2014 (1) TMI 1662 - AT - Service Tax

Tribunal grants relief in CENVAT credit case, emphasizes need for actual sales promotion activities

BHURUKA GASES LTD. Versus COMMISSIONER OF C. EX., CUS. & S.T., BANGALORE-I

The Tribunal allowed all appeals, granting relief to the appellants. It was determined that the services provided by the agents constituted sales ... Denial of CENVAT Credit - Commission agent - whether in this case the agents have undertaken sales promotion activity or not - Held that:- Canvassing and procuring order were in relation to sales promotion and would fall under sales promotion activity. Further the Hon’ble High Court also upheld the view taken that these activities cannot be considered as post-removal activity and have to be treated as pre-removal activities. At this juncture it has to be noted that one of the main grounds taken for rejecting the claim of the appellant for CENVAT credit is that the activity of the commission agents is post-removal and if the activity is post-removal, credit is not admissible. CA relied upon the letter written by one of the two agents namely Agnes Bruno Ltd. dated February 15th 2007. In this letter, Agnes Bruno Ltd. had informed the appellant that they lend a helping hand to the Business Houses to sell their products. They undertake canvassing of business not only to retain the existing clientele of the company but to find new customers as well. They also stated that the appellant could take the best advantage of their network available throughout the country to sell their bulk products viz., Liquid Gases on commission basis. They also gave details of Registration, Income Tax, Sales tax, Service Tax, Balance Sheet etc. This would show that even though the invoice which speaks particularly sales commission, taking note of the letter of the agent that they would help in selling the products, in canvassing business and make their network available for expanding the business, in my opinion this is nothing but sales promotion. In respect of another agent namely SPS Metal Cast & Alloys Ltd., the appellant could not show any letter or agreement. - in respect of both the agents, the appellants have been able to show that the agents not only act as commission agents but also undertake sales promotion. Therefore I consider that appellants have made out a case on merits in respect of the eligibility for CENVAT credit. - Decided in favour of assessee. Issues Involved:1. Applicability of CENVAT credit for services rendered by commission agents.2. Determination of whether the services rendered constitute 'sales promotion'.3. Consideration of the extended period of limitation for issuing show cause notices.4. Imposition of penalties under Rule 15 of CENVAT Credit Rules, 2004.Detailed Analysis:1. Applicability of CENVAT Credit:The primary issue in all eight appeals was whether the service received by the appellant, considered as sales commission, qualifies as 'input service' under the CENVAT Credit Rules, 2004. The appellant argued that since no sales promotion was involved, CENVAT credit should not be denied. The Tribunal referred to the definition of 'input services' and previous judgments, including the Hon'ble High Court of Gujarat in CCE, Ahmedabad v. Cadila Healthcare Ltd., which held that unless the commission agent undertakes sales promotion activities, CENVAT credit is not admissible. However, the Tribunal also considered the case of CCE, Surat-II v. Astik Dyestuff Pvt. Ltd., where it was held that the eligibility of credit depends on the actual activities undertaken by the commission agent.2. Determination of 'Sales Promotion':The Tribunal examined whether the activities performed by the commission agents constituted 'sales promotion.' The definition of 'sales promotion' from various sources, including the Oxford Dictionary of Business and the Advanced Law Lexicon, was considered. The Tribunal noted that the lower authorities found no sales promotion activity undertaken by the agents. The appellant relied on the decision of the Hon'ble High Court of Punjab and Haryana in CCE, Ludhiana v. Ambika Overseas, which held that canvassing and procuring orders are sales promotion activities and thus eligible for CENVAT credit. The Tribunal emphasized that if agents only acted as commission agents without engaging in sales promotion, credit would not be available, as seen in the Cadila Healthcare Ltd. case.3. Extended Period of Limitation:For the period from 31-8-2005 to 31-7-2007, the issue of the extended period of limitation was raised. The appellant contended that the extended period should not be invoked since the issue had been previously raised and a show cause notice issued. However, it was held that since the appellant did not provide the required information and did not follow the previous decision, the invocation of the extended period was justified. In other cases, show cause notices were issued within the normal period, making the demand valid for the normal period.4. Imposition of Penalties:Penalties were imposed under Rule 15 of the CENVAT Credit Rules, 2004, in all cases. The Tribunal considered whether the penalties were justified based on the nature of the services and the compliance of the appellant with the rules. The Tribunal concluded that the appellant had demonstrated that the agents undertook sales promotion activities, making them eligible for CENVAT credit and thus mitigating the grounds for penalties.Conclusion:The Tribunal allowed all appeals, granting consequential relief to the appellants. The key determination was that the agents performed sales promotion activities, making the services eligible for CENVAT credit. The appeals were allowed based on the merits of the case, considering the evidence of sales promotion activities and the compliance with the definition of 'input services.' The order was dictated and pronounced in open court.