2018 (1) TMI 1208 - AT - Central Excise

CENVAT credit - services provided by the financial company under the category banking and financial services - it was alleged that the services provided by the financial companies in the name of subvention charges /incentive is in the nature of commission, hence, not eligible to credit - Held that - the object of arrangement itself speaks clearly and loudly that it is meant to enhance the sale of the manufactured goods of the Respondent through attracting customers by providing financial option to the respective customers and for the said purposes, they had approached the financial companies since they do not have such in-house finance facility - this arrangement has been rightly considered by the ld. Commissioner (Appeals) as a sale promotion activity and accordingly eligible input service - appeal dismissed - decided against Revenue.

Summary

Issues:
- Classification of services provided by financial companies for CENVAT credit eligibility
- Nature of subvention charges/incentives paid by the respondent
- Interpretation of the memorandum of understanding between the respondent and financial companies

Classification of Services for CENVAT Credit Eligibility:
The Appeals were filed by the Revenue against the Order-in-Appeal passed by the Commissioner (Appeals), Central Excise & Service Tax, Rajkot. The Revenue argued that the services provided by the Respondents were not in the nature of sales promotion services and hence not eligible for CENVAT credit. The Revenue contended that the financial companies' services were akin to sales commission rather than sales promotion. However, the Tribunal disagreed, stating that the arrangement between the Respondent and financial companies aimed to enhance the sale of manufactured goods through providing financial options to customers, thus qualifying as a sales promotion activity and eligible for input service credit.

Nature of Subvention Charges/Incentives:
The Respondent had availed CENVAT credit of service tax paid on services provided by financial companies under banking and financial services category. The Revenue argued that the subvention charges/incentives paid were in the nature of sales commission and not admissible for credit. On the contrary, the Respondent contended that the payments were for sharing risk and promoting sales, not as sales commission. The Tribunal upheld the view that the payments were for sales promotion, as per the memorandum of understanding, and therefore eligible for credit.

Interpretation of Memorandum of Understanding:
The Respondent, engaged in manufacturing three-wheeler auto rickshaws, had a memorandum of understanding with financial institutions for providing financial assistance to customers. The agreement aimed to enhance business volume and sales through financial options offered by the financial companies. The Tribunal analyzed the terms of the agreement and concluded that the payments made by the Respondent to financial companies were for sales promotion activities, in line with the agreement's objective. Additionally, the Tribunal noted that the service tax classification and payment by financial companies were not disputed, making the denial of credit on service tax paid by the Respondent unsustainable in law. Consequently, the Appeals filed by the Revenue were dismissed, upholding the impugned order.