CBEC should make clarifications available to public

Taxindiaonline.com, a private website, has reported that the Central Board of Excise and Customs (CBEC) has issued an important Circular number 354/189/2009-TRU dated November 4, 2009. The Board has issued the circular as the field formations have failed to appreciate the scope of the notification number 80/99 dated July 7, 2009, dealing with import of packaged software.

The information technology (IT) industry had pointed out that it was facing difficulties in the assessment of software which involves transfer of the right to use after the levy of service tax on IT software service. Therefore, in his Budget speech, the finance minister had proposed to exempt the value attributable to the transfer of the right to use packaged software from excise duty and countervailing duty (CVD). Accordingly, the said notification number 80/99 gave effect to the proposal.

The Mumbai Customs took a view that the benefit of the notification is available only if all the activities — right to reproduce, right to distribute, right to sell and right to use the software component for creation of and inclusion in other IT software products — are carried out. Thus, Mumbai Customs took a conjunctive meaning of the term ‘and’ used in the inclusive clause in the notification and decided to deny the benefit of the notification unless the importer fulfilled all the conditions. Several consignments of shrink wrapped software were held up.

The Board has clarified that the view taken by Mumbai Customs is legally untenable because the phrase used in the notification number 80/2009-Cus is inclusive in nature and it is a well-known principle that in an inclusive expression, the word ‘and’ is to be understood as ‘or’ and that even if one of the activities (such as right to reproduce, right to distribute, right to sell, etc.) mentioned in the said inclusive portion is carried out, it would satisfy the condition of commercial exploitation, thus making the import eligible under the said notification number 80/2009.

In Chennai, where fully packed product (FPP) was imported by a company which produced split value (one value for the media and the other for the right to use software) in a single invoice shown separately, the Customs refused to accept such split value for the purpose of claiming exemption under the said notification number 80/2009 and insisted on charging CVD on the entire value.

The TRU Circular dated November 4, 2009, makes it clear that the notification number 80/2009 itself envisages splitting of the value of the imported goods into that pertaining to software on media and the one pertaining to right to use. In such cases, there is no rationale for the department to deny splitting of value unless there are reasons to believe that such a splitting has been done in order to evade payment of duty, says CBEC.

The clarification of the Board will release many consignments held up at the ports/airports. In particular, the hurdles placed in the way of import of the newly released Windows 7 will now be cleared due to the clarifications, says Mr.Vijaykumar of taxindiaonline.com.

It is strange, as Mr.Vijaykumar points out, that such an important instruction/clarification is not made available to the public by way of CBEC Circular but contained in private letter to commissioners and chief commissioners. As a matter of routine, CBEC should make such clarifications available to public.

E-mail: tncr@sify.com