2023 (5) TMI 520 - AT - Service Tax

Denial of CENVAT Credit - Input services - commission paid by the respondent to collection agents for collection of dues of post-paid plans from the subscribers - HELD THAT - Rule 2(l) of the 2004 Rules defines input service to mean any service used by a provider of output service for providing output service and includes services relating to sales promotion. The Explanation that was added to rule 2(l) on 03.02.2016 provides that for the purpose of clause 2(l), sales promotion includes services by way of sale of dutiable goods on commission basis. The view taken by the Commissioner (Appeals) that the Explanation inserted in rule 2(l) of the 2004 Rules on 03.02.2016 would have retrospective effect is correct. The Calcutta High Court in PRINCIPAL COMMISSIONER OF CENTRAL EXCISE, KOLKATA IV VERSUS M/S. HIMADRI SPECIALITY CHEMICAL LIMITED 2022 (9) TMI 1213 - CALCUTTA HIGH COURT held that the Explanation inserted on 03.02.2016 to the definition of input service under rule 2(l) of the 2004 Rules would have restospective effect. This apart, what needs to be noticed is that the view taken by the Joint Commissioner that since the activities in respect of collection /recovery of post-paid plan outstanding dues had been undertaken after completion of the provision of taxable output services they would not be covered in the main part or the inclusive part of the definition of input service is not correct. Rule 2(l) of the 2004 Rules provides that the input service must be used for providing output service. The provider of output service, therefore, shall be eligible to avail CENVAT Credit on all those services which are used for providing output services without which the provision of the said output service would become impossible or commercially inexpedient. What, therefore, follows is that services having relation with the business of providing of output service would be covered by the definition of input service. Thus, it has to be held that the respondent was entitled to avail CENVAT Credit of service tax discharged on the commission paid by the respondent to collection agents for collection of dues of post-paid plans from the subscribers. Appeal of Revenue dismissed.

Summary

Issues Involved:
1. Denial of CENVAT Credit on service tax paid for commission to collection agents.
2. Interpretation of "input service" under Rule 2(l) of the CENVAT Credit Rules, 2004.
3. Retrospective effect of the Explanation added to Rule 2(l) on 03.02.2016.

Summary:

1. Denial of CENVAT Credit on service tax paid for commission to collection agents:
The department challenged the order passed by the Commissioner (Appeals) which allowed CENVAT Credit on service tax paid on commission to collection agents for dues of post-paid plans. The department contended that since the collection service was used after providing the output service, it could not qualify as an "input service".

2. Interpretation of "input service" under Rule 2(l) of the CENVAT Credit Rules, 2004:
The respondent argued that services used for providing output services, including those integral to revenue collection, qualify as input services under Rule 2(l). The Commissioner (Appeals) supported this view, stating that commission agents' services are related to sales promotion, thus falling within the definition of input service. The Commissioner (Appeals) relied on various decisions and clarifications, including the Tribunal's decision in CCE Jallandhar Vs. Ambika Overseas and the Board's circular dated 29.04.2011.

3. Retrospective effect of the Explanation added to Rule 2(l) on 03.02.2016:
The Commissioner (Appeals) held that the Explanation added to Rule 2(l) on 03.02.2016, which includes services by way of sale on commission basis, has retrospective effect. This view was supported by the Calcutta High Court in Principal Commissioner of Central Excise, Kolkata-IV Vs. Himadri Speciality Chemical Limited, which clarified that the Explanation seeks to clarify legislative intent and thus has retrospective effect.

Conclusion:
The Tribunal upheld the Commissioner (Appeals)'s decision, stating that the services used for collecting post-paid dues are integral to the provision of telecommunication services and qualify as input services. The Tribunal also affirmed the retrospective effect of the Explanation added to Rule 2(l) on 03.02.2016. Consequently, the appeal filed by the Department was dismissed.