Relief to Dish TV India Ltd, No Reversal of Cenvat Credit u/r 4(5)(a) of CCR on removal of Inputs to premises of Job Worker: CESTAT [Read Order]

In a case in favour of Dish TV India Limited, the Mumbai bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT )  no reversal of cenvat credit under rule  4(5)(a) of Cenvat Credit Rules ( CCR ), 2004 on removal of inputs to premises of job worker.

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The appellants M/s Dish TV India Limited ( M/s Videocon D2H Limited ), are engaged in the business of providing broadcasting services through Direct-to-Home Satellite Television ( DTH ) broadcast. The said services are provided by the appellants, in terms of the license granted to them by the Telecom Regulatory Authority of India ( TRAI ). As per the condition of the license granted by TRAI, the appellants are statutorily required to provide and install various Customer Premises Equipments (CPEs) to the subscribers of Broadcasting Services. The various equipments that the appellants install at the premises of the subscribers/customers as part of the CPEs, include the Set Top Boxes (STB), Smart Cards, Dish Antenna, Cables, Low Noise Block Down Converter and other accessories, which collectively constitute as CPEs.

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The appellants procure STBs, which are manufactured domestically in India. However, for completing the Conditional Access System (CAS), the appellants import Smart-Cards from the overseas suppliers located abroad. The imported Smart-Cards are tested and paired with the STBs. The appellants clear the said imported goods on payment of appropriate duties of Customs, including the Additional Duty (CVD) levied under Section 3 of the Customs Tariff Act, 1975. The CVD amount paid into the Government exchequer on the said imported goods was availed by the appellants as Cenvat Credit in terms of the CENVAT Credit Rules, 2004 (“the Rules of 2004”), upon receipt and accounting for the same in their registered premises.  Thereafter, the Smart-Cards are being sent to M/s. Trend Electronics Limited (STB manufacturer).

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During the course of manufacture of STBs, the Smart-Cards cleared by the appellants are tested and paired by the said STB manufacturer with the bar code of each STBs.  Upon completion of the process of pairing, the STBs are dispatched by the STB manufacturer to various warehouses of the appellants located at different places.   On inquiry, it was observed by them that the appellants had removed Smart-Cards free of cost from their premises to the STB manufacturer, who in turn, merely inserted the Smart-Cards in the STBs and sent them back to the appellants, on which Cenvat Credit was availed by them.  Since, there was no job-work activities involved in the process of inserting the Smart-Cards into the STBs, the department was of the impression that the appellants were required to reverse the Cenvat Credit availed on the Smart-Cards before clearance of the same from their registered premises. 

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While investigating into the matter of alleged wrongful availment and non-payment of Cenvat Credit amount on the Smart-Cards, the department had recorded the statements under summons from various officers employed by the appellants. Based on detailed investigation, the department had issued the Show Cause Notice(SCN) dated 11.01.2019, calling upon the appellants to show cause as to why the Cenvat Credit demand amounting to Rs.42,19,49,134/- along with interest shall not be confirmed and recovered under Rule 14 of the Rules of 2004 read with the proviso to Section 73(1) of the Finance Act, 1994. The SCN also proposed for imposition of penalty under Section 78 ibid. The period involved in the said SCN was from January 2014 to June 2017. The SCN has basically been alleged that the appellants had removed the Smart-Cards ‘as such’, from their premises and thus, the provisions of Rule 3(5) of the Rules of 2004 have been contravened for non-reversal of Cenvat Credit attributable to the Smart-Cards.

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The matter arising out of the SCN was adjudicated vide the Order-in-Original by the Commissioner of GST, Aurangabad, in confirming the proposals made therein.  In support of confirmation of the adjudged demands, the  adjudicating authority has, inter alia, held that the appellants did not maintain proper records in respect of the Smart-Cards sent for job-work to the STB manufacturer, and as such, the provisions contained in Rule 3(5) of the Rules of 2004 have been contravened; that mere paring the barcode of a smart-card with that of STB by the STB manufacturer does not amount to job work, in order to fall within the scope and ambit of Rule 2(n) of the Rules of 2004; that the appellants’ contention that they had removed the smart-cards for job-work is not acceptable inasmuch as the prescribed procedures under the statute were not followed for clearance of the said goods to the STB manufacturer; and that non-reversal of Cenvat credit is revenue neutral, as claimed by the appellants is not acceptable, as they had not followed the proper procedure for availment and utilization of Cenvat credit.

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Shri A.R. Madhav Rao, Advocate appearing for the appellants submitted that the STB manufacturer’s premises is situated adjacent to the premises of the appellants, and that the disputed Smart-Cards were removed from their premises under the cover of Delivery Challans.

Further, he has also referred to the statement dated 21.11.2017 recorded by the department from Shri Rajendra Dayma, Manager of the STB manufacturer, clarifying that these Smart-Cards were not physically returned by the STB manufacturer and the same were inserted into the STBs by them and the resultant product i.e., STBs together with the Smart-Cards were cleared on payment of central excise duty to various locations of the appellants. Thus it was stated that the case of the appellants would be covered under the provisions of Rule 4(5)(a) of the Rules of 2004 inasmuch as both the appellants as well as the job worker.

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On the other hand, Shri Shambhoo Nath, Special Counsel appearing for the respondents has reiterated the findings recorded in the impugned order and further submitted that since the STB manufacturer M/s Trend Electronics Limited had not carried out any manufacturing activity with regard to the Smart-Cards received from the appellants and simply paired the barcode of the Smart-Card with that of STB, the said manufacturer cannot be termed as a job worker, in order to fall within the definition of “job work”, defined under Rule 2(n) ibid.

The issue  is, whether on removal of inputs to the premises of job worker, the CENVAT credit availed thereon, is required to be reversed under Rule 3(5) of the Rules of 2004, as held in the impugned order; or, there is no requirement of any such reversal, in terms of Rule 4(5)(a) of Rules of 2004, as claimed by the appellants; particularly in context with the facts and evidences available on record before the Tribunal.

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Since, the procedures prescribed under the said rule provided for regulating movement of the Modvat availed raw materials between the sender and a job worker were not followed, the Tribunal in the said case has rejected the appeal filed by the assessee, holding that compliance of the procedures laid down in the rule is not a mere technicality and the same has been prescribed to ensure that the modvat availed goods sent from the factory were returned back from the job worker, after carrying out the required processes, so that the objective of the Modvat statute is achieved.

A two member bench of S.K. Mohanty, Member (Judicial) and M.M. Parthiban, Member (Technical) observed that both the appellants as well as the STB manufacturer had maintained adequate accounting books to keep a complete record of the entire movement of the cenvatable Smart-Cards and their return, assembled with the STBs, for providing the ultimate output service of DTH Broadcasting by the appellants to their customers.

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The bench viewed that the case of the appellants squarely falls under the scope and purview of Rule 4(5)(a) of the Rules of 2004 and that for removal of the CENVAT availed Smart-Cards to the STB manufacturer, they are not required to pay equal amount of CENVAT credit availed on such goods. The bench set aside  the impugned order and allowed the appeal in favour of the appellants. 

To Read the full text of the Order CLICK HERE

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