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2022 (8) TMI 773 - AT - Central ExciseCENVAT Credit - input services - services of Commission Agent received from Larsen Toubro Ltd. - sales commission paid to M/s L T Ltd, who were marketing their products in India, as per Sole selling Agreement entered - extended period of limitation - suppression of facts or not - penalty - HELD THAT - It is found that general tenor and purport of the Agreement is sales and not sales promotion. It can inferred from the Agreement that the terms of payment are only as a percentage of sales and the payment terms have no relation with any activity of sale promotion like advertisement etc. for which the appellants have not paid any money to M/s L T Ltd. Even though there is a mention of filed campaign in the Agreement, it is on a case to case basis and on a specific offer letter to be issued by the appellants; no payments for such activity have been agreed upon in an Agreement. Therefore, it is a clear-cut understanding between the parties that M/s L T Ltd would work as Commission Agents for sales and get a fixed percentage of the sales turnover. The learned Commissioner has correctly held that the impugned service does not qualify as Input Service as the same was not used in or in relation to manufacture of goods by the appellants and therefore, the credit availed is illegal. Gujarat High Court has gone into this issue in an elaborate manner and had made a final distinction between Sales Promotion and Sales Commission Services in the case of COMMISSIONER OF CENTRAL EXCISE, AHMEDABAD II VERSUS M/S CADILA HEALTH CARE LTD. 2013 (1) TMI 304 - GUJARAT HIGH COURT has held 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 appellants are not eligible to avail CENVAT credit on the Sales Commission paid to M/s L T Ltd. We find that the appellants have also submitted that in case the bench takes a contrary view to the judgments of tribunal in M/S ESSAR STEEL INDIA LTD. VERSUS COMMISSIONER OF C. EX. SERVICE TAX, SURAT-I 2016 (4) TMI 232 - CESTAT AHMEDABAD and Federal Mogul 2019 (2) TMI 1485 - CESTAT BANGALORE , they may refer the issue to a larger Bench - in view of the elaborate discussion and categorical finding of the 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 , no such reference to larger bench is warranted. Time Limitation - suppression of facts or not - penalty under Section 11AC of the Central Excise Act, 1944 and Rule 25 of Cenvat Credit Rules, 2004 - HELD THAT - The extended period is not invokable in respect of the first show cause notice that is the part of the proceedings in Appeal No. E/639/2010 and for that reason, suppression, fraud, collusion etc. with intent to evade payment of duty cannot be alleged and therefore, penalty under Section 11AC cannot be imposed - as the issue involved does not pertain to clandestine removal etc. and therefore, the question of confiscation and penalty under the provisions of Rule 25 of the Central Excise Rules do not arise - penalty imposed under Section 11AC of Central Excise Act and Rule 25 of Central Excise Rules are not sustainable. The appellants are not eligible to avail the impugned credit and therefore, availment of credit, before the amendment carried out with effect from 03.02.2016, does constitute a contravention of Central Excise Rules and therefore, penalty under Rule 15 of CENVAT Credit Rules, 2004 is rightly imposed. Duty demand confirmed within normal period; extended period not invokable; However, penalty under Section 11AC is set aside - Duty demand of Rs.10, 96, 33,738 is confirmed; however, penalty under Rule 25 of Central Excise Rules is set aside - duty demand of Rs.20, 85, 94,049 is confirmed; however, penalty under Section 11AC is set aside - duty demand of Rs.8, 12, 82,621 is confirmed; however, penalty under Rule 25 of Central Excise is set aside - Appeal allowed in part.
Issues Involved:
1. Eligibility of availing CENVAT credit on services of "Commission Agent" under Rule 2(l) of CENVAT Credit Rules, 2004. 2. Invocation of the extended period of limitation. 3. Imposition of penalties under Section 11AC of the Central Excise Act, 1944, and Rule 25 of the Central Excise Rules, 2004. Issue-wise Detailed Analysis: 1. Eligibility of Availing CENVAT Credit on Services of "Commission Agent": The appellants argued that the services provided by M/s L&T Ltd. under the Marketing Agreement, including advertisement, sales promotion, and customer support, qualify as "input service" under Rule 2(l) of the CENVAT Credit Rules, 2004. They relied on various judgments, including Coca Cola India Pvt Ltd, Ultra tech Cement Ltd, and ONGC, asserting that the phrase "directly or indirectly, in or in relation to manufacture" is broad enough to cover sales promotion services. The appellants also contended that the commission paid to L&T was included in the assessable value of the final products, thus qualifying for CENVAT credit. The department countered that the services provided by M/s L&T Ltd. were post-manufacturing activities related only to sales and not to the manufacture of final products. They cited the Gujarat High Court's decision in Cadila Healthcare Ltd., which distinguished between sales promotion and sales commission services, holding that commission agents' services do not qualify as "input service." The tribunal examined the Marketing Agreement and found that the general tenor and purport of the Agreement were sales and not sales promotion. The payment terms were based on a percentage of sales turnover, and no payments for sales promotion activities like advertisement were agreed upon. The tribunal concluded that the services rendered by M/s L&T Ltd. did not qualify as "input service" as they were not used in or in relation to the manufacture of goods by the appellants. 2. Invocation of the Extended Period of Limitation: The appellants argued that the extended period of limitation could only be invoked in cases of willful suppression with intent to evade duty. They contended that the dispute was purely interpretative, with no factual suppression involved. The fact of availing CENVAT credit was communicated to the department, and the issue was well within the department's knowledge. The tribunal accepted the appellants' contention, noting that the dispute involved the interpretation of legal provisions and there was no evidence of willful suppression or intent to evade duty. Therefore, the invocation of the extended period of limitation in Appeal No. E-639/2010 was deemed unwarranted. 3. Imposition of Penalties: The appellants contended that penalties under Section 11AC of the Central Excise Act, 1944, and Rule 25 of the Central Excise Rules, 2004, could only be imposed in cases of fraud, collusion, or willful suppression with intent to evade duty. They argued that the issue involved was a bona fide dispute about the interpretation of law, and there was no evidence of clandestine removal or suppression. The tribunal found the appellants' contention acceptable. It held that penalties under Section 11AC and Rule 25 were not sustainable as the issue involved was interpretative and did not pertain to clandestine removal. However, the tribunal upheld the penalties imposed under Rule 15 of the CENVAT Credit Rules, 2004, as the appellants were not eligible to avail the impugned credit before the amendment effective from 03.02.2016. Orders: 1. Appeal No. E/639/2010: Duty demand confirmed within the normal period; extended period not invokable; penalty under Section 11AC set aside. 2. Appeal No. E/288/2011: Duty demand confirmed; penalty under Rule 25 set aside. 3. Appeal No. E/247/2012: Duty demand confirmed; penalty under Section 11AC set aside. 4. Appeal No. E/675/2012: Duty demand confirmed; penalty under Rule 25 set aside. 5. Appeal Nos. E/25288/2013, E/28106/2013, E/21368/2015, and E/21432/2017: Rejected. 6. Miscellaneous Applications: Disposed of in the above terms. Conclusion: The tribunal concluded that the services rendered by M/s L&T Ltd. did not qualify as "input service" under Rule 2(l) of the CENVAT Credit Rules, 2004, and the extended period of limitation was not invokable. Penalties under Section 11AC and Rule 25 were set aside, but penalties under Rule 15 were upheld.
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