2017 (1) TMI 972 - AT - Central Excise

Refund claim - Credit availed on sales commission was reversed, now refund sought for - denial on the ground that the service tax paid on commission is beyond the place of removal - 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 - It is to be understood that there need not be manufacture unless there is sale of product. To increase the manufacturing activity encouragement is being given for increased sales. Hence, the commission paid on sales becomes part of sales promotion resulting in increased manufacturing activity. Reliance also placed in the case of Ambika Overseas 2011 (7) TMI 980 - PUNJAB & HARYANA HIGH COURT , where it was 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. Refund allowed - appeal allowed - decided in favor of assessee.

Summary

Issues:
- Appeal against rejection of CENVAT credit on service tax paid on sales commission.
- Interpretation of the definition of input service under Rule 2(l) of CCR, 2004.
- Applicability of the Board Circular and Notification No.2/2016 regarding sales promotion services.
- Retrospective application of the Explanation to input service definition.
- Analysis of case laws supporting both parties' arguments.

Analysis:
The appeal was filed against the rejection of CENVAT credit on service tax paid on sales commission, with the Commissioner (A) upholding the Order-in-Original based on the grounds that sales commission is post-sale activity and does not fall under the definition of input services as per Rule 2(l) of CCR, 2004. The appellant argued that the impugned order misinterpreted the input service definition and went against higher judicial decisions. The appellant contended that the credit should be allowed up to the place of removal, citing the Board Circular and Notification No.2/2016, which clarified that services for clearance of final products up to the place of removal are admissible, including sales promotion activities.

The appellant relied on various decisions to support their claim, emphasizing that the sales commission is directly related to boosting sales and, therefore, qualifies as sales promotion activity. They argued that the Explanation added to Rule 2(l) by Notification No.2/2016 is declaratory and should be applied retrospectively. The Tribunal agreed with the appellant, stating that the impugned order was not sustainable in law. They noted that sales commission is linked to sales of products/services, which ultimately boosts manufacturing activity. The Tribunal referenced the Hon'ble High Court of P & H and the Essar Steels India Pvt. Ltd. case to support their decision, emphasizing the interrelation between sales and manufacturing, and the retrospective applicability of the Explanation to input service definition.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal of the appellant and granting consequential relief. The judgment highlighted the direct nexus between sales commission and sales promotion, ultimately benefiting manufacturing activity. The retrospective application of the Explanation to input service definition played a crucial role in the Tribunal's decision, emphasizing the importance of aligning with established case laws and legal interpretations.