Excise on software

SME CHATROOM/ Software incorporated in any media will be under central excise

I am a proprietary concern. I have developed an educational software which is useful to colleges and universities. This is a technical software which requires a small hardware also required to be attached to the computer to learn the educational applications in the software. The software is sold as "Learning Resource Kit" and I cannot sell hardware and software separately. However, out of my total selling price, 90% cost is towards software and 10% cost is towards hardware.

I have very recently crossed the turnover of Rs 50 lakh and soon may cross the turnover of Rs 1 crore. At what point of time, I am supposed to register with the excise department? Is there any exemption for charging excise duty on software? Is there any special exemption for educational software? How can I avoid going to the excise department because, if I add excise duty to my product, I am not competitive in the market.

What you are making and selling are goods. Even the persons making only software will be covered under central excise, if they incorporate the software in any media.

The Supreme Court in the case of Tata Consultancy Services vs State of Andhra Pradesh (Civil appeal no 2582 0f 1998 - 2004 (178) ELT 22 SC) has ruled that all the tests required to satisfy the definition of goods are possible in the case of software and in computer software the intellectual property has been incorporated on media for the purpose of transfer and software and media cannot be split up. Therefore sale of computer software falls within the scope of sale of goods.

In case of branded software (canned software) sold off the shelf, the software is transferred in a media and is sold as such. In the case of unbranded / customised software the supplier develops the programs and generally transfers the programme in media and thereafter it is taken to the customer's premises and loaded in their system. Thus, in this case also, the software is incorporated in a media for use.

Regarding valuation, CBEC Circular No. 644/35/2002-CX., dated 12-7-2002 says :

"As per Central Excise Law, valuation of goods is to be done in the form in which it is cleared. It, therefore, emerges that for the period prior to 1-7-2000 computer systems will be valued by including the value of the software already etched or burnt or loaded on the hard disc of the system. No distinction should be made between an 'operating software' or an 'application software' in this regard. If the computer is sold loaded with software, the value of the software will be included in the value of the computer.

Any floppy, disc or tape containing any software supplied along with the computer system will, however, be assessed separately.

The introduction of the "transaction value" concept with effect from 1-7-2000 does not effect this basic principle. In other words, for the period 1-7-2000 onwards also the same system of valuation of computer system is to be adopted so far as inclusion (or exclusion) of software is concerned."

So, you have to file a declaration upon reaching a turnover of Rs 40 lakh in the form given in Notification no. 36/2002-CE(NT) dated 26th June 2001. When you cross Rs. 1 crore turnover you may get registered and start paying duties. I do not find any central excise exemption to cover the goods mentioned by you.

In an earlier reply you have mentioned that the consignor or consignee covered by seven notified categories, who are liable to pay service tax on services provided by goods transport by road agencies, can also avail of the 75% abatement. Can you please give us a specific reference of the official instructions, in this regard?

Para 31.1 of CBEC Circular letter F.No. B1/6/2005-TRU, dated 27-7-2005 says :

"An abatement of 75% in taxable service of goods transport by road is available on the condition that the goods transport agency has not availed credit on inputs and capital goods used for providing taxable service and has also not availed benefit of notification No. 12/2003-Service Tax dated 20.6.2003 (vide Notification No. 32/2004-Service Tax, dated 3.12.2004). It has been requested that in cases where liability for tax payment is on the consignor or consignee, the procedure as to how it should be confirmed by such consignor or consignee that the goods transport agency has not availed credit or benefit of notification No. 12/2003-Service Tax may be prescribed. In such cases it is clarified that a declaration by the goods transport agency in the consignment note issued, to the effect that neither credit on inputs or capital goods used for provision of service has been taken nor the benefit of notification No. 12/2003-Service Tax has been taken by them may suffice for the purpose of availing of abatement by the person liable to pay service tax."

Trust this meets with your requirement.

Can we take Cenvat credit of Additional Duty of Customs (CVD) paid by debit to Duty Entitlement Passbook (DEPB)?

In respect of CVD paid through DEPB issued prior to August 31, 2004, the issue is settled by Larger Bench Tribunal judgment in the case of Essar Steel Limited [2004 (173) E.L.T. 239 (Tri. - LB)] that Cenvat credit cannot be taken.

In respect of CVD debited to DEPB issued after 31.8.2004, Para 4.3.5 of the Foreign Trade Policy says that "the additional customs duty/excise duty paid in cash or through debit under DEPB shall be adjusted as CENVAT Credit or Duty Drawback as per rules framed by the Department of Revenue."

Condition no. (vi) of the corresponding customs exemption notification no. 93/2004-Cus. Dated 17.09.2004 also says, "that the importer shall be entitled to avail the drawback or CENVAT credit of additional duty leviable under section 3 of the said Customs Tariff Act against the amount debited in the said Duty Entitlement Pass Book."

However, clear provisions are not available under the excise laws to take Cenvat credit of CVD that has been legally exempted on account of debit to DEPB. Similar provisions are also not available under the duty drawback rules.

However, the CBEC circular no. 41/2005-Cus. dated 28.10. 2005 says:

"Hitherto, the additional customs duty paid in cash only was adjusted as CENVAT credit or duty drawback while the same paid through debit under DEPB was not allowed as duty drawback. In the Foreign Trade Policy 2004-2009, which came into force w.e.f. 1.9.2004, it has been provided under paragraph 4.3.5 that the additional customs duty/excise duty paid in cash or through debit under DEPB shall be adjusted as CENVAT credit or Duty Drawback as per the rules framed by the Department of Revenue. Taking note of this change, it has been decided that the additional customs duty paid through debit under DEPB shall also be allowed as brand rate of duty drawback."

Although this circular refers to both Cenvat and drawback, the adjustment of CVD through DEPB is categorically allowed only as drawback. There is no categorical mention about Cenvat credit. I think there is no warrant to treat Cenvat and drawback differently in this particular context.

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