Holding

The country‑wide licence fee is not a charge for the right to reproduce the imported software and must be included in the transaction value, so SBI is not entitled to any customs duty refund.

Summary

State Bank of India (SBI) imported computer software and manuals from Ireland and paid customs duty on the full invoice value of US$4,084,475. SBI later claimed a refund, arguing that only the cost of the software for a single site (US$401,047) should be assessable, while the country‑wide licence fee (US$3,683,428) was a reproduction charge exempt under Rule 9(1)(c) and a 1992 Press Note. The Customs authorities rejected the claim, and the matter progressed through the Collector (Appeals) and the Customs, Excise and Gold (Control) Appellate Tribunal before reaching the Supreme Court. The Court examined the meaning of “royalties and licence fees” under the Customs Valuation Rules, the exception for reproduction charges, and the scope of the Press Note, concluding that the country‑wide licence fee was not a reproduction charge but part of the transaction value. Consequently, SBI was not entitled to any refund of customs duty.

Issues considered

The nature of the country‑wide licence fee: whether it is a royalty/licence fee to be added to the transaction value under Rule 9(1)(c).
Whether the charge for the right to reproduce imported software falls within the exception in the interpretative note to Rule 9(1)(c).
The applicability of the Press Note dated 17 March 1992, which exempted reproduction charges from customs duty, to the country‑wide licence fee.
Whether the transaction value for customs valuation should be limited to the single‑site software cost or include the entire invoice amount.
Whether SBI is eligible for a refund of customs duty under Section 27 of the Customs Act, 1962.

Legislation cited

Customs Act, 1962s. 14, s. 27

Subjects

customs dutyvaluationtransaction valuesoftware licencereproduction chargesCustoms Valuation RulesPress Note 1992refundSection 27Section 14

Judgment

STATE BANK OF INDIA A
v.
COLLECTOR OF CUSTOMS, BOMBAY

JA.'WARY 11, 2CCO

[S.P. BHARUCHA, D.P. WADHWA A.l\ID B
N. SANTOSH HEGDE, JJ;]

Customs Act, 1962, Sections 14, 27-Customs Valuation (Determina·
tion of Price of Imported Goods) Rules 19/jB, Rule 9(1)(c) & Interpretative
Note and Press Note dated March 17, 1992 of the Department of Electronics, C
Government of India-State Bank of India importing consignment of Com-
puter Software and Manuals-Transaction Valu~ Determination of Claim
for refund by SBI-Rectification of assessment-Break up of the invoice
amount in respect to cost of manuals and diskettes, single site licence fee and
countrywide licence fee-Held: Countrywide use of software and reproduction D
of software are two different things-SB/ can use the software for its require-
ments only and not for reproduction of the software as claime~SBI claiming
refund of excess amount of customs duty based on break up of the invoice
amount-Held : SB/ not entitled to any refund of customs duty paid.

The appellant, State Bank of India imported a consignment of E
Computer Software and Manuals from an Irish l<'irm in Dublin of value
of US $ 4 million equivalent to Rs. 1075 lakhs. A bill of Entry dated July
19, 1991 along with the invoice of the Dublin firm was filed and the goods
cleared for home consumption on July 25, 1991 after paying customs duty
of Rs. 1254 lakhs.
F
Subsequently, on August 7, 1991 SBI filed an application for refund
of customs duty of Rs. 1086 la!dts before the Additional Collector of
Customs relyin3 on the Detailed invoice which gave particulars of the
imported Softmtre and Manuals, submitting that the basic cost of software
installed at the Bombay Site was CS $ 401407 while the amount of US $ G
3,683, 428 was payable only as licence fees to use the said software and that
customs duty had been paid on the total value shown in the Bill of Entry.

In support of the aforesaid claim of refund for Rs. 10,86,49,119
reliance was placed 011 Rules 2, 3, 4, 9(1)(c) and 12 and the interpretative
Note to Rule 9(1)(c). H
137
138 SUPREME COURT REPORTS [2000] 1 S.C.R.
A By order dated February 29, 1992 the AssMant Collector rejected
the claim for refund. An appeal was filed before the Collector (Appeals).
During the pendency of this appeal, GOI issued a Press Note dated March
17, 1992 directing that customs duty was not to be levied on reproduction
charges. The Collector (Appeals) by order dated October 12, 1992
B remanded the matter back to the Assistant Collector to re-examine the
case afresh and decide the issue in view of the aforesaid Press Note.

On remand, the Assistant Collector, after giving a personal hearing
to SBI dismissed the claim for refund. This was upheld by the Collector
(Appeals) who dismissed the appeal of SBI. Further appeal to CEGAT was
C dismissed by the impugned judgment. Hence this appeal.

Dismissing the appeal, this Court

HELD : 1. Section 14 of the Customs Act provides for valuation of
goods for purposes of assessment, and the whole thrust thereof is to find
D out the value of the goods being imported for the purpose of assessment
of duty of customs. In view of sub-section (IA) of Section 14, Rules have
been framed. These Rules apply to imported goods where a duty of customs
is chargeable by reference to their value. [147-E-F; 148-C-D]

2. "Transaction Value" under clause (t) of Rule 2 has been defined
E to mean the value determined in accordance with Rule 4. Rule 3 says that
for the purposes of these Rules value of imported goods shall be the
transaction value. Under Rule 4 transaction value of the imported goods
shall be the price actually paid or payable for the goods when sold for
export to india, adjusted in accordance with the provisions of Rule 9 of
F the Rules. Rule 9 provides, in so far as it is relevant, that in determining
the transaction value there shall be added to the actually paid or payable
for the imported goods, royalties and licence fees that the buyer is required
to pay, directly or indirectly, as a condition of the sale of goods being
• valued, to the extent that such royalties and fees are not included in the
G price actually paid or payable. [148-D-F]
3. An Interpretative Note is appended to Rule 9(1)(c). It says that
royalties and licence fees may include, among other things, payments in
respect of patents, trade marks and copyrights. There is, however, an•
exception which says that the charges for the right to reproduce the
H imported goods in the country of importation shall uot be added to the
S.B.L v. COLLECTOR OF CUSTOMS 139

price actually paid or payable for the imported goods in determining the A
customs value. Further payments made by the buyer for the right to
distribute or resell the imported goods shall not be added to the price
actually paid or payable for the imported goods if such payments are not
conditio11 of the sale for the exports to the country of importation of the
imported goods. [148-F-H]
B
4. The purpose of the Press Note dated March 17, 1992 issued by
GOI was two fold; (1) to bring down the prices of the imported software
and (2) to save precious foreign exchange outflow on several copies of
imported software. The case of SBI is that only one set of diskettes was
imported which comprised the software programme. This was to be kept C
in the "Support Centre" at Bombay and as and when the software
programme had to be made available to the branches of the Bank, copies
of these programmes were to be taken on blank floppies and sent to
branches for use. It was stated that this process is reproduction. The
agreement refers to licence fee payable in respect of single site in Schedule-
1 and Schedule-II refers to the fees for the countrywide licence and both D
are indicated separately. The claim for refund was in respect of Schedule-
Il. Though the original invoice did not show the split up of the detailed
invoice which was received later on did show licence fee for use at single
site (including cost of manuals and diskettes) and that for the right to use
countrywide. [149-A-B; 154-E-G] E
5. Countrywide use of the software and reproduction of software are
two different things and licence fees for countrywide use cannot be con-
sidered as the charges for the right to reproduce the imported goods.
Under the agreement, copying, storage, removal, etc. are under the strict
control of Kindle and all copies are the property of Kindle. SBI can use F
the software for its internal requirements only. Licence has been given to
SBI to use the property of Kindle at its branches and not for reproduction
of the softwl!re as claimed by SBI. The words in the agreement are specific
that "SBI shall pay the licensor the initial licence fee and the recurring
licence fees for use under the provisions of this agreement". [155-F-G] G
6.1. Countrywide licence fee paid pay SBI was VS $ 40,84,475 which
· was correctly taken as assessable value. [156-C]

6.2. The act of reproduction is only the intermediary stage in the
process of putting the programme to countrywide productive use. The term H
140 SUPREME COURT REPORTS (20CO] l S.C.R.
A productive use has been defined in clause 18 of the agreement which means j
use of software or any part thereof to process all or part of S.Bl's actual
business transaction in parallel or live mode. The amount of t.:S $
3,683,428 has been paid as licence fee for countrywide use of software to
process all or part of SBl's actual business transaction and not for
B acquiring the right to use the software programme. [156-E-F]

6.3. Reproduction and use are two different things. Now under the
agreement user is specifically limited to licence sites. Transaction as a
whole is to an be seen. Press Note is of no help to the SBI. Rule 9(l)(c)
C and the interpretative note thereto did not apply as nothing was added to
the price actually paid for the imported goods by way of royalties, etc.
Refund would be allowable only if there was something added on to the
royalty payment which was not in the present case. (157-A·B]

7. At the time when Bill of Entry was filed there is no doubt that what
D
was mentioned in column 9 was the transaction value which is covered by
the definition givea in clause (f) of Rule 2 of the Rules. The invoice
originally presented was complete in itself. Second invoice was not filed
along with the Bill of Entry. In the second invoice also it is licence fee for
right to use countrywide and it is not right to reproduce as claimed by SBI.
E Schedule 1 to the agreement is module and copies are modalitie~ for the
use of software by SBI with various restrictions. [155-C; 157-B-C]

8. Under Clause 6.4 of the agreement there is a complete restraint
F on SBI which says SBI shall not use, print, copy, reproduce or disclose the
software or documeatation in whole or in part except as is expressly
permitted by the agreement nor shall SBI permit any of the foregoing. SBI
is also barred from allowing access to its software or documentation except
what is permitted under the agreement. Again SBI is barred from selling,
charging or otherwise malting the software or documentation available to
G any person except what is expressly permitted under the agreement. Clause
6.5 of the agreement says that SBI shall not copy or permit copying of the
software supplied to it by Kindle save as may be strictly required for
delivery to licen::e sites. The terms of the agreement also apply to the
copies. SBI is, therefore, not entitled to any refund of the customs duty
fl paid. [157-C-F]
S.B.I. v. COLLECTOR OF CUSTOMS [D.P. WAD HWA, J.) 141

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2935 of A
1996.

From the Judgment and Order dated 29.9.95 of the Central Excise,
Customs and Gold (Control) Appellate Tribunal, New Delhi in A No.
C/641/94-A in F.O. No. 503 of 1995-A.
B
Soli J. Sorabjee, R.F. Nariman, Ravinder Narain, Ferd Sorabjee, Ms.
Amrita Mitra, Ms. Yasmin Godrey, Ranjan Narain, Ms. Sonu Bhatnagar,
Asis Gupta, Janesh Baweja, Ms. Padmini Kumari, Advs. for M/s. JBD &
Co. for the Appellant
c
Harish N. Salve, Solicitor General, Ms. Nisha Bagchi and P. Par-
meshwaran for the Respondent.

The Judgment of the Court was delivered by
D
D.P. WADHWA, J. State Bank of India (SBI) is aggrieved by the
order dated September 29, 1995 of the Customs, Excise and Gold (Control)
Appellate Tribunal (for short, the 'Tribunal') rejecting its claim for refund
of customs duty amounting to Rs. 10, 86, 49,119. The claim for refund has
been made under Section 27 of the Customs Act, 1962 and it is alleged that E
the excess amount of customs duty could not have been levied in view of
the provisions of the Customs Valuation (Determination of Price of Im-
ported Goods) Rules, 1988 (for short, the 'Rule') framed thereunder and
the Press Note date March 17, 1992 of the Department of Electronics,
Government of India.
F
SBI imported a consignment of Computer Software and Manuals
from Kindle Software Ltd., Dublin, Ireland ('Kindle' for short) of the value
of t:S$ 4, 084,475.00 (equivalent to Rs. 10,75,70,267.25). SBI filed a Bill of
Entry No. 5209 dated July 19, 1991 along with the Invoice of Kindle bearing
No. 910701 dated July 3, 1991 for the aforesaid amount and after paying G
customs duty of Rs. 12,04, 78,699 on July 25, 1991 cleared the goods for
home consumption. On August 7, 1991 SBI filed an application before the
Additional Collector of Customs, Bombay claiming refund of customs duty
of Rs. 10,86,49,119. It said that it had since received a detailed invoice
which gave the particulars of imported Software and Manuals as under : H
142 SUPREME COURT REPORTS [2000) 1 S.C.R.

A "Particulars Cost

46 Diskettes and 82 Manuals US$ 14,300

Licencing foe for use of the software
at singlt: site CS$ 386,747
B
Total Cost of the software for use at
one site (including Diskettes & Manuals) US$ 401,047

Licencing fee for use of software
country· wide US$ 3,683,428
c
TOTAL US$ 4,084,475

SBI, therefore, said that though it had paid customs duty on the total
value shown in the Bill of Entry, the basic cost of software which was to
D be installed at one site in Bombay was US $ 401,047 while the rest of the
amount of CS $ 3,683,428 was payable only as licence fees for its right to
use the software for the bank country-wide. SBI, therefore, said that it was
required to pay customs duty for the consignment of software on an
amount of L'S $ 401,047 only which included the cost of Manuals, Diskettes
and licence fee and not on the whole amount shown in the Bill of Entry.
E In support of its daim SBI referred to tht: relevant Rules, tht:se bi.:ing Rules
2, 3, 4, 9(1)(c) and 12 of the Rules and the interpretative Note to Rule
9(1)(c) 1. On the strength of the interpretative Note to Rule 9(1)(c) the SBI
said that charge for the right to reproduce the imported goods in the
2.Dejinition (1) In these rules, unless the context otherwise requires.-
(a) to (c) .....
F (f) "transaction value• means the value determined in accordance with Rule 4 of
these rules.
(2) ...........
3. Determination of the mt:thod of valuation. - for the purpose of these rules,-
(i) The value of imported goods shall be the transaction value;
(ii) if the value ""nnot be determined under the provisions of clause (i) above,
G the value shall be determined by proceedings sequentially through Rules 5 to 8
of these rules.
4. Transaction value. (1) The transaction value of imported goods shall be the price
actually paid or p•yable for the goods when sold for export to India, adjusted in
accordance with the provisions of Rule 9 of these rules.
(2) The transaction value of imported goodi; under sub-rule (I) above shall be accepted:
H provided that... ..
S.B.L v. COLLECTOROFCUSTOMS[D.P. WADHWA,J.j 143

country of importation should not have added to the price actually paid or A
payable for the imported goods in determining the customs value. SBI,
therefore, requested that assessment made in respect of the consignment
imported by it be rectified and that the breakup of the invoice amount in
respect of( 1) the cost of the manuals and diskettes, single site licence fee
and (2) countrywide Licence fee shown on the Bill of Entry earlier at the
time of c!t::arancc of the goods. With this application SBI also sent a copy
B
of another invoice from Kindle bearing the same number and the date and
for the same amount of US $ 4,084,475.00, now bifurcating the amount. We
~,

(
may set out here both the invoices, one that is file with the Bill of Entry
and the other with the application seeking refund of the custom duty.
c
"INVOICE

STATE BANK OF INDIA,
CENTRAL OFFICE,
NEW ADMINISTRATIVE BUILDING, D
MADAME CAMA ROAD,
BOMBAY 400 021,
INDIA.

E
9. Co;t and Services. (1) In determining the transaction value, there shall be added to
the price actually paid or payable for the imported goods.
(a) .... .
(b) .... .
( c) royalties and licence fees related to the imported goods that the bll}cr is required
to pay, directly or indirectly, as a condition of the sale of the goods being valued to the
extent that such royalties and fees arc not included in the price actually p~id or p~y-dble, F
(d) .... .
(e) .... .
12. Interpretative Notes. The interpretative notes specified in the Schedule to the-'C rules
shall apply for the interpretation of these rules.
Interpretative Note:
Ruic 9(1 )(c) 1. The royalties and licence fees referred to in rule 9(1 )(c) may include G
among other things, payments in respects to patents, trademarks and copyrights. How-
ever, the charges for the right to reproduce the imported goods in the countl)' of
importation shall not be added to the price actually paid or payable for the imported
goods in determining the customs value.
2. Payments made by the buyer for the right to distribute or resell the imported goods
shall not be added to the price actually paid or payable for the imported goods if such
payments are not a condition there of. H
--T
144 SUPREME COURT REPORTS [2000) 1 S.C.R.
----·----------- ~-----
A Invoice No. 910701 Credit No. 03/07/91

Your Order No.

