2014 (6) TMI 548 - AT - Central Excise

Appellants granted Modvat Credit for Service Tax on commission agent services, penalties set aside

The Tribunal allowed the appeal in favor of the appellants, granting them Modvat Credit for Service Tax paid on commission agent services. The denial of ... Cenvat credit of Service Tax on commission agent services - input services under Rule 2(l) of Cenvat Credit Rules, 2004 - nexus between services and manufacture/clearance - precedential value of Tribunal Division Bench decisions - Board Circular clarifying admissibility of credit on sales promotion and commission agentsCenvat credit of Service Tax on commission agent services - input services under Rule 2(l) of Cenvat Credit Rules, 2004 - nexus between services and manufacture/clearance - precedential value of Tribunal Division Bench decisions - Service Tax paid on commission agent services is admissible as Cenvat/Modvat credit as input services - HELD THAT: - The Tribunal examined whether commission agent services constitute input services eligible for Cenvat credit. The adjudicating authorities had held such services to be post-manufacture/post-clearance and therefore ineligible. The Tribunal noted a consistent line of decisions, including Division Bench precedents (Metro Shoes) and other Tribunal judgments (Bhilai Auxiliary Industries, Abhishek Industries, Lanco Industries, Cadila Healthcare), which recognise commission/foreign commission agent services for sale promotion as having direct nexus with business activities and thus qualifying as input services. The contrary Single Member Bench decision in Chemplast Sanmar was observed not to have considered the earlier Division Bench authority and other relevant decisions. On this basis the Tribunal found the appellant's case covered by binding/precedential decisions in favour of allowing credit. [Paras 3, 4, 5, 6]The denial of Cenvat/Modvat credit of Service Tax paid on commission agent services was set aside and the credit held admissible.Prima facie case for dispensing with pre-deposit - Board Circular clarifying admissibility of credit on sales promotion and commission agents - Condition of pre-deposit of duty and penalty dispensed with and appeal allowed with consequential relief - HELD THAT: - Having found a favourable and cogent line of Tribunal authority supporting admissibility of credit, the Bench held that the appellant had made out a good prima facie case to relax the requirement of pre-deposit. The Tribunal also recorded and took note of Board Circular No. 943/4/2011-CX dated 29-4-2011, which clarified that credit on sales promotion activities and services of sale of dutiable goods on commission basis would be admissible even after amendment; however the Tribunal noted the period in dispute preceded the amendment and relied on Tribunal precedents to decide the appeal in the appellant's favour. In view of the above, the impugned orders denying credit and imposing duty/penalty were set aside. [Paras 5, 6, 7]Pre-deposit condition dispensed with; impugned order denying credit and imposing duty/penalty set aside and appeal allowed with consequential relief.Final Conclusion: The appeal was allowed: the denial of Cenvat/Modvat credit of Service Tax paid on commission agent services for the period February, 2005 to September, 2009 was set aside, pre-deposit was dispensed with on the basis of a prima facie case, and consequential relief granted to the appellant. Issues: Denial of Modvat Credit of Service Tax on commission agent services, eligibility of commission agent services as input services for Cenvat credit.Analysis:1. The judgment involves the confirmation of duty against the applicant by denying them the benefit of Modvat Credit of Service Tax paid on commission agent services, along with imposition of penalties under the Finance Act, 1994.2. The appellants, engaged in sugar manufacturing, availed the services of a commission agent for selling their final product and paid Service Tax under Business Auxiliary Services category. The dispute arose regarding the eligibility of Cenvat credit for the Service Tax paid on commission agent services.3. The key question was whether the Service Tax paid on commission agent services qualifies as Cenvat credit under Rule 2(l) of Cenvat Credit Rules, 2004. The Revenue contended that these services do not constitute input services as they are post-manufacturing and post-clearance activities, while the appellants argued that these services were crucial before goods clearance.4. The Commissioner (Appeals) noted conflicting Tribunal decisions on the issue. While one decision held commission agent services as eligible input services, another decision took a contrary view. The appellants cited various Tribunal judgments supporting their claim that commission agent services are directly related to business activities and should be treated as input services.5. The Tribunal observed that certain judgments, including the case of Bhilai Auxiliary Industries, supported the admissibility of Modvat credit for Service Tax paid on commission agent services. It was noted that subsequent decisions like the Chemplast Sanmar Ltd. case did not consider these earlier judgments, indicating a lack of consistency in the interpretation of the law.6. Additionally, a Circular issued by the Board clarified that even after the deletion of 'activities related to business' from the definition of input services, credit for Service Tax paid on sales promotion activities and commission-based sales services would be admissible. The Tribunal considered this Circular along with the precedent judgments in favor of the appellants' case.7. Consequently, the impugned order denying the credit was set aside, and the appeal was allowed in favor of the appellants, granting them consequential relief. The Tribunal found merit in the appellants' arguments and the supporting judgments, leading to a decision in their favor.