Gujarat High Court
J B And Brothers Pvt Ltd vs Union Of India on 25 June, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 16691 of 2014
With
R/SPECIAL CIVIL APPLICATION NO. 5447 of 2016
With
R/SPECIAL CIVIL APPLICATION NO. 5448 of 2016
With
R/SPECIAL CIVIL APPLICATION NO. 5464 of 2016
With
R/SPECIAL CIVIL APPLICATION NO. 5465 of 2016
With
R/SPECIAL CIVIL APPLICATION NO. 6869 of 2016
With
R/SPECIAL CIVIL APPLICATION NO. 7281 of 2016
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
==========================================================
Approved for Reporting Yes No
✓
==========================================================
J B AND BROTHERS PVT LTD
Versus
UNION OF INDIA & ORS.
==========================================================
Appearance:
MR TUSHAR P HEMANI(2790) for the Petitioner(s) No. 1
MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1
CHINTAN H DAVE(7193) for the Respondent(s) No. 3
MR ANKIT SHAH(6371) for the Respondent(s) No. 1
MS MANISHA LAVKUMAR(1010) for the Respondent(s) No. 2
==========================================================
CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Page 1 of 55
Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 09 2025 Downloaded on : Fri Jul 11 22:12:52 IST 2025
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
Date : 25/06/2025
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned Senior Advocate Mr.
Tushar Hemani with learned advocate Ms.
Vaibhavi Parikh for the petitioners and
learned advocate Mr. Ankit Shah for the
respondent.
2. This group of petitions are filed
challenging the show cause notice issued
by the respondents - Additional Director
General, Directorate of Revenue
Intelligence and the Commissioner of
Custom (Export) except in Special Civil
Application No.5447/2016, Special Civil
Application No.6869/2016 and Special Civil
Application No.7281/2016 wherein order-
in-original are already passed during the
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
pendency of the petition despite the stay
was granted by this Court. The petitioner
has amended the said petitions challenging
the same.
3. As the issue arising in this group of
petitions is common, the same were heard
analogously and are being disposed off by
this common Judgment and Order. For the
sake of convenience, Special Civil
Application No.16691 of 2014 is treated as
the lead matter and accordingly, facts are
recorded from the said petition.
4. The petitioner had purchased hardware
and patented analysis software for advance
planning, evaluation and measurement of
diamond and gemstone production from M/s.
Sarin Technologies Limited, Israel and
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
Galatea Limited which are foreign
companies incorporated under the laws of
Israel.
4.1 M/s. Sarin Technologies India
Private Limited which is incorporated
under the Companies Act, 1956 is a wholly
owned subsidiary company of Sarin
Technolgies Limited, Israel.
4.2 Sarin Technologies India Private
Limited is carrying out various business
activities on behalf of its holding
company and sister concern Galatea Limited
including production, demonstration,
placement of orders by customers, shipment
of hardware, installation of hardware and
software, training to customers,
maintenance during warrant period,
software upgradation, etc.
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
4.3 Respondent no.2 on the basis of
intelligence gathered and investigation
carried out by the Ahmedabad Zonal Unit of
DRI issued a seizure order dated
11.03.2014 on the imported 34 numbers of
diamond scanning machines valued at
Rs.5,43,90,318/- on the ground that the
petitioner had split the total value of
the diamond scanning machines into two
parts i.e. one for the hardware and
another for the software portion and
accordingly, the petitioner had mis-
declared the value of goods by furnishing
only the invoices in respect of hardware
portion and not declaring the invoices in
respect of the software portion, which put
together constitutes the value of diamond
scanning machines resulting into evasion
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
from payment of appropriate custom duty.
4.4 The petitioner by letters dated
12.03.2014 and 13.03.2014 provided
explanation that the petitioner had not
made any mis-declaration of value of goods
imported and there was no evasion of any
customs duty as the invoices accompanying
the Hardware reflected the correct value
and value of software was invoiced and was
paid separately by the petitioner.
4.5 The petitioner thereafter paid Rs.
45,00,000/- towards the alleged evasion of
customs duty on 18.03.2014.
4.6 The petitioner had also paid
service tax upon invoice issued for
software portion consequent to the inquiry
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
initiated by the Director General of
Customs Excise and Indirect tax,
Ahmedabad on alleged evasion of service
tax on reverse charge mechanism to be
borne by the petitioner.
4.7 The petitioner therefore,
requested respondent no.3 for provisional
release. Thereafter by letter dated
21.05.2014, the seized goods were
provisionally released on condition of
execution of bond for the full value of
goods and execution of bank guarantee of
25% of the differential duty.
4.8 Respondent no.2 thereafter, issued
the show cause notice dated 08.07.2014
calling upon the petitioner to show cause
as to why the petitioner is not liable to
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
pay the custom duty on the suppressed
value of Rs.3,81,02,296/- on account of
software valuation which is not included
in invoice value of the Hardware disclosed
by the petitioner.
4.9 The petitioner filed reply to the
show cause notice and also preferred
Special Civil Application No.14127 of 2014
challenging the action of the respondent
no.2 for issuing the seizure memo on the
goods imported by the petitioner as well
as the provisional release order and show
cause notice.
4.10 The Commissioner of Central
Excise, Customs & Service Tax, Surat-1
passed the adjudication order on
19.08.2014 for levy of service tax on the
Software for which respondent no.2 has
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
issued show cause notice dated 08.07.2014
to recover custom duty.
