the appellant (which were only produced before us), revenue
authorities have considered M/s. Reliance Communications Ltd. and M/s. Raymond Ltd. as
importers and have secured the interest of the revenue by directing those two customers
to deposit the differential duty of amount on allegation of mis-declaration of value by them.
The said show cause notice also admits that the appellant has deposited an amount of
Rs.5,21,98,021/-. It can be seen from the above reproduced portion of the show cause
notices issued to the appellant, the same seeks to appropriate the said amount towards
penalty proposed under Section 112 (a) of the Customs Act, 1962 on the current appellant.
It would indicate that there is no crystallization of any amount i.e., due from the appellant
either in the form of duty or in penalty. In our considered view, the amounts paid by the
appellant cannot be held in abeyance for appropriation towards any penalty which has been
proposed but not yet imposed on the appellant. We find that the judgment of Hon ble High
Court of Punjab and Haryana in the case of Raghu Exports (supra) is directly on the point.
We may reproduce the said portion.

       “5.For the reasons mentioned above, the respondent No. 2 is directed to refund the
       amount of Rs. 1 crore and to return the cheques of Rs. 1.5 crores admittedly
       deposited by the petitioner along with copies of Panchnama drawn during search and
       seizure and also copies of the records and data available on the
       computers/floppies/CDs etc. seized by the department within a period of one month
       from today. The 4 kanals and 4 marlas industrial plot bearing khasra No. 84/21 (8-
       0), 85/25 (8-0), Varayana Industrial Complex, Varayana, District Jalandhar, in the
       name of the petitioner, which is free from any encumbrances, shall be kept as
       security to meet any further demand of revenue. The enquiry/investigation initiated
       against the petitioner by the Directorate of Revenue Intelligence (DRI) shall be
       finalized expeditiously but not beyond the period of one year from today. It is made
       clear that this order is being passed without prejudice to the rights and claims of
       either of the parties.”




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In an identical situation in the case of Ganesh Enterprises (supra), the coordinate bench of
the Tribunal has held as under:

       “M/s. Ganesh Enterprises is a manufacturer of Cellulose powder and were availing
       exemption under SSI Notification. The Central Excise officers visited the unit in
       August, 2007 and seized records of M/s. Ganesh Enterprises and M/s. Dhariyal
       Chemicals and Shri Yogesh C. Dhariyal, Proprietor of M/s. Dhariyal Chemicals paid
       Rs. 15 lakhs on the spot. The case against the appellants apparently is that M/s.
       Dhariyal Chemicals and M/s. Ganesh Enterprises is only one unit and the Rs. 15 lakhs
       deposited was towards the amount payable by M/s. Ganesh Enterprises. The
       appellants claim that the amount of Rs. 15/- lakhs deposited was actually filled in by
       the officers themselves in the blank cheques signed and kept in the drawer of the
       table so that when the proprietor is not available, the employees can withdraw
       money and use it for emergencies. Later on the appellants submitted a refund claim
       which has been rejected by both the lower authorities and hence the appeal.

       2.Heard both the sides. Ld. Advocate submitted that the cheques were forcibly
       taken away by the officers filled in and amount deposited by the officers. According
       to him even now adjudication proceedings are not over. The ld. Advocate relies on
       the following decisions in support of his contention that refund should have been
       paid by the Revenue.

       (i) CCE, Ahmedabad-II v. Rama Multitech Ltd. [2005 (66) RLT 645 (CESTAT-Mum.)]

       (ii) Florida Elec. Inds. Ltd. v. CCE, Delhi-I [2004 (168) E.L.T. 393 (Tri. Del.)]

       (iii) Jayant Glass Inds. (P) Ltd. v. CCE, Kolkata [2003 (155) E.L.T. 188 (Tri. LB)]

       (iv) Raghu Exports v. UOI [2008 (229) E.L.T. 655 (P & H)]

       (v) Titan Engg. Co. Pvt. Ltd. v. CCE, Bolpur [2005 (189) E.L.T. 416 (Cal.)]

       (vi) Nelco Limited v. UOI [2002 (144) E.L.T. 56 (Bom.)]

       3.On the other hand, ld. DR submits that the amount was deposited voluntarily by
       the appellants and therefore, it need not be refunded.

       4.We have considered the submissions by both the sides. Both the Original
       Adjudicating Authority as well as the appellate authority have not specifically
       denied that blank cheques were recovered, filled in and paid into the credit of
       Government. In fact, there is no Order-in-Original by the Asst. Commissioner but
       only a letter dt. 13-2-2008 intimating the appellants that the refund claim is pre-
       mature and therefore, claim papers are returned. Commissioner (Appeals) has taken
       the same stand that since the show cause notice has not been issued and time limit
       has also not expired, the amount is not refundable. We find that all the decisions
       cited by the appellants are applicable to the present case and on the other hand no

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       judicial precedents have been shown to us by the Revenue. Therefore, we allow the
       appeal with consequential relief to the appellants.”

The above said judgment of the coordinate bench of the Tribunal has been upheld by the
Hon’ble High Court of Gujarat as stated herein above.

4.3     It can be seen from the above reproduced portions of the judgments that the
amounts which is not due from the assessee needs to be refunded back, but, the interest of
revenue is to be kept in mind is the law. In the case in hand before us, we find that the
revenue authorities have collected the amount of differential duty along with interest from
the importers, which itself secures the revenue’s interest in respect of alleged differential
duty liable to be paid on alleged undervaluation of the CDs by the importers. The amount
paid by the appellant being amount deposited by him towards the very same duty which has
been again collected by the revenue authorities from the importers, cannot be retained by
the revenue, as there is no show cause notice issued to the appellant holding him as an
importer and that he is liable to pay said duty. In the absence of any such show cause notice
to the appellant holding him as an importer, holding back of the amount collected from him
either under force or paid voluntarily, cannot be considered as an amount which need to be
appropriated against the proposed penalties. Penalty is not an amount of duty which needs
to be secured, as the same is to be imposed upon the facts of the case.

4.4     In view of this, we are of the considered view that the impugned order which holds
that the refund claim is premature is totally incorrect and is liable to be set aside and we
do so. The impugned order is set aside and the appeal is allowed with consequential relief, if
any.

                        (Pronounced in open Court on 25.04.2011.)




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