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Wednesday, January 17, 2007
Saturday, January 13, 2007
Computer Software
COMPUTER SOFTWARE
A Software or program enables a machine to perform specific tasks, as opposed to the physical components of the system or hardware. Software is an ordered sequence of instructions for changing the state of the hardware in a particular sequence. Software is required to run and operate automatic data processing machines i.e. computers, automated industrial machines, medical equipments, telecommunication equipments and many more.
Typically, software are developed independently and then loaded into machines for operation. Generally two types of software are used in machine (i) embedded software and (ii) other than embedded software. The embedded software is fused in the machine itself and does not have any separate existence. Therefore, the embedded software is part and parcel of the machine and value of the machine is inclusive of software embedded therein. There is no separate classification for the embedded software and for the purpose of duty, it is assessed as part and parcel of the machine.
A Software or program enables a machine to perform specific tasks, as opposed to the physical components of the system or hardware. Software is an ordered sequence of instructions for changing the state of the hardware in a particular sequence. Software is required to run and operate automatic data processing machines i.e. computers, automated industrial machines, medical equipments, telecommunication equipments and many more.
Typically, software are developed independently and then loaded into machines for operation. Generally two types of software are used in machine (i) embedded software and (ii) other than embedded software. The embedded software is fused in the machine itself and does not have any separate existence. Therefore, the embedded software is part and parcel of the machine and value of the machine is inclusive of software embedded therein. There is no separate classification for the embedded software and for the purpose of duty, it is assessed as part and parcel of the machine.
Classification
Classification
In case of software other than embedded, it is required to be loaded on the machine. Once the software is loaded, the program or a set of instruction allow the machine to perform or carry out specific tasks. Generally, software are stored in a storage media or recorded in a floppy, diskette or CD-Rom. Tariff heading 8524 of the Customs Tariff Act, 1975 deals with records, tapes and other recorded media. Relevant classification is reproduced hereunder:
- Discs for laser reading systems:
8524 31 --For reproducing phenomena other than sound or image :
--- Software:
8524 31 11 ---- Information Technology software
8524 31 19 ---- Other
8524 40 - Magnetic tapes for reproducing phenomena other than sound or image:
--- Software :
8524 40 11 ---- Information Technology software
8524 40 19 ---- Other
- Other :
8524 91 -- For reproducing phenomena other than sound or image :
--- Software:
8524 91 11 ---- Information Technology software on floppy disc or cartridge tape
8524 91 12 ---- Information Technology software on disc or on CD ROM
8524 91 13 ---- Information Technology software on other media
8524 91 19 ---- Other
As can be seen from the above, classification of software will depend on the media on which it has been recorded. However, as on today, statutory rate of customs duty for all tariff items, as listed above is NIL. Therefore, whether, particular software is ‘information technology software’ or not is immaterial for the purpose of levy of customs duty and only of academic relevance.
As stated above, automated machines need software. Software can be supplied along with the machine or separately. As per Chapter Note 6 of the Chapter 85 of the Customs Tariff Act, records, tapes and other media of heading 8523 or 8524 remain classified in those headings, when they are presented with the apparatus for which they are intended. It does not apply to such media when they are presented with articles other than the apparatus for which they are intended. Central Board of Excise and Customs, vide Circular 51/2002 dated 12 August 2002 has clarified that the reference to “those headings” refers to headings “85.23 or 85.24” and not to the headings of the equipment/apparatus. Therefore, software supplied along with equipment/apparatus for which it is intended still remains classified under the heading 85.24. If medical equipment is supplied along with operation software (not embedded), medical equipment will be classified in the Tariff heading 9018 whereas operation software will be classified under 8524.
Duty structure
Duty Structure
Basic customs duty for all software is Nil. However, additional duty of customs, equivalent to excise duty is leviable @ 8%. Further, SAD @ 4% and Education Cess @ 2% is also leviable. Exemption Notification No. 6/2006 dated 1 March 2006 exempts customized software i.e. software developed for a specific customer or user, from excise duty. Therefore import of customized software is fully exempted whereas import of packaged or canned software is dutiable @ Nil Basic+8% CVD+4% SAD+2% Cess.
Basic customs duty for all software is Nil. However, additional duty of customs, equivalent to excise duty is leviable @ 8%. Further, SAD @ 4% and Education Cess @ 2% is also leviable. Exemption Notification No. 6/2006 dated 1 March 2006 exempts customized software i.e. software developed for a specific customer or user, from excise duty. Therefore import of customized software is fully exempted whereas import of packaged or canned software is dutiable @ Nil Basic+8% CVD+4% SAD+2% Cess.
