Sales commission qualifies for cenvat credit under CBEC Circular, Tribunal dismisses appeal

The Tribunal, considering the CBEC Circular and conflicting High Court decisions, held that the commission paid to agents qualified as a sales promotion activity, making it eligible for cenvat credit. Despite the ongoing dispute in the Apex Court due to differing High Court judgments, the Tribunal acknowledged the Department's efforts to resolve the confusion. Consequently, the Tribunal set aside the order and dismissed the appeal, emphasizing the retrospective effect of the Circular in clarifying the eligibility of sales commission for cenvat credit.

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Issues:
1. Availment of cenvat credit on service tax paid for sales commission.
2. Interpretation of sales commission as input service for cenvat credit eligibility.
3. Conflict between High Court decisions on sales promotion activities.
4. Impact of CBEC Circular on resolving conflicting views.

Issue 1: Availment of cenvat credit on service tax paid for sales commission
The appellants were discharging Central Excise duty on goods and availing cenvat credit on input services. The Department alleged that the appellants availed cenvat credit on service tax paid for sales commission to their agents, which the Department considered ineligible as an input service. A show cause notice was issued for recovery of the cenvat credit along with interest and penalty. The Assistant Commissioner confirmed the proposal, leading to an appeal by the appellants. The Commissioner(Appeals) allowed the appeal, but a subsequent review by the Department prompted an appeal before the Tribunal.

Issue 2: Interpretation of sales commission as input service for cenvat credit eligibility
The Department argued that sales commission services were not eligible as input services based on a decision by the High Court of Gujarat. The Department highlighted that an appeal to the Supreme Court against the Gujarat High Court decision did not result in a stay. In response, it was argued that a clarification post the Gujarat High Court decision recognized sales promotion, including commission-based sales of dutiable goods as a service. Reference was made to a decision involving Essar Steel India Ltd. to support the dismissal of the appeal.

Issue 3: Conflict between High Court decisions on sales promotion activities
The Tribunal noted conflicting decisions by different High Courts, with the High Court of Gujarat and Punjab & Haryana holding contradictory views on the matter. This led to a reference to the Supreme Court for resolution. Subsequently, a CBEC Circular was issued to address the confusion arising from the divergent opinions. The Circular aimed to clarify that commission paid to agents constituted a sales promotion activity, with retrospective effect to resolve doubts in the law.

Issue 4: Impact of CBEC Circular on resolving conflicting views
The Tribunal, considering the CBEC Circular and the conflicting High Court decisions, held that the commission paid to agents qualified as a sales promotion activity. Despite the ongoing dispute in the Apex Court due to the differing High Court judgments, the Tribunal acknowledged the Department's efforts to resolve the confusion. Consequently, the Tribunal set aside the order and dismissed the appeal, emphasizing the retrospective effect of the Circular in clarifying the eligibility of sales commission for cenvat credit.

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