Changing values

INDIRECT TAXES/ FISCAL LAW

Fiscal law, i.e the law relating to taxes, has undergone some conceptual modifications when applied to IT products. The concept of goods, exemption, valuation and manufacture in excise and customs have now undergone special mutations by practice and also by judicial pronouncements by the Tribunals and Courts.

The concept of valuation received a very relevant observation from the Tribunal in a judgement on March 2006: H.T. Company vs. Commissioner of Customs -2006(201)ELT 311(T). The view here was that for valuation of imported printers, the transaction value cannot be increased merely on the basis of the Internet price.

Internet price is merely a guide, it cannot be a definitive conclusion to reject a transaction value which is based on the actual trade and when there's no separate proof for clandestine transaction of payments/foreign exchange. The idea is to use Internet price like a price list, which does not act as a definite proof to reject transaction value. In effect, Internet prices are admissible but not conclusive.

The concepts of manufacture and marketability have also undergone some change due to a judicial pronouncement in favour of inclusion of electronic hawking (E-hawking) as a relevant ingredient. E-hawking of goods in the modern days of computer technology can constitute electronically operated market. Marketability is essential to prove manufacture of goods. This has been stressed in one of the latest judgements of a Larger Bench of the Tribunal in the case of Mahindra & Mahindra Ltd. vs. C.C.E., Aurangabad, 2005 (190) ELT 301 (Tri.-LB). The issue before the Tribunal was about the marketability of steel structures, which are not normally sold from the factory or godown but are often fabricated on the spot where the final structure gets fitted on the earth.

The Apex Court observed that the parts of the steel structures couldn't be viewed through the traditional concept of hawing, which involves the hawker carting and selling goods. Hawking for steel structures here includes e-hawking to accommodate heavy structures. The concept of marketability, therefore, has to be expanded for such electronic development to accommodate e-hawking of products. The expansion of the concept of marketability is to emphasise that only the traditional market is not enough to prove marketability.

The concept of goods has also undergone change with respect to products of computer technology. Software, which was so long being considered as intangible, and therefore not goods, has now been held to be excisable, regardless of whether it is tangible or intangible, so long as it is marketable. It is marketable if it is in a canned form, held the Supreme Court in the case of TCS vs. State of Andhra Pradesh, 2004 (178) ELT 22(SC). So these are goods now.

Excisability of exempt software has received special attention by the Supreme Court in the case of CCE vs. ACER, 2004(172)ELT 289 SC. The Supreme Court held that operational software does not form an essential part of computer hardware. If operational software is exempt from duty and if it is loaded into a hardware, which is dutiable, the value of the operational software should not be taken for paying duty on the total product, even if it is sold as an integrated product.

The conclusion is that the traditional concepts of goods, exemption, manufacture, marketability and valuation etc., have to be interpreted differently given the new concept of website, where goods are hawked, prices are quoted, electronic transactions take place and a whole new system of marketing operates.

The writer is former member, Central Board of Excise & Customs