4.11 The petitioner by letter dated
02.10.2014 addressed to respondent no.3
explained that all Software invoices
covered under the impugned show cause
notice issued by respondent no.2 have been
already covered by the service tax
authority while passing the adjudication
order for charging the service tax thereon
by treating the same as service covered
under the provisions of the Finance Act,
1994. It was therefore, contended that as
the service tax has already been imposed,
adjudicated and paid, the proceedings
under the Customs Act should be dropped
and amount of Rs. 45,00,000/- paid by the
petitioner under protest should be
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
refunded.
4.12 It appears that thereafter Special
Civil Application No.14127 of 2014 was
disposed off by this Court by order dated
02.12.2014 which reads as under:
"1. The petitioner has prayed for
a direction to the respondents to
release the seized imported
machinery which was seized under
the seizure memo at Annexure A.
2. Brief facts are as under. The
petitioner is in the business of
diamond polishing. The petitioner
had imported diamond scanning
machine for such purpose along
with software system for operating
such machinery from Israel. The
dispute pertains to the duty
liability of the software
component of such imported
machinery. The Customs authority
holds a belief that such software
would form part of the imported
goods and therefore, would invite
customs duty along with the
hardware. Since the petitioner had
not declared the valuation of such
software and had not paid customs
duty, proceedings were initiated
for recovery of unpaid custom
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
duties. In the meantime, in
exercise of power under section
110 of the Customs Act, 1962, the
authorities passed impugned order
dated 11.3.2014 seizing scanning
machines on the belief that the
same were liable to confiscation
under the provisions of the
Customs Act.
3. Parallely, the authorities
under the service tax regime held
a belief that the software
imported was a service and that
the petitioner was therefore,
liable to pay service tax on such
software. It is undisputed that
the Commissioner of Central
Excise, Customs and Service Tax,
Surat passed an order dated
19.8.2014 holding that software
provided by the exporters should
be treated as Information
Technology Software under section
65(53a) of the Finance Act, 1994
and correspondingly exigible to
service tax under section 65(105)
(zzzze) of the Finance Act, 1994.
He accordingly ordered recovery of
service tax of Rs.1.13
crores(rounded off) with interest
and penalties.
4. The petitioner has accepted its
service tax liability as held by
the adjudicating authority in the
said order. The petitioner has
also paid up service tax with
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
interest. The petitioner has
therefore, on legal grounds
questioned the penalties in the
appeal. Such appeal is pending. At
this stage, where the same import
of software has been held by one
wing of the department as
providing of service and also
levied service tax on the same,
continued attachment by the
customs department on the premise
that the same was liable to
confiscation on the ground of mis-
declaration of valuation of the
imported goods for the purpose of
customs duty, would not be
permissible.
5. As noted, the petitioner does
not dispute its service tax
liability and has accepted the
principal component of tax without
appeal.
6. Under the circumstances,
impugned order dated 11.3.2014 is
quashed. The petition is disposed
of. This is without prejudice to
the department's contention with
respect to the nature of the
petitioner's imports and
declaration made at the time of
import. When the order of
attachment is quashed, any amount
that may have been deposited by
the petitioner with the department
provisionally for any interim use
of such machinery, shall be
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
refunded".
4.13 During the pendency of the Special
Civil Application No.14127 of 2014, the
petitioner has preferred this petition
11.11.2014 with following prayers:
"a) quash and set aside the Show
Cause Notice dated 08/07/2014 at
Annexure A issued by the
Respondent No.2;
(b) pending the admission, hearing
and final disposal of this
petition, to stay implementation
and operation of the Show Cause
Notice dated 08/07/2014 at
Annexure A issued by the
Respondent No.2;
(c) direct the Respondent No.2 and
3 to refund an amount of
Rs.45,00,000/- paid by the
Petitioner towards Custom Duty
under Protest;
(d) any other and further relief
deemed just and proper be granted
in the interest of justice;
(e) to provide for the cost of
this petition."
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
4.14 So far as prayer nos. (b) and (c)
are concerned, same is already taken care
of by this Court in para no. 6 of order
dated 02.12.2024 passed in Special Civil
Application No.14127 of 2014.
4.15 This Court passed the following
order on 18.11.2014 in Special Civil
Application No.16691 of 2014 :
"1. Petitioner has challenged a
show cause notice dated 08.07.2014
as at Annexure A to the petition.
The petitioner had imported
diamond scanning machine along
with specialized software. It is a
case of the department that the
valuation of the machine declared
at the time of import did not
include value of the software.
Under the impugned show cause
notice it is alleged that such
undervaluation lead to evasion of
custom duty since the petitioner
was liable to pay custom duty on
the machine inclusive of the value
of the software. In other words,
according to the department, in
the said show cause notice the
software being the part of the
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
goods imported, on such basis, a
show cause notice proposed to levy
unpaid custom duty with interest
and penalty has been issued.
2. Counsel for the petitioner
pointed out that with respect to
the same import, the department
had also issued notice for
recovery of service tax on the
software purchased by the
petitioner on the premise that
providing of software amounted to
providing of service. Counsel
pointed out that in such
proceedings the adjudicating
authority has already passed an
order dated 19.08.2014 confirming
the demand of service tax of
Rs.1,13,60,916/ which includes the
basic service tax with Education
Cess and Higher Education Cess.
Under the same order the
adjudicating authority has also
imposed penalties. Counsel for the
petitioner stated that the
petitioner has already paid the
basic service tax without
challenge. The petitioner would,
however, question the imposition
of the penalties.