B TO SUPPLY OF COUNTRYWIDE
LICENCE FOR INDIA FOR
BANKMASTER WITH
THE FOLLOWING MODULES : r--
\
7 CENTRAL BANKMASTER '
C 1 FOREIGN EXCHANGE
1 COMMERCIAL LENDING
1 LIMITS MONITORING
1 EXTENDED FINANCIAL RETURNS
7 BRANCH POWER
1 EASIXFER
D 1 BANK MASTER QUERY
1 GATEWAY
15 CENTRAL BANKMASTER
TRAINING MODULE
9 IBSNET MODULE
E 1 DOS BOOK DISK
QUANTITY OF GOODS :
46 DISKETTES
82MANUALS
F INSURANCE PAID IR$ 76.50
FREIGHT PAID IR S 429.40
THE COST OF ALL MANUALS IS
INCLUDED IN THE COST OF THE
SOFTWARE
G
soo Totfil ~.s $ 4,084,475
VAT
CIF BOMBAY Total . US $ 4,084,475.00
H '----- -
S.B.l. v. COLLECTOR OF CUSTOMS (D.P. WAD HWA, J.] 145

"INVOICE A
STATE BANK OF INDIA,
CENTRAL OFFICE,
NEW ADMINISTRATIVE BUILDING,
MADAME CAMA ROAD,
BOMBAY 4CO 021, B
INDIA.

Invoice No. 910701 Credit No. Date 03/07/91
Your Order No.
DETAIL OF INVOICE c
TO St:PPLY OF COUNTRYWIDE LICENCE
FOR INDIA FOR BANKMASTER WITH
THE FOLLOWING MODULES:
7CENTRALBANKMASTER
1 FOREIGN EXCHANGE D
1 COMMERCIAL LENDING
1 LIMITS MONITORING
1 EXTENDED FINANCIAL RETURNS
7 BRANCH POWER
1 EASIXFER E
1 BA."'IX MASTER QUERY
lGATEWAY
15 CENTRAL BANKMASTER-
TRAINING MODULE
9 IBSNET MODULE
lDOS BOOK DISK
F
QUANTITY OF GOODS :
46 DISKETTES
82MANUALS
INSURA.1'lCE PAID IR$ 76.50 G
FREIGHT PAID IRS 429.40
LICENCING FEE FOR USE AT SINGLE SITE
(INCLUDING COST OF MANUALS AND CS $ 401.0t?.CG
DISKETTES - US $ 14,3CG)
H
146 SUPREME COURT REPORTS [2000) 1 S.C.R.
A LICENSING FEE FOR RIGHT TO
lJS$3,683,428.00
USE COUNTRYWIDE
SubTotal US $ 4,084,475.00
VAT
Total lJS$4,084,475.00
B
SBI stated that it corresponded with Kindle and thereafter received
the second invoice showing the breakup of the single site fee and the
country-wide licence fee for use by copying and on that basis fih:d its claim
for refund of the excess amount of customs duty amounting to Rs.
c 10,86,49,119.

By order dated February 29, 1992, the Assistant Collector rejected
the refund claim of the SBI. It filed an appeal before the Collector
(Appeals). In the meantime a press note2 dated March 17, 1992 was issued
by the Government of India in the Department of Electronics which
D according to SBI, directed that customs duty was not to be levied on
reproduction charges. By order dated October 12, 1992, Collector (ap·
peals) remanded the matter back to the Assistant Collector with the
following observations :

"I find that Asstt. Collector has not given any reason why the
E countrywide use of software cannot be considered as reproduction
2
GOVT. OF INDIA
DEPARTMENf OF ELECTRONICS

F PRESS NOTE
Subject : authorised Duplication of imported software in India
In order to bring down the prices of the imported software in the countiy and also to save
precious foreign exchange outflow on several copies of imported software, the Government
of India has now decided to allow duplication of imported software provided the Indian party
has the authorisation from the manufactures/owners of the software for duplication/reproduc-
G tion the software in India.
The duplication done in the countiy will not attract any excise duty. The royalty P"Yable on
the duplicated copies of the software will be paid with the foreign exchange arr~nged by the
party. No custom duty will be leviable on the roy•lty paid. However. the Indian company will
ensure that the royalty paid by them for each copy is not more that what is being charged by
the manufactures/owners from other customers elsewhere in the world. The import of the
Master copy by the party for duplication purposes will h:wc to follow existing import proce-
H dure including payment of duty for the Master copy.
S.B.I. v. COLLECTOR OF CUSTOMS [D.P. WAD HWA, J.j 147

in the present case and also why the licence fee for countrywide A
use should not be considered the charges for the right to reproduce
the imported goods in the country of importation as mentioned in
Note to Rule 9(1)(c) of the Customs Valuation Rules, 1988. This
is perhaps the most vital question in the case which has to be
decided after due enquiry and the finding has to be a properly
reasoned one. That is missing in the impugned order. The press
B
note No. CDD/Misc/92 dated 17.3.92 issue by the Department of
Electronics has also been produced before me which was not
available to the Lower Authority when he passed the impugned
order in February 1992. This merits due consideration.
c
In view of the above, I quash the impugned order and direct
the Asstt. Collector to reexamine the case afresh and decide the
issue."

