2016 (4) TMI 232 - AT - Service Tax

CENVAT Credit sale promotion activities - Beneficial amendment to Rule 2(l) vide notification no. 2/2016 CE(NT) dated 3.2.2016 is retrospective or prospective - sales promotion includes services by way of dutiable goods on commission basis - denial of claim as the services were received and utilized by the Appellant for selling of the goods and not in relation to the manufacture of the goods and clearance of the final product from the place of removal, which could not be considered as input service as defined under Rule 2(l) of the Rules, 2004. Held that - The definition of the input services includes services used in relation to sales promotion and these activities can rightly be described as sales promotion activities. Sales promotion activities undertaken at given point of time also aims at sales of goods which are to be manufactured and cleared on future. Any advertisement given as a long term impact cannot be treated as post- clearance activities and, therefore, sales promotion has been specifically included in the definition of input services. As regards the other contention that the documents on which the respondent has taken the credit is not the prescribed document, it is to be noted that the respondent is not a service provider per se. They are basically the service recipients. They are required to pay service tax as a deemed service provider. Revenue was unable to justify that the claim of cenvat credit by the assessee was erroneous in any manner. Hon ble Supreme Court in the case of CIT Vs Podar Cement (P) Ltd - 1997 (5) TMI 2 - SUPREME Court observed that the circumstances under which the amendment was brought in existence and the consequences of the amendment will have to be taken care of while deciding the issue as to whether the amendment was clarificatory or substantive in nature and, whether it will have retrospective effect or it was not so. In the present case, the Explanation inserted in Rule 2(l) of Rules 2004, is in conformity with the Board Circular dt.29.04.2011, and extended the benefit to the Assessee The Hon ble Supreme Court in the case of Vatika Township Pvt. Ltd. 2014 (9) TMI 576 - SUPREME COURT , in the identical situation, held that if a legislation confers a benefit on some other person or on the public generally, and where to confer such benefit appears to have been the legislature s object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. Cenvat Credit allowed - Decided in favour of assessee

Summary

Issues Involved:
1. Admissibility of CENVAT Credit on Service Tax paid on commission to overseas agents.
2. Interpretation of "input service" under Rule 2(l) of CENVAT Credit Rules, 2004.
3. Applicability of Board Circular No.943/4/2011-CX and its harmonization with judicial decisions.
4. Retrospective application of amendments to Rule 2(l) of CENVAT Credit Rules, 2004.
5. Revenue neutrality and limitation period for demand.

Detailed Analysis:

1. Admissibility of CENVAT Credit on Service Tax paid on commission to overseas agents:
The appellant, engaged in manufacturing steel products, availed CENVAT Credit on Service Tax paid to overseas agents for services rendered under "International Market Service Agreements" for sales promotion. The Revenue contended that these services were for selling goods and not related to the manufacture or clearance of final products, thus not qualifying as "input service" under Rule 2(l) of CENVAT Credit Rules, 2004.

2. Interpretation of "input service" under Rule 2(l) of CENVAT Credit Rules, 2004:
The definition of "input service" includes services used in relation to sales promotion. The appellant argued that the services rendered by marketing agents fell under sales promotion, which is covered under Rule 2(l). The adjudicating authority, relying on the Gujarat High Court's decision in Cadila Healthcare Ltd, concluded that the services were sales commission, not sales promotion, and denied the credit. However, the Tribunal found that the agreements were for international marketing services, including market information, customer identification, and sales promotion activities, thus qualifying as "input service."

3. Applicability of Board Circular No.943/4/2011-CX and its harmonization with judicial decisions:
The appellant cited the Board Circular No.943/4/2011-CX, which clarified that CENVAT Credit is allowable on sales promotion activities, even if the remuneration is linked to actual sales. The adjudicating authority's reliance on Cadila Healthcare Ltd was challenged by the appellant, arguing that the services were indeed for sales promotion. The Tribunal concluded that the agreements indicated marketing services, not mere sales commission, and thus should be considered as sales promotion.

4. Retrospective application of amendments to Rule 2(l) of CENVAT Credit Rules, 2004:
The appellant argued that the amendment to Rule 2(l) by Notification No.2/2016-CX(NT), which included services by way of sale of dutiable goods on commission basis under sales promotion, should be applied retrospectively. The Tribunal agreed, referencing Supreme Court decisions that clarificatory amendments can be retrospective, and concluded that the amendment was in line with the Board Circular and should benefit the appellant.

5. Revenue neutrality and limitation period for demand:
The appellant contended revenue neutrality, arguing that if the services were considered sales commission, they would not have paid Service Tax due to exemptions. The Tribunal, deciding on merits, did not delve into revenue neutrality or limitation, as the primary issue was resolved in favor of the appellant.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeal and granting consequential relief to the appellant, affirming that the services availed by the appellant qualified as "input service" under Rule 2(l) of the CENVAT Credit Rules, 2004, and the amendment to the rule was retrospective, aligning with the Board Circular.