IMPORTANT POINT
Failure to deposit whole of duty, interest and penalty, or such part thereof, within time stipulated by CESTAT would result in dismissal of appeal.

Ramesh Ranganathan, J.

These appeals, under Section 130 of the Customs Act, 1952, are preferred against the miscellaneous orders passed by the Customs, Excise & Service Tax Appellate Tribunal, South Zonal Bench at Bangalore (“CESTAT” for short) in Miscellaneous Order Nos.27769-27781/2013 dated 3.7.2014 and 27.10.2014.

The dispute, in the appeals filed before the CESTAT, related to the validity of the adjudication orders levying customs duty, interest and penalty on the import of dense wavelength division multiplex equipment (DWDM), and certain imported CDs allegedly used for its functioning. All the appellants are connected with these imports. While some of them are importers, some others are foreign suppliers. The principal importers were M/s Prithvi Information Solutions Ltd (“PISL” for short) and M/s VMC Systems Ltd (“VMCL” for short).

In cases where the software is embedded in the equipment itself, and not supplied separately, the value of such embedded software is included in determining the assessable value of the equipment and it is only if the software is not embedded, and is supplied separately, can it not be included in the value of the equipment. On the ground that embedded software was shown separately as customised software only to evade customs duty, the adjudicating authorities, besides demanding differential duty on the value attributable to the so called embedded software, and interest thereon, had also imposed penalties on PISL and VMCL as well as the overseas suppliers M/s Huawei Technologies Co. Ltd (HTCL), M/s Sojitz Corporation (SC) their financial partner based in Japan, several individuals working for these organizations, and Punjab Communications Limited (PCL), a public sector undertaking, which had participated in the auction and had entrusted supplies to VMCL. BSNL was also visited with penalty. In the appeals, filed against the orders passed by the adjudicating authorities, the CESTAT was mainly called upon to examine whether PISL and VMCL had deliberately shown the software, embedded in the system imported by them and supplied to BSNL, as separately imported customised software only to evade payment of customs duty on the software portion of the imported equipment.

In the applications filed by the appellants herein, seeking waiver of pre-deposit of duty, interest and penalty pending disposal of their appeals by CESTAT, the technical member of CESTAT directed that both PISL and VMCL should deposit the entire amount of the differential duty not covered by bank guarantees, and the interest payable thereon, within 12 weeks. The obligation of PCL, to make pre-deposit, was waived. Pre-deposit of penalty by PISL and VMCL was waived and, while some of the individuals and companies were directed to deposit 10% of the penalty, some other individuals were directed to deposit 5% thereof, and SC was directed to deposit 1% of the penalty. The Judicial Member, however, differed with the opinion of the technical member only with regards partial waiver of pre-deposit of penalty. He was of the, prima facie, view that there was material available to show the alleged evasion of duty by the companies which would be examined at length at the time of hearing of the appeal; and, in such circumstances, the predeposit of 10%, 5% and 1% of the aggregate penalty should be replaced by 50%, 25% and 25% respectively. He also held that PCL should be directed to deposit 50% of the aggregate penalty. The matter was, thereafter, referred to a third member who agreed with the view of the technical member. In view of the majority order, both VMCL and PISL were required to deposit the entire amount of differential duty, not covered by the bank guarantees, within twelve weeks from the date of receipt of the order, and report compliance on 27.10.2014; they were directed to pay the principal, ascertain the interest payable from th