Now again after examining the matter in detail and after giving
personal hearing to the SBI, the Assistant Collector by his order dated June D
21, 1993 dismissed the claim of the SBI for refund. Appeal was taken to
the Collector (Appeals) who by order dated July 7, 1994 upheld the order
of the Assistant Collector. Further appeal was taken to the Tribunal which,
by the impugned judgment dated September 29, 1995, dismissed the same.
That is how the matter is before us. E

Section 14 of the Customs Act provides for valuation of goods for
purposes of assessment. Sub-section (1) of Section 14 provides :

"For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or
any other law for the time being in force whereunder a duty of
F
customs is chargeable on any goods by reference to their value,
the value of such goods shall be deemed to be the price at which
such like goods are ordinarily sold, or offered for sale, for delivery
at the time and place of importation or exportation, as the case
may be, in the course of international trade, where the seller and G
the buyer have no interest in the business of each other and the
-'.
price is the sole consideration for the sale or offer for sale :
/

Provided that such price shall be calculated with reference to
the rate of exchange as in force on the date on which a bill of entry H
148 SUPREME COURT REPORTS [2000] l S.C.R.
A is presented under section 46, or a shipping bill or bill of export,
as the case may be, is presented under Section 50.

Sub-section (IA) of Section 14 provides :

"Subject to the provisions of sub-section (1) the price referred to
B in that sub-section in respect of imported goods shall be deter-
mined in accordance with the rules made in this behalf."

The whole thrust of Section 14 is to find out the valm: of the goods
being imported for the purpose of assessment of duty of customs. In view
C of sub-section (IA) of Section 14 Rules have been framed. In the present
controversy we are only concerned with the interpretation of Rule 9(1)(c)
read with the Note of the Rules. These Rules apply to imported goods
where a duty of customs is chargeable by reference to their value. "Trans-
action value'' under clause (t) of Rule 2 has been defined to mean the value
D determined in accordance with Ruic 4. Rule 3 says that for the purposes
of these Rules the value of imported goods shall be the transaction value.
Under Rule 4 transaction value of the imported goods shall be the price
actually paid or payable for the goods when sold for export to India,
adjusted in accordance with the provisions of Rule 9 of the Rules. Rule 9
E provides, in so far as it is relevant, that in determining the transaction value
there shall be added to the price actually paid or payable for the imported
goods, royalties and licence fees that the buyer is required to pay, directly
or indirectly, as a condition of the sale of goods being valued, to the extent
that such royalties and fees are not included in the price actually paid or
F payable. This is Rule 9(1)(c).

Now, if we refer to the interpretative ~ote relating to Ruic 9(1)(c)
it says that royalties and licence fees may include, among other things,
payments in respect to patents, trade marks and copyrights. There is,
howevc.r, an exception which says that the charges for the right to
G reproduce the imported goods in the country of importation shall not be
added to the price actually paid or payable for the imported goods in
determining the customs value. Further payments made by the buyer for
the right to distribute or resell the imported goods shall not be added to \.
the price actually paid or payable for the imported goods if such payments
H are not a condition of the sale for the exports to the country of importations
S.BJ. v. COLLECTOR U:t CUSTOMS [D.P. WADHWA, J.] 149

= of the imported goods. A

The purpose for the Pn::ss Nute is two fold : (1) to bring down the
prices of the imported software (2) to save precious foreign exchange
outflow on servtr copies of imported software. With thi& object in view
Central Government decided to allowe duplication/reproduction of im-
B
ported softwan: in India. That being so, duplication will not attract any
excise duty. The royalty payable on duplicate copies of the software will be
paid with the foreign exchange arranged by the party. No customs duty will
be leviablc on the royalty paid. But then the Indian Party will ensure that
the royalty paid for each copy is not more than that what fr, being charged
by the manufactureriowner from other customers elsewhere in the world. c
Master Copy imported for duplication purposes will be assessed to customs
duty as per existing procedure. From the reading of the press note, it is
apparent that it would apply when there is commercial exploitation of the
imported software.
D
What we have now to see is if under the agreement SBI has right to
reproduce the imported software and for that purpose SBI has paid
"royalties and licence foe" which have been added to the price actually paid
for the imported software for use at the principal place called the Support
Centre. If that is so under the Press Note no customs duty is leviable on E
the royalty so paid. this takes us to the rdevant terms of the agreement
which would indicate as to whether or not the royalty/licence fees needed
to be included in the value of the imported goods.

The agreement is dated 29, 1991 between the SBI and Kindle (the

-- licencor) and is for the supply and support of software; it is detailed one, F
runs into 30 parts with various clauses and Schedules. If we refer to some
of the rckvant clauses we find that Kindle to provide a software to the SBI
along with manuals for the internal requin:ments only of SBI which shall
be entitled to use of the software or any part thereof to process all or part
of the actual business transaction of SBI, in parallel or live mode. Use of G
the software is strictly confined to the employees of the SBI at any branch
.• or office of SBI in India called licence site. Software and manuals are to
be delivered at one place calkd Support Centre where SBI shall maintain
its principal team of support personnel for licence sites in the country.
"Use" means copying of any portion of software into a machine and then H
iso SUPREME COURT REPORTS (2000) 1 S.C.R.

