Solution Infotech (I) Pvt. Ltd. Vs Commissioner of Customs (CESTAT Delhi)
The appellant had imported hardware locks (HASP dongles) from M/s Aladdin Knowledge Systems Ltd., Israel, through a Bill of Entry dated 08.06.2009, declaring the goods as hardware locks with an FOB value of US$ 3 per piece. During departmental inquiry, the appellant informed the department that DCM software licences corresponding to the imported hardware locks were regularly downloaded through the internet and that customs duty had not been paid on the software cost. The appellant undertook to pay the applicable customs duty. Consequently, the Bill of Entry was reassessed by including the value of the downloaded DCM software licence, enhancing the value of each hardware lock to US$ 8. The appellant paid the enhanced customs duty of Rs. 7,67,474 along with interest of Rs. 48,457 on 17.07.2009 under protest.
Subsequently, the department found that similar imports made between April 2007 and June 2009 had also excluded the value of the downloaded software licences from the assessable value. A show cause notice dated 15.04.2011 proposed recovery of differential customs duty of Rs. 23,73,310 on the software licence value of Rs. 1,88,81,348, appropriation of the amount already deposited, interest under Section 28AB of the Customs Act, 1962, and penalty under Section 112(a). The demand was confirmed by the adjudicating authority, and the appellate authority upheld the enhancement of value while observing that intimation regarding software downloads had not been furnished to the proper assessing authority. The appellant challenged that order before the Tribunal.
The appellant did not appear at the final hearing despite being granted an opportunity for virtual hearing and for filing written submissions. The Tribunal proceeded to hear the departmental representative. According to the submissions already on record, the appellant contended that the DCM software licence fee was not payable as a condition of sale of the hardware lock, that the downloaded security software merely enabled access to software data, that Rule 10(1)(c) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 had been wrongly applied, and that the demand was barred by limitation because intimation regarding software downloads had been sent to the department. The appellant relied upon Commissioner vs Oracle India Pvt. Ltd. and Kruger Ventilations Industries (North India) Pvt. Ltd. vs Commissioner of Customs (General).
The department supported the impugned order and relied upon Commissioner of Customs, Chennai vs Hewlett Packard India Sales (P) Ltd.
The Tribunal noted that it was an admitted fact that the imported HASP hardware and the DCM software licence were purchased from the same supplier and that each software licence was specific to the corresponding hardware lock. It also noted the recorded statement of the appellant’s Director acknowledging that each imported dongle required downloading of the vendor code or DCM software licence from the supplier and that payment for such downloads was made separately through banks.
Examining Section 14 of the Customs Act, 1962, the Tribunal observed that transaction value includes amounts paid or payable for specified costs and services subject to the valuation rules. On the admitted facts, it held that the DCM software formed an integral and specific part of the imported hardware and that both the hardware and software together constituted the transaction value. Accordingly, the value of the downloaded software licence was includible in the assessable value.
The Tribunal relied upon the Supreme Court’s decision in Commissioner of Customs, Chennai vs Hewlett Packard India Sales (P) Ltd., wherein a laptop with an operating system was treated as a single imported unit because the software formed an integral part of the laptop. The Tribunal also referred to Atul Kaushik vs Commissioner of Customs (Export), New Delhi, wherein software downloaded from abroad was held to amount to import of goods.
On limitation, the Tribunal upheld the finding that intimation regarding software downloads had been sent to an authority not competent to receive such information and held that invocation of the extended period of limitation was justified. It further held that non-inclusion of the value of both imported goods resulted in evasion of duty. Finding no infirmity in the impugned order confirming differential customs duty and imposing penalty, the Tribunal upheld the order under challenge and dismissed the appeal.
FULL TEXT OF THE CESTAT DELHI ORDER
The present order disposes of an appeal filed to assail the order-in-appeal bearing no. CC(A) CUS/350/2013 dated 25.06.2025.
2. The facts, succinctly, as are relevant for the present disposal, are that M/s Solution Infotech India Private Limited1, the importer, filed a Home Consumption bill of entry no. 476276 dated 08.06.2009 through their authorized CHA M/s ECM Services Pvt. Ltd. for clearance of Hardware against Software Piracy2 declaring as Hardware Locks imported from M/s Aladdin Knowledge Systems Ltd., Israel. The FOB value of each lock was declared as US$ 3 per piece and the total assessable value for the whole consignment as Rs. 1,19,219.20. On being inquired, the importer/appellant vide letter dated 22.06.2009 conveyed that they had been regularly downloading DCM software licenses for the imported hardware locks (dongles) through internet. They were not paying the duty on the cost of the software. However, had undertaken to make the payment of customs duty accordingly. Based on the said submission, the aforesaid bill of entry was got reassessed @ US$ 8 per hardware lock after including the value of DCM software license downloaded from internet. The goods were cleared on payment of duty amounting to Rs. 7,67,474/- on the enhanced value along with interest of Rs. 48,457/- as was paid on 17.07.2009, however, under protest.
