By TIOL News Service

MUMBAI, SEPT 03, 2015: THE appellants are licenced by the Government to provide Direct to Home (DTH) broadcasting services. They are registered for payment of service tax under the Finance Act, 1994 for providing such services to the subscribers. The appellants imported STBs in packages which bear 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.

The point to be decided is 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 Section 4A of the CEA.

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 with the Distributors. The appellants sell Activation vouchers and Recharge Coupons to Distributors who in turn sell these to the ultimate subscribers. Service tax is being paid by the appellants on the full value of the Vouchers and Coupons including the Distributor's margin. In terms of the agreement entered with the Service Providers, the appellants supply free of cost CPE (consisting of STB, viewing card, remote control, dish antenna, cable) to the Service provider. According to the appellants, the ownership of the CPE continues to remain with them.

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 (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 satisfy the condition of Notification RE/44/2000 (issued by DGFT) in relation to pre-packaged commodities. Therefore, it is required under the LMA and Rules framed thereunder to declare on the imported goods the retail sale price (RSP). The goods are also notified under Notification No. 49/2008-CE dated 24/12/2008 for the purpose of levy of CVD on MRP basis under Section 4A. Thus the adjudicating authority ordered assessment of STBs for levy of CVD under Section 4A of the Act.

As this order was upheld by the Commissioner (Appeals), the appellant is before the CESTAT.

It is submitted that the goods i.e. STBs are not intended for retail sale and, therefore, there is no requirement under the Legal Metrology (Package Commodity) Rules, 2011 (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 installation of STBs clearly mention that STBs shall remain the property of the appellant and if the STB is given under a scheme on security deposit basis, the same shall be refunded only if the STB is returned in proper working condition. It was emphasized that STBs are not sold, they are merely entrusted to the subscriber for providing the service of viewing TV channels; the property and title is not transferred. The STBs are shown in the Balance sheets as capital assets. VAT authorities in Bihar and Maharashtra have also held that the supply of STBs to the customer does not constitute sale and, therefore, not subject to VAT. Further they are providing warranty for the service provided and not for the goods. It was stated that the issue stands settled by CESTAT in the case of Sun Direct TV Pvt. Ltd. - 2009-TIOL-1698-CESTAT-MAD.

The stand of the 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; even though the title of goods may be retained by the appellants, there is transfer of right to possess and enjoyment of the goods which amounts to sale as per the definition of "sale" in the CST Act.

The Bench after considering the submissions observed -

+ The proviso to section 3(2) of the CTA states that in certain cases the CVD shall be levied on the basis of retail sale price declared on the imported packages. It is clear that 2 conditions have to be met for CVD to be levied on the basis of RSP, namely:

(1) Under Legal Metrology Act it should be required to declare on the package the retail sale price (RSP);

(2) The imported goods must be specified in the notification issued under Section4A(1) of the Central Excise Act, 1944.

+ Only if these two conditions are satisfied, the CVD will be payable on the value equal to the retail sale price less the amount of 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 retail sale price is defined above as the maximum price at which retail package may be sold. In other words the retail price will be required to be declared on the package only if it is intended for retail sale. The 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 unless there is transfer of property it cannot be said that sale has taken place. It is seen from the definition that there should be a transfer of property for any consideration or there should be a transfer on the hire-purchase system or by any system of payment by any instalments. 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 instalments. Thus there appears to be no sale in the use of the Set Top Box by the ultimate consumer.

+ It is seen that the definition of sale in the CST Act (referred by AR) has a much wider coverage and it includes the transfer of right to use any goods. But we see no reason to import the definition of sale from another statute when CVD is to be levied on the basis of the Legal Metrology Act, read with the Central Excise Act…., we find Section3 of the Legal Metrology Act clearly provides that in case of inconsistency with the provisions of any other Act, the provisions of the Legal Metrology Act, will prevail. Therefore, it is beyond doubt that the definition of 'sale' which ought to be considered in the present case before us is the definition stated in the Legal Metrology Act.

+ 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 constitute sale. It is, thus, clear to us that there is no transfer of property.

+ Only because the imported packages conformed to the Notification RE/44/2000 issued by DGFT in relation to Package Commodities does not necessarily mean that the MRP is required to be declared. Conforming 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 Commodity 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 the contrary, Revenue can still consider that there has been sale of STBs. We are supported in our view by the decision of the Hon'ble High Court of Karnataka in the case of Bharati Airtel Ltd. MANU/KA/0011/2010.

+ Revenue has adduced no evidence whatsoever to show that the cost of STBs is being passed on as service charges. In the absence of any credible evidence, we reject the contention of Revenue that the appellants have devised a way to build the cost of the STBs into the service charges. In the supply of STBs too there is no sale, only service is being provided. [SC decision in Idea Mobile Communication Ltd. - 2011-TIOL-71-SC-ST refers]

+ Whether TRAI guidelines are followed or not is a matter to be determined by the appropriate authorities. Here we are concerned only with the application of the Customs Tariff Act, Central Excise Act and the Legal Metrology Act which is specifically referred 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.

+ 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 the replacement box is sold to the subscriber at a cost. Therefore in such cases, as an element of sale is involved, CVD would be payable under Section 4A of the Act. Accordingly, it is ordered that assessment be done and duty be paid on MRP basis in such cases.

Held: Set Top Boxes imported by the appellants are not leviable to CVD on RSP/MRP basis in terms of Section 4A of the Central Excise Act, except for the Set Top Boxes actually sold.

The appeal of M/s Bharti Telemedia Ltd. was allowed and that of M/s. Dish TV India Ltd. was partly allowed.

(See 2015-TIOL-1863-CESTAT-MUM)