3. On the basis of such facts,
counsel for the petitioner argued
that the software is either be
categorized as service exigible to
service tax or be considered as
goods part imported machinery
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
exigible to custom duty but not
both. The department, therefore,
cannot pursue two conflicting
proceedings.
4. Issue Notice returnable on 2nd
December 2014. In the meantime, if
the petitioner prays for
adjournment before the
adjudicating authority,the same
shall be granted."
4.16 Thereafter following order was
passed on 2.12.2014 for admission of this
petition while simultaneously disposing of
Special Civil Application No.14127 of
2014:
"1. Petitioner has challenged a
show cause notice dated 8 th July
2014,as at Annexure A to the
petition. Such notice has been
issued by the revenue intelligence
calling upon the petitioner why
certain custom duty with interest
and penalty not to be recovered on
the software imported by the
petitioner along with the diamond
scanning machine. The petitioner,
who is engaged in diamond
polishing business, had imported
diamond scanning machinery along
with software. The custom
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
authorities on the premise that
the petitioner did not disclose
the value of the software along
with the imported machinery and
evaded customs duty on such
software. According to the
department, the exporter of the
machinery, during investigation,
clarified that the software in
question was given free of charge
with the purchase of the machine
and only at the request of the
petitioner a separate price was
shown for such software
bifurcating the value between
hardware and software. The case of
the department is that at the time
of import of the machinery the
petitioner should have disclosed
the full value of the machine
without reducing the same by the
separate component of the software
value. On such basis, the impugned
show cause notice came to be
issued.
2. It is not disputed that the
Commissioner of Customs, Central
Excise and Service Tax, Surat
issued a show cause notice to the
petitioner on the premise that
such software was in the nature of
service provided and therefore
exigible to service tax. Such show
cause notice proceedings
culminated into an adjudication
order dated 14.08.2014 in which
the said authority confirmed the
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
service tax with interest and
penalties. The petitioner has paid
up the service tax with interest
without any challenge but has
challenged the penalties in
appeal.
3. We are prima facie of the
opinion that commodity can either
be a service or goods. If the
software is treated as service, it
would be exigible to service tax.
If, on the other hand, it is
treated as goods, on its
import,the importer would have to
pay customs duty. Even if the
software was to be treated as not
separately charged, but the value
should form part of total value of
imported machinery, the same may
invite custom duty but not service
tax. However, the importer would
not be liable to pay both service
tax as well as the customs duty
for the same component. When one
arm of the revenue has already
held the same to be service and
not only levied but also collected
tax on such basis, a serious
question would arise whether the
other arm of the department can
pursue an entirely opposite stand
and contend that the value of
software would invite customs
duty. Even the assertion of the
department that the software had
no value and was provided cost
free on purchase of the machine
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
and the two values were
artificially split, would run
counter to the service tax
authorities levying service tax on
the software. In short,the
question would be whether two
different units of the revenue can
take diametrically opposite stand
and proceed against an assessee
simultaneously. Perhaps if the
proceedings under the service tax
regime had not attained finality
either at the first stage of
adjudication or in appeal, by way
of abundant caution, not to miss
time limit, it may have been open
for the department to issue
preliminary show cause notice
under the Customs Act. However,
once when the service tax
authority has already taken a
final decision and which decision
is not in appeal,we have serious
doubt whether the customs
authority can then proceed against
the assessee in a show cause
notice which would essentially
challenge the findings of the
service tax authority.
4. Under the circumstances, Rule.
By way of interim relief, the
respondents are prevented from
proceeding further with the show
cause notice."
5. The issue involved is identical in
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
this group of petitions, hence,facts in
rest of the petitions are summarised as
under:
SCA No. Date of seizure Date of show Date of Reply
memo cause notice
under challenge
5447/2016 08.10.2014 14.11.2014 18.12.2014
18.04.2016
5448/2016 10.10.2014 02.12.2014 24.12.2014
5464/2016 13.10.2014 04.02.2015 26.03.2015
5465/2016 26.02.2015 20.04.2015 19.05.2015
6869/2016 28.02.2014 22.08.2014 22.09.2014
7281/2016 28.04.2014 31.07.2014 14.02.2015
29.03.2016
SCA No. Service Tax Order-in-Original Differential Amount of
Custom service tax
Duty levied &
proposed paid (Rs.)
(Rs.)
Date of SCN Date of Date of
Reply adjudicati
on
5447/2016 NA NA 20.8.14 1,63,45,523 78,09,126
5448/2016 14.10.13 21.11.13 25.2.15 31,36,801 20,22,587
5464/2016 18.10.13 15.11.13 13.5.14 39,87,946 64,30,592
5465/2016 22.10.2013 8.8.14 28.11.15 12,49,522 33,77,859
6869/2016 12.10.12 27.2.13 29.2.16 1,47,44,458 41,18,120
12.11.13 10.3.14 3,11,430
7281/2016 18.10.13 20.11.13 10.4.15 1,07,28,874 80,97,413
24.3.15
6. Learned Senior Advocate Mr. Tushar
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
Hemani submitted that the petitioners have
accepted the service tax liability on
reverse charge mechanism and order-in-
original dated 19.08.2014 has achieved
finality as the petitioners have already
paid the service tax amounting to
Rs.1,19,61,701/-.