3. The department noticed that the appellant/importer had imported the impugned goods during the period April 2007 to June 2009. Since the value of said DCM software was never included in the assessable value, the undervaluation in the entire import has been alleged. Hence, show cause notice bearing no. 100/09/2103 dated 15.04.2011 was served upon the appellant proposing the demand of differential duty amounting to Rs. 23,73,310/- on the value of Rs. 1,88,81,348/- for the software license downloads. The amount already deposited on 17.07.2009, as mentioned above, was proposed to be appropriated towards the said duty liability. Interest in terms of section 28AB of Customs Act, 1962 and penalty under section 112(a) of the Act was also proposed. The proposal was initially confirmed vide order-in-original bearing no. 100/2009/26254 dated 17.10.2012. Appeal against the said order had been disposed of with certain modifications. The order,
enhancing the value, has been upheld. It has also been observed that the intimation of each download of software license is held to have not been sent to the correct assessing authority. Being aggrieved of the said order that the appellant is before this Tribunal.
4. The appellant was not present on the date of hearing. Earlier the matter was finally heard on 03.07.2025 and the order was reserved. However, after it got relisted, the learned counsel for the appellant had requested for e-hearing and the appeal was allowed to be heard by virtual mode for final submissions on 09.07.2026. Non-appearance of appellant in the said circumstances for an appeal of the year 2013 was observed to be a sufficient reason to proceed to hear the submissions on behalf of the department in the absence of the appellant and to dispose of the appeal in compliance of decision of Hon’ble Supreme Court in the case of Shri Balaji Steels Re-rolling Mills vs Commissioner of Central Excise & Customs3. The synopsis and case compilations on behalf of the appellant is well on record, however, opportunity of filing the written submissions was given to the appellant. No written submissions got filed by the appellant. From the perusal of submissions already on record, it is observed that the inclusion of value of DCM software license downloaded from internet in the assessable value has been objected by the appellant with the mention that the license fee for the software was not an amount required to pay directly or indirectly as a condition of the sale of dongle. The software in question is otherwise meant for security against unauthorized copy of data on software developed by the clients of the appellant. However, it is acknowledged that the security software allows access to software data which otherwise is not assessable. It is also mentioned in the said written submissions that the license fee is not the condition of sale to buy the dongle and the code or security is an integral part of the dongle. The application of Rule 10(1)(c) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 is mentioned, therein, to have been wrongly invoked. Decision of the Supreme Court in the case of Commissioner vs Oracle India Pvt. Ltd., reported as 2016 (342) ELT A-40 (SC) and of this Tribunal in the case of Kruger Ventilations Industries (North India) Pvt. Ltd. vs Commissioner of Customs (General) reported as 2022 (382) ELT 541 (Tri. Del) are relied upon. The later decision is mentioned to have been affirmed by the Hon’ble Supreme Court in the decision reported as 2023 (386) ELT 13 (SC). Finally it is alleged that the demand in question is time barred for the reason that intimation regarding downloading of software licenses has duly sent to the department well in time. That the order under challenge has thus been prayed to be set aside.
5. Learned authorized representative appearing for the department has also reiterated the submissions filed at the time of previous hearing and the findings arrived at in the impugned order. In addition, the decision of the Hon’ble Supreme Court in the case of Commissioner of Customs, Chennai vs Hewlett Packard India Sales (P) Ltd., reported as 2007 (215) ELT 484 (SC) is relied upon. Impressing upon no infirmity in the order under challenge, the appeal is prayed to be dismissed.
6. We have heard Shri Girijesh Kumar, learned authorized representative of the department and perused the record.
7. It is an admitted fact that the imported goods i.e HASP were imported without the DCM software which is simultaneously been purchased from the same exporter/supplier, M/s Aladdin Knowledge Systems Ltd. It is also acknowledged that the imported product is a hardware lock which cannot be activated without the said software license. It is also an admitted fact that the appellant has been paying US$ 3 per piece on the imported goods HASP/dongle and US$ 5 for the DCM software download and that the software is specific to the respective hardware lock/dongle. The original adjudicating authority has categorically recorded about the acknowledgement of the Director of the appellant, Shri V.K. Mittal to the effect that to encrypt the imported dongles, the appellants were required to download the vendor code or HASP DCM software license for each dongle hardware. The said software license was downloaded from internet site from M/s Aladdin Knowledge Systems Ltd., the supplier/exporter and M/s Aladdin raised the bill of these software licenses to the appellant against the payment for these downloads to be remitted through the banks. It becomes clear that the hardware as well as the software has been imported from the same vendor, though at a different point of time, but are customized and specific to each other.
