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M/s. Bharti Telemedia Ltd. and M/s. Dish TV India Ltd. Versus Commissioner of Customs (Import) Nhava Sheva

2015 (9) TMI 1196 - CESTAT MUMBAI

Determination of CVD - valuation u/s 4 or 4A - whether Set Top Boxes (STBs) which are part of the Customer Premises Equipment (CPE) and imported by the appellants should be subjected to countervailing duty under Section 3(2) of the Customs Tariff Act by assessment in terms of Section 4 or in terms of Section4A of the Central Excise Act. - Held that:- The retail sale price is defined as the maximum price at which retail package may be sold. And retail package means packages which are intended for .....

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there should be a transfer on the hire-purchase system or by any system of payment by any installments. We find in the present case that there is no transfer of property or hire-purchase system involved nor there is a system of payment by installments. Thus there appears to be no sale in the use of the Set Top Box by the ultimate consumer.

During the course of arguments it emerged that Dish TV had recovered damages from the subscribers in case a Set Top Box is damaged. In such cases .....

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o. C/85563, 85564/2014 - Final Order Nos. A/2349-2350/2015-WZB(CB) - Dated:- 31-7-2015 - Mr. P.S.Pruthi and Mr. Ramesh Nair, JJ. For The Appellant : Shri T. Viswanathan Advocate with Ms. Srinidhi Ganeshan, Advocate, Shri K. Madhavrao Advocate For The Respondent : Shri M.K. Sarangi Per : P.S. Pruthi 1. The issue involved in the two appeals is common; therefore a common order is being passed. 2. The point to be decided by us is whether Set Top Boxes (STBs) which are part of the Customer Premises E .....

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the following declaration: 'Not meant for retail sale, specially packed for the purpose of serving DTH industries. STB shall remain property of Bharti Telemedia Limited.' Accordingly, no retail sale price (RSP) is declared on the STBs at any time, either at the time of import or thereafter. 3.1 The appellants conduct operations in the following manner: they enter into separate contracts with the Service Providers who install the equipment at the premises of the customer/subscriber and w .....

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nts, the ownership of the CPE continues to remain with them. 3.2 It is the view of the Customs department that in terms of definition of sale under Section 2(r) of the Legal Metrology Act, 2009 (hereinafter referred as LMA), the amount of consideration charged from the customers at the time of the installation of the STB at customers' premises is partly on account of sale of the STBs. Further the appellant satisfiy the condition of Notification RE/44/2000 (issued by DGFT) in relation to pre- .....

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before us against the order of Commissioner Appeals 4. The submissions of the Ld. Counsels for both appellants are, by and large, the same. The first submission is that the goods i.e STBs are not intended for retail sale. Therefore there is no requirement under the Legal Metrology (Package Commodity) Rules, 2011(referred hereinafter as PC Rules) to declare the RSP on the STBs. Further the terms and conditions on the subscriber application form (SAF) filled by subscribers at the time of installa .....

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Maharashtra have also held that the supply of STBs to the customer does not constitute sale and therefore not subject to VAT. The Ld Counsels contended that it is wrong to allege that the business model adopted by them leads to tax evasion on the ground that some charges paid by the customer at the time of installation of the STBs are actually towards cost of the STBs. Reliance was placed on the Apex Court judgment in the case of Pandit Laxmikanta Jha Vs. Commissioner of Income Tax [1970(75) ITR .....

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RSP declared on the imported package but there is no mechanism to assess the CVD when the imported package does not bear any RSP. He also argued that under Rule 3 of the PC, Rules, there is no obligation to declare MRP on products intended for use of institutional consumers, which they are. Ld. Counsel for Dish TV relied upon on the Hon'ble Karnataka High Court decision ILR-2010-KAR-1968 holding that when the property is not passed, coverage under Legal Metrology Act is unwarranted. He argue .....

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is which attracted deemed sale liability under Article 366(29A) of the Constitution read with the VAT Act. He also stated that the reliance by the Ld. A.R. on the judgments in the case of Reliance Communication Infrastructure Vs. CC [2012 (279) ELT 85 (Tri.-Del.] and Dish TV India Ltd. Vs. Commissioner 2013 (298) ELT 563 is misplaced because in those cases relating to the period prior to 1/4/2012, the appellant were showing the transfer of STBs on rental basis in the invoices and VAT was paid. T .....

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that provisions of this Act will override provisions of other Acts in case of conflict. In response to the AR's argument that under TRAI Regulations the STBs have to be sold or rented, the Counsels argued that TRAI Regulations do not put an embargo on providing any other option to the subscriber apart from the schemes of sale, rental or hire purchase. They also stated that if the department's views were to be accepted, the total Customs duty payable under Section 4A will be less than the .....