Import through e-mail, internet
Software imported by e-mail/downloaded
As per Section 12 of the Customs Act, 1962 duties of customs are levied on goods imported into India. As per Section 2(22) of the Customs Act ‘goods’ includes vessels, aircraft, vehicles, stores, baggage, currency, negotiable instruments and any other kind of movable property. To be a movable property, software should be recorded in a media. As per Section 2(23) of the Customs Act, ‘import’, with its grammatical variations and cognate expressions, means bringing into India from a place outside India. Therefore, custom duty is levied on the software recorded in a media is brought from abroad. However, if software is transmitted through E-mail or downloaded from the internet, whether such acquisition of software can be called as import of software is required to be analysed. The CESTAT in the case of Digital Equipment (India) Ltd vs Commissioner of Customs [2001 (135) ELT 062 (T)], while analyzing identical situation observed as below:
“3 (f) we find that there is no force in the findings of the learned Adjudicator to hold the “information transmitted via E-mail about the other PAK’s” to be akin to import of recorded media under 85.23. In para 24 of the Supreme Court decision in the case of Associated Cement Companies (supra), it has been laid down, after reading the definition of goods in Customs Act, 1962 under Section 2 (22) as follows -
Para 24 - “..... Whether movable article comes as a part of baggage, or is imported into the country by any other manner, for the purposes of Customs Act, the provision of Section 12 would be attracted. Any media whether in the form of books or computer disks or cassettes which contain information technology or ideas would necessarily be regarded as goods under the aforesaid provisions of the Customs Act......”
following the same, we find, since in an E-mail transfer, no media as movable article, is crossing the international boundaries, no movable property movement is involved, the transfer of information and/or ideas, knowledge on E-mail transfers would, therefore, not be covered under the terms “goods” of the Customs Act. Therefore, once such transfers are not ‘goods’, there classification cannot be effected, merely because they have value. Therefore, we set aside the findings as regards the classification of the E-mail transfers as arrived at by the Adjudicator. We find that the learned Advocate has relied on The Geneva Ministrial Declaration on global electronic commerce document WT/MIN (98)/DEC/2, dated 25 May 1998 (98-2148) which is declaration of intent by Members of WTO that they would continue their current practice of not imposing of Customs Duties on electronic transactions. Since it is only a declaration of intent and indicator of current practice, and nothing contrary is shown by learned SDR for Revenue, we find in it, an echo of our view, that E-mail transfers are not dutiable under Customs Act, 1962.”
In view of the above judgment, it is a settled matter that there is no duty on e-mail transfers of software or downloading of software from the internet.
As per Section 12 of the Customs Act, 1962 duties of customs are levied on goods imported into India. As per Section 2(22) of the Customs Act ‘goods’ includes vessels, aircraft, vehicles, stores, baggage, currency, negotiable instruments and any other kind of movable property. To be a movable property, software should be recorded in a media. As per Section 2(23) of the Customs Act, ‘import’, with its grammatical variations and cognate expressions, means bringing into India from a place outside India. Therefore, custom duty is levied on the software recorded in a media is brought from abroad. However, if software is transmitted through E-mail or downloaded from the internet, whether such acquisition of software can be called as import of software is required to be analysed. The CESTAT in the case of Digital Equipment (India) Ltd vs Commissioner of Customs [2001 (135) ELT 062 (T)], while analyzing identical situation observed as below:
“3 (f) we find that there is no force in the findings of the learned Adjudicator to hold the “information transmitted via E-mail about the other PAK’s” to be akin to import of recorded media under 85.23. In para 24 of the Supreme Court decision in the case of Associated Cement Companies (supra), it has been laid down, after reading the definition of goods in Customs Act, 1962 under Section 2 (22) as follows -
Para 24 - “..... Whether movable article comes as a part of baggage, or is imported into the country by any other manner, for the purposes of Customs Act, the provision of Section 12 would be attracted. Any media whether in the form of books or computer disks or cassettes which contain information technology or ideas would necessarily be regarded as goods under the aforesaid provisions of the Customs Act......”
following the same, we find, since in an E-mail transfer, no media as movable article, is crossing the international boundaries, no movable property movement is involved, the transfer of information and/or ideas, knowledge on E-mail transfers would, therefore, not be covered under the terms “goods” of the Customs Act. Therefore, once such transfers are not ‘goods’, there classification cannot be effected, merely because they have value. Therefore, we set aside the findings as regards the classification of the E-mail transfers as arrived at by the Adjudicator. We find that the learned Advocate has relied on The Geneva Ministrial Declaration on global electronic commerce document WT/MIN (98)/DEC/2, dated 25 May 1998 (98-2148) which is declaration of intent by Members of WTO that they would continue their current practice of not imposing of Customs Duties on electronic transactions. Since it is only a declaration of intent and indicator of current practice, and nothing contrary is shown by learned SDR for Revenue, we find in it, an echo of our view, that E-mail transfers are not dutiable under Customs Act, 1962.”
In view of the above judgment, it is a settled matter that there is no duty on e-mail transfers of software or downloading of software from the internet.
