2009 (7) TMI 125 - AT - Service Tax

Tribunal Decision: Excess Cenvat Credit Penalty Upheld, Business Auxiliary Services Credit Allowed

The Tribunal upheld the penalty for the excess Cenvat Credit issue but overturned the decision on demanding Cenvat Credit for Business Auxiliary Services, ... Cenvat credit on input service - Business auxiliary services (sales agents' commission) - definition of 'input service' under rule 2(l) of the Cenvat Credit Rules, 2004 - penalty under rule 15 of the Cenvat Credit Rules - sub-section 2(B) of section 11A of the Central Excise Act, 1944Sub-section 2(B) of section 11A of the Central Excise Act, 1944 - Cenvat credit on input service - Validity of demand for reversal of Cenvat credit already reversed by the appellant and liability for interest/penalty where reversal was made before issuance of show-cause notice - HELD THAT: - The appellant did not contest the quantum of amounts forming the subject-matter of the demand before the adjudicating authority or before the Tribunal and has already reversed the amounts claimed to have been wrongly availed. The Tribunal records that the reversal was made by the appellant on account of mistake. Since the appellant does not challenge the amounts on which credit was availed wrongly, the adjudicating authority's confirmation of the amounts (as reversed by the appellant) is upheld. The question of penalty is considered in relation to the other issue and not sustained where the demand itself is set aside. [Paras 5]The confirmation of the amounts reversed by the appellant is upheld; the appellant's reversal stands accepted and the demand for those amounts is maintained as confirmed.Business auxiliary services (sales agents' commission) - definition of 'input service' under rule 2(l) of the Cenvat Credit Rules, 2004 - penalty under rule 15 of the Cenvat Credit Rules - Whether service tax paid on sales agents' commission classified as Business Auxiliary Services is admissible as Cenvat credit as an input service, and whether penalty under rule 15 is leviable - HELD THAT: - The Tribunal examined the definition of 'input service' in rule 2(l) and applied the ratio in Metro Shoes (P.) Ltd., where services used by a manufacturer 'whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal' were held eligible for credit. It was undisputed that the appellant paid commission to agents for effecting sales of the manufactured goods; such services are used in relation to clearance of final products. Applying the aforesaid ratio, the Tribunal holds that service tax on sales agents' commission constitutes an input service and the denial of credit by the adjudicating authority is unsustainable. Because the demand in respect of this credit is set aside, there is no basis for imposing penalty under rule 15, and the penalty so imposed is accordingly quashed. [Paras 5]Service tax paid on sales agents' commission (Business Auxiliary Services) is admissible as Cenvat credit as an input service; the denial of such credit is set aside and the penalty under rule 15 is quashed.Final Conclusion: The appeal is disposed: the adjudicating authority's confirmation of amounts already reversed by the appellant is maintained; denial of Cenvat credit on service tax paid on sales agents' commission is set aside following the Tribunal's precedent and the penalty imposed under rule 15 is quashed. Issues:1. Whether demanding excess availed Cenvat Credit and demand of irregular availment of Cenvat Credit, along with interest and penalty, is legally tenable.2. Whether demanding Cenvat Credit availed on Business Auxiliary Services (Sales Agents Commission) is legally tenable.Analysis:Issue 1:The appellant had not contested the excess Cenvat Credit issue before the lower authorities or the Tribunal. The appellant reversed the amounts claimed in error, and the penalty imposition is being contested. The Tribunal upheld the Adjudicating Authority's order confirming the amount reversed due to mistake. Therefore, the penalty upheld.Issue 2:Regarding the Cenvat Credit on Business Auxiliary Services (Sales Agents Commission), the Adjudicating Authority ruled against the appellant. However, the Tribunal referred to a similar case involving Metro Shoes (P.) Ltd., where the eligibility of credit on service tax on agent's commission was discussed. The Tribunal analyzed the definition of 'input services' under the Cenvat Credit Rules and concluded that services utilized by the appellant for the final product's manufacture and clearance were eligible for credit. As the sales commission was paid for sales made through agents, it was considered an input service. Citing the Metro Shoes case, the Tribunal held that denying the credit for service tax paid on sales agent commission was unsustainable, overturning the Adjudicating Authority's decision. Consequently, the penalty under rule 15 of Cenvat Credit Rules was set aside.In conclusion, the Tribunal disposed of the appeal by upholding the penalty for the excess Cenvat Credit issue but overturning the decision on demanding Cenvat Credit for Business Auxiliary Services, in line with the Metro Shoes case.