2022 (4) TMI 561 - AT - Central Excise

Sales Commission qualifies for Cenvat credit as input service, Tribunal rules for Appellant

The Tribunal allowed the appeal and set aside the decision disallowing Cenvat credit on sales commission, ruling in favor of the Appellant. The Tribunal ... CENVAT Credit - input service - sales commission - denial on account of nexus - HELD THAT:- The sales commