2015 (7) TMI 1165 - AT - Central Excise

Cenvat Credit - Sales Commission/ Dalali - Held that - The matter is no more res integra in view of the decision of the Hon ble High Court of Gujarat in the matter of CCE Ahmedabad II vs Cadila Healthcare Ltd 2009 (8) TMI 172 - CESTAT AHMEDABAD where it was held that such service tax is ineligible for availment of Cenvat credit on this issue. As regards penalty the action of the appellant in taking the Cenvat credit of the service tax to the commission agents could be out of bona fide belief as to eligibility to Cenvat credit as it is in relation to the business of manufacturing and selling. I find that the said bona fide belief of the appellant cannot be considered as erroneous and that too to invoke the extended period of limitation for imposition of equivalent amount of penalty. In my view the appellants have made out a case for setting aside the penalties imposed by the lower authorities. Accordingly I set aside that portion of the order which imposes equivalent amount of penalty on the appellant under the provisions of Rule 15 of the Cenvat Credit Rules 2004 read with Section 11AC of the Central Excise Act 1944. Appeal disposed off - decided partly in favor of appellant-assessee.

Summary

Issues:
Availing Cenvat Credit of service tax paid on Sales Commission/Dalali (brokerage) and availing Cenvat Credit of service tax paid on Sales Commission to various parties for selling/marketing of finished goods.

Analysis:

Issue 1: Availing Cenvat Credit on Sales Commission and Brokerage
The Appellate Tribunal examined whether the Appellants were entitled to avail Cenvat Credit on service tax paid on Sales Commission/Dalali (brokerage) and service tax paid on Sales Commission to various parties for selling/marketing of their finished goods. The Tribunal referred to the definition of "input service" under Rule 2 of the Cenvat Credit Rules, 2004, which includes services used in or in relation to the manufacture of final products. It was observed that the services provided by Commission Agents did not qualify as input services as they did not have a nexus with the manufacture of finished goods, affecting neither the quality nor quantity of the products. The Appellants had wrongly availed service tax credit in this regard, which was deemed ineligible.

Issue 2: Recovery of Service Tax Credit
The Tribunal noted that the Appellants had incorrectly availed service tax credit amounting to Rs. 8,20,847 from August 2006 to November 2010. As per Rule 14 of the Cenvat Credit Rules, 2004, this amount was required to be recovered from the Appellants. The Show Cause Notice issued in this regard led to the confirmation of the demand of Cenvat credit by the Adjudicating Authority through an Order-in-Original dated 23.12.2011. The Commissioner (Appeals) upheld this decision, prompting the Appellants to appeal before the Tribunal.

Issue 3: Penalty Imposition
The Adjudicating Authority imposed interest and equivalent penalty on the Appellants along with the demand for Cenvat credit. However, the Tribunal considered the Appellants' contention that they had a bona fide belief in the eligibility of availing Cenvat credit on service tax paid to commission agents, as indicated by their regular compliance with filing returns. Citing previous decisions, the Tribunal held that the penalty imposed was unwarranted, as the Appellants' belief was not erroneous. Consequently, the Tribunal set aside the penalties imposed under Rule 15 of the Cenvat Credit Rules, 2004, along with Section 11AC of the Central Excise Act, 1944.

In conclusion, the Tribunal rejected the appeal on the merit of availing Cenvat Credit on Sales Commission, upheld the recovery of wrongly availed service tax credit, and set aside the penalties imposed on the Appellants. The impugned Order-in-Appeal was modified accordingly, and the appeal was disposed of in favor of the Appellants on the penalty issue.