2019 (7) TMI 445 - AT - Central Excise

CENVAT Credit - input services - commission paid to agents working abroad for sale of their goods - denial of credit on the ground of nexus - HELD THAT - The distributor/commission agent appointed by the appellant outside India has to make every effort to promote the products manufactured by the appellant. It is thus not merely an activity of sale of finished products - the Board vide Circular No. 943/4/2011-CX dated 29.04.2011 has clarified that the remuneration paid to sales commission agents is linked with actual sale and it involves an element of sales promotion. The decision of the Hon ble Gujarat High Court in the case of COMMISSIONER OF CENTRAL EXCISE, AHMEDABAD II VERSUS M/S CADILA HEALTH CARE LTD. 2013 (1) TMI 304 - GUJARAT HIGH COURT , therefore, has no application in the present facts of the case as it was held in the case that though the business activities mentioned in the definition are not exhaustive, the service rendered by the commission agents not being analogous to the activities mentioned in the definition, would not fall within the ambit of the expression activities relating to business . The Tribunal in the case of CGST, C CE, ALWAR VERSUS M/S KRISHI ICON 2018 (7) TMI 97 - CESTAT NEW DELHI had occasion to analyse the application of the explanation added with effect from 03.02.2016 and had observed that it was merely clarificatory in nature and that commission paid for sales commission activities prior to 03.02.2016 is also eligible. The denial of credit is unjustified - credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
Whether the appellants are eligible for credit of the commission paid to agents working abroad for the sale of their goods.

Analysis:
The appellants, engaged in manufacturing construction and mining equipment, availed CENVAT Credit of Service Tax paid on input services, including sales commission to their sales agents. The Department contended that this credit was ineligible as the services were not related to the manufacture of the final product. A Show Cause Notice was issued, demanding the irregularly availed credit, interest, and penalty. The Original Authority and Commissioner (Appeals) upheld the demand. The appellant argued that sales promotion fell within the definition of "input service" and the commission paid to overseas agents was for promoting sales of finished products. The Department cited a High Court decision to deny credit, stating it was mere sale of goods without promotion activity. The appellant referenced a Tribunal case and a Board Circular supporting credit eligibility for sales promotion activities.

The key issue was whether the commission paid to overseas agents for selling the appellants' goods qualified for credit. The appellant's agreement with the agents required them to actively promote and solicit sales of the products, indicating more than mere sales activity. The Tribunal differentiated the present case from the High Court decision cited by the Department, emphasizing the promotional aspect of the agents' work. A Board Circular also linked remuneration to sales commission agents with actual sales and sales promotion, supporting the appellant's position. The Tribunal's previous ruling clarified that the explanation added to the definition of "input service" was retrospective and commission paid for sales promotion activities before the effective date was eligible for credit.

After considering the arguments and evidence presented, the Tribunal found the denial of credit unjustified. Citing the Tribunal's precedent, the impugned order was set aside, and the appeal was allowed with consequential reliefs as per law.