2018 (5) TMI 24 - AT - Central Excise

CENVAT credit - sales commission paid to the commission Agents - denial on account of nexus - 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. The commission paid on sales becomes part of sales promotion resulting in increased manufacturing activity - credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Availment of CENVAT credit on sales commission paid to commission agents
- Eligibility of CENVAT credit under the Central Excise Tariff Act, 1985
- Interpretation of the definition of "input service" in relation to sales promotion activities
- Applicability of Board Circular No.943/4/2011-cx and Notification No.2/2016-CE
- Retrospective application of the Explanation to the definition of "input service"
- Comparison with relevant judicial precedents

Analysis:

The appeal addressed the issue of availing CENVAT credit on sales commission paid to commission agents by the appellants engaged in manufacturing herbal extracts and drugs. The internal audit revealed that the appellant had claimed CENVAT credit on sales commissions paid to commission agents, which was deemed ineligible. The dispute centered on whether the commission agents were merely acting as intermediaries or actively involved in sales promotion activities to boost the sales of the manufactured goods. The Commissioner (A) rejected the appellant's appeal, leading to the present appeal before the Tribunal.

The crux of the matter revolved around the interpretation of the definition of "input service" under the Central Excise Tariff Act, 1985. The appellant argued that the impugned order failed to consider the legal position and binding judicial precedents. Reference was made to Board Circular No.943/4/2011-cx and Notification No.2/2016-CE to support the admissibility of CENVAT credit on sales promotion activities, including services by way of sale of dutiable goods on a commission basis. The appellant contended that the Explanation added to the definition of "input service" through Notification No.2/2016 was declaratory and applicable retrospectively, citing the Essar Steels India Ltd. case as a precedent.

In the Tribunal's analysis, it was concluded that the impugned order was not sustainable in law. The Tribunal found that the sales commission paid to commission agents was directly linked to the sales of products, constituting a form of sales promotion activity aimed at increasing the manufacturing activity. Drawing from the Essar Steels India Pvt. Ltd. case, the Tribunal held that the Explanation added to Rule 2(l) of CCR, 2004 by Notification No. 2/2016 was declaratory and had retrospective applicability. Consequently, the Tribunal set aside the impugned order, allowing the appeal of the appellant with any consequential relief deemed necessary.

Overall, the judgment clarified the eligibility of CENVAT credit in the context of sales commission paid to commission agents, emphasizing the nexus between sales promotion activities and manufacturing operations. The decision underscored the retrospective application of legal provisions and the significance of relevant judicial precedents in interpreting statutory definitions.