2014 (1) TMI 776 - HC - Service Tax

High Court Upholds CENVAT Credit Decision

The High Court dismissed the appeal, upholding the decision of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) regarding the eligibility ... Cenvat credit eligibility of sales commission services - binding effect of a jurisdictional High Court decision over administrative circular - refusal to refer to a Larger Bench where Supreme Court is seisedCenvat credit eligibility of sales commission services - interpretation of 'input service' under the Cenvat Credit Rules, 2004 - Entitlement of the appellant to Cenvat credit on sales commission services obtained by them - HELD THAT: - The Court held that the question whether sales commission services qualify as 'input service' and hence are eligible for Cenvat credit is no longer res integra because this Court's decision in Commissioner of Central Excise, Ahmedabad-II v. Cadila Health Care Ltd. is binding on the department within the jurisdiction. The adjudicating authority and the CESTAT correctly followed that binding High Court decision in denying Cenvat credit to the appellant. The Court found no error in restoring the original order which disallowed the credit and affirmed the CESTAT's reliance on the jurisdictional High Court ruling. [Paras 4, 7]Cenvat credit on sales commission services denied; CESTAT correctly restored the order in original.Binding effect of a jurisdictional High Court decision over administrative circular - legal status of CBEC circulars vis-a -vis High Court decisions - Whether the CBEC circular dated 29.4.2011 could override the jurisdictional High Court decision relied on by the department - HELD THAT: - The Court held that where a jurisdictional High Court has interpreted the law, that decision is binding on the department within the territory, and an administrative circular cannot prevail over such a binding judicial decision. The Court noted that the CBEC circular did not appear to have considered the decision of this Court in Cadila, and therefore the adjudicating authority was correct in following the binding High Court precedent rather than the circular. [Paras 4]CBEC circular cannot override a binding decision of the jurisdictional High Court; adjudicating authority rightly followed the High Court decision.Refusal to refer to a Larger Bench where Supreme Court is seised - principle against internal High Court reference when appeal to Supreme Court is pending - Whether the matter should be referred to a Larger Bench of this Court despite a contrary decision of another High Court - HELD THAT: - The Court declined to refer the matter to a Larger Bench. It observed that the jurisdictional High Court's decision is currently under challenge before the Supreme Court, which is seised of the matter and whose order in that appeal has not been stayed. Given that circumstance and the binding nature of the jurisdictional High Court decision within its territory, the Court found no reason to depart from Cadila or to refer the issue to a Larger Bench. [Paras 5, 6]Request for reference to a Larger Bench rejected; no reason to depart from the jurisdictional High Court decision while the Supreme Court is seised.Final Conclusion: The tax appeal is dismissed; the CESTAT correctly restored the original order denying Cenvat credit on sales commission services for the period July 2008 to April 2009, the CBEC circular cannot override the binding jurisdictional High Court decision, and the request for reference to a Larger Bench is refused while the Supreme Court is seised. Issues:1. Challenge to the judgment of Customs, Excise and Service Tax Appellate Tribunal2. Eligibility of Cenvat Credit on Sales Commission Services3. Interpretation of All India Statutes regarding CENVAT credit4. Discrimination and injustice in the Tribunal's order5. Relying on Gujarat High Court decision6. Request to refer the matter to a Larger BenchAnalysis:Issue 1: Challenge to the judgment of Customs, Excise and Service Tax Appellate TribunalThe appellant challenged the judgment of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) dated 1.3.2013 by raising substantial questions of law. The questions pertained to the Tribunal's justification in allowing the revenue's appeal without considering contrary decisions, overlooking settled laws, committing errors in legal interpretation, and causing manifest injustice and discrimination.Issue 2: Eligibility of Cenvat Credit on Sales Commission ServicesThe appellant availed Cenvat Credit on Sales Commission Services, which was disputed by the Assistant Commissioner of Central Excise. The Commissioner (Appeals) initially allowed the appeal, but the CESTAT overturned this decision based on the jurisdictional High Court's ruling that Cenvat credit was not permissible on such services. The appellant argued for entitlement to credit based on a circular issued by CBEC and decisions of other High Courts.Issue 3: Interpretation of All India Statutes regarding CENVAT creditThe appellant contended that the CENVAT levy should be uniformly applied across all manufacturers nationwide. However, the Tribunal upheld the order in original, relying on the decision of the jurisdictional High Court regarding the eligibility of Cenvat Credit on Sales Commission Services.Issue 4: Discrimination and injustice in the Tribunal's orderThe appellant argued that the Tribunal's order caused manifest injustice and discrimination by not considering previous cases in favor of the assessee and by relying solely on the Gujarat High Court decision. The appellant claimed that the services of commission agents/brokers should be considered as sales promotions falling under the definition of 'input service.'Issue 5: Relying on Gujarat High Court decisionThe Tribunal primarily relied on the Gujarat High Court decision in Commissioner of Central Excise, Ahmedabad-II vs. Cadila Health Care Ltd. The appellant contested this reliance and questioned the Tribunal's decision to overlook contrary decisions and settle for a mechanical approach in allowing the revenue's appeal.Issue 6: Request to refer the matter to a Larger BenchThe appellant requested to refer the matter to a Larger Bench due to contrary decisions between the jurisdictional High Court and the Punjab and Haryana High Court. However, the court rejected this request, emphasizing that the decision of the jurisdictional High Court prevails, and the matter was already pending before the Supreme Court.In conclusion, the High Court dismissed the appeal, upholding the decision of the CESTAT based on the jurisdictional High Court's ruling regarding the eligibility of Cenvat Credit on Sales Commission Services. The court emphasized the binding nature of the High Court decision over conflicting circulars or decisions from other High Courts.