M.VEERAIYAN, J. - (1.) THIS is an appeal against the order of the Commissioner No. 46/2008 (PVR), dated 16 -10 -2008. By this order Commissioner has confirmed demand of differential duty of Rs. 2,12,23,061/ - (Rupees Two crore Twelve lakhs twenty three thousand and sixty one only) along with interest and imposed equal amount of penalty under Section 11AC and further penalty of Rs. 20 lakhs (Rupees Twenty lakhs only) under Rule 25 of the Central Excise Rules.
(2.) HEARD both sides extensively on 10 -4 -2012, 14 -5 -2012 and 15 -5 -2012.
(3.) THE relevant facts, in brief, are as follows : (a) The appellant is engaged in the manufacturing of LED Display Boards, Line Telephony Equipment and related software etc. (b) In the year 2002, orders were placed by M/s. Bharat Electronics Ltd., Bangalore (BEL, for short) on the appellant for manufacture and supply of Digital Loop Carriers (hereinafter referred to as DLCs). The orders were placed for supply of Hardware and also the operating software and spare parts. BEL, in turn delivered the goods to M/s. MTNL for their ultimate use. (c) The invoice raised for supply of the goods to BEL, indicates the value of Hardware and Software separately. The Hardware was cleared on payment of applicable rate of duty, whereas software was cleared at NIL rate of duty. (d) It appears that there was correspondence in February 2003 regarding the supply of software by the appellant and the department. Further, the audit of the appellants factory was conducted during December 2003. (e) A show -cause notice dated 5 -7 -2007 was issued alleging that the software supplied along with DLC was not a software of its own but an integral part of the DLC; that the software was not distinct and separate product from the equipment; that the value of software should be included in the value of hardware cleared and supplied to BEL. Consequently, there was proposal for demand of Rs. 2,12,23,061/ - relating to the period 5/2002 to 5/2003 along with interest and also proposal for imposition of penalties under Section 11AC. (f) The Commissioner, by the impugned order, confirmed the demand of duty as proposed in the show -cause notice along with interest and imposed amount equal to duty as penalty under Section 11AC and another penalty of Rs. 20 lakhs under Rule 25 of Central Excise Rules. The leaned advocate assails the order of the Commissioner on the following main grounds : (a) There is no material on record to allege that the DLCs were cleared from the factory in software loaded condition. (b) As per the purchase order, the goods are required to be cleared in parts in individual packing and required to be assembled and tested at the BEL premises at Bangalore. The DLCs which are cleared in parts are assembled at BEL premises and, after assembly, software is loaded after downloading from web -site and the system is tested. (c) BEL purchased C -DOT telephone exchange and installed at the BEL premises at Bangalore for testing the DLC Rings. The testing of the DLCs has taken place at BEL in the presence of MTNL QA representatives. (d) The operating/application software can be re -programmed or upgraded any number of times. As per the PO, until the expiry of warranty period the operating/application software is required to be freely upgraded and loaded from time to time. (e) There are several vendors of V5.1/V5.2 software internationally and they do not manufacture hardware. Some of these vendors are Netbricks, Milegate, WebNMS. (f) It was open to the BEL to purchase the hardware of the DLCs from the appellant and software from third parties and vice versa. (g) Further the DLC rings without V5.1 interface can be used as 2W type of DLC (type 2 as per TEC GR). (h) The audit report does not state anywhere that the DLCs are cleared from the factory after loading with application/operational software. (i) It was open for the department to cross verify their version with their vendee and also to record the statements of the appellants technical team. (j) By nature, the software is invisible and the same has to be contained/loaded in any tangible product. (k) The Order -in -Original puts up a different case and travels beyond the show -cause notice and the same is not permitted. A new case is set up in the order -in -original saying that the software is embedded firm software and lasts with the equipment itself. (l) The issue involved in the present case is squarely covered by the decision of the CESTAT, South Zonal Bench, Bangalore in the case of ITI Ltd. v. CCE and Customs Calicut, 2009 (233) E.L.T. 277 (Tri. -Bang.). The facts and issue involved in the above case and the present case are similar and identical. In this regard he relies on the following decisions : (i) Jayaswals Neco Ltd. v. CCE, Nagpur [2006 (195) E.L.T. 142 (S.C.)] (ii) CCE, Navi Mumbai v. Amar Bitumen and Allied Products Pvt. Ltd. [2006 (202) E.L.T. 213 (S.C.)] (iii) IOCL v. CCE, Baroda [2006 (202) E.L.T. 37 (S.C.)] (iv) CCE, Hyd -I v. Aurobindo Pharma Ltd. [2010 (259) E.L.T. 673 (AP)] (v) CCE v. Aurobindo Pharma Ltd. [2011 (269) E.L.T. A147 (S.C.)] (m) There is no intention on the part of the appellant to evade duty. As per the contract with BEL, the applicable central excise duty is to the account of BEL. There is no incentive or benefit to the appellant for the alleged evasion of duty. The invocation of larger period is, therefore, not valid and legal. In this regard he relies on the following decisions : (i) Collector of Central Excise v. Chemphar Drugs and Laminates, 1989 (40) E.L.T. 276 (S.C.) (ii) Tamilnadu Housing Board v. Collector of Central Excise, Madras, 1994 (74) E.L.T. 9 (S.C.) (iii) Collector of C. Ex. v. Malleable Iron and Steel Costings Co. (P) Ltd., 1998 (100) E.L.T. 8 (S.C.) (iv) Gopal Zarda Udyog v. CCEx, New Delhi, 2005 (188) E.L.T. 251 (S.C.) (v) CCEx Mumbai -IV v. Damnet Chemicals Pvt. Ltd., 2007 (216) E.L.T. 3 (S.C.) (vi) Orissa Bridge and Construction Corporation Ltd. v. CCE, Bhuvaneswar, 2011 (264) E.L.T. 14 (Cal.) (vii) Megamani Industries Ltd. v. CCE, Ahmedabad -I, 2010 (261) E.L.T. 411 (Tri. -Ahmd.) (n) Since the invocation of larger period is not valid and legal, the imposition of penalty under Section 11AC of Central Excise Act, 1944 is not legal and valid. Once Section 11AC is invoked, no further penalty can be imposed under Rule 25. ;