6.1 Learned Advocate Mr. Hemani
referred to and relied upon the findings
of the order-in-original passed by the
adjudicating authority under Service Tax
to point out that while passing the order
for levy of service tax, adjudication
authority has already considered the fact
that the petitioners have not paid any
custom duty on the Software as same was
delivered through Email/Internet from the
foreign software companies as mentioned in
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
the invoices, treating the same as service
as the payment has been made only for
obtaining the 'right of use' of such
software for processing of rough diamonds.
6.2 It was therefore, submitted that
the respondent authority could not have
continued with the impugned show cause
notice proceedings simultaneously in view
of order-in-original passed by the Service
Tax authority. It was submitted that once
Service Tax Authorities have already taken
a final decision and no appeal is filed by
the petitioners, the respondent custom
authority cannot proceed further against
the petitioner pursuant to the show cause
notice which would be in contradiction to
the findings arrived at by the Service Tax
authority. It was submitted that the
impugned show cause notices are liable to
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
be quashed and set aside in facts of the
case.
7. Per contra, learned advocate Mr.
Ankit Shah elaborately referred to the
contents of the impugned show cause notice
dated 08.07.2014 to point out that
Software was imported by the petitioners
along with Hardware and the petitioners in
order to save the customs duty
fraudulently did not show full value of
the imported diamond cutting machines by
splitting the value being 1/3rd for
Hardware and 2/3rd for Software portion.
7.1 Learned advocate Mr. Shah
vehemently submitted that prior to 2008
petitioners were showing full value of
machine imported which included value of
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
Software also, however, in view of EPCG
Scheme, the petitioners have started modus
operandi by splitting value of Hardware
and Software separately by obtaining
separate invoices from supplier and
thereby paying customs duty only on the
value of Hardware which is shown as 1/3rd
of the total cost so as to get the benefit
of EPCG Scheme. It was submitted that such
modus operandi continued up to 2013 and as
such, the impugned notice is required to
be proceeded further so as to find out
correct fact of the suppression of value
made by the petitioners while importing
the machine which included the Hardware.
7.2 In support of his submission,
learned advocate Mr.Shah referred to the
statements recorded under section 108 of
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
the Customs Act, 1962 as referred to in
the show cause notice. He invited the
attention of the Court to the statement of
one Rahul Jolapara, Custom Support Manager
(Legacy) of M/s. Sarin Technologies India
Private Ltd. who in his statement dated
03.04.2014 stated inter-alia that diamond
cutting machines are always imported along
with Software and only additional Software
which are freely available on the website
of M/s. Sarin Technologies Private Ltd
were loaded on the computer at the time of
installation.
7.3 It was therefore, submitted by
learned advocate Mr. Shah that the goods
imported by the petitioners were
undervalued to the extent of 2/3rd value
pertaining to the Software price by
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
generating separate invoice by the
petitioners. It was submitted that there
is a very good prima facie case against
the petitioners for levy of the custom
duty for violation of Rule 3 of the
Customs Valuation Rules, 2007 which
provides for method of valuation and as
per Rule 12 of the said Rules, the
valuation shown by the petitioners is
liable to be rejected and the transaction
value is liable to be determined in terms
of Rule 3 of the said Rules.
7.4 It was therefore, submitted that
there is a prima facie case that the
petitioners have undervalued the Hardware
imported in which Software was embedded
and thereby there was short levy of custom
duty amounting to Rs.85,99,496/- which
otherwise is leviable under the provisions
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
of section 28 of the Customs Act, 1962.
7.5 It was further submitted that
merely because the petitioners have
accepted the levy of service tax on the
Software under the provisions of the
Finance Act, 1994, the respondent
authorities need not be restrained from
carrying out further verification and
investigation pursuant to the impugned
show cause notice and whether to levy
customs duty in addition to service tax
which is already paid by the petitioners
is required to be considered at the time
of adjudication of the show cause notice.
It was therefore, submitted that at the
stage of issuance of show cause notice
merely because the petitioners have
accepted the liability for payment of
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
service tax on the Software on the basis
of reverse charge mechanism, further
proceedings should not be stalled.
7.6 It was further submitted that the
document gathered from the investigation
by DRI clearly suggest and show that the
petitioners had entered into a contract
for value of the diamond cutting machines
along with Software and what was imported
is machine which was agreed to be
purchased by the petitioners and as such,
by splitting the value being 1/3rd for
Hardware and 2/3rd for Software is nothing
but the intention of the petitioners to
evade the payment of custom duty.
7.7 In support of his submission,
reliance was placed on the following
averments made in the affidavit in reply
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
filed on behalf of respondent nos. 2 and
3:
"5.3. As per the scheme of things,
prior to the year 2008, the
importers of diamond scanning
machines have obtained one single
invoice constituting the entire
value (including the hardware and
software) and have declared the
same to the customs authorities at
the time of import and availed
concessional rate of duty under
EPCG scheme. After 2008, the
importers have insisted on two
separate invoices viz. one for the
hardware portion and another for
the software portion and have
systematically declared only the
invoice for the hardware portion
while suppressing the invoice
issued for the software portion so
as to evade payment of customs
duty. This scenario changed after
mid 2012 when DGCEI had initiated
enquiry on service tax evasion on
the invoices issued for software
portion. With a view to avoid
payment of service tax (at the
rate of 12.5%), the importers
again switched to the old practice
of obtaining one single invoice
constituting the hardware and
software portion and declared the
same before the customs
authorities at the time of import
and availed concessional rate of
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
duty at the rate of 3% under EPCG
scheme.
