2024 (11) TMI 345 - AT - Service Tax

Wrongly taken and utilized the Cenvat Credit of Service Tax paid on foreign commission, under reverse charge - amount of availed Cenvat credit is proposed to be reversed alongwith the interest and the appropriate penalties - Applicability of extended period of limitation - HELD THAT - The bare perusal makes it clear any activity which amounts to sales promotion i.e. the service by way of sale of dutiable goods on commission basis is eligible for availment of Cenvat credit. One of the obligations fastened on the said agent vide the said agreement is that he had to assist the appellant in respect of the payments from the buyers under the concluded contracts. In addition, to imparting information about various tenders, market rents, competitive possibilities etc. the agent obligation was to procure the sale orders to take care about possible damage to the appellants seller. Clause 4 of the agreement reveals that the commission was agreed to be at the rate of two percent of the net invoice value and the payment was agreed to be remitted in US to the Bank Account of the appellant only after the full payment from the customer is received. These clauses have also been observed by the original adjudicating authority of the Order-in-Original. Despite observing these paragraphs we do not find any reasonable explanation in the said order to deny the arrangement between the appellant and the agent and the purpose for appointing him for the sales promotion activity. No reason to sustain those findings. It is held that appellant has rightly availed the Cenvat Credit on the amount of commission paid to its sales agent. The allegations in the Show Cause Notice of suppression are therefore held to be redundant based whereupon the Department has invoked the extended period of limitation while issuing the Show Cause Notice. For the said reason the Show Cause Notice itself is held to be barred by time.

Summary

Issues Involved:

1. Eligibility of Cenvat Credit on commission paid for sales promotion activities.
2. Applicability of extended period of limitation due to alleged suppression or misrepresentation.

Detailed Analysis:

1. Eligibility of Cenvat Credit on Commission Paid for Sales Promotion Activities:

The primary issue in this appeal is whether the commission paid to an agent for sales promotion activities qualifies as an "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004, thereby making it eligible for Cenvat Credit. The appellant argued that the commission paid to the agent, appointed under an agreement dated 05.06.2008, should be eligible for Cenvat Credit as it pertains to sales promotion activities. The appellant relied on the decision in Commissioner of CGST, Cus. & Central Excise, Alwar vs. Orient Refractories Ltd., which supports the view that sales promotion activities are eligible for Cenvat Credit.

The Tribunal examined the definition of "input service" under Rule 2(l), which includes services used in relation to sales promotion. It was noted that the Board's Circular No. 943/4/2011-CX clarified that credit is admissible on services related to the sale of dutiable goods on a commission basis. The agreement between the appellant and the agent explicitly appointed the agent as a sales representative, and the commission was linked to sales activities, thus qualifying as sales promotion.

The Tribunal found no reasonable basis in the original adjudicating authority's order to deny the arrangement's nature as a sales promotion activity. It was emphasized that the issue has been subject to contradictory decisions by different High Courts but has been consistently interpreted by the jurisdictional High Court (Punjab & Haryana) in favor of allowing such credits. The Tribunal concluded that the appellant correctly availed the Cenvat Credit on the commission paid for sales promotion activities.

2. Applicability of Extended Period of Limitation Due to Alleged Suppression or Misrepresentation:

The second issue pertains to whether the extended period of limitation was rightly invoked by the Department based on allegations of suppression or misrepresentation. The appellant contended that there was no element of suppression or misrepresentation, and thus, the extended period was wrongly applied.

The Tribunal observed that the allegations of suppression in the Show Cause Notice were unfounded, as the appellant had disclosed the nature of the commission payments and their purpose. The Tribunal held that the invocation of the extended period of limitation was not justified, rendering the Show Cause Notice time-barred.

Conclusion:

The Tribunal set aside the impugned Order-in-Appeal, allowing the appeal with consequential benefits. The decision reaffirmed the eligibility of Cenvat Credit on commission paid for sales promotion activities and invalidated the invocation of the extended period of limitation due to the absence of suppression or misrepresentation.