The Hindu Business Line : No fairy to help this Cinderella!

Cinderella story and a US cookbook on CD-ROM are not eligible for exemption as information technology software. Thus reads the summary of a recent case on www.taxindiaonline.com, Padmini Polymers Ltd vs Commissioner of Customs, decided the Customs, Excise & Service Tax Appellate Tribunal, New Delhi.

The facts of the case are that Padmini imported certain goods and declared the same in the bill of entry as `multimedia application software on CD ROM'. The company claimed the benefit of a customs notification that gave exemption from payment of customs duty to `information technology (IT) software'.

Tax officials confiscated the goods, saying that the items were not covered under the scope of information technology software.

Padmini interpreted that `interactivity of software' meant `ability to communicate with the computer by means of terminal'. Applying that test, the imported goods were capable of communication with the computers by means of terminal, it said.

"Interactivity does not imply user intervention during the course of process of running the programme," it said. Software imported by the company was `capable of being operated using by a terminal', contended Padmini. Just "sufficient to constitute interactivity," it said, while challenging the confiscation of the goods.

What did the taxman say? He cited the explanation given in the notification, according to which `software must be capable of being or providing interconnectivity to the user by means of an automatic data machine'.

The goods imported by Padmini are software in the nature of programs `where user interactivity during the course of such process is not required except for programming the same,' argued the taxman. "Therefore, inter-activity is not involved," he said.

The Tribunal's Vice-President, S.S. Kang, and Technical Member, K.C. Mamgain, heard the case. They observed that as per the explanation provided in the notification, "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 user, by means of an automatic data processing machine."

The tribunal also discussed the rival contentions on interactivity: the taxman saying that no interactivity was involved, and Padmini contending that the software had the ability to communicate with the computer by means of terminal.

"Interactivity means that user can communicate with the computer while the program is running in order to locate the particular information," stated the tribunal. "In the present case, there is no evidence on record to show that the user can manipulate the data while the program is running in order to locate a particular information."

The goods in question were CD-ROMs such as Cinderella, which is a story, and a US cookbook, noted the tribunal.

"In the absence of any evidence that these are interactive, these are not entitled for the benefit of this notification. We find no merit in the appeal. The appeals are dismissed," ruled the tribunal. A case of a CD Cinderella that failed to get a benign fairy to help!

Chairs as workstation components

If fairy tales such as Cinderella don't the make the grade as IT software, how about chairs? That was the question in Oracle India Private Ltd vs The Commissioner of Customs, Bangalore, a case before the Bangalore tribunal not long ago.

Oracle, a 100 per cent EOU (export oriented unit), engaged in software development, "procured certain goods described as `Components of Computer Workstation' in CKD (completely knocked down) condition." The company obtained these goods `free of excise duty', taking the benefit of `CT-3 Certificate issued by the Superintendent of Customs in terms of notification No. 1/95-CE dated 04.01.1995.'

What is CT-3 certificate and who issues it? It is "required to be obtained from the Range Superintendent of Central Excise on the basis of which a 100 per cent EOU can procure duty free indigenous goods," explains http://douanecex.pon.nic.in, the site of Commissioner of Central Excise, Pondicherry.

The CT-3 that Oracle produced didn't help. For, the taxman looked beyond that, at the invoice issued by the supplier of goods, where the description read `wooden furniture'. Furniture was not entitled for exemption under the relevant notification, said the taxman. At subsequent levels of appeal, the demand was confirmed, much to Oracle's disappointment.

The Commissioner (Appeals) was even of the view that computer workstations do not fall under the list of items given in the notification and, therefore, they are not entitled for the exemption. He had also observed that the inclusion of computer furniture/computer workstation was only in a subsequent notification (No. 40/2000-CE dated 22.5.2000), and that there was no retrospective effect.

`Highly aggrieved' by the taxman's orders, Oracle approached the tribunal, where B.M. Sudesh argued for the company. He said that the Director of Software Technology Parks of India (STPI) had certified that the goods in question were `necessary for software development' and therefore entitled for the benefit of exemption.

"Moreover, CT-3 Certificate, which enables the appellant to receive the goods free of duty was also issued by the Department," pointed out Sudesh. For the Department, it was K.S. Bhatt who spoke. At the tribunal, Judicial member S. L. Peeran, and Technical member T. K. Jayaraman, heard the case.

They cited two earlier decisions for drawing judicial insights. The first was of Aditi Technologies, where the tribunal had held in 2003 that `specially designed chairs and furniture duly procured under proper CT-3 Certificate are regarded as office equipment and are eligible for exemption under notification No. 1/95-Cus." And the second precedent was of DSL Software, a 2005 case, where the tribunal had ruled that modular furniture imported by a unit in Software Technology Park (STP) was entitled for exemption.

"We find that the ratio of the above cited judgments apply to the facts and circumstances of the present case," said the tribunal, before ruling in favour of Oracle.

One wonders if `wooden furniture' in question continued to be labelled `components of computer workstation' in the financial statements too.

http://ITcases.blogspot.com

More Stories on : Courts/Legal Issues | Case Sensitive | Software

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
`Voicing' differences

No fairy to help this Cinderella!

Sprint for the print

Tapping the e-word

`Information Bar' display

Room for opportunity

Unfolding story

`Accent' on trends

Quiz