2016 (3) TMI 714 - AT - Service Tax

Cenvat credit - service tax paid by the sub-broker - input services for the period from April, 2007 to October, 2008 - Held that - the CENVAT Credit Rules clearly allow credit of such services of sub-brokers because those services were used by the appellant for providing taxable service on which service tax was paid. Commission paid was higher than the commission received by the appellant may at best raise some suspicion about the same being in respect of certain goods which were not the same on which it received commission, but there is no evidence to elevate such suspicion to a level to come to an inference that the higher commission (than the commission received by the appellant) was paid to sub-brokers in respect of goods other than the goods for which it received commission from its clients. Therefore, the Cenvat credit is allowed. - Decided in favour of appellant

Summary

Issues:
1. Disallowance of CENVAT credit on input services.
2. Payment of commission to sub-brokers higher than received commission.
3. Eligibility of services rendered by sub-brokers as input services.

Issue 1: Disallowance of CENVAT credit on input services:
The appeal was filed against the Order-in-Appeal disallowing CENVAT credit on input services totaling Rs. 16,41,448 for the period from April 2007 to October 2008. The lower authorities imposed interest and a mandatory penalty along with the disallowance. The appellant, a broker/commission agent, paid service tax under Business Auxiliary Service (BAS) on commission received for assisting clients in sale and purchase of goods. The disallowance was based on the argument that commission paid to sub-brokers was more than the commission received, indicating services rendered by sub-brokers were not eligible as input services for the appellant.

Issue 2: Payment of commission to sub-brokers higher than received commission:
The appellant contended that higher commission to sub-brokers was only paid in cases where finding buyers was difficult, and sometimes the higher amount was also recovered from clients. The agreements with sub-brokers specified that rates would be decided at the time of sale based on mutual consultation. The Revenue argued that paying higher commission than received was proof that services rendered by sub-brokers were not related to the goods for which commission was received, thus not eligible as input services.

Issue 3: Eligibility of services rendered by sub-brokers as input services:
The Tribunal analyzed the contentions of both sides and found that the overall commission received by the appellant was more than the commission paid to sub-brokers. The Tribunal noted that paying higher commission in certain cases was a business strategy to maintain client relationships. There was no evidence indicating that commission to sub-brokers was paid for goods other than those for which commission was received. The Tribunal concluded that the disallowance of CENVAT credit lacked sustainable grounds, as there was no evidence to support the claim that services rendered by sub-brokers were not eligible as input services. Therefore, the impugned order disallowing the credit was set aside, and the appeal was allowed.