Import through e-mail, internet
Software imported by e-mail/downloaded
As per Section 12 of the Customs Act, 1962 duties of customs are levied on goods imported into India. As per Section 2(22) of the Customs Act ‘goods’ includes vessels, aircraft, vehicles, stores, baggage, currency, negotiable instruments and any other kind of movable property. To be a movable property, software should be recorded in a media. As per Section 2(23) of the Customs Act, ‘import’, with its grammatical variations and cognate expressions, means bringing into India from a place outside India. Therefore, custom duty is levied on the software recorded in a media is brought from abroad. However, if software is transmitted through E-mail or downloaded from the internet, whether such acquisition of software can be called as import of software is required to be analysed. The CESTAT in the case of Digital Equipment (India) Ltd vs Commissioner of Customs [2001 (135) ELT 062 (T)], while analyzing identical situation observed as below:
“3 (f) we find that there is no force in the findings of the learned Adjudicator to hold the “information transmitted via E-mail about the other PAK’s” to be akin to import of recorded media under 85.23. In para 24 of the Supreme Court decision in the case of Associated Cement Companies (supra), it has been laid down, after reading the definition of goods in Customs Act, 1962 under Section 2 (22) as follows -
“..... Whether movable article comes as a part of baggage, or is imported into the country by any other manner, for the purposes of Customs Act, the provision of Section 12 would be attracted. Any media whether in the form of books or computer disks or cassettes which contain information technology or ideas would necessarily be regarded as goods under the aforesaid provisions of the Customs Act......”
following the same, we find, since in an E-mail transfer, no media as movable article, is crossing the international boundaries, no movable property movement is involved, the transfer of information and/or ideas, knowledge on E-mail transfers would, therefore, not be covered under the terms “goods” of the Customs Act. Therefore, once such transfers are not ‘goods’, there classification cannot be effected, merely because they have value. Therefore, we set aside the findings as regards the classification of the E-mail transfers as arrived at by the Adjudicator. We find that the learned Advocate has relied on The Geneva Ministrial Declaration on global electronic commerce document WT/MIN (98)/DEC/2, dated 25 May 1998 (98-2148) which is declaration of intent by Members of WTO that they would continue their current practice of not imposing of Customs Duties on electronic transactions. Since it is only a declaration of intent and indicator of current practice, and nothing contrary is shown by learned SDR for Revenue, we find in it, an echo of our view, that E-mail transfers are not dutiable under Customs Act, 1962.”
In view of the above judgment, it is a settled matter that there is no duty on e-mail transfers of software or downloading of software from the internet.
As per Section 12 of the Customs Act, 1962 duties of customs are levied on goods imported into India. As per Section 2(22) of the Customs Act ‘goods’ includes vessels, aircraft, vehicles, stores, baggage, currency, negotiable instruments and any other kind of movable property. To be a movable property, software should be recorded in a media. As per Section 2(23) of the Customs Act, ‘import’, with its grammatical variations and cognate expressions, means bringing into India from a place outside India. Therefore, custom duty is levied on the software recorded in a media is brought from abroad. However, if software is transmitted through E-mail or downloaded from the internet, whether such acquisition of software can be called as import of software is required to be analysed. The CESTAT in the case of Digital Equipment (India) Ltd vs Commissioner of Customs [2001 (135) ELT 062 (T)], while analyzing identical situation observed as below:
“3 (f) we find that there is no force in the findings of the learned Adjudicator to hold the “information transmitted via E-mail about the other PAK’s” to be akin to import of recorded media under 85.23. In para 24 of the Supreme Court decision in the case of Associated Cement Companies (supra), it has been laid down, after reading the definition of goods in Customs Act, 1962 under Section 2 (22) as follows -
“..... Whether movable article comes as a part of baggage, or is imported into the country by any other manner, for the purposes of Customs Act, the provision of Section 12 would be attracted. Any media whether in the form of books or computer disks or cassettes which contain information technology or ideas would necessarily be regarded as goods under the aforesaid provisions of the Customs Act......”
following the same, we find, since in an E-mail transfer, no media as movable article, is crossing the international boundaries, no movable property movement is involved, the transfer of information and/or ideas, knowledge on E-mail transfers would, therefore, not be covered under the terms “goods” of the Customs Act. Therefore, once such transfers are not ‘goods’, there classification cannot be effected, merely because they have value. Therefore, we set aside the findings as regards the classification of the E-mail transfers as arrived at by the Adjudicator. We find that the learned Advocate has relied on The Geneva Ministrial Declaration on global electronic commerce document WT/MIN (98)/DEC/2, dated 25 May 1998 (98-2148) which is declaration of intent by Members of WTO that they would continue their current practice of not imposing of Customs Duties on electronic transactions. Since it is only a declaration of intent and indicator of current practice, and nothing contrary is shown by learned SDR for Revenue, we find in it, an echo of our view, that E-mail transfers are not dutiable under Customs Act, 1962.”
In view of the above judgment, it is a settled matter that there is no duty on e-mail transfers of software or downloading of software from the internet.
STP/EOU/SEZ UNITS
Import of software by STPI/EOU through internet
The Board vide Circular No. 58/2000 dated 10 July 2000 has prescribed a procedure of import of software through telecommunication/ data communication link or internet as per which a bill of entry is required to be filed within 48 hours of such import with a view to monitor export obligation and foreign exchange remittance. However, these instructions are applicable for EPZ/EHTP/STP/EOU/SEZ scheme.
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