2010 (7) TMI 330 - AT - Service Tax

Appellate tribunal upholds overseas commission as input service for Cenvat credit

The appellate tribunal dismissed the department's appeal, upholding the Commissioner (Appeals) decision that overseas commission paid by the manufacturer ... Inputs services - sales promotion - pre-removal activities - post-removal activities - Cenvat credit - service tax as deemed service provider - documents covered by Rule 9(1)(e) of the Cenvat Credit Rules, 2004Inputs services - sales promotion - Services rendered by overseas commission agents qualify as inputs services and are eligible for Cenvat credit. - HELD THAT: - The Tribunal found that the activities of canvassing and procuring orders undertaken by overseas commission agents fall within the ambit of sales promotion as contemplated by the definition of inputs services. Such promotional activities relate to sales of goods that are to be manufactured and cleared in future and are not restricted to post-clearance effects; analogously, advertisements and promotional efforts have prospective effect and therefore cannot be treated as post-removal activities. On this basis the services in question were held to be utilised in relation to the manufacture and clearance of final products and hence eligible as input services for Cenvat credit. [Paras 6]Services of the overseas commission agents are inputs services and eligible for Cenvat credit.Pre-removal activities - post-removal activities - The activities of canvassing and procuring orders are pre-removal activities, not post-removal activities. - HELD THAT: - The Tribunal rejected the department's contention that the commission agents' work constituted post-removal services. It held that canvassing and securing firm orders precede and facilitate removal of goods; without such orders the manufacturer would not proceed to clear goods to foreign destinations. Consequently, these activities are integrally connected to manufacture and clearance and cannot be treated as activities occurring after removal. [Paras 6]Canvassing and procuring orders are pre-removal activities and not post-removal activities.Cenvat credit - service tax as deemed service provider - documents covered by Rule 9(1)(e) of the Cenvat Credit Rules, 2004 - The respondents were entitled to take Cenvat credit on the basis of TR-6 challans treating themselves as deemed service providers and the documents as falling under Rule 9(1)(e). - HELD THAT: - The Tribunal noted that the respondents, being recipients of the overseas services, had paid service tax as a deemed service provider and utilised TR-6 challans for payment. Given their status as service recipients required to discharge service tax, the documents produced were appropriately treated as documents contemplated by Rule 9(1)(e) for taking Cenvat credit. The Tribunal found no irregularity in availing credit on that basis and rejected the department's contention that credit should only have been taken on documents prescribed under Rule 9(1)(a) or 9(1)(b) applicable to service providers. [Paras 6]Taking Cenvat credit on TR-6 challans, treating the respondents as deemed service providers and the documents as covered by Rule 9(1)(e), was permissible.Final Conclusion: The appeal is dismissed and the order of the Commissioner (Appeals) setting aside the recovery and penalty is upheld; no interference with the Commissioner (Appeals) order. Issues:- Whether overseas commission paid by the manufacturer can be considered as input services for claiming Cenvat creditRs.- Whether the activities of overseas commission agents constitute sales promotion activitiesRs.- Whether the documents used by the manufacturer for claiming credit are valid under the Cenvat Credit RulesRs.Analysis:1. Input Services for Cenvat Credit:The case involved a manufacturer of hand tools exporting goods who appointed overseas commission agents for canvassing and procuring orders. The department contended that services by overseas agents are not utilized in manufacturing final products and cannot be considered as input services. The department sought to disallow the Cenvat credit on these services. The Commissioner (Appeals) set aside the original authority's decision disallowing the credit. The appellate tribunal held that activities like canvassing and procuring orders are pre-removal activities crucial for sales. These activities were deemed as sales promotion, falling under the definition of input services. The tribunal rejected the department's argument that these were post-removal activities, emphasizing the importance of sales promotion in the manufacturing process.2. Sales Promotion Activities by Overseas Commission Agents:The advocate for the manufacturer argued that the overseas commission agents' activities, including canvassing and procuring orders, constitute sales promotion activities. The definition of 'inputs services' includes services related to sales promotion. The tribunal agreed with this interpretation, highlighting that sales promotion activities have a long-term impact on sales of manufactured goods. The tribunal emphasized that sales promotion is not limited to post-clearance activities but encompasses efforts aimed at future sales. Therefore, the tribunal considered the activities of overseas commission agents as integral to sales promotion, making them eligible for Cenvat credit as input services.3. Validity of Documents for Cenvat Credit Claim:The department raised concerns about the validity of documents used by the manufacturer to claim Cenvat credit. They argued that the manufacturer should have used documents specified under the Cenvat Credit Rules. However, the tribunal clarified that the manufacturer, as a service recipient, paid service tax under TR-6 challans and claimed credit based on these documents. The tribunal noted that the manufacturer, not being a service provider, followed the appropriate procedure for claiming credit. The tribunal upheld the validity of the documents used by the manufacturer for claiming Cenvat credit, rejecting the department's contention on this issue.In conclusion, the appellate tribunal dismissed the department's appeal, upholding the Commissioner (Appeals) decision that overseas commission paid by the manufacturer could be considered as input services for claiming Cenvat credit. The tribunal recognized the activities of overseas commission agents as sales promotion efforts, essential for future sales. Additionally, the tribunal affirmed the validity of the documents used by the manufacturer for claiming Cenvat credit, emphasizing the manufacturer's compliance with the Cenvat Credit Rules as a service recipient.