5.4. It is submitted that the
present case is not a case of
double taxation. The Petitioner
Company had indulged into
fraudulent practice of obtaining
two separate invoices for the
value of diamond scanning machines
and declared only the invoice (for
the hardware portion) for a lower
value before the customs
authorities while suppressing the
other invoice (for the software
portion) for a higher value from
the customs authorities. As the
value of the diamond scanning
machines has been mis-declared an
offence case of evasion of customs
duty has been booked against the
Petitioner company. As the
Petitioner company have
deliberately committed a fraud in
mis-declaration of the value of
the diamond scanning machines
before the customs authorities
which has been unearthed by DRI,
the Petitioner is crying foul of
double taxation to hoodwink this
Hon'ble Court.
5.5. These machines have been used
in the Diamond Industry from 2000
onwards. Till 2008 these machines
were always imported as a single
unit and tax was paid accordingly.
It is note worthy that it is the
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
entire composite machine (hardware
and software) that is considered
as a single unit based on which
customs duty is imposed. That the
petitioner evolved a novel
procedure by requesting the
manufacturer to send him two
separate invoices for duty
purposes whilst customs duty is to
the tune of 23% whereas service
tax liability is only to the
extent of 12.5%, which is why the
said machines were consciously and
deliberately undervalued in so far
as the hardware is concerned and
grossly overvalued in so far as
the software is concerned. Further
it is pertinent to note that the
software as per the say of the
manufacturer comes free of cost.
5.6. The petitioner company has
involved in a calculated fraud in
evading customs duty by getting
split the value of the various
diamond scanning machines imported
by them from M/s.Sarin
Technologies Ltd., Israel, into
two parts viz. one for the
hardware and one for the software
portions. The value of the
hardware was deliberately for a
lower value i.e. 1/3rd of the
total cost of the diamond scanning
machines and the value of the
software was for a higher value
i.e.2/3rd of the total cost of the
diamond scanning machines.
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
5.7. The Petitioner company had
deliberately requested for two
quotations and two separate
invoices with a view to
systematically evade payment of
appropriate customs duty by
declaring only the invoice issued
for the hardware portion for a
lower value which was received
along with the machine at the time
of import while suppressing the
invoice issued for the software
portion from the department, which
was subsequently received by
courier.
5.8. The evidences gathered and
the statement recorded from the
representative of the supplier
company in India reveal that the
cost of the diamond scanning
machines remained the same since
last 7 years and the price list
also do not indicate any separate
cost for the hardware or software.
5.9. The CEO of the supplier
company in India, in his statement
had categorically stated that the
cost of the machine includes the
software for the said machine
which was supplied free along with
the machine. He further stated
that the cost of the diamond
scanning machine was split by
issuance of invoices for hardware
and invoices for software only at
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
the instance of the buyer i.e. the
Petitioner company in the present
case.
5.10. The Petitioner company has
gravely mis-lead this Hon'ble
Court by mis-representing the
facts that the case against them
for evasion of service tax has
attained finality. The Petitioner
Company has not appended the copy
of the appeal filed by them with
the appropriate authority whereby
they have accepted the order of
the adjudicating authority and
appealed against the penalties
levied against them.
xxx
5.13. The service tax component is
only 12.5% whereas, the customs
duty component is 21.52% in 2009
and 23.89% in 2010. It may be for
this reason that the Petitioner
company claims to have accepted
the order of the adjudicating
authority confirming the service
tax demand which was for the
period from 2008 to 2013 which
includes other software programmes
procured by the Petitioner company
procured from other overseas
suppliers such as M/s.DiamSoft
Company Inc., UAE. Whereas, the
customs duty demand is only for
the period from 2009 to mid-2012
i.e. only the cases where two
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
separate invoices were issued by
M/s.Sarin Technologies Ltd.,
Israel, alone were considered."
7.8 It was further submitted that the
evidence gathered during the course of
inquiry initiated by DRI reveals that the
petitioners at the time of placing order
for diamond scanning machines had
specifically requested for two separate
invoices by splitting value of diamond
scanning machine i.e. one for Software
portion and another for Hardware portion
being a modus operandi of undervaluation.
It was therefore,submitted that merely
because the service tax is paid by the
petitioners on the Software invoice cannot
prevent the respondent from carrying out
the adjudication of the impugned show
cause notice as the custom duty is to be
paid on Hardware/machine which is imported
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
by the petitioners which included the
Software also and therefore, the
petitioners are liable to make payment of
value of custom duty on the valuation of
Software which is embedded in the machine
which is imported.
7.9 In support of his submission,
reliance was placed on the decision of
Hon'ble Apex Court in case of Tata
Consultancy Services v. State of A.P.
reported in (2005) 1 Supreme Court Cases
308, wherein in the Apex Court in facts of
the case before it, has explained what is
Software as under:
"78. A software may be
intellectual property but such
personal intellectual property
contained in a medium is bought
and sold. It is an article of
value. It is sold in various forms
like floppies, disks, CD-ROMs,
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
punch cards, magnetic tapes, etc.
Each one of the mediums in which
the intellectual property is
contained is a marketable
commodity. They are visible to
senses. They may be a medium
through which the intellectual
property is transferred but for
the purpose of determining the
question as regards leviability of
the tax under a fiscal statute, it
may not make a difference. A
programme containing instructions
in computer language is subject
matter of a licence. It has its
value to the buyer. It is useful
to the person who intends to use
the hardware, viz., the computer
in an effective manner so as to
enable him to obtain the desired
results. It indisputably becomes
an object of trade and commerce.