A processing of the machine instructions etc. Kindle has granted to SBI a
non-transferable and non-exclusive lictnce to use the software in India and
to provide technical assistance in the implementation of the software at the
licence sites. Use of the software and manual by the SBI is under terms of
strict confidentiality. SBI is forbidden to copy or promote a copy of the
B software save as may be strictly required for delivery to the licence sites.
Use of the software and manual outside the term of the agreement is also
forbidden. Sch.:dule-1 to the agreement describes the licensed software
modules and single site licence fees totalling VS$ 401,047. The whole
software package consisting of 12 modules is called BANKMASTER. For
C this licence fee is US $ 422,322 but since all the Modules were not agreed
to be supplied the licence fee for single site came to US $ 401,047.
Schedule-II describes the initial licence fees and recurring licence fees.
Initial licence fees for a countrywide licence in India for the software
modules specified in Schedule-I for use under the terms of the agreement
shall be US$4,084,475. This fee would be for a period of five years.
D Thereafter, it is the annual recurring licence fees as described in the
... agreement. Sch-:dules I and II, in relevant parts, may be set out :

''SCHEDULE I

Licensed Software Modules Single Site Licence Fees
E
BANK.\1ASTER FEE$

# Central BANKMASTER 102,000
# Foreign Exchange 51,000
F # Commercial Lending 18,360
# Limits Monitoring 18,360
# Extended Financial Returns 15,300
# BRA."ICH POWER 79,782
# Easixfer 10,948
# BANK MASTER Query 26,772
G # Gakway 18,400
# BRAi'\/CH NET 41,400
# Central BANKMASTER Training Module 20,000
# BRANCHPOWER Training Module 20,000

H 422,322"
S.B.I. v. COLLECTOR OF CUSTOMS [D.P. WADHWA, J.] 151

"SCHEDULE II A

1. Initial Licence Fee and Recurring Licence Fees.

1.1. The initial Licence Fee for a countrywide licence for lndia
for the Software Modules specified in Schedule I (excluding B
the IQ Module) for use under the provisions of the Agree-
ment shall be US$4,710,0CO. The Initial Licence Fee for the
IQ Module shall be US$ 125 per site.

1.2. From 1st October 1991 u!'.1til the expiry of five years from the
date of receipt by the Licensor of the payment referred to in C
Article 5.l(d) of this Agreement the annual Recurring
Licence Fee for India for the Software Modules specified in
Schedule I (excluding the IQ Module) (for use under the
provisions of the Agreement) shall be t:S $ 435,000. There-
after the annual Recurring Licence Fee for the IQ Module D
shall be US$ 22.50 per site".

Mr. R.F. Nariman, learned counsel appearing for the appellant,
submitted with reference to various clauses of the agreement, the Press
Note dated March 17, 1992 and Rule 9(1)(c) read with the interpretative
note thereto that the refund claim was valid and ought to have been E
allowed. According to him only 46 diskettes and 82 manuals were imported
for which there was separate price list and that was only liable to duty and
not for the use of software at other places called the licensed places in the
country. Reference was also made to two letters one dated July 31, 1991
and the other dated September 17, 1991 from Kindle to SBI. With the letter
dated July 31, 1991 ''detailed" invoice No. 910701 dated July 3, 1991 was F
sent. It was stated in the letter that in terms of Schedule II of the
agreement, upon delivery of a copy of the software to the Support Centre
(single site), the next installment of US$ 1,429,566/25 had also become due
and payable representing 35% of the licence fee in respect of those of the.

-· software modules as had already been delivered to the Support Centre. It G
was further stated that the above amount also covered the charges for
copying/reproducing the software and documentation that SBl may use as
per the terms of the agreement. Lastly, it was said that "SBI may please
note that SBI would be entitled to copy/reproduce the software and
documentation, a copy of which software and five copies of which
documentation are to be delivered by us to the Support Centre under the H
152 SUPREME COURT REPORTS [2CCOJ 1 S.C.R.
A said agreement, and thereby use tht:se copies for its internal requirements
as per the terms of the said Agreement". Again in the second letter it was
stated that "with reference to the telephonic clarification sought by you, as
per the Agreement dated 29th June, 1991 executed between us, we hereby
clarify and confirm that the amount of the licence fee mentioned in
Schedule II of the said Agreement means the licence fee payable by you
B in respect of a copy of the Softwart modules (excluding the IQ Module)
and the copies of the Documentation supplied to the Support Centre
(single site) and charges payable by SBI making/reproducing any further
copies thereof a~ the terms of the said Agreement to be used by SBI at any
of the licensed site in India (countrywide licence) as per the terms of the
C ;aid Agreement . Mr. Nariman also stated that with the Bill Entry dated
July 17, 1991 a declaration of the following effect was also filt:d :

''DECLARATION

We hen.:by declare that the break up of the v-ctlue (as shown in
column 9) of the consignment imported under B/E No. 520'J/19-7-
D
91. AWB No.-618-12310200 dt 12.7.91 as under:

Particulars Cost Indian Rs.

E 46 Diskettes and 82 Manuals us $ 14,300 Rs. 376610.17

Liccncing fee for use of software
at singk site US $ 386, 747 Rs. 1011!5514.20

Total cost of the Software for
F use at one site (including
Disketks and Manuals) US $ 401,047 Rs. 10562124.37

Lici;:ncing fee for use of
software countrywide US $ 3,683,428 Rs. 97008142.89

G Total US $ 4,084,475 Rs. 107570267.25

for STATE BANK OF INDIA
Sd/-
H Dy General Manager (C&I Project)"
S.B.I. v. COLLEC."fOR OF CUSTOMS jD.P. WADHWA, J.j 153

He then said that the authorities including the Tribunal did not properly A
consider the scope and intent of the Press Note and though the argument
was raised, it was brushed aside without proper consideration. ln short,
argument of Mr. !\iariman is that licence foe for right tu use software
countrywide at licence sites under the agn:ement is nothing but charges fur
the right to reproduce the imported software which charges shall not be
B
added to be price actually paid or payable fur the imported software in
determining the customs value. The Press Note clarifies that nu customs
duty will be leviablc on the royalty paid.

