TaxTMI 
TaxTMI 
2021 (12) TMI 1051
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...., 2004 read with Section 75 of the Finance Act, 1994. 6.3 I impose a penalty of Rs. 95,00,000/- (Rupees Ninety Five Lakhs only) under the provisions of Rule 15 (1) of CENVAT Credit Rules, 2004 read with Section 76 of the Finance Act, 1994. 6.3.1 I impose a penalty of Rs. 10,000/- (Ten thousand only) under the provisions of Section 77 of the Finance Act, 1994 for failing to keep, maintain or retain proper accounts, records and bonafide information regarding CENVAT credit on capital goods not used in output services under section 77 of the Finance Act, 1994." 2.1 The appellant is a provider of 'broadcasting service' and, in that capacity, enters into agreement with their service recipients who are provided with the 'consumer premise equipment', for receiving the services. 2.2 Against these "consumer premise equipment which were provided at the premises of the consumers, appellants have taken the CENVAT Credit, treating as the Capital Goods for providing the output services. 2.3 After receiving the services for sometime certain customers disconnected the service despite which the equipment was allowed to remain at their premises. After sometime the appellant had w....
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....long with the submissions made in appeal and during the course of arguments. 4.2 The issue involved in the present case is only in respect of the set top boxes and other CPE's supplied to the consumers on the rental basis. However on perusal of the page 295, of the appeal paper book, which is "Lease Rental CAF - Terms & Conditions of Subscription of Videocon d2h Services.", typed copy available from page 255-269, in para 6, on page 259., following was observed: "6. The Service The service shall be based on the subscription request and provided to the Customer subject to the DTH license and /or any regulatory/ governmental control and intervention in respect of the service. The Customer shall have three options from which to select the services i.e. i) outright purchase basis ii) on hire purchase basis and iii) on rental basis. The Customer shall be provided a Satellite Card bearing the brand name Videocon d2h to enable the Customer to access the service, on the terms and conditions of this agreement including any modification/s, alteration/s, addition/s and substitution/s therein from time to time. The Customer hereby acknowledges and agrees that he shall not acquire any r....
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....al and will not disconnect during the minimum period as mentioned in Clause 11(I) herein below. In no case the Customer will be entitled to determine this agreement during the minimum period. Notwithstanding anything contained hereinabove, the Customer further categorically undertakes and agrees that he will be under an obligation to purchase the STB and the ODU from VDL in the event he opts for the services of any other Service Provider after such tenure of Rental at a price prevailing at the time of such shift and a separate receipt for the sale shall be provided to the Customer by VDL. The customer understands and agrees that VDL has supplied the CPE to him at a subsidized rate and under an express understanding that the customer shall remain subscribed to the services on a continuous basis during the minimum period from the date of execution of the CAF as prescribed under Clause 11 (1) of the Customer Agreement Form. The Satellite card which means the Smart card is property of VDL and given to Subscriber for continuously subscribing VDL services. The customer understands that the smart card shall always be kept in use by regular payment of subscription charges in order to....
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.... to the customers on lease rental. 5. That the methodology adopted under the Show Cause Notice No.10/ST/COMMR/2018 dated 12.04.2018 (SCN) for computation of demand was by taking the total CENVAT credit on CPEs during the period May, 2009 to December, 2016 which were de-activated beyond 620 days, i.e., INR 49,35,64,718/-, and subtracting therefrom the demands amounts that were raised vide earlier SCNs on the same issue, i.e., INR 14,09,72,497/ considering the period May, 2009 to July, 2012 on such de activated CPEs beyond 620 days as on 31.03.2014 and INR 25,69,93,665/- considering the period May, 2009 to March, 2015 on such deactivated CPEs beyond 620 days as on 31.12.2015. The net figure, thus, arrived at was 3.52 lakh subscribers who withheld the subscription for 620 days prior, and were identified during the period April 2015 to December 2016. The total amount of corresponding CENVAT credit taken in regard to such 3.52 lakh subscribers was identified as INR 9.55 crore. It is pertinent that, the gross subscriber base as of December 2016 was 1,75,05,701. Thus, considering the huge subscriber base, the figure of 3.52 lakh subscribers is hardly 2.01% of the total subscriber base.....
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....ed in Annexure 2. The Chartered Accountant has certified from such data, the figures of rental income and figures from realisation from sales of STBs, including lost in transit or at the distributors premises, for the truncated period from 01.04.2016 to 31.12.2016, the relevant period of the show cause notice, in regard to which the impugned adjudication order in the present appeal has been passed. 7. That as per the TRAI regulations the Appellant is required to give various options to the customers for providing the STBs, i.e., either on outright sale or hire-purchase or lease rental. Accordingly, all the above options were mentioned under terms of the Customer Application Form (CAF). However, even though such options were given in the CAF, the STBs were only given on rental- basis in respect of which CENVAT credit was availed. Sample copies of SAF where though the options were offered to the customers, yet the subscribers clearly opted for taking the STBs on rental basis are enclosed herewith as Annexure 3. This is evident that in the subscriber application form, the relevant option of only rental was ticked by the subscribers. Moreover no customer was willing to buy set-top b....