These mediums containing the
intellectual property are not only
easily available in the market for
a price but are circulated as a
commodity in the market. Only
because an instruction manual
designed to instruct use and
installation of the supplier
programme is supplied with the
software, the same would not
necessarily mean that it would
cease to be a 'goods'. Such
instructions contained in the
manual are supplied with several
other goods including electronic
ones. What is essential for an
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
article to become goods is its
marketability.
79. At this juncture, we may
notice the meaning of canned
software as under:
"(7) 'Canned software' means
that is not specifically
created for a particular
consumer. The sale or lease
of, or granting a license to
use, canned software is not
automatic data processing and
computer services, but is the
sale of tangible personal
property. When a vendor, in a
single transaction, sells
canned software that has been
modified or customized for
that particular consumer, the
transaction will be considered
the sale of tangible personal
property if the charge for the
modification constitutes no
more than half of the price of
the sale."
7.10 Referring to the above decision,
it was submitted that the Software
embedded in the machine imported by the
petitioners is therefore, liable to custom
duty irrespective of the service tax paid
by the petitioners on the amount shown in
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
separate invoices for software as there is
no correlation between invoices of
Hardware which is imported as well as the
receipt of Software through separate
invoices. It was therefore, submitted that
no interference may be called for while
exercising extraordinary jurisdiction
under Articles 226 and 227 of the
Constitution of India.
8. Having heard the learned advocates for
the respective parties and considering the
facts of the case as well as the material
placed on record, it appears that up to
2008, the petitioners were importing the
machines showing the value of Software in
the composite invoices which included both
Hardware and Software and from 2009 till
2013, the petitioners have imported the
machines showing value of only Hardware
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
and separate invoice for Software is
obtained from the supplier for which
separate payment is made which is the
subject matter of levy of service tax
under the provisions of Finance Act, 1994.
9. The adjudicating authority under the
provisions of the Service Tax i.e. The
Commissioner of Central Excise, Customs &
Service Tax, Surat by the order-in-
original dated 19.08.2014 has confirmed
the levy of service tax on the invoice of
Software obtained by the petitioners on
the ground that the same would be covered
under the category of taxable service i.e.
"Information Technology Software Services"
as specified in section 65(105)(zzzze) of
the Finance Act, 1994 read with the
provision of Rule 3 of the Taxation of
Services (Provided from Outside India and
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
Received in India) Rules, 2006, Rule 2(1)
(d)(iv) of the Service Tax Rules 1994,
Rule 2(1)(d)(i)(G) of the Service Tax
Rules, 2012 and Rule 3 of Provision of
Services Tax Rules, 2012 read with
provisions of section 66A of the Finance
Act, 1994. The adjudicating authority
while coming to the conclusion that
invoice obtained by the petitioners for
Software amounts to service and has been
discussed in the Order-in-original as
under :
"17. On careful examination of
services provided by M/s Sarin,
M/s Galatea and M/s DiamSoft as
discussed in the impugned Show
Cause Notice, I find that the
aforesaid Softwares are Tailor
Made Software/ Customized
Softwares, exclusively developed
for Diamond manufacturing
companies by the aforementioned
foreign software companies and
cannot be used in any other
industry. Further, the said
software is not mass-market
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
product generally available in
packaged form off-the-shelf in
retail outlets, as the same are
being directly supplied via Email/
Internet by the said foreign
companies from abroad to the buyer
diamond manufacturing company.
Further, I observe that M/s JB had
placed the order for said taxable
services directly to the said
foreign companies and these
companies had issued the invoices
directly in the name of M/s JB and
had supplied the software and/or
License / Right to use / End use
agreement to them only. I find
that this fact, supra, has been
discussed in a very logical way by
providing with detailed
illustrations of relevant bills,
Invoices etc. in the impugned Show
Cause Notice. I find that M/s JB,
either in their defence reply or
at the time of personal hearing,
have not rebutted, on this score,
with satisfactory logic and
reasoning. Further, M/s JB had
made the payment for the said
services by remitting the amount
in convertible foreign currency to
these foreign companies. The said
foreign companies are owner of the
said Software and M/s JB had paid
them the amount for License /
Right to use/End User License and
purchase of software for their
commercial / business use and they
cannot alter/amend the said
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
software. I hold that the
Softwares provided by the said
Companies are covered under
"Information Technology Software"
as defined under Section 65 (53a)
of the Finance Act, 1994. The
services provided in the form of
various Softwares and its
licenses/Right to use/End-use
License are covered under the
category of taxable service, viz.
"Information Technology Software
Service", as specified in Section
65(105)(zzzze) of the Finance Act,
1994. The aforesaid foreign
companies are not having permanent
fixed establishment or business
establishment or permanent address
or usual place of residence in
India and whereas M/s JB, the
recipient of such service, are in
possession of their place of
business, fixed establishment,
permanent address or usual place
of residence in India. Therefore,
in view of provisions of Rule 3 of
Taxation of Services (Provided
from Outside India and Received in
India) Rules, 2006; Rule 2(1)(d)
(iv) of Service Tax Rules, 1994,
Rule 2(1)(d)(i)(G) of Service Tax
Rules, 2012; Rule 3 of the Place
of Provision of Services Rules,
2012 and the provisions of Section
66A of the Finance Act, 1994,
which are discussed at length in
the impugned notice and not
repeated here for the sake of
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
duplication, I hold that M/s JB,
as a recipient of taxable service
of "Information Technology
Software Services" as defined
under Section 65(105)(zzzze) of
the Finance Act, 1994, is liable
to pay Service Tax under reverse
charge mechanism. M/s JB owns the
manufacturing/ processing unit at
Surat and has utilized the said
Information Technology Software
Services at their Surat premises
and they, therefore, after
initiation of inquiry by DGCEI,
obtained Service Tax Registration
at their Surat address as
mentioned above and paid amount of
Service Tax is, therefore, rightly
required to be demanded from the
registered premises shown in
Service Tax Registration. M/s JB,
as a recipient, had not paid
Service Tax on the Information
Technology Software Service, under
reverse charge mechanism under
Section 66A of Finance Act, 1994.
