2019 (8) TMI 1311 - HC - Central Excise

CENVAT Credit - input services - Commission paid to foreign agents, who procured customers and orders and advised the Assessee, a 100% EOU to manufacture and export those garments the foreign country - HELD THAT - The learned Tribunal has taken a correct view of the matter and has rightly found that the foreign agents of the Assessee in question were rendering the services not only post-sales or post-export by the Assessee but, were engaged in the activities of exploring the market, advising the designs for manufacture and supplies to specific orders procured by them and assisting the clearance of the garments in question and export the same to the foreign countries and earn foreign currency in terms of their obligations as 100% EOU and therefore, the service tax paid on commission to foreign agents could not denied the benefit of Cenvat Credit under Cenvat Credit Rules 2004. Credit allowed - Appeal dismissed - decided against Revenue.

Summary

Issues:
1. Entitlement to Cenvat Credit for Service Tax on commission paid to foreign agents.
2. Interpretation of Input Services under Cenvat Credit Rules, 2004.
3. Adjudication of the Tribunal's decision in favor of the Assessee.
4. Question of law regarding Cenvat Credit qualification for service tax paid to foreign agents.

Analysis:

1. The primary issue in this case revolves around the entitlement of the Assessee to Cenvat Credit for the Service Tax paid on the commission disbursed to foreign agents who facilitated customer procurement, order generation, and provided advice for the manufacturing and export activities of the Assessee, a 100% EOU.

2. The Adjudicating Authority initially disallowed the Cenvat Credit, asserting that the commission paid to foreign agents did not fall within the scope of Input Services as per Rule 2(l) of the Cenvat Credit Rules, 2004. However, the Tribunal, in its order, allowed the Assessee's appeal, emphasizing the broad interpretation of "input services" and citing relevant case laws to support the Assessee's claim.

3. The Tribunal's decision was based on the argument that the activities of the foreign agents, which included market exploration, design advice, order procurement, and assistance in export clearance, were integral to the Assessee's business operations as a 100% EOU. The Tribunal found that the services provided by the foreign agents were not merely post-sales activities but crucial for the Assessee's market presence and compliance with foreign exchange regulations.

4. The Revenue challenged the Tribunal's decision, questioning the qualification of the service tax paid on commission to foreign agents for Cenvat Credit. The High Court, after considering the arguments presented by both parties, upheld the Tribunal's decision, emphasizing the comprehensive role played by the foreign agents in the Assessee's business operations and aligning with the interpretations provided by other High Courts in similar cases.

5. Ultimately, the High Court dismissed the Appeals filed by the Revenue, confirming the Tribunal's view that the service tax paid on commission to foreign agents qualifies for Cenvat Credit under the Cenvat Credit Rules, 2004. The judgment highlighted the importance of the foreign agents' services in the Assessee's business model and their relevance to the concept of "input services" within the tax framework.

This detailed analysis provides a comprehensive overview of the legal judgment, addressing each issue involved in the case and outlining the reasoning behind the High Court's decision to uphold the Tribunal's ruling in favor of the Assessee.