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....issible to the Noticee on the similar line as applicable on other three options i.e., hire purchase, outright purchase and access scheme under the provision Cenvat Credit Rules, 2004. [Para 15] 10. However, as submitted in paragraph 8 supra, as regards STBs which were given on access basis, these formed the subject matter inter-alia of the demand raised for the period from January 2017 to June 2017, i.e., the further period before the GST regime. In regard to this period also the demand have been dropped by the Jurisdictional Commissioner by Order-In- Original No. 01/ST/COMMR/2020-21 dated 24.06.2020, filed to this Hon'ble Tribunal in the compilation of judgements at Pages 66 to 116. The impairment of STBs given on access basis has taken place after December 2016. 11. That in response to the query posed by the Hon'ble Bench, it is reiterated that there are no cases of outright sale of STBs involved in the demand for CENVAT credit involved, and the impairment accounting treatment as reflected at Page 295 to the Appeal memorandum, is also in regard only to STBs given on rental basis where under from the depreciated value at the time of writing off on expiry of 620 days,....
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.... 4.6 On the basis of the above referred affidavit filed by the appellants, duly supported by the chartered accountant certificate, we note that appellant has during the period of the dispute supplied some "CPE" on purchase basis and majority of the CPE were provided on the rental basis. It is their submission on the affidavit that they had reversed the credit taken by them in respect of the CPE sold by them to their Customers, a fact which has not been disputed by the revenue while issuing the show cause notice or subsequently. 4.8 The issue in respect of the CPE, provided by the appellant on rental basis, which upon deactivation of service have not been returned back by the customer, to the appellants have been dealt by the tribunal in following decisions. 4.9 In the case of Videocon D2H Ltd [Final Order No: A/85341 / 2020 Dated 26/02/2020] on the same issue CESTAT Mumbai bench has held as follows: "6. It is seen from CENVAT Credit Rules, 2004 that duties paid on 'capital goods' procured by a provider of output services is allowed to be taken as credit by the said provider of output services. At no place in the said Rules is there any condition of deployment in operations....
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.... into the final product let alone finding inclusion in intangible 'output service'. It is not contemplated, either in Finance Act, 1994 or in general commercial usage, that capital goods should be in perpetual operation. The absence of such condition in CENVAT Credit Rules, 2004 reflects this common understanding that capital goods are dutiable on procurement and that, unlike the availment of credit of duties suffered on inputs, credit thereof is permitted at certain specified stages and, that too, only twice. On the other hand, inputs carry with it the requirements inalienability and permanent usage for inclusion in the product or services offered by the manufacturers/service providers and noncompliance thereof would automatically impact eligibility to continue with credit. Disconnection of service is preceded by usage, even for a time, of the capital goods which suffice to continue the eligibility owing to existence as such even after service has been rendered. This is clear from the provisions of rule 3(5) of CENVAT Credit Rules, 2004 in accordance with which the manufacturer is required to reverse the credit in full when cleared as such and, under rule 3(5)(a), to reverse in pr....
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.... 01/07/2012 to 31 March 2014 by the appellant. The Department has been of the view that the capital goods which have been removed by the appellant after being used, the Cenvat credit availed initially at the time of the purchase of such capital goods required to be reversed in the manner as prescribed under Rule 3 (5) of the Cenvat Credit Rules, 2004. The basic premise on which the Cenvat credit has been asked for the reversal is that the CPEs installed at the consumer premises and where either connection has been disconnected or deactivated and as such no output service is being provided by such CPE; Secondly, as per the facts of the case, the CPEs remained in the custody of the consumer and they are not taken back by the appellant after the consumer has either stopped the subscription or the appellant himself has deactivated services to the such customers. In these circumstances, it is presumed that the CPEs has been removed from the premises of the appellant and accordingly the provisions of Rule 3 (5A) of Cenvat Credit Rules, 2004 will be applicable. During the course of hearing, the learned Advocate has taken us through a chart of deactivation/activation of the CPEs for variou....
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....r than computers and computer peripherals @ 2.5% for each quarter : Provided that if the amount so calculated is less than the amount equal to the duty leviable on transaction value, the 20 ST/51760 of 2016 amount to be paid shall be equal to the duty leviable on transaction value. (b) If the capital goods are cleared as waste and scrap, the manufacturer shall pay an amount equal to the duty leviable on transaction value. (5B) If the value of any, (i) Input, or (ii) Capital goods before being put to use, [on which CENVAT credit has been taken is written off fully or partially or where any provision to write off fully or partially has been made in the books of account then] the manufacturer or service provider, as the case may be, shall pay an amount equivalent to the CENVAT credit taken in respect of the said input or capital goods : Provided that if the said input or capital goods is subsequently used in the manufacture of final products or the provision of [output] services, the manufacturer or output service provider, as the case may be, shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier subject to the other provisions ....
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.... We feel that the Cenvat credit reversal under Rule 3 (5A) as invoked in the show cause notice and confirmed by the impugned order-in-original is legally not sustainable as the facts involved in this case are appropriately covered by the provisions of Rule 3 (5) "proviso" which say that the capital goods can be removed to the subscribers premises for further provision of the output service. It is also relevant to mention here that during the course of arguments, the learned Advocate has taken us through the record of the appeal wherein it has been pointed out that certain deactivated CPEs gets activated after lapse of certain months or years and, therefore, it is also wrong to assume that the CPEs (capital goods) on which the Cenvat credit has been taken by the appellant are not being put for providing the output service. In these circumstances, we feel that the appellant have rightly availed the Cenvat credit on the CPEs which have been placed for utilization at the subscribers premises and there is no provision under Cenvat Credit Rules for reversal of the Cenvat credit on such CPEs if they are being used for providing output service. We also take note that the impugned order-in-....