However, after initiation of
inquiry, they, as a recipient,
paid the amount of
Rs.1,13,60,916/-as Service Tax
payable on all the foreign
currency payment made against the
Softwares for which they had
obtained the Right to use from M/s
Sarin Technologies Ltd. and M/s
Galatea Ltd., both of these
companies from Israel and from M/s
DiamSoft Company Inc., UAE during
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
the period from 16.05.2008 to
31.07.2013, under the category of
Information Technology Software
Service in terms of Section 66A of
the Finance Act, 1994. Therefore,
I hold that this amount of Service
Tax paid by them is rightly
required to be appropriated
against the demand of Service Tax
and the payment made by them under
protest does not hold any logic on
the basis of the facts as
discussed in the foregoing
paragraphs and, hence, requires to
be rejected.
18. I further observe that M/s JB
had not paid any Customs duty on
the said Software as the same were
delivered through Email /
Internet, from the said foreign
software companies, as clearly
mentioned in the invoices,
treating the same as service and
the payment has been made only for
obtaining the 'right of use' of
the said software via
E-mail/Internet, for processing of
rough diamonds. As such, their
defence of bringing such software
by Engineers is not acceptable.
The defence contention of M/s JB
that M/s Sarin Technologies India
Pvt. Ltd. is a permanent
establishment of M/s Sarin and M/s
Galatea has already been correctly
dealt in the impugned notice. I
find that the noticee, in their
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
defence, failed to come up with
any new argument, hence, I also
endorse the same view as discussed
in the impugned Show Cause
Notice."
10. Thereafter conclusion is recorded as
under :
"22. In light of the facts
discussed herein above and the
material evidences available on
records, it is established that
M/s JB has contravened the
following provisions of Chapter V
of the Finance Act, 1994 and the
Service Tax Rules, 1994 with
intent to evade payment of Service
Tax in respect of taxable services
viz. "Information Technology
Software Services" received by
them from the aforesaid companies
based outside India during the
period from 16.05.2008 to
31.07.2013, under reverse charge
mechanism:
(i) Section 67 of the Finance Act,
1994 read with Rule 7 of the
Service Tax (Determination of
Value) Rule, 2006 in as much as
they have failed to determine the
value of the aforesaid taxable
services received from above
companies based outside India.
(ii) Section 68 of the Finance
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
Act, 1994 read with Rule 6 of the
Service Tax Rule, 1994 in as much
as they failed to pay appropriate
Service Tax on the due dates.
(iii) Section 69 of the Finance
Act, 1994 read with Rule 4 of
Taxation of Services (Provided
from Outside India and Received in
India) Rules, 2006 and Rule 4 of
the Service Tax Rules, 1994 in as
much as they, as a recipient, have
failed to make an application to
the jurisdictional officer for
registration under the service
categories of "Information
Technology Software Services"
within the period prescribed.
(iv) Section 70 of the Finance
Act, 1994 read with Rule 7 of the
Service Tax Rules, 1994 in as much
as they, as a recipient, have
failed to furnish proper
periodical returns in form ST-3
mentioning the particulars of the
aforesaid taxable services
received by them from abroad, the
value of taxable service
determinable and other particulars
in the manner as provided therein
and incorporating the required
information to the jurisdictional
Superintendent of Service Tax.
(v) Rule 5 of the Service Tax
Rules, 1994 in as much as they
have failed to furnish to
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
jurisdictional Superintendent of
Service Tax a list of all the
accounts maintained by them in
relation to Service Tax payable
under Reverse Charge Mechanism.
(vi) Section 66A of the Finance
Act, 1994 read with Rule 3(iii)(c)
of the Taxation of Service
(Provided from Outside India and
Received in India) Rules, 2006
till 30.06.2012 and thereafter
Rule 2(1)(d)(i)(G) of the Service
Tax Rules, 2012 w.e.f. 01.07.2012
in as much as they have failed to
pay the Service Tax within the
prescribed time, as a recipient of
said taxable services provided by
the said companies based outside
India, in the manner and at the
rate as provided under the said
provisions.
23. Further, I find that all the
acts, supra, of contravention
constitute an offence of the
nature as described under the
provisions of Sections 77 and 78
of the Finance Act, 1994, rendered
themselves liable to penalty under
Section 77 ibid separately for
failure to make an application to
the jurisdictional officer for
Service Tax registration under the
service categories of "Information
Technology Software Services", as
a recipient, within the period
prescribed as well as also for
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
failure to pay Service Tax by due
dates and not furnishing the
information in respect of import
of above taxable service provided
by companies based outside India
and taxable value thereof in
prescribed periodical ST-3 returns
as well as under Section 78 of the
Finance Act, 1994 for suppression
of taxable value of said taxable
services received from abroad with
intent to evade payment of Service
Tax leviable thereon.
