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2025 (4) TMI 1285 - AT - Central ExciseAvailment of input service credit on outward freight from factory to sales outlets - Input Credit availed by the Appellant on sales commission paid to the franchisee for marketing and selling the products manufactured by the appellants is allowable or not - eligibility to avail input service credit on service tax on rent paid for the Retail outlets. Whether the assessee is eligible to avail input service credit on outward freight from factory to sales outlets? - HELD THAT - The rent for the franchisee showroom is borne by the Appellant and sales tax in respect of the goods stock transferred to the outlet is suffered by the Appellant as per Clause 7 of the Franchisee agreement. Further we find that as per clause 9 of the said agreement the appellant bears the cost of transportation of stock transferred to the franchisee outlet and for the unsold stock transferred back to the Appellant by the Franchisee. Besides as per Clause 10 of the agreement the insurance coverage for showroom stock is taken by the Appellant. It is also found that the definition of place of removal contained in Section 4(3)(c) of Central Excise Act 1944 includes the premises of a consignment agent or any other place from where the excisable goods are sold. Under the above circumstances the Franchisee showroom is the place of removal and therefore the credit availed on outward GTA services for movement of goods from the appellant s unit to Franchisee premises on stock transfer basis is eligible as it is for transportation of goods up to the place of removal. Reference made to the decision of the CESTAT New Delhi in the case of Cantabil Retail India Ltd Rajesh Rohilla Ani Bansal Director Vs. Commissioner of Central Excise Delhi-I 2017 (9) TMI 205 - CESTAT NEW DELHI wherein it was held The Revenue presumed that the services should be in or in relation to manufacture of ready-made garments whereas Rule 2(l) clearly talks about services used by manufacturers whether directly or indirectly in or in relation to the manufacture of final products and clearance of final products up to the place of removal. A plain reading of the said statutory provision will indicate that the presumption of the Revenue is not sustainable. The Appellant is entitled to avail the Cenvat credit of transportation paid on goods stock transferred to the franchisee outlets. Whether the input credit availed on sales commission paid to franchisees for marketing and selling the appellant s products is allowable? - HELD THAT - The inclusive part of the provisions of Rule 2(l) of Cenvat Credit Rules 2004 provides for availment of Cenvat credit on sales commission paid to franchisees. The appellant had incurred expenses/paid commission to the franchisees for display of the products and effecting the sale of goods which was attributable to the promotion of sales of the said goods. The CBEC Circular No. 943/04/2011 clarified that the credit would be admissible on the services of sale of dutiable goods on commission basis. The Ld. Counsel placed reliance on the decision of the Tribunal in the case of M/s. Ultratech Cement Ltd. Versus CCE Jodhpur 2017 (12) TMI 882 - CESTAT NEW DELHI wherein the Tribunal relying on the above said circular had held that there was no bar on availment of Cenvat credit on sales promotion service by way of sale of dutiable goods on commission basis - the Appellant is eligible for Input Credit availed on sales commission paid to the franchisees. Whether the Appellant is eligible to avail input service credit on service tax on rent paid for the Retail outlets? - HELD THAT - It is not disputed that the goods manufactured were transferred from the factory premises to the franchisee showroom from where the goods were sold to eventual customers. The issue is no more res integra as there is a catena of judgements delivered by various forums which is applicable to the present appeal. The Tribunal in the case of Commissioner of C.EX. Delhi-III Vs. Mark Exhaust Systems Ltd. 2015 (9) TMI 1472 - CESTAT NEW DELHI on a similar issue held Since the duty paid vehicles were removed to the depot from where the same were sold to the customers such activity squarely falls under the definition of input service under the category of storage up to the place of removal itemised therein. In the above referred cases the Tribunal has allowed the services availed for the Go-down/Depot by holding that the services have nexus with the ultimate manufacturer of final product - Thus the Cenvat Credit on rent paid on immovable property in respect of retail outlets is eligible for Cenvat Credit. Conclusion - i) Cenvat Credit on outward transportation upto the place of removal is allowed and the place of removal is determined to be the sales outlets (franchisees stores). ii) Cenvat Credit on Sales commission paid to the franchisees is allowed. iii) Cenvat credit availed on commercial rent paid for retail outlets/ show rooms is allowed. Appeal allowed.