8. Whether in the facts and circumstances value of both i.e. HASP hardware and DCM software license in question collectively form the assessable value, as alleged by the department, or it is the value of imported hardware only which is subjected to customs duty, as claimed by the appellant. Foremost, we have perused section 14 of the Customs Act which deals with valuation of imported goods. Section 14 reads as follows:
“14. Valuation of goods.- (1) For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force, the value of the imported goods and export goods shall be the transaction value of such goods, that is to say, the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation, or as the case may be, for export from India for delivery at the time and place of exportation, where the buyer and seller of the goods are not related and price is the sole consideration for the sale subject to such other conditions as may be specified in the rules made in this behalf:
Provided that such transaction value in the case of imported goods shall include, in addition to the price as aforesaid, any amount paid or payable for costs and services, including commissions and brokerage, engineering, design work, royalties and licence fees, costs of transportation to the place of importation, insurance, loading, unloading and handling charges to the extent and in the manner specified in the rules made in this behalf:
Provided further that the rules made in this behalf may provide for. –
(i) the circumstances in which the buyer and the seller shall be deemed to be related:
(ii) the manner of determination of value in respect of goods when there is no sale, or the buyer and the seller are related, or price is not the sole consideration for the sale or in any other case;
(ii) the manner of acceptance or rejection of value declared by the importer or exporter, as the case may be, where the proper officer has reason to doubt the truth or accuracy of such value, and determination of value for the purposes of this section:
Provided also that such price shall be calculated with reference to the rate of exchange as in force on the date on which a Bill of Entry is presented under Section 46 or a shipping bill of export, as the case may be, is presented under Section 50.
(2) Notwithstanding anything contained in sub-section (1), if the Board is satisfied that it is necessary or expedient so to do, it may, by notification in the Official Gazette, fix tariff values for any class of imported goods or export goods, having regard to the trend of value of such or like goods, and where any such tariff values are fixed, the duty shall be chargeable with reference to such tariff value.”
9. The principle of unamended provision was to find the valuation of goods “by reference to their value”. It introduced a deeming/fictional provision by stipulating that the value of the goods would be the price at which such or like goods are “ordinarily sold, or offered for sale”. Under the above mentioned amended provision, however the valuation is based on the transaction price namely, the price “actually paid or payable for the goods”. Even when the old provision provided the formula of the price at which the goods are ordinarily sold or offered for sale, at that time also if the goods in question were sold for a particular price, that could be taken into consideration for arriving at the valuation of goods. In fact, this fundamental concept is retained even now while introducing the concept of “transaction value” under the amended provision. More importantly, the rules viz. Valuation Rules, 1988 had incorporated this very principle of “transaction value” even under the old provision. No doubt, as per this provision existing today generally the price mentioned is to be accepted as it is the transaction value. However, this very provision stipulates the circumstances under which that price can be discarded.
10. In any case, having regard to the question with which we are concerned in the present appeal, such a change in the provision may not have much effect. This Section also provides that normal price would be the sole consideration for the sale. However, this may be subject to such other conditions which can be specified in the form of Rules made in this behalf.
11. From the above statutory position of law and the admitted facts, it becomes clear that each DCM software being the integral and specific part of the respective imported product, both being purchased from the same supplier at same point of time. It is, accordingly, held that the transaction value in the present case is the value of hardware as well as respective software. Hence, the value of software is includible in the assessable value. We draw once support from the decision of the Hon’ble Supreme Court in Hewlett Packard India Sales (P) Ltd. (supra) wherein the laptop with or without operating system was in question. Hon’ble Apex Court has held that when a laptop was imported with incomplete preloaded operating system recorded on HDD, the said item forms an integral part of the laptop (computer system). The department has been held right in treating the laptop and operating system as one single unit imported by the respondents. The Court held that the laptop which cannot work without the software which is an integral part of the laptop, the laptop is nothing but just a vacant building/structure. The Principal Bench of this Tribunal also has held in the case of Atul Kaushik vs Commissioner of Customs (Export), New Delhi, reported as 2015 (330) ELT 417 (Tri. Del) that the software even in its intangible form downloaded from a software located abroad amounts to import of goods.
12. The software herein is equally an integral part of the imported product. Both the goods have been imported from the same supplier. The hardware has no existence in the absence of the downloaded software. Relying upon Hewlett Packard India Sales (P) Ltd. (supra), the value of downloaded software has rightly been included in the assessable value. The appellant was well aware of the nature of the products being imported and was importing those goods from the same supplier. The findings about giving intimation of downloading the software to an authority which was not competent to receive the said information is rightly held to be a reason for invoking the extended period of limitation. Non-inclusion of value of both the imported goods has no other consequence than the evasion of duty. Hence, we do not find any infirmity in the impugned order and when differential amount of customs duty has been confirmed against the appellant. when penalty has been imposed upon the appellant.
13. With these observations, we hereby uphold the order under challenge. Consequent thereto, the appeal stands dismissed.
(Pronounced in the open Court on .07.2026)
Notes:
1 the appellant
2 HASP
3 2014 (310) E.L.T. 209 (S.C.)