Mr. Salve, learned Solicitor General, said that if true meaning of the
agreement lli seen, SBI has no right of rooproduction of the softwarn. The C
word "reproduction" is a term of art and is used in commercial sense. Right
to reproduce is not for the convenience of the user but for the purpose of
dIBtribution. Reproduction in any case is a post importation event. Rules
and the Press Note n:ferred to commercial transaction where reproduction
is meant for sale. In the present case, copies are only modalities for tht D
use of the software by the SBI with various restrictions. It is fee for right
to use. There are restrictive clauses negatively built up in the agreement.
What SBI has imported is the acquisition of the software with the right to
use. He said this was the understanding of the SBI also and in thi~
..... connection he referred to para 11 of the impugn.cd judgment uf the
Tnbunal. It is as under : E

'The appellants had written a letter dated 3.12.1992 tu the Jt.
Controller, Exchange Control Department, Reserve Bank of lndia
for re-exporting of software module. In this lt:tter, L'iey have clearly
specified the value of the entire software imported by them for the F
branches countrywide on US $ 4,084,475.CO. After re-export, they
have filed before the Asstt. Collector of Customs, an application
for re-export of the ''Bankmaster Query Module" of the software
under Section 74 of Customs Act. They have intimated about the
deposit of Customs Duty of Rs. 12,04,78,699.00 paid by them on
the total invoice amount of CS$4,475.00 on account of countrywide G
licence for use of the software. In this letter, they have not stated
that they have paid reproduction charges but have clearly stated
that their invoice value for use of the software as per invoice valm::
is CS$4,084,475.00. They have been given an Annexure of split up
of values in this letter. They again wrote another letter dated H
154 SUPREME COVRT REPORTS [2000[ l S.C.R.

A 19.7.93 to the Asstt. Collector of Customs, wherein also they have
requested for granting permission of re-export BM Query Module.
This letter also speaks about the detail break-up of the various
modules to RBI. They have stated that they estimate that the
present market value will be ddinitely at least 10% mon: than the
cost at which they had procured from the supplier as they had
B obtained special concession for the countrywide licence and that
two years have elapsed since then. They filed their claim for duty
drawback under Section 74 of Customs Act. By their letter dated
20.6.94 wherein also they haw stated that they paitd the said
customs Duty under the said invoice amount of US $ 4,084,475.CO
c on account of countrywide licence for use of the software in respect
of the software modules received. In the Annexure also, they have
given tht: split up value and cost of software - all modules
"countrywide", cost of software - all modules (single site). In this
letter, they have not mentioned about anything about the reproduc-
tion charges being different in the assessable value of tht: software.
D
They again filed a letter dated 20.9.94 claiming duty drawback
under Section 74 of the Customs Act in respect of the said
Bankmaster Query. In this letter, they have given the entire details
of the agrt:ement as well as the cost of the entire project but they
have not raised the dispute as well ..... .''
E
The case of the SB! is that only one set of diskettes was imported
which comprised the software programme. This was to be kept in the
"Support Centre" at Bombay and as and when the software programme had
to be made available to the branches of tht: Bank copies of these program-
F mes wen: to be takt:n on blank floppitos and sent to branches for use. It
was stated that this process is reproduction. The agreement refers to
licence fee payab!t: in respect of single sit<: in Schedule-I and Schedule-II
refers to the fee for the countrywide licence and both are indicated
separately. The claim for refund was in respect of Schedule-II. Though the
original invoice did not show the split up the detailed invoice which was
G received later on did show licence fee for use at singlt: site (including cost
of manuals and diskettes) and that for the right to use countrywide. It is
on that account it was submitted that software could be made available to ,
qranches only by reproduction process at tht: support centn: and that
licence fees charged for right to use countrywide is reproduction charges
H and the same, therefore, could not be charged to duty.
S.B.l. v. COLLECTOR Of CUSTOMS [D.P. WADHWA,J.I 155

It is not, however, clear as to why the second invoice giving details A
having the same invoice number and the date was not available at the time
of original assessment. Mr. Nariman could not give clear answer to that.
He, however, stressed that details were already there on th..: back of Bill
of Entry in the form of declaration, which we have reproduced above. This
does not appear to be correct. This declaration appears to have been filed
B
subsequently at th..: timt: of claiming refund. There is no mt:ntion of split
up of charges anywhere in the body of the Bill of Entry. In column 9 of
the Bill of Entry assessable value under Section 14 of the Customs Act has
been shown as Rs. 10,75,70,267. There is no indication whatsm:ver that any
other document towards declaration was fikd showing differt:nt charg..:s -
one for the use of the software at single site and the other for use of the c
software countrywide. This certainly appears to us to be an after thought.
At the time when Bill of Entry was filed there is no doubt that was
mentioned in column 9 was the transaction value which is covered by the
definition given in clause (f) of Rule 2 of the Rules.
D
The question that arises for consideration is if licence fee charged
towards countrywide use of software in the second invoice could be the
charges for the right to reproduction and wen: these addt:d to the price
actually paid or payable for the imported goods. lf we refer to the agree·
ment, software is not sold to th..: SBl as such but it was to remain the
property of K.indk. Th.:re is no other vaitK of tht: sofrw;rre indicatc•d in the E
agret:mi:nt except the licence fei:. Prit:e i~ payabk only tor allowing SBI to
use the software in a limited way at its own centres for a limikd period
and that is why the amount charged is called the licence fee. After five
years SBI is required to pay only recurring licence fee. Countrywide use of
the software and reproduction of software are two different things and F
licence fee for countrywide use cannot be considered as the charges for
the right to reproduce the imported goods. Under the agreement, copying,
storage, removal, etc. are under the strict control of Kindle and all copies
are the property of Kindle. SBI can use the software for its internal
requirements only. Licence has been givi:n to SBI to use the property of
Kindle at its branches and not for reproduction of the software as claimed G
by the SBI. The words in the agreement are specific that "SBI shall pay the
licensor the initial licence fee and the recurring licence fees for use under
. the provisions of this agreement."

