ST - Telecom service - whether CENVAT credit is admissible of CVD paid on Fixed Wireless phones - digression to matters not contemplated in SCN - Matter remanded: CESTAT
By TIOL News Service
MUMBAI, NOV 24, 2016: CENVAT credit of Rs.60.40 crore savailed on additional duty of customs paid on import of 'fixed wireless phones' between November 2004 and April 2008 has been denied to the appellant along with imposition of equivalent penalty and interest.
Before the CESTAT, the Special Counsel for the Revenue submitted that the the imported equipment installed at the premises of subscribers are subject to tax under the state VAT laws as these are considered to have been transferred to the subscriber. [State of Andhra Pradesh v. Bharat Sanchar Nigam Ltd - 2011-TIOL-731-HC-AP-ST refers]. The thrust of his argument is that such transfers would deprive the appellant of ownership and, consequently, the privilege of availing CENVAT credit. In the matter of limitation the decision of the Tribunal in Balaji Society v. Commissioner of Central Excise, Pune - III - 2014-TIOL-1873-CESTAT-MUM is relied upon.
The appellant submitted that disallowance of credit, and concomitant recovery, is based on findings that travel beyond the contents of the show cause notice.
The Bench perused the SCN and observed that -
+ In imputing these contraventions (of rules 3(1) and 3(5) of CCR, 2004), the narration of facts bears out that the source of credit is levy of additional duty of customs, that 'fixed wireless phones' are capital goods, that these were installed outside the premises of the appellant who is a service provider and that these were not brought back to the premises within the stipulated period of 180 days. No other contravention has been alluded to articulated therein.
+ In the impugned order, we find that the adjudicating authority has devoted considerable space discussing the ineligibility of the 'fixed wireless phones' for availing CENVAT credit as there is no nexus between these and the output service rendered by the appellant.
+ The impugned order has devoted merely one short paragraph to countering the contention of the appellant that the subscriber's premises must, by the very nature of the service and technology, be deemed to be premises of the appellant and, thus, were never renounced.
+ Though the adjudicating authority has acknowledged the decisions of the Tribunal in Commissioner of Central Excise, Chennai v. Pepsico Holdings Ltd 2002-TIOL-197-CESTAT-MAD which have held that the placing of equipment outside the premises of the manufacturer would not impede the availment of credit as long as the physical link with premises of manufacturer is maintained, he has not discussed the application of the ratio in these decisions to the contentions of the appellant and, instead peremptorily dismissed them, with the bald statement that the physical connection noticed in those cases was absent in the activities of the appellant.
+ It would also appear that due attention has not been paid to the statutory provisions. The availment of CENVAT credit on capital goods is predicated upon it being received in the premises of the service provider. There is no allegation that the 'fixed wireless phones' were not received at the premises of the appellant. Indeed, it would have been well nigh impossible for the appellant to have provided the phones to subscribers from some other premises. This aspect has not been considered in the impugned order.
+ The rules are stringent in requiring the retention of capital goods at the factory of production but acknowledges that capital goods used for rendering of service may have to be taken outside the premises. That rigidity attendant upon manufacturing entities has been read down in various decisions supra in deference to commercial realities. Flexibility in assigning a meaning to the expression 'premises' should have found a place in the impugned order. The lack thereof may be attributed to the digression to matters not contemplated in the notice. This want of proper disposal of the show cause notice must be remedied before we can take a decision on the legality and propriety of the disposal of the allegations in the show cause notice.
The impugned order is set aside and the matter is remanded to the adjudicating authority to decide upon the notice afresh bearing in mind that the proceedings should confine itself to the allegation in the SCN and consider the applicability of the various decisions cited on behalf of the appellant.
(See 2016-TIOL-3048-CESTAT-MUM)
