2018 (7) TMI 97 - AT - Service Tax

CENVAT Credit - input services or not - commission paid to sales/ commission agents - whether the commission paid to the sales/commission agents is related to promotion of any activity specified in the inclusive part of the definition of input service provided under Rule 2 (l) of the Cenvat Credit Rules, 2004? - Held that - Whether the explanation added in Rule 2 (l) of Cenvat Credit Rules, 2004 vide notification dated 03/02/2016 has retrospective effect or not, has come before this Tribunal in the matter of Essar Steel India Ltd. vs. CCE & ST, Surat I 2016 (4) TMI 232 - CESTAT AHMEDABAD in which this Tribunal has held that the explanation inserted in Rule 2 (l) of Rules 2004 by Notification No. 2/2016-CX (NT) should be declaratory in nature and effective retrospectively. Explanation to Rule 2 (l) of Rules 2004 says it in clear terms that there is no bar on availment of Cenvat credit on sales promotion service by way of sale of dutiable goods on commission basis - the explanation inserted in Rule 2 (l) of Rules 2004 by notification dated 03/02/2016 is declaratory in nature and has to be complied retrospectively - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Whether the commission paid to the sales/commission agents is related to promotion of any activity specified in the inclusive part of the definition of input service under Rule 2 (l) of the Cenvat Credit Rules, 2004.

Analysis:
The appeal was filed against the order-in-appeal dated 16/01/2018, where the respondent/assessee was alleged to have wrongly availed Cenvat credit of service tax paid on commission paid to sales/commission agents. The Adjudicating Authority confirmed the recovery of the amount along with interest and penalty. However, the Commissioner (Appeals) allowed the appeal, stating that the commission agent's activity falls under the definition of input service provided under Rule 2 (l) of the Cenvat Credit Rules, 2004. The issue revolved around whether the commission paid to sales/commission agents qualifies as an input service. The Tribunal referred to the Second Amendment of 2016, which clarified that sales promotion includes services by way of sale of dutiable goods on a commission basis.

The Department argued that the explanation added in Rule 2 (l) should have prospective application only, while the Commissioner (Appeals) applied it retrospectively. The Tribunal cited the Essar Steel India Ltd. case, where it was held that the explanation should be declaratory in nature and effective retrospectively. The Tribunal further referenced the M/s Mangalam Cement Ltd. case, where it was established that Cenvat credit is admissible on services of sale of dutiable goods on a commission basis. The Tribunal consistently held that the explanation inserted in Rule 2 (l) by the notification dated 03/02/2016 is declaratory in nature and must be complied with retrospectively.

The Tribunal also referred to the clarification issued by the Board Circular dated 29/04/2011, which confirmed that credit is admissible on services of sales of dutiable goods on a commission basis. The issue was settled after this clarification, and various appellate authorities had considered and clarified the admissibility of Cenvat credit on such services. The Tribunal concluded that the explanation in Rule 2 (l) allows for the availment of Cenvat credit on sales promotion services by way of sale of dutiable goods on a commission basis. The appeal filed by the Department was rejected based on the settled view of the Tribunal in various decisions.

In summary, the Tribunal upheld the decision of the Commissioner (Appeals) by allowing the appeal of the respondent/assessee, stating that the commission paid to sales/commission agents qualifies as an input service under the Cenvat Credit Rules, 2004, as clarified by the Second Amendment of 2016 and various Board Circulars. The Tribunal emphasized that the explanation in Rule 2 (l) should be applied retrospectively, leading to the rejection of the Department's appeal.