It is difficult to accept the contention of SBI that the country wide H
156 SUPREMECOURTREPORTS [2000j 1 S.C.R.
A licence foe paid by it is basically th<: reproduction charges only and by
virtue of interpretative note to Ruh: 'l(l)(c) the said charges could not be
included in tht: assessable value for the purpose of levying of customs duty.
Countrywide licence fee paid by SBI is not the same as the ,. charges for
the right to reproduce· as envisaged in the interpretative note to Rule
B 9(l)(c). Total cost incurred would be transaction value on which customs
duty has to be charged and total cost for the purpose of assessment of
customs duty would include single sit.: licence fee as well as countrywide
licence foe. Rule 3(1) of the Ruks provides that value of the imported
goods shall be transaction value as ddincd by Ruic 4 and which in the
present case wuuld mean the price acrually paid or payable for the goods
C when sold fur tqiort tu India. The amount payable to the supplier was US
$ 4,084,475 which was correctly taken as assessable value.

We may also take notice of the argument of the SBI that reproduc-
tion or making copies is unavoidable in its case as it has to have a
D countrywide computer network which works on "LAN (Local Area Net-
work) version" and is not a mainframe system. In the case of mainframe it
is possible to use the programme countrywide without having to reproduce
software. But then even in such a situation SBI would have to pay the
licence fee for countrywide use because it is the extent of tht use which is
determinative of the quantum of the licence fee. The act of rnproduction
E is only the intermediary stage in the process of putting the pro1,,'Tamme to
countrywide productive use. The krm productive use has been ddined in
clause L.8 of the agreement which m<:ans use of software or any part
thereof to proci::ss all or part of SBl's actual business transaction in parallel
or live mode. Th.: amount of US$3,683,428 has been paid as licenct: fee for
F countrywide use of software to process all or part of SBI's actual business
transaction and not for acquiring the right to use the software programme.

Kindk supplied to the SBI countrywide licence for India of software
package containing various modules as given in the invoice and consisting
G of 46 diskettes and 82 manuals (including cost of insurance and freight) for
US$ 4,084,475.00. This amount in th<: subsequent invoice was bifurcated
into (1) Licence Fee for use of software package at single site (including
cost of 82 manuals and 46 diskettes of CS $ 14,300 - US $ 401,047 and (2)
Licencing Fee for right to use countrywide - US $ 3,683,428.GO (totalling
H CS$4,084,475).
S.B.L v. COLLbCfOR OF CUSTOMS ID.P. WAD HWA, J.] 157

Reproduction and use are two different things. Now under the A
agreement user is specifically limited to licence sites. Transaction as a
whole is to be seen. Press Note is of no help to the SBI. Rule 9(1)(c) and
the interpretative nott: thereto did not apply as nothing was added to the
price actually paid for the imported goods by way of royalties etc. Refund
would be allowable only if there was something added on to the royalty
payment which was not in the present case. Tht: invoice originally
B
presented was compkte in itself. Second invoice was not filed along with
the Bill of Entry. In the second invoice also it is licence fee for right to use
countrywide and it is not right to reproduce as claimed by the SBI.
Scheduk l to the agreement is module and copies are modalities for the
use of software by the SBI with various restrictions. If we again refer to c
clause 6.4 of the agreement there is a complete restraint on SBI which says
SBI shall not use, print, copy, reproduce or disclose the software or
documentation in whole or in part except as is expressly permitted by the
agreement nor shall SBI permit any of the foregoing. SBI is also barred
from allowing access to its software or dorumentation except what is D
permitted under the agreement. Again SBI is barred from selling, charging
or otherwise making the software or documentation available to any person
except what is expressly permitted under the agreement. Clause 6.5 of the
agreement says that SBI shall not copy or permit copying of the software
supplied to it by Kindle save as may be strictly required for ddivcry to
licc.;ncc sites. The krms of the agreement also apply to the copics. E
Having thus examined the terms of the agreement betwe.:n M'~
Kindle Software Ltd., Dublin, Ireland and the State Bank of India for
supply of software and the Rules regarding valuation as contained in
0.IStoms Valuation (Determination of Price of Imported Goods) Rules,
1988 and thc Press Note, we are of the opinion that the stand of the F
Revenue is correct. The State Bank of India is not entitled to any refund
of the customs duty paid. We uphold the order of the Customs, Excise and
Gold (Control} Appellate Tribunal and dismiss the appeal with costs.

PXS. Appeal dismissed.