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GST Update on Client based software valuation on the basis of Maximum Retail Price (MRP) / Retail Sales Price (RSP) 78/2020-21

GST Update on Client based software valuation on the basis of Maximum Retail Price (MRP) / Retail Sales Price (RSP) 78/2020-21

The issue regarding payment of Additional duty of Customs (CVD) on the basis of Maximum Retail Price (MRP) / Retail Sales Price (RSP) or on the CIF value declared by the appellants.
 
The appellant has visited the premises of institutions and understood the software requirement of these institutions. These requirements were told to foreign software developers and they have developed these customized software.  The Appellant imported software tools from foreign suppliers on the basis of customised orders placed by these institutions to meet their specific needs.  The question arose was whether these software shall be considered as packaged software or not and secondly whether the same is liable for assessment on the basis of MRP price or RSP value or not.
 
The Department has started an investigation against the assessee that they have not declared MRP/RSP or correct MRP/RSP on their product. The appellants have allegedly evaded the payment of countervailing duty (CVD) which was leviable on the basis of Maximum Retail Price (MRP) / Retail Sales Price (RSP) as per the provisions of Section 4A of the Central Excise Act, 1944 which is applicable to the imported goods also for the purpose of levy of countervailing duty (CVD). Department issued show case notice saying that the goods are liable for reassessment on the basis of MRP /RSP for the purpose of levy and assessment of the Additional Duty of Customs (CVD).
 
The appellant have declared transaction value which was arrived by declaring MRP less overhead cost.
 
The Assesses vehemently contested that the provisions of Se4ction 4A of the Central Excise Act relating to Valuation of goods on MRP/RSP are not applicable to the Software imported for institutional buyers. Provisions of Section 4A is applicable only to those goods in relation to which it is required under the Legal Metrology Act or rules made there under to declare the retail sale price on the package and such goods have been specified by the Notification issued under Section 4A of the Central Excise Act.
 
The MRP based assessment in respect of packaged software or canned softwarewas brought into force vide notification No. 49/2008-CE and the abatement allowed was 35%.
 
For the purpose of above notification, "packaged software or canned software" means software developed to meet the needs of variety of users, and which is intended for sale or capable of being sold off the shelf."
 
The Provisions of Section 4A of the Central Excise Act would be applicable to only if the following two conditions are satisfied –
 
(i) Software is developed to meet the needs of variety of users; and
(ii) Software is intended for sale or capable of being sold off the shelf.
 
The appellant submitted that the software imported by them were for use for institutional buyers for their specific use. Hence, it is not to be used by variety of users. Hence, the MRP based valuation is not applicable on the same.
 
The assesses also relies upon the decision of Honble Supreme Court in the case of Mangalore Chemicals & Fertilisers Ltd. Vs. Deputy Commissioner, UOI vs Suksha International and Nuton Gems, Global Sugar Ltd. Vs. CCE, CCE vs JCT Electronics Ltd, and CCE vs. Paradeep Phospate Ltd.
 
Assesses declared that software imported is for the industrial or educational or institutional use which are customized on the basis of order placed by these institutions for specific needs. Such software cannot be treated as packaged software because such software is developed to meet the specific requirements of a particular customer and they cannot be used by other users. Further, such softwares cannot be put to sale off the shelf as the same has been developed for a particular customer/department for specific requirements. Thus, such software shall surely not be covered under ‘packaged softwares’ and cannot be put to assessment based on MRP.
 
But even after reaching to the conclusion, the matter was remanded to adjudication authority to examine individual software that it can be termed as packaged software.
 
Software is always being matter of dispute between department and taxpayer. The dispute revolved around was whether the software is good or service? It was decided that packaged software with no right of amendment is “goods” and customized software with facility of amendment are “services”. Now further dispute arose about their valuation in this matter. If is customized software to be used by institution only then it will not be liable to MRP and hence it will not be chargeable to MRP based valuation. But it has not been considered that it will be classified as “goods” or it will be termed as “service”. 

This is solely for educational purpose.
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