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Excise duty holds up
November, 03rd 2009

Microsoft Windows 7, Adobe, Symantec software stuck at Customs over excise duty.

Retail consignments, worth several lakhs of rupees, of over-the-counter (OTC) or packaged software from majors like Microsoft and Adobe are understood to be held up at immigration checkpoints across the country due to anomalies over excise duty.

Retailers and software companies say the situation which caused the current impasse disputes with the customs and excise departments over tax rules on imported packaged software will not be resolved in a hurry.

Consider this. It's over 10 days since the launch of Microsoft's latest operating system (OS), Windows 7. Yet the packaged version of the software continues to elude the buyer. Besides, fresh consignments of Adobe's image management and graphics design software suites are not available either, say retailers.

"The confusion on packaged software is yet to be resolved," acknowledges Adobe India managing director Naresh Gupta. "The dual taxation issue which was supposed to be resolved still persists, as packaged software now attracts both countervailing duty (CVD) at the point of import, as well as service tax at the point of sale."

Excise duty is currently being demanded on the media (CD containing the software program), which has led to a shortage of genuine software. This will primarily affect single license users like individuals and small businesses. As far as Windows 7 goes, many XP users who were not in favour of Vista, were keen to upgrade to Windows 7. This is now delayed indefinitely, said a systems engineer with a leading consumer goods retailer. He did not wish to be named.

A Microsoft spokeswoman said a clear date on availability of the packaged version remains unclear. Ackowledging that the expected losses for retailers run into lakhs of rupees", she said: There is no clear signal from the government to go ahead with sales. The real losers in this case are the retailers. We hope to resolve this impasse as soon as possible.

Ajit Joshi, chief executive officer of Tata Croma, the technology retail arm of Tata Sons, said both retailers and the government are being deprived of revenues as a result of the current impasse.

The issue may not affect Microsoft much, since an estimated 90 per cent of Windows software is traditionally sold in India by bundling it with a laptop or a computer. The preloaded or bundled version of Windows 7 in over 80 different personal computer and laptop models from 16 manufacturers is readily available in India. Retailers, however, add that small businesses and individuals prefer to upgrade to Windows 7 without buying expensive hardware; the unavailability of the OTC version of Windows 7 affects this customer base.

Microsoft has been working with lobby groups like Nasscom (National Association of Software and Services Companies) and the Business Software Alliance (BSA) to get its shipments released at an early date.

The lack of clarity on tax issues on imported packaged software has led to genuine software becoming unavailable on retail shelves, and could encourage piracy, suggests BSA director Lizum Mishra.

In the Union Budget for 2009-10, the government had partially exempted imported packaged software from excise duty and countervailing duty (CVD). This was done to overcome dual taxation. As a result, packaged/OTC software is taxed in two parts. While excise duty will have to be paid on the media, the software licence would attract service tax.

"Some of our distributors tell us that their consignments are stuck at the Customs checkpoints," adds Gupta, without citing exact figures. "Hence, clarity is required on the software license vis-a-vis the media at the earliest. When people are faced with unavailability of software, they simply go ahead and purchase the illegal version," he says, agreeing with Mishra. Up to 95 per cent of Adobe software currently sold in India is pirated.

As Customs authorities are demanding physical proof of the software licence as under the earlier rules, Nasscom has recommended that more stress be laid on the right-to-use component of the licence. The post-Budget notification for clearance of these goods is yet to be issued by the finance ministry. We had sought a clarification from them sometime back. But there is no clarity on their tax norms as of now. Talks with the ministry have been positive, but we dont have a early date for the retail release of softwares from a host of companies, says Nasscom vice-president Raju Bhatnagar.

Pirated Windows 7 could be beta or RC versions

The copycats are cranking up their DVD drives. Retail sources say that over the past week or so, counterfeit versions of Windows Home Premium, priced at Rs 6,799, have been available for sale at Rs 100-200 in shopping hubs like Nehru Place in New Delhi, Spencer Plaza in Chennai and the GCDA Marine Drive Complex in Kochi. This could not be independently verified. A Microsoft spokesperson acknowledged that the company had been tracking some instances of pirated versions hitting the market. "The copies of counterfeit Windows 7 which we seized contained beta and RC (Release Candidate) versions of Windows 7. We are monitoring this situation," the spokesperson said. Microsoft has not ruled out the danger of malware being 'trojan'ed with the counterfeit copies of Windows 7 and other software.


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