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Microsoft India penalised for customs duty evasion
July, 28th 2011

Customs and Central Excise Settlement Commission has imposed a fine of Rs 2 crore on Microsoft India and Rs 10,000 on its former chairman Ravi Venkatesan in a case of customs duty evasion involving sale of its software in India.

The commission has collected customs duty, fine and interest of Rs 255 crore from nine information technology companies which imported the software.

Directorate of Revenue Intelligence (DRI) had issued showcause notices to the companies in 2008-09. The companies approached the commission and settled the cases so that no criminal prosecution could be initiated.

DRI said, MS India split the sale transactions into two parts but paid customs duty only on one component where the rates were nominal. The first transaction related to the import of software and the second pertained to licence, granting customers the right to use the software. DRI said the importers had under-declared the prices of software to customs and submitted invoices with suppressed prices. "For the purpose of actual transactions and remittance to Microsoft, another set of invoices was prepared, which accompanies separate shipments of documents termed as software licences," DRI officials said.

The June 23 commission order said, "....It therefore leaves no doubt in our minds that splitting of transactions into two and raising two separate invoices, one for the software, which was raised only for the purpose of paying fractional customs duty, and the other, which is the one that reflects the actual transaction value and not paying customs duty on this value was nothing but intentional."

The commission did not accept Venkatesan's statement that he was not concerned with the day-to-day activities and said, "To pose ignorance is this only a camouflage." The technology companies that act as the dealers or retailers forward the purchase order to Microsoft Operations Pte Ltd Singapore, indicating the customer's unique identification number. Against this purchase order, Microsoft India sent the starter-kit of software material to the importer, which is mentioned in the first invoice but the amount involved here is inconsequential. Microsoft Singapore separately shipped another set of documents to the importer disguised as licence. The invoices for 'software licence on paper' quoted the entire transaction value but carried a declaraton that it was neither a licence nor did it have any value.

'This split of two transactions into two invoices pertaining to the same customer was suppressed from the customs which prevented the customs from clubbing the split transactions and treating them as single transaction for the purpose of assessment of duty," the order said. The commission said the imports of software and licence are interlinked.

The commission said that the resellers, the technology companies are responsible fore all legal formalities of customs clearance. They earn a commission on the sales made. The commission scrutinized the emails among the Microsoft Companies and the resellers and said they worked out a scheme around April 2007 to evade payment of duty on the full value of the software.

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