The core legal questions considered by the Tribunal in this appeal are:
i. Whether the appellant is eligible to avail input service credit on outward freight from the factory to sales outlets? ii. Whether the input credit availed on sales commission paid to franchisees for marketing and selling the appellant's products is allowable? iii. Whether the appellant is eligible to avail input service credit on service tax paid on rent for retail outlets (franchisee showrooms)? Issue-wise Detailed Analysis: 1. Eligibility of Input Service Credit on Outward Freight from Factory to Sales Outlets The relevant legal framework includes Rule 2(l) of the Cenvat Credit Rules, 2004 (CCR), which defines "input service" as any service used by the manufacturer, directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal. The definition was amended effective 1 April 2008 to substitute "from the place of removal" with "up to the place of removal" for outward transportation services. Precedents relied upon include the Larger Bench decision of the Tribunal in Ramco Cements Ltd., which emphasized the need to ascertain the 'place of removal' applying Supreme Court judgments in Emco Ltd. and Roofit Industries, the Karnataka High Court decision in Bharat Fritz Werner Ltd., and the CBIC Circular dated 8 June 2018, which clarified the 'place of removal' concept. The appellant contended that goods were stock transferred to franchisee showrooms, from where they were sold to customers, hence the franchisee showroom should be considered the place of removal. The franchisee agreement confirmed that the goods remained the property of the appellant until sold, the franchisee acted as a custodian on consignment basis, the appellant bore transportation and insurance costs, and sales tax was paid by the appellant on sales effected at the franchisee premises. The Tribunal analyzed these facts and held that the franchisee showroom qualifies as the place of removal under Section 4(3)(c) of the Central Excise Act, 1944, which includes premises of a consignment agent or any other place from where excisable goods are sold. Consequently, input credit on outward freight to these franchisee premises is eligible. The Department's reliance on the Supreme Court decision in Ultra Tech Cement Ltd. was distinguished as that case concerned credit on transportation from the place of removal to the buyer's premises, whereas the present issue pertains to determining the place of removal itself. The Tribunal also referred to the CESTAT New Delhi decision in Cantabil Retail India Ltd., which held that services used up to the place of removal, including transportation to retail outlets, qualify as input services eligible for credit. Thus, the Tribunal applied the law to facts, treating the franchisee showroom as the place of removal, and allowed the credit on outward freight accordingly. 2. Eligibility of Input Credit on Sales Commission Paid to Franchisees Rule 2(l) CCR includes services used in relation to advertisement or sales promotion within the definition of input service. The appellant claimed credit on sales commission paid to franchisees who marketed and sold the products. The appellant relied on CBEC Circular No. 943/04/2011 dated 29 April 2011, which clarifies that credit is admissible on services of sale of dutiable goods on commission basis. The Tribunal's decision in Ultratech Cement Ltd. supported this interpretation, holding there was no bar on credit for sales promotion services by way of sale on commission basis. Further, the appellant relied on Notification No. 02/2016-CE(NT) dated 3 February 2016, which inserted an explanation in Rule 2(l) clarifying that sales promotion includes services by way of sale of dutiable goods on commission basis. The appellant argued this amendment was clarificatory and should be applied retrospectively, a position supported by Tribunal decisions in Essar Steel India Ltd. and Akash Optifibre, and upheld by the Calcutta High Court in Himadri Speciality Chemical Ltd. The Tribunal accepted these submissions, holding that the appellant was eligible for input credit on sales commission paid to franchisees, applying the clarificatory amendment retrospectively and relying on the consistent judicial pronouncements. 3. Eligibility of Input Service Credit on Service Tax Paid on Rent for Retail Outlets The appellant paid rent for franchisee showrooms where goods were stocked and sold. The question was whether service tax paid on such rent qualifies as input service credit. Rule 2(l) CCR includes services used in relation to the factory or premises of the provider of output service, and the Tribunal noted that rent on immovable property used for business purposes is eligible if it has nexus with manufacture or clearance of goods. Precedents include Tribunal decisions in Mark Exhaust Systems Ltd., Tally Solutions Pvt. Ltd., Navabharat Ventures Ltd., LG Electronics India Pvt. Ltd., and Cantabil Retail Ltd., which consistently held that rent paid for premises used in relation to storage or sale of excisable goods up to the place of removal qualifies for input service credit. The Tribunal found that the rent paid by the appellant for franchisee showrooms was eligible for credit, as the showrooms were the place of removal and the rent had a direct nexus with clearance of goods. Significant Holdings: "The Franchisee showroom is the place of removal and therefore the credit availed on outward GTA services for movement of goods from the appellant's unit to Franchisee premises on stock transfer basis is eligible as it is for transportation of goods up to the place of removal." "The appellant is eligible for Input Credit availed on sales commission paid to the franchisees in view of the clarification dated 29.04.2011 and the notification dated 03.02.2016 and above decisions holding that the benefit of the said amendment should be made available even for the previous periods." "The Cenvat Credit on rent paid on immovable property in respect of retail outlets is eligible for Cenvat Credit." Core principles established include:
Final determinations on each issue are: i. Input service credit on outward freight from factory to franchisee sales outlets is allowed, as the franchisee showroom is the place of removal. ii. Input credit on sales commission paid to franchisees for marketing and selling the products is allowed, based on the definition of input service and clarificatory circulars and notifications. iii. Input service credit on service tax paid on rent for retail outlets is allowed, given the nexus with clearance of goods and place of removal. Accordingly, the appeal is allowed with consequential benefits under law.
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