2018 (1) TMI 1009 - AT - Central Excise

Denial of CENVAT credit for sales commission upheld; Direct nexus between input services and goods required

M/s. F.L. Smidth Pvt. Ltd. Versus Commissioner of Central Excise, Chennai

The Tribunal upheld the denial of CENVAT credit on service tax paid for sales commission, emphasizing the necessity of a direct nexus between input ... CENVAT credit - input services - stand of Department is that input services of BAS upon which the appellant paid the sales commission and availed credit of service tax paid need not have any direct nexus with the manufacture of final products - Held that: - The allegation in the SCN is that the appellant is not eligible for credit for the reason that the major part of the goods supplied for which the commission was received is for bought out items and not goods manufactured by appellant. The appellant has not been able to put forth any persuasive argument on this finding of the Commissioner - impugned order upheld - appeal dismissed - decided against appellant. Issues:1. Eligibility of CENVAT credit on service tax paid for sales commission.2. Interpretation of input services definition under CENVAT Credit Rules, 2004.3. Nexus requirement between input services and manufacture of final products for availing credit.Analysis:Issue 1:The case involved the eligibility of CENVAT credit on service tax paid for sales commission by the appellants. The department contended that the credit was ineligible as a significant portion of the goods supplied were bought-out materials, not manufactured by the appellant. The appellants argued that the sales commission was paid for procuring the contract, falling under the definition of input services. They emphasized that the definition of input services includes sales promotion activities, making them eligible for credit. However, the Tribunal upheld the department's decision, stating that the appellant failed to establish a persuasive argument regarding the nexus between input services and the goods supplied, ultimately dismissing the appeal.Issue 2:The interpretation of the input services definition under the CENVAT Credit Rules, 2004 was crucial in this case. The appellants relied on the inclusive part of the definition to support their claim for credit on the service tax paid for sales promotion activities. They argued that the definition's broad scope encompassed activities related to business, making them eligible for credit. Conversely, the department emphasized that the service tax paid mainly corresponded to the trading activity of the appellant, lacking a direct nexus to the manufacture of final products. The Tribunal agreed with the department, highlighting that the appellant's arguments failed to establish the requisite connection between input services and the goods supplied, leading to the denial of credit.Issue 3:A key aspect addressed was the necessity of a nexus between input services and the manufacture of final products for availing credit. The appellants contended that the input services need not have a direct connection with the final product's manufacture to qualify for credit. They asserted that even though bought-out items were supplied, the input services remained eligible for credit. However, the Tribunal disagreed, emphasizing the importance of establishing a clear link between the input services availed and the goods supplied. As the appellants could not demonstrate this connection satisfactorily, the Tribunal upheld the department's decision to deny the credit, emphasizing the legal and proper nature of the order passed.In conclusion, the Tribunal's judgment upheld the denial of CENVAT credit on service tax paid for sales commission, emphasizing the necessity of a direct nexus between input services and the goods supplied for availing credit under the CENVAT Credit Rules, 2004.