2010 (9) TMI 240 - AT - Service Tax

Overseas commission paid - not at all an input service having no connection with manufacture or sale activities - Held that - business promotion activity adds to Revenue by manufacture and sale of incremental quantity, the business promotion activity may have nexus to such sales - service tax paid on such service may be attributable to input service tax - Claim of Cenvat credit is made to avoid cascading effect under Rule 2 (l)(ii) of the Cenvat Credit Rules, 2004 - absence of Revenue s finding that the business promotion has not resulted with any promotion of business activities - Appeal is dismissed

Summary

Issues:
1. Whether overseas commission paid by the respondent qualifies as an input service connected to manufacture or sale activities.
2. Interpretation of the term "promotion" in the context of Cenvat credit eligibility.
3. Whether the business promotion activity has a nexus to sales and manufacturing activities for claiming Cenvat credit.

Analysis:
1. The Appellate Tribunal considered the contention that the overseas commission paid by the respondent was not an input service related to manufacture or sale activities. The Revenue argued that the overseas service did not pertain to manufacturing and extended beyond the place of removal. However, the Tribunal emphasized that if a business promotion activity contributes to revenue through the manufacture and sale of additional goods, it may be linked to sales, making the service tax paid on such services attributable to input service tax. The Tribunal highlighted the importance of avoiding a technical interpretation to deny relief to the respondent under the Cenvat Credit Rules, 2004. The legislative mandate indicates that activities integral to business and connected to business operations fall under the ambit of input services, as per Rule 2(l)(ii) of the Cenvat Credit Rules. Therefore, the Tribunal dismissed the Revenue's appeal, affirming that a narrow view should not be taken in such matters.

2. The Tribunal delved into the interpretation of the term "promotion" concerning the eligibility for Cenvat credit. It was noted that when a legislative meaning exists for a term used in law, adopting a dictionary meaning might be unsafe. In the context of business promotion, which contributes to revenue generation for a seller or manufacturer, the Tribunal emphasized that if such activities lead to increased revenue through the manufacture and sale of additional goods attracting excise duty, they may be considered linked to sales. The Tribunal stressed that the focus should be on whether business promotion activities enhance revenue through manufacturing and sales, rather than a strict technical interpretation. The Tribunal highlighted that the broad activities integral to business operations and revenue generation are covered under the definition of input services, as per Rule 2(l)(ii) of the Cenvat Credit Rules.

3. The Tribunal analyzed the nexus between business promotion activities and sales/manufacturing operations for claiming Cenvat credit. It was observed that the claim for Cenvat credit aims to prevent a cascading effect under the Cenvat Credit Rules, 2004. The Tribunal emphasized that as long as the business promotion contributes to revenue through the manufacture and sale of additional goods, it can be considered an input service. The Tribunal noted that the Revenue did not establish that the business promotion activities did not result in any enhancement of business operations. Therefore, in the absence of such evidence, the Tribunal upheld the order of the Commissioner (Appeals) and dismissed the Revenue's appeal, emphasizing the inclusive nature of activities related to business and revenue generation under the Cenvat Credit Rules.