2017 (1) TMI 924 - AT - Central Excise

CENVAT credit - input services - sales commission - denial on the ground that the activity of sales commission paid to the agents was no way related to the activity of manufacturing the final product in terms of Section 2(f) of the Central Excise Act - Held that - the sales commission is directly attributable to sales of the products. Any activity which amounts to sale of the products is deemed to be sales promotion activity in the normal trade parlance. The commission is paid on sales of the products/services with an intention to boost the sale of the company. In view of the same, the sales commission has a direct nexus with the sales which in turn is related to the manufacture of the products. It is to be understood that there need not be manufacture unless there is sale of product. Hence, the commission paid on sales becomes part of sales promotion resulting in increased manufacturing activity - reliance placed on the decision of the the case of Ambika Overseas 2011 (7) TMI 980 - PUNJAB & HARYANA HIGH COURT , where it was clearly held that the sale and manufacture are directly interrelated and the commission paid on sales needs to be taken as services related to sales promotion. CENVAT credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Interpretation of the definition of input service under Rule 2(l) of CCR, 2004
- Admissibility of CENVAT credit on sales commission
- Applicability of circulars and notifications related to input services
- Retrospective application of amendments to input service definition

Analysis:

Interpretation of Input Service Definition:
The appeal challenged an order rejecting CENVAT credit on sales commission by the Commissioner (A), who deemed it unrelated to manufacturing under Section 2(f) of the Central Excise Act. The appellant argued that the order misinterpreted Rule 2(l) of CCR, 2004 and cited judicial precedents supporting credit for services related to manufacturing activities up to the place of removal. The appellant relied on Circular No.943/4/2011 and Notification No.2/2016-CE to assert that sales promotion services, including sales on commission basis, qualify as input services. The appellant contended that the Explanation added to Rule 2(l) by Notification No.2/2016 is declaratory and retroactively applicable, supported by the case of Essar Steels India Ltd. vs. CCE.

Admissibility of CENVAT Credit on Sales Commission:
The appellant argued that sales commission directly contributes to sales promotion, integral to manufacturing activities by boosting product sales. The Tribunal agreed, emphasizing that sales commission incentivizes increased manufacturing through enhanced sales. Citing the decision in Ambika Overseas and Essar Steels India Pvt. Ltd., the Tribunal concluded that sales commission qualifies as a service related to sales promotion, making it eligible for CENVAT credit.

Applicability of Circulars and Notifications:
The appellant referenced Circular No.943/4/2011 and Notification No.2/2016-CE to support their claim for CENVAT credit on sales commission, highlighting the inclusion of sales promotion services in the definition of input services. The Tribunal acknowledged these references in its analysis, emphasizing the importance of harmonizing legal provisions to interpret the eligibility of services like sales commission for credit under CENVAT rules.

Retrospective Application of Amendments:
The appellant contended that the Explanation added to Rule 2(l) by Notification No.2/2016 should be applied retrospectively, relying on the case of Essar Steels India Ltd. vs. CCE. The Tribunal agreed, deeming the Explanation declaratory in nature and retroactively applicable. By setting aside the impugned order, the Tribunal allowed the appeal and granted consequential relief to the appellant, emphasizing the retrospective validity of the amended input service definition.

This detailed analysis of the judgment covers the key legal issues, arguments presented by both parties, relevant judicial precedents, and the Tribunal's findings on each aspect, ensuring a comprehensive understanding of the case.