2010 (7) TMI 330 - AT - Service Tax

Respondents are a manufacturer of hand tools and part of the goods manufactured by them are being exported - respondents appointed Overseas Commission Agents who are entrusted with the job of canvassing and procuring orders for the products in overseas market and, thus, helping them in sales of the goods and in following up of the payments from the overseas buyers - proceedings were initialled against the respondents and they were directed to pay the service tax on the overseas commission paid by them in their capacity as recipient of services - Held that - respondents is not a service provider per se - They are basically the service recipients. They are required to pay the service tax as a deemed service provider - respondents have paid Service tax using TR-6 challans and taken credit treating the said documents as documents covered by Rule 9(1)(e) of the Cenvat Credit Rules, 2004 - nothing irregular about it - Appeal is rejected

Summary

Issues:
- Whether overseas commission paid by the manufacturer can be considered as input services for claiming Cenvat credit?
- Whether the activities of overseas commission agents constitute sales promotion activities?
- Whether the documents used by the manufacturer for claiming credit are valid under the Cenvat Credit Rules?

Analysis:
1. Input Services for Cenvat Credit:
The case involved a manufacturer of hand tools exporting goods who appointed overseas commission agents for canvassing and procuring orders. The department contended that services by overseas agents are not utilized in manufacturing final products and cannot be considered as input services. The department sought to disallow the Cenvat credit on these services. The Commissioner (Appeals) set aside the original authority's decision disallowing the credit. The appellate tribunal held that activities like canvassing and procuring orders are pre-removal activities crucial for sales. These activities were deemed as sales promotion, falling under the definition of input services. The tribunal rejected the department's argument that these were post-removal activities, emphasizing the importance of sales promotion in the manufacturing process.

2. Sales Promotion Activities by Overseas Commission Agents:
The advocate for the manufacturer argued that the overseas commission agents' activities, including canvassing and procuring orders, constitute sales promotion activities. The definition of 'inputs services' includes services related to sales promotion. The tribunal agreed with this interpretation, highlighting that sales promotion activities have a long-term impact on sales of manufactured goods. The tribunal emphasized that sales promotion is not limited to post-clearance activities but encompasses efforts aimed at future sales. Therefore, the tribunal considered the activities of overseas commission agents as integral to sales promotion, making them eligible for Cenvat credit as input services.

3. Validity of Documents for Cenvat Credit Claim:
The department raised concerns about the validity of documents used by the manufacturer to claim Cenvat credit. They argued that the manufacturer should have used documents specified under the Cenvat Credit Rules. However, the tribunal clarified that the manufacturer, as a service recipient, paid service tax under TR-6 challans and claimed credit based on these documents. The tribunal noted that the manufacturer, not being a service provider, followed the appropriate procedure for claiming credit. The tribunal upheld the validity of the documents used by the manufacturer for claiming Cenvat credit, rejecting the department's contention on this issue.

In conclusion, the appellate tribunal dismissed the department's appeal, upholding the Commissioner (Appeals) decision that overseas commission paid by the manufacturer could be considered as input services for claiming Cenvat credit. The tribunal recognized the activities of overseas commission agents as sales promotion efforts, essential for future sales. Additionally, the tribunal affirmed the validity of the documents used by the manufacturer for claiming Cenvat credit, emphasizing the manufacturer's compliance with the Cenvat Credit Rules as a service recipient.