2025 (1) TMI 628 - AT - Service Tax

Recovery of wrongfully availed CENVAT Credit with interest and penalty - input service or not - Commissions/Brokerage paid to Commission Agents on sale of flats - violation of Rule 2(1) and 3 of the Cenvat Credit Rules, 2004 - invocation of Extended period of limitation - HELD THAT - The issue is no longer res integra and has been decided in series of decisions by this Tribunal. One of such decision is in favour of the asessee itself in the case titled as CGST, C CE, Alwar Vs. Krish Icon 2018 (7) TMI 97 - CESTAT NEW DELHI . In the said case, the learned Member considered the earlier decision of the Tribunal in the case of Essar Steel India Ltd. Vs. Commissioner of Central Excise ST, Surat-I 2016 (4) TMI 232 - CESTAT AHMEDABAD , which was passed holding that Explanation to Rule 2(l) of the Rules inserted vide Notification No.2/2016-CX (NT) dated 03.02.2016) is declaratory in nature and retrospectively effective. Revenue also placed on record the latest decision of this Tribunal in The Commissioner, Central Goods Service Tax, Jaipur Vs. M/s.Bharti Hexacom India Ltd. 2023 (5) TMI 520 - CESTAT NEW DELHI , where also the Department s appeal was rejected observing that the assessee is entitled to avail the cenvat credit of service tax discharged on the Commission paid by the respondent to the Collection Agents for collection of dues of post-paid plans from the subscribers, relying on the provisions of Explanation inserted to Rule 2 (l) on 03.02.2016. Conclusion - The respondent is entitled to avail the cenvat credit on service tax paid as Commission Agents on sale of flats. Appeal dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the respondent, engaged in providing taxable services, is entitled to avail Cenvat credit on service tax paid on commissions/brokerage for the sale of flats.
Whether the explanation inserted in Rule 2(l) of the Cenvat Credit Rules, 2004, by Notification No. 2/2016-CX (NT) is declaratory and retrospectively effective.
Whether the extended period of limitation for recovery of inadmissible credit is applicable in this case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to Cenvat Credit on Commissions/Brokerage

Relevant legal framework and precedents: The key legal provisions are Rule 2(l) and Rule 3 of the Cenvat Credit Rules, 2004, which define 'input service' and outline the eligibility for credit. The explanation inserted in Rule 2(l) by Notification No. 2/2016-CX (NT) clarifies that sales promotion services include services by way of sale of dutiable goods on a commission basis.
Court's interpretation and reasoning: The Tribunal referenced previous decisions, including the case of CGST, C & CE, Alwar Vs. Krish Icon, which upheld that the explanation to Rule 2(l) is declaratory and retrospectively effective, allowing Cenvat credit for sales promotion services on a commission basis.
Key evidence and findings: The Tribunal considered the Board Circular dated 29.04.2011, which clarified that credit is admissible on sales promotion services linked to actual sales.
Application of law to facts: The Tribunal applied the explanation to Rule 2(l) and the Board Circular to the facts of the case, determining that the respondent's activities fell within the scope of 'sales promotion' and thus qualified for Cenvat credit.
Treatment of competing arguments: The Department did not dispute the applicability of the decisions referenced, which supported the respondent's position.
Conclusions: The Tribunal concluded that the respondent is entitled to avail Cenvat credit on service tax paid as commissions/brokerage for the sale of flats.

Issue 2: Retrospective Effect of Explanation to Rule 2(l)

Relevant legal framework and precedents: The explanation to Rule 2(l) was inserted by Notification No. 2/2016-CX (NT), and its retrospective effect was supported by decisions in cases such as Essar Steel India Ltd. and Cadila Healthcare Ltd.
Court's interpretation and reasoning: The Tribunal held that the explanation is declaratory and retrospectively effective, resolving conflicting views among High Courts and aligning with the Board's Circular.
Key evidence and findings: The Tribunal referenced the legislative intent and the Board Circular, which confirmed the retrospective application of the explanation.
Application of law to facts: The Tribunal applied the retrospective explanation to the respondent's case, affirming their entitlement to Cenvat credit.
Treatment of competing arguments: The Tribunal noted that the Department accepted the retrospective effect of the explanation.
Conclusions: The explanation to Rule 2(l) is declaratory and retrospectively effective, supporting the respondent's entitlement to Cenvat credit.

Issue 3: Applicability of Extended Period of Limitation

Relevant legal framework and precedents: The extended period of limitation for recovery of inadmissible credit is invoked under Rule 14 of the Cenvat Credit Rules, 2004, read with Section 73 of the Finance Act, 1994.
Court's interpretation and reasoning: The Tribunal did not explicitly address the applicability of the extended period, focusing instead on the substantive entitlement to credit.
Key evidence and findings: The Tribunal's decision did not hinge on the limitation period, as the substantive issue of credit entitlement was resolved in favor of the respondent.
Application of law to facts: The Tribunal's affirmation of the respondent's credit entitlement rendered the limitation issue moot.
Treatment of competing arguments: The Tribunal did not elaborate on competing arguments regarding the limitation period.
Conclusions: The Tribunal's decision on credit entitlement precluded the need to address the extended period of limitation.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "Taking into circumstances under which the Explanation was inserted in Rule 2(l) of Rules, 2004 and consequence of the Explanation to extend the benefit to the assessee as per Board Circular, we hold that the Explanation inserted in Rule 2(l) of Rules, 2004 by Notification No. 2/2016-CX (N.T.) (supra) should be declaratory in nature and effective retrospectively."
Core principles established: The explanation to Rule 2(l) is declaratory and retrospectively effective, allowing Cenvat credit for sales promotion services on a commission basis.
Final determinations on each issue: The Tribunal affirmed the respondent's entitlement to avail Cenvat credit on service tax paid as commissions/brokerage for the sale of flats, dismissing the Department's appeal.

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