2022 (1) TMI 390 - AT - Central Excise

CENVAT Credit - input service or not - commission paid to an overseas agent - reverse charge mechanism - HELD THAT - Since there were conflicting judgments of various High Courts on the admissibility of CENVAT credit on the commission paid, a Notification No 2/2016-ST dated 03/02/2016 was issued inserting an explanation allowing CENVAT credit of such commission. In the matter of M/S ESSAR STEEL INDIA LTD. VERSUS COMMISSIONER OF C. EX. SERVICE TAX, SURAT-I 2016 (4) TMI 232 - CESTAT AHMEDABAD , a Division Bench of the Tribunal has held that this explanation has retrospective effect and applies even to cases prior to the insertion of this explanation. Relying on this order of the Tribunal, the Assistant Commissioner has dropped the show-cause notice and allowed CENVAT credit to the appellant. The Commissioner (Appeals) has not given any reason as to why the order of the Tribunal Ahmedabad in the case of Essar Steels does not apply to this case. In fact, he did not discuss the order of the Essar steels India Ltd at all. In other words while the Assistant Commissioner has followed the ratio of the law laid down in the case of Essar Steel by a Division Bench of the Tribunal, Learned Commissioner (Appeals) has simply ignored it and gave his own reasoning. The ratio of the order of the Tribunal is binding on all the lower authorities. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Admissibility of CENVAT credit on commission paid to overseas agents under reverse charge mechanism.
2. Retrospective application of Explanation in Notification No 2/2016-ST dated 03/02/2016.
3. Judicial discipline and binding nature of Tribunal's order.

Admissibility of CENVAT Credit:
The appellant, a manufacturer of bulk drugs, exported goods and paid commission to overseas agents, subject to service tax under reverse charge mechanism. The dispute revolved around whether such commission payments qualified as "input service" for CENVAT credit. The Assistant Commissioner allowed the credit based on a Tribunal's decision in Essar Steel India Ltd Vs CCE Surat, which held that an explanation allowing CENVAT credit on such commission had retrospective effect. The Tribunal emphasized that the purpose of an explanation is to clarify doubtful points of law and can have retrospective application. The Tribunal concluded that the payment of commission to foreign agents for promoting sales constituted sales promotion, making it an input service eligible for CENVAT credit.

Retrospective Application of Explanation:
A Notification No 2/2016-ST inserted an explanation allowing CENVAT credit on commission payments. The Tribunal's decision in Essar Steel case interpreted this explanation to have retrospective effect, benefiting the appellant. The Assistant Commissioner relied on this interpretation to allow the CENVAT credit, considering the nature of sales promotion activities involving foreign agents. However, the Commissioner (Appeals) set aside this decision, questioning the retrospective application of the explanation. The Tribunal found the Commissioner's reasoning flawed as he failed to address the Essar Steel case and disregarded the binding nature of the Tribunal's decision. Consequently, the Tribunal set aside the Commissioner's order and upheld the admissibility of CENVAT credit based on the retrospective effect of the explanation.

Judicial Discipline and Binding Nature of Tribunal's Order:
The Tribunal emphasized the importance of judicial discipline and adherence to precedents set by higher authorities. The Commissioner (Appeals) erred in not considering the Tribunal's decision in Essar Steel case, which established the retrospective application of the explanation in question. The Tribunal reiterated that lower authorities are bound by the rulings of higher courts and tribunals. Therefore, the Tribunal set aside the Commissioner's order, emphasizing the binding nature of the Tribunal's decision and the need for consistency in legal interpretations.