KIKLOSKAR COMPUTER SERVICE LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) IN this petition for a writ of certiorari the petitioner-company calls in question the validity of a notice issued by the collector of central excise, bangalore, thereby the petitioner has been asked to show cause why central excise duty in respect of goods manufactured and cleared by it be not recovered and a penalty imposed. Also under challenge is a notification dated 1st of march, 1988 levying excise duty on software at the rate of 10% ad valorem under chapter heading 85. 24 of the central excise tariff act, 1985.

(2.) THE petitioner is engaged in the business of data processing and providing software development services for domestic and export markets. These activities inter alia involve system development, system designing, programme development, master file creations, data preparation, data processing, data version and punching etc. The petitioner's case is that collection of data or information and transferring the same on the floppy cannot be said to be goods manufactured by the petitioner nor can the process of transcribing information on the floppies to meet the varied needs of the customers concerned, be said to involve any process of manufacture within the meaning of Section 3 of the central excises and salt act, 1944. Search operations were all the same conducted by the excise authorities, on the business premises of the petitioner on 16th and 23rd of february, 1988, resulting in seizure of a large number of invoices, books and other documents; and culminating in the issue of a show-cause notice dated 25th february, 1988, pointing out to the petitioner-company that it was engaged in developing software, software packages and data processing which were cleared, either on recorded media like magnetic tapes floppy, discs or captively consumed. The show-cause notice further pointed out that the petitioner-company was entering into contracts with various companies for software development and data processing and for the said purpose unrecorded floppies are supplied to it by the customers or purchased by the petitioner from the open market on which the petitioner performs one or more of the activities mentioned earlier. The notice alleged that the petitioner had wilfully suppressed the fact of manufacture of recorded media and cleared the goods clandestinely without accounting for the same in the statutory records, filing classification and price lists and without raising central excise gate passes or payment of central excise duty. It therefore proposed to levy excise on the goods manufactured and cleared by it besides a penalty as per the central excise rules. The petitioner was called upon to show cause why the action proposed in the show-cause notice be not taken against it. Aggrieved the petitioner has filed the present writ petition assailing the validity of the notice as also notification dated 1st of march, 1988, referred to earlier.

(3.) MR. Chandra kumar, learned senior counsel appearing for the petitioner confined his challenge to the show-cause notice only and made a three-fold submission in that regard. Firstly, he argued that the show-cause notice insofar as it proposes to levy excise duty on the goods allegedly manufactured by the petitioner during the period 28th february, 1986 to 3rd of february, 1988, was illegal and incompetent having regard to the fact that by a notification issued by the central government under Section 11-c of the central excises and salt act, 1944 excise duty on computers software, in the form of recorded media had been exempted. Inasmuch as the show-cause notice did not take note of the said exemption and proposed to levy excise duty during the period covered by the exemption notification, the same was illegal and without jurisdiction. Secondly, he argued that the show-cause notice issued by the authority was barred by limitation insofar as the same proposed to levy duty on goods cleared more than six months prior to the date of its issue. The extended period of limitation, argued Mr. Kumar, could be invoked by the collector only if it was alleged that the petitioner had fraudulently or with the intent to evade duty made a wilful misstatement or suppression of facts. No such fraud, collusion, misstatement, or suppression was, according to the learned counsel, alleged against the petitioner with an intent to evade duty, so that the extended period of limitation for recovering the unpaid duty was inapplicable. Thirdly, he argued that in Order to attract duty under Section 3 of the central excise and salt act, not only should it be shown that the petitioner had manufactured goods but that the said goods were excisable. He urged that even if the department were to bring the petitioner's case in the residuary item of the 1st schedule to the central excises and salt act, or the tariff act, 1985, yet it was essential for the authorities to establish further that what was sought to be subjected to duty were 'goods' and that the same were manufactured by the petitioner. Relying upon the decision of the Supreme Court, in union of India and another v Delhi Cloth and general mills company limited and others , Bhor Industries Limited, Bombay v Collector of Central Excise, bombay, Moti Laminate Private Limited and others v Collector of Central Excise, Ahmedabad , he argued that the activities undertaken by the petitioner did not amount to carrying out a process of manufacture so as to attract any duty on the same. He also placed heavy reliance upon a decision of the Supreme Court in Prabhat Sound Studios v Additional Collector of Central Excise, in support of his submission that just as recording of sound on duty paid magnetic tapes, did not amount to manufacture so also development of software, packages and data processing and activities related thereto could not be treated to be tantamount to manufacture to attract duty.