24. As regards their submission
and the case laws relied upon, it
may be mentioned that most of the
arguments have already been dealt
by me during the above discussion.
Further, as regards to their
reliance on case law of Microsoft
Corporation (I) Pvt. Ltd., it may
be mentioned that it relates to
purchase of software/software
products in retail segment; case
law of Tata Consultancy Services &
Infosys Technology Ltd. relates to
sales of computer softwares
whereas, in the instant case the
issue is with regard to non-
payment of Service Tax on receipt
of taxable services. As regards
Mumbai and Bengaluru
Commissionerates views referred, I
find that based on this, no final
conclusion can be arrived at vis-
à-vis the issue on hand."
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
11. The adjudicating authority under the
service tax has also taken into
consideration the decision of Tata
Consultancy Services & Infosys Technology
Ltd.(supra) relied upon by the petitioner
in support of the defence that the
Software purchased by the petitioners is a
Tailor Made Software and cannot be
considered as canned Software so as to
attract the service tax but the same has
been distinguished by the adjudicating
authority to hold that the said decisions
relate to sale of computer software
whereas in the facts of the case, the
issue is with regard to payment of service
tax on receipt of taxable services.
12. The Hon'ble apex Court in case of Tata
Consultancy Services(supra) has arrived at
the conclusion that the canned software
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
which is available for sale and to be used
by any person who owns such Software
having license to use is an article of
goods and not service liable to sales
tax. Same analogy cannot be applied to the
Software purchased by the petitioners to
run the imported diamond scanning machine
for which separate invoice is obtained. It
is pertinent to note that the petitioners
have accepted the liability to pay the
service tax as recorded by this Court in
para no.5 of order dated 2.12.2014 in
Special Civil Application No.14127 of 2014
wherein it is noted that the petitioner
does not dispute its service tax liability
and has accepted the principal component
of tax without appeal.
13. The Hon'ble Apex Court in case of
Union of India and another v. Mohit
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
Minerals Private Limited through Director
reported in (2022) 10 Supreme Court Cases
700 while dealing with levy of GST on the
ocean freight which is part of composite
supply of CIF value of the goods imported
has held as under :
"171. Based on the above
discussion, we have reached the
following conclusion:
xxxxx
171.2. On a conjoint reading of
Sections 2(11) and 13(9) of the
IGST Act, read with Section 2(93)
of the CGST Act, the import of
goods by a CIF contract
constitutes an "inter-State"
supply which can be subject to
IGST where the importer of such
goods would be the recipient of
shipping service.
171.3. The IGST Act and the CGST
Act define "reverse charge" and d
prescribe the entity that is to be
taxed for these purposes. The
specification of the recipient in
this case the importer-by
Notification No. 10 of 2017 is
only clarificatory. The Government
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
by notification did not specify a
taxable person different from the
recipient prescribed in Section
5(3) of the IGST Act for the
purposes of reverse charge.
171.4. Section 5(4) of the IGST
Act enables the Central Government
to specify a class of registered
persons as the recipients, thereby
conferring the power of creating a
deeming fiction on the delegated
legislation.
171.5. The impugned levy imposed
on the "service" aspect of the
transaction is in violation of the
principle of "composite supply"
enshrined under Section 2(30) read
with Section 8 of the CGST Act.
Since the Indian importer is
liable to pay IGST on the
"composite supply", comprising of
supply of goods and supply of
services of transportation,
insurance, etc. in a CIF contract,
a separate levy on the Indian
importer for the "supply of
services" by the shipping line
would be in violation of Section 8
of the CGST Act."
14. The above decision would apply
conversely in facts of the case as when
there is composite supply of goods and
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
service, the tax is to be levied at one
point only similarly when in facts of the
case when service tax is already levied on
reverse charge mechanism by the Service
Tax Authority on the Software purchased by
the petitioner, the same cannot be
subjected again to custom duty and
therefore, the very basis of issuance of
impugned show cause notices for levy of
custom duty on the alleged suppression of
value of Software cannot be sustained.
15. In view of foregoing reasons ,we are
therefore of the opinion that once the
liability to pay service tax is already
crystalised on the very same transaction
of import of Software, the same cannot be
considered as part of the goods being
Hardware imported by the petitioners.
Under the circumstances, all the petitions
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
are allowed. The impugned show cause
notices are accordingly quashed and set
aside Consequently, the order-in-originals
are also hereby quashed and set aside.
16. At this stage, learned Senior Advocate
Mr. Tushar Hemani for the petitioners of
Special Civil Application No.6869/2016
submitted that the petitioners had made
payment of Rs. 50,00,000/- under protest
at the time of provisional release of
goods, the same may also be ordered to be
refunded as ordered by this Court in
Special Civil Application No.14127 of 2014
dated 2.12.2014.
17. In view of above findings that the
impugned show cause notices and order-in-
originals cannot be sustained and are
NEUTRAL CITATION
C/SCA/16691/2014 JUDGMENT DATED: 25/06/2025
undefined
accordingly quashed and set aside, the
respondent authorities are directed to
refund the amount of Rs. 50,00,000/-
deposited by the petitioners within a
period of 12 weeks from the date of
receipt of a copy of this order.
18. Rule is made absolute to the aforesaid
extent. No order as to costs
(BHARGAV D. KARIA, J)
(PRANAV TRIVEDI,J)
RAGHUNATH R NAIR
