2017 (7) TMI 984 - AT - Central Excise

100% EOU - refund claim - commission given to foreign agent - denial on the ground that the credit taken on the service tax paid on the commission paid to foreign agent does not qualify to be an input service as per the definition - Held that - The commission paid to foreign agent is necessarily an activity related to business of manufacture. The inclusive part of the definition is very wide since it does not exclude any specific category of service related to business. With effect from 1.4.2011 these words activities related to business was deleted from the definition. The period involved in the present case is prior to 1.4.2011 - The appellant has explained in reply to SCN that being an exporter appellant has to find source of foreign buyers for which they have to engage foreign agents to whom the commission is paid. As a 100% EOU it is required to achieve positive net foreign exchange for which they have to ensure constant foreign market for their products - denial of credit is unjustified - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Eligibility of Cenvat Credit on service tax paid to foreign agent under Business Auxiliary Services category.
2. Disallowance of credit by the department.
3. Appeal against refund sanctioning authority's decision.
4. Interpretation of "input services" definition.
5. Applicability of judgments in similar cases.
6. Pre-manufacturing vs. post-manufacturing activities for credit eligibility.

Analysis:
1. The appellant, a 100% EOU engaged in apparel manufacture, availed Cenvat Credit on service tax paid to a foreign agent for Business Auxiliary Services. The department proposed disallowing credits, leading to an appeal against the disallowance order.
2. The department also appealed against the refund sanctioned to the appellant, resulting in a series of appeals and counter-appeals. The Tribunal relied on previous judgments regarding the eligibility of service tax paid on foreign commission agents.
3. The appellant argued that the services provided by the foreign agent constituted pre-manufacturing activities, essential for securing orders and promoting sales abroad. The department contended that these services were post-manufacturing and thus not eligible for credit.
4. The Tribunal considered the definition of "input services" before April 1, 2011, which had a broad scope encompassing all business-related activities. The appellant's status as a 100% EOU, manufacturing goods based on foreign orders, supported their claim for credit on services related to sales promotion.
5. Rulings from various High Courts and Tribunals were examined to determine the eligibility of credits in similar cases. The Tribunal found the later judgment upholding credit entitlement in a comparable case to be applicable.
6. Ultimately, the Tribunal held that the denial of credit was unjustified, as the services provided by the foreign agent were crucial for the appellant's business operations. The impugned orders disallowing credits were set aside, and the appeals were allowed with any necessary consequential relief as per the law.