2009 (7) TMI 125 - AT - Service Tax

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

Lanco Industries Ltd. Versus Commissioner of Central Excise, Tirupathi

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 – Input Services – Rule 2(l) - Cenvat credit on the commission paid to its sales commission agents – held that - It can be seen from the above reproduced portion that the definition of ‘input services’ has three different parts. Presumably, the first part, i.e., ‘used by provider of taxable service for providing an output service’ is not an issue in this case. The second part of the definition used by the manufacturer... from place of removal’ is being strongly contested by both sides - . It is also undisputed that the sales commission, which has been paid by the appellant to the commission agent, is only in respect of the sales made through the commission agents - the impugned order to the extent that it denies the credit of service tax paid on the input services of sales agent commission is unsustainable and we set aside the same - penalty under the provisions of rule 15 of Cenvat Credit Rules set aside. 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.