2025 (2) TMI 1110 - AT - Service Tax

CENVAT credit reversal not required for inputs sent to job workers under Rule 4(5)(a)

M/s Dish TV India Limited (Formerly known as Videocon D2H Ltd) Versus Commissioner of Central GST & Central Excise, Aurangabad

CESTAT Mumbai ruled in favor of appellants regarding CENVAT credit reversal on inputs sent to job workers. The case involved Smart-Cards sent to STB ... Reversal of CENVAT Credit - 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, 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? - HELD THAT:- In the case in hand, the ‘CENVAT credit availed Smart-Cards’ were sent by the appellants to the STB manufacturer for the purpose of testing, pairing etc.; and that upon completion of the said process and assembly of the Smart-Cards into the STBs, the same were delivered in the various warehouses, belonging to the appellants. Thereafter, such STBs, were supplied to the DTH customers as a part of CPE, thereby the appellants were able to provide the output service of Broadcasting to their DTH customers. Considering the factual matrix, the case of the appellants, squarely falls under the first proviso clause appended to sub-rule (5) of Rule 3 ibid inasmuch as the Smart-Cards removed to the STB manufacturer were ultimately used by the appellants for providing the DTH Broadcasting services to their customers. Therefore, the adjudged demands confirmed in the impugned order, by taking recourse to Rule 3(5) ibid, ignoring the proviso appended thereto, does not stand the legal scrutiny. Rule 4(5)(a)(i) of the Rules 2004 mandates that CENVAT credit on inputs ‘shall’ be allowed, even if the inputs ‘as such’ are sent out to a job worker for further processing, testing, repairing, reconditioning or for carrying out for any other purposes, and it is established from the records, challans or memos or any other document, evidencing that the said inputs are received back within the prescribed time frame - it is evident from the accounting records that the total numbers of Smart-Cards sent by the appellants to the STB manufacturer (job-worker) were received back in the form of Viewing Cards, in their premises for providing the taxable service under the category of ‘DTH Broadcasting’ to their customers. The learned adjudicating authority has not examined the accounting records maintained by both the parties and simply denied the benefit provided under Rule 4(5)(a) ibid, holding the ground of non-maintenance of records. The accounting records maintained by the appellants for sending of Smart-Cards to the job worker’s premises and their return together with the STBs to the warehouses of the appellants, after necessary processes, are adequate enough to validate the stand of the appellants that they had complied with the conditions laid down in Rule 4(5)(a) ibid. The Tribunal in the case of Southern Lubrication (P) Ltd. [2012 (1) TMI 106 - CESTAT BANGALORE] has held that the department cannot insist for reversal of CENVAT credit or cannot snatch away the rights provided under the CENVAT statute, if the assessee has duly complied with the laid down procedures therein. On careful reading of the order passed by the Co-ordinate Bench of this Tribunal, in the case Non-Ferrous Industries [2002 (3) TMI 778 - CEGAT, KOLKATA], relied upon by learned Special Counsel for Revenue, we find that the said order was passed in context with Rule 57F(3) of the erstwhile Central Excise Rules, 1944. 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 with the objective of ensuring 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. Conclusion - 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. There are no merits in the impugned order - appeal allowed. ISSUES PRESENTED and CONSIDEREDThe primary issue for consideration was whether the appellants were required to reverse the CENVAT credit availed on Smart-Cards upon their removal to the premises of the STB manufacturer, under Rule 3(5) of the CENVAT Credit Rules, 2004, or if such reversal was not necessary under Rule 4(5)(a) of the same rules, considering the facts and evidence presented.ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedents:The relevant legal provisions included Rule 3(5) and Rule 4(5)(a) of the CENVAT Credit Rules, 2004. Rule 3(5) mandates the reversal of CENVAT credit when inputs are removed 'as such' from the factory. However, Rule 4(5)(a) allows CENVAT credit on inputs sent to a job worker for further processing, provided the inputs are returned within a specified timeframe. The Tribunal also considered the definition of 'job work' under Rule 2(n), which includes processing or working upon raw materials to complete or finish an article.Court's interpretation and reasoning:The Tribunal interpreted that the pairing and testing of Smart-Cards with STBs by the STB manufacturer constituted 'job work' as per Rule 2(n). The Tribunal noted that the activities undertaken by the STB manufacturer were essential for rendering the DTH services, thus falling within the scope of job work. The Tribunal also emphasized that the appellants maintained adequate records of the movement of Smart-Cards, aligning with the requirements of Rule 4(5)(a).Key evidence and findings:The appellants provided accounting records and delivery challans showing the movement of Smart-Cards to the STB manufacturer and their subsequent return paired with STBs. The Tribunal found that the appellants had complied with the procedural requirements under Rule 4(5)(a), as evidenced by the documentation provided. The Tribunal also noted that the STB manufacturer paid appropriate central excise duty on the STBs, which included the paired Smart-Cards.Application of law to facts:The Tribunal applied Rule 4(5)(a) to the facts, concluding that the appellants were not required to reverse the CENVAT credit on Smart-Cards sent for job work. The Tribunal found that the activities performed by the STB manufacturer constituted job work, and the appellants had maintained proper records, thus fulfilling the conditions of Rule 4(5)(a).Treatment of competing arguments:The Tribunal considered the respondent's argument that the pairing of Smart-Cards with STBs did not constitute job work. However, the Tribunal rejected this argument, emphasizing the technical necessity of the pairing process for providing DTH services. The Tribunal also distinguished the case from precedents cited by the respondent, noting differences in factual circumstances and compliance with procedural requirements.Conclusions:The Tribunal concluded that the appellants' case fell within the purview of Rule 4(5)(a), and they were not required to reverse the CENVAT credit on Smart-Cards. The Tribunal set aside the impugned order and allowed the appeal in favor of the appellants.SIGNIFICANT HOLDINGSThe Tribunal held that the pairing and testing of Smart-Cards with STBs by the STB manufacturer constituted job work under Rule 2(n) of the CENVAT Credit Rules, 2004. The Tribunal emphasized that the appellants had maintained adequate records of the movement of Smart-Cards, fulfilling the requirements of Rule 4(5)(a). The Tribunal concluded that the appellants were not required to reverse the CENVAT credit on Smart-Cards, as the removal to the STB manufacturer was for providing output services, aligning with the proviso to Rule 3(5).The Tribunal's decision established that activities essential for rendering a service, such as pairing Smart-Cards with STBs for DTH services, can constitute job work, allowing for the retention of CENVAT credit under Rule 4(5)(a). The Tribunal's interpretation reinforced the broad scope of job work under the CENVAT Credit Rules, 2004, and clarified the conditions under which CENVAT credit need not be reversed.The appeal was allowed, and the impugned order was set aside, with the Tribunal pronouncing the order in open court on 25.02.2025.