2017 (12) TMI 1502 - AT - Service Tax

CENVAT credit - sole selling commission - input service or not? - Held that - the sales commission is directly attributable to the sales of the product. Any activities which amounts to sale of the product is deemed to be sales promotion activity in the normal trade parlance. The commission is paid on the sale of the product / services with an intention to boost the sale of the company. In view of this, the sales commission has a direct nexus with the sales which in turn is related to the manufacture of the product - credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against denial of CENVAT credit on sole selling commission and penalty reduction.

Analysis:
The appellant, engaged in manufacturing asbestos cement products, availed input CENVAT credit on capital goods and services transferred by their Head Office as an Input Service Distributor (ISD). An internal audit raised concerns about the credits taken for services availed at the Head Office, leading to a show-cause notice disallowing the CENVAT credit on Sole Selling Agency Commission. The Assistant Commissioner's order disallowed the credit and imposed penalties, upheld by the Commissioner(Appeals) with reduced penalties, prompting the appellant to file six appeals against the impugned order.

The appellant contended that the impugned order misinterpreted the definition of input service under CENVAT Credit Rules, 2004, and wrongly relied on a precedent regarding sales promotion commission. They argued that the commission indirectly contributed to manufacturing the final product and should be considered part of sales promotion, making them eligible for CENVAT credit. The appellant cited various decisions supporting their claim, emphasizing the direct nexus between sales commission and product sales, essential for boosting manufacturing activity. They highlighted the interrelation between sales and manufacturing, citing a High Court ruling and a Tribunal decision to support their stance.

In contrast, the respondent reiterated the findings of the impugned order without presenting new arguments. After considering submissions, evidence, and precedent, the Judicial Member concluded that the impugned order was legally unsustainable. The Member found the appellant's case aligned with various decisions and emphasized the direct relationship between sales commission and sales promotion, crucial for manufacturing activity. Referring to a High Court ruling and a Tribunal decision, the Member supported the appellant's argument, ultimately allowing the appeals and setting aside the impugned order.

In conclusion, the Appellate Tribunal CESTAT Bangalore ruled in favor of the appellant, allowing the appeals against the denial of CENVAT credit on sole selling commission and reducing penalties. The judgment highlighted the importance of sales commission in promoting sales and boosting manufacturing activity, ultimately qualifying as an input service for CENVAT credit eligibility.