Tribunal allows cenvat credit on service tax for sales promotion commissions

The Tribunal, after considering conflicting High Court decisions and a CBEC Circular clarifying sales promotion activities as input services, ruled in favor of the respondent. It held that commissions paid to agents constituted sales promotion activities, allowing the respondent to avail cenvat credit on service tax paid on sales commission. The Tribunal set aside the earlier order, dismissed the appeal, and granted consequential benefits to the respondent. The cross-appeal was also disposed of, pending the Supreme Court's final decision.

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Issues:
- Availment of cenvat credit on service tax paid on sales commission
- Interpretation of sales promotion activities as input services
- Contradictory decisions of High Courts
- Applicability of CBEC Circular on sales promotion activities

Analysis:
1. The case involved the respondent, engaged in manufacturing excisable goods, availing cenvat credit on service tax paid on sales commission to their agents. The Department contended that sales commission services were not input services, leading to a proposal for recovery of cenvat credit. The Assistant Commissioner's order confirmed this proposal, prompting the respondent to appeal. The Commissioner (Appeals) initially allowed the appeal, but the Department appealed against this decision, citing a High Court judgment denying cenvat credit for sales commission services.

2. The respondent argued that a subsequent clarification recognized sales promotion, including service through the sale of dutiable goods on a commission basis. They referenced a decision involving Essar Steel India Ltd. to support their stance. The respondent urged the dismissal of the appeal based on this clarification and case law.

3. Upon reviewing the arguments and case law, the Tribunal noted the conflicting decisions of different High Courts on the issue. The Tribunal highlighted the Gujarat High Court's reliance on a previous case and the contradictory decision by the Punjab and Haryana High Court, leading to a reference to the Supreme Court. Additionally, a CBEC Circular clarified the scope of sales promotion activities as input services, aiming to resolve the confusion arising from divergent High Court opinions.

4. The Tribunal emphasized that explanatory circulars are generally retrospective when clarifying doubtful legal points. Citing the CBEC Circular and a previous case involving Essar Steel India Ltd., the Tribunal concluded that commissions paid to agents constituted sales promotion activities. Considering the conflicting High Court decisions and the Department's efforts to address the confusion, the Tribunal set aside the earlier order, dismissed the appeal, and granted consequential benefits to the respondent. The cross-appeal was also disposed of accordingly, pending the Supreme Court's final decision on the matter.

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