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2023 (2) TMI 139 - AT - Service TaxRecovery of irregularly availed CENVAT Credit along with interest and to impose penalty - input service or not - Service Tax paid on Commission paid to different commission agents - HELD THAT - It has been observed that during 01.04.11 to 31.03.2015, the appellant had taken CENVAT Credit of input service on sales commission paid to different agents. Rule 2(l) of the CENVAT Credit Rules, 2004 defines input service. With effect from 01.04.2011, the definition of input service got narrowed and the expression activities related to business was omitted. Department referred to Cadila judgement to confirm the demand, as sales commission is not covered in the inclusive part of the definition of Input Service. The Appellant rightly referred to Circular No. 943/4/2011-CX, dated 29.04.2011 wherein department unambiguously accepted the legality of availment of credit on sales commission - it was held that The definition of input services allows all credit on services used for clearance of final products upto the place of removal. Moreover activity of sale promotion is specifically allowed and on many occasions the remuneration for same is linked to actual sale. Reading the provisions harmoniously it is clarified that credit is admissible on the services of sale of dutiable goods on commission basis. The sales commission has a direct nexus with the sales, which in turn is related to the manufacture of the products. If there is no sale, there would not be any need to manufacture the products. Be that so as it may, to increase the manufacturing activity an encouragement is being given by way of sales commission for achieving increased sales - Hon ble High Court of Punjab Haryana in the case of COMMISSIONER OF CENTRAL EXCISE, LUDHIANA VERSUS AMBIKA OVERSEAS 2011 (7) TMI 980 - PUNJAB HARYANA HIGH COURT , had clearly held that the sale and manufacture are directed inter-related and the commission paid on sales needs to be accounted for as services related to sales promotion. The impugned order cannot be sustained and is, therefore, set aside - Appeal allowed.
Issues:
Admissibility of input service credit on sales commission paid to various agents. Analysis: The appellant, a manufacturer of tailor-made goods, appealed against the order of the Ld. Commissioner (Appeals) upholding the disallowance of CENVAT Credit on sales commission paid to commission agents. The Department alleged irregular availing of input service credit on services of Sales Commission, which did not qualify as input service of the Service Tax. The Adjudicating authority disallowed the CENVAT Credit and imposed a penalty. The Ld.Commissioner(Appeals) upheld the order-in-original, leading to the appeal before the Tribunal. The appellant argued that commission agents provided various services beyond procuring purchase orders, such as liaison services, letter of credit services, and dispute resolution. The appellant contended that the commission paid to agents qualified as input service credit. The Department, however, maintained that the credit on sales commission did not qualify as eligible input service credit. The Tribunal analyzed the definition of input service under the CENVAT Credit Rules, 2004, and noted the change in the definition effective from 01.04.2011. The Department relied on the Cadila judgment to support its contention that sales commission is not covered in the definition of input service. However, the appellant cited Circular No. 943/4/2011-CX, which clarified that credit on sales commission for sale of dutiable goods on a commission basis is admissible. The Tribunal observed that sales commission is directly attributable to sales and deemed as sales promotion activity. It noted that the commission paid on sales is related to boosting sales and increasing manufacturing activity. Referring to relevant case law, including a decision by the Hon'ble High Court of Punjab & Haryana, the Tribunal held that the sales and manufacture are interrelated, and commission paid on sales should be accounted for as services related to sales promotion. The Tribunal also considered a previous decision by the Division Bench of the Tribunal, which held that an explanation inserted in the CENVAT Credit Rules is declaratory in nature and applicable retrospectively. Ultimately, the Tribunal set aside the impugned order, allowing the appeal filed by the Appellant with consequential relief as per law.
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