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ce element is predominant and service tax would be payable only on the service component. Parallel was drawn to the case of sale of SIM Cards whereby in a judgement of the Hon'ble Apex Court in the case of Idea Mobile Communication Ltd 2011(23) S.T.R. 433(SC) it was held that only service is provided. 5. The stand of Revenue is that the imported goods i.e STBs are a packaged commodity, hence the provisions of Legal Metrology Act will apply and assessment under Section 4A is warranted. Accord .....

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case of Jayanti Food Processing (P) Ltd. [2007(215)ELT 327(S.C.)] which dealt with sale of telephones in bulk. The Hon'ble Apex Court held that the nature of sale is not important and there is no need of actual sale to the subsequent person/actual user. As long as MRP is depicted as per the PC Rules, the assessment has to be done under Section 4A. Further argument of the Ld. A.R. is that even if the importer does not show supply of STB as sale but recovers the amount as activation charges, .....

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ephonic service and not on telephones which is left open. He disagreed that the present case is a case of import by institutional consumers which does not come under the purview of PC rules by citing the case of Jayanti Food Processing (P) Ltd(supra) which also dealt with supply of telephones to institutions such as MTNL/BSNL. 5.1 The next contention of the Ld. A.R. is that the appellants were not transparent in disclosing the schemes offered to the consumers. He referred to an Order passed by t .....

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say that there has been no sale of STBs 6. We have carefully considered the submissions made by both sides. 7. The issue is to be examined with reference to the legal provisions. The countervailing duty i.e. CVD, as it is commonly referred to, is levied under Section 3(2) of the Customs Tariff Act, 1975. The dispute centers around the proviso to Section 3(2) which states that: [Provided that in case of an article imported into India- (a) in relation to which it is required, under the provisions .....

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ction (1) of Section 4A of the Central Excise Act, 1944 (1 of 1944), the value of the imported article shall be deemed to be the retail sale price declared on the imported article less such amount of abatement, if any, from such retail sale price as the Central Government may, by notification in the Official Gazette, allow in respect of such like article under sub-section (2) of Section 4A of that Act; The proviso above states that in certain cases the CVD shall be levied on the basis of retail .....

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abatement prescribed. In the case at hand it is undisputed that the second condition is met. Whether the first condition is met or not needs to be decided by examining the relevant provisions of the Legal Metrology Act. The relevant provisions are reproduced below: Legal Metrology Act Section 2 "(r) "sale", with its grammatical variations and cognate expressions, means transfer of property in any weight, measure or other goods by one person to another for cash or for deferred paym .....

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f the commodity contained therein and includes the imported packages; Provided that for the purposes of this clause, the expression "ultimate consumer" shall not include industrial or institutional consumers; (l) "retail sale", in relation to a commodity, means the sale, distribution or delivery of such commodity through retail sales shops agencies or other instrumentalities for consumption by an individual or a group of individuals or any other consumer; (m) "retail sal .....

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off to fifty paise; The retail sale price is defined above as the maximum price at which retail package may be sold. And retail package means packages which are intended for retail sale to the ultimate consumer. In other words the retail price will be required to be declared on the package only if it is intended for retail sale. The Ld. Counsels have contended that there is no sale at all. They have referred to the definition of 'sale' under the Legal Metrology Act, and emphasized that u .....

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the ultimate consumer. The Ld. A.R. referred to the definition of sale in the Central Sales Tax Act, 1956 which reads as: "(g) Sale, with its grammatical variations and cognate expressions, means any transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable consideration, and includes........ (iv) a transfer of the right to use any goods for any purpose (whether or nor for a specified period) for cash, deferred payment or other valuabl .....

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. In this case concerning the Madhya Pradesh Entry Tax Act, the Hon'ble Supreme Court was dealing with the definition of sale whose scope is enlarged by Art 366(29A) by including transfer of goods in the 'execution of Works Contract'. Nevertheless the Apex Court held that the intention of the legislature in excluding 'execution of works contract' from the definition of 'sale' in the Madhya Pradesh Act is manifest and this clearly reflects in the letter of law. Apart f .....

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e should be transfer of property. That is, whether on the basis of evidence it can be established that there is transfer of property in the transactions between the appellant and the ultimate subscriber of DTH Service. The appellants have put forth various pieces of evidence in this regard. They have referred to the agreements with their service provider, distributor as well as with the ultimate consumers. None of the agreements speak of transfer of property of STBs. They have also referred to t .....

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ed to in the SAF. We are not inclined to go into the details of the Contract Act for the reason that there is enough evidence to indicate that there is no sale involved in the transaction. We find that the STBs are shown as capital assets in the books of accounts/Balance sheets and depreciation is claimed by them. The CPEs including STBs are capitalized on activation of the same. It has also been shown that VAT authorities of Maharashtra and Bihar have held that the supply of STBs does not const .....

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g to the notification may imply various other requirements such as weight of package. This is observed by us after seeing the various provisions of the Legal Metrology Act and the Packaged Commoditiy Rules. It has been stressed by the Ld. Counsels that far from there being actual sale, the STBs are not even intended for sale. Under Rule 2(k), retail package is a package intended for retail sale. We have shown there is no sale. Therefore we cannot appreciate how, in the face of all evidence to th .....

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pled with or incidental to the subscriber availing the services provided by the petitioner. Further, as there is clearly an agreement by the subscriber to surrender the devices on termination of the contract, it cannot he said that there is any element of sale involved. The suggestion on behalf of the respondents that the petitioner has devised a way to include the cost of the device into the service charges that are imposed, cannot be accepted as a finding of fact without there being an adjudic .....

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t 'The position in law is therefore clear that the amount received by the cellular telephone company from its subscribers towards SIM Card will form part of the taxable value for levy of service tax, for the SIM Cards are never sold as goods independent from services provided. They are considered part and parcel of the services provided and the dominant position of the transaction is to provide services and not to sell the material i.e. SIM Cards which on its own but without the service woul .....

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Bs too there is no sale, only service is being provided. 8. We find a direct judgment on the issue at hand in the case of Sun Direct TV Pvt. Ltd. (supra). However, we have chosen to analyze the issue threadbare as both sides have put forth various points on facts as well as law which are required to be addressed in a comprehensive manner. We do not agree with the reliance placed by the Ld. A.R. in the cases of Dish TV India and Reliance Communication (supra). These cases related to the periods p .....

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the condition that the goods are imported for subsequent sale which is to be evidenced by payment of appropriate sales tax or VAT. 9. An issue raised by the Ld. A.R. is with regard to TRAI Regulations. According to Revenue, TRAI Regulations mandate that the subscribers must be given an option for outright purchase or hire-purchase or rent. It is rightly contended by the Ld. Counsel that TRAI Regulations do not expressly prohibit the provision of service under any other Scheme. However it is our .....

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erred to in Section 3(2) of the Customs Act. It is under these Acts that we have to determine whether RSP based assessment is warranted or not. Therefore on this point Revenue has no case. 9.1 Another argument put forth by Revenue is that because the transaction between the service provider and the customer has a warranty Clause, therefore it can be said that the goods have been sold and the property does not remain with the service provider. This argument does not appeal to us because warranty .....

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to evidence this point and Revenue does not counter the same. 9.2 The Ld Counsel for Bharti Telemedia also contended that there is no mechanism for determining duty under Section 4A if MRP is not printed on the packages. As we have already decided that there is no sale in the present case, we do not find it necessary to go into this contention. 10. Both sides relied heavily on the Hon'ble Supreme Court Judgment in the case of Jayanti Food Processing (P) Ltd. Vs. Commissioner of Central Excis .....

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the PC Rules. The relevant provision Rule 34 reads as :' 34. Exemptions in respect of certain packages. Nothing contained in these rules shall apply to any package containing a commodity if,- (a) The marking on the package unambiguously indicates that it has been specially packed for the exclusive use of any industry as a raw material of for the purpose of servicing any industry, mine or quarry'. It is demonstrated by the Ld. Counsel of Bharti that the imported goods bear following decla .....

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therefore, be amounting to 'retail sale' and the package of KITKAT would be 'retail package'. However, what is material is the definition of 'retail sale price'. The requirement of Rule 6(1)(f) is specific. It requires the retail sale price of the package be printed or displayed on the package. If there is no sale involved of the package, there would be no question of Rule 6(1)(f) being attracted. There is a clear indication in the definition of 'retail sale price' .....

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t of the restricted arena of Section 4A(1) of the Act and would put it in the broader arena of Section 4 of the Act. Rule 6(1)(f) which is now Rule 6(1)(e), requires every package to bear the retail sale price. Applying the ratio of the above judgement we see in the present case also, as there is no sale involved, Rule 6(1)(e) is not attracted. Therefore the imported packages would not be governed by the provisions of LMA (PC Rules) and would not be assessable to duty on RSP basis. 10.2 Ld. A.R. .....

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ndeed cannot be disputed that these telephones are also sold in the retail market in the same form and the same package and there is requirement of printing the MRP on each package of the Push Button Telephone.' The vital part missed by the Ld. A.R. in the present case is that it has not been established that there is any sale. Therefore he cannot rely on the above judgment in which there was bulk sale to MTNL/BSNL. Further Court also held that 'When a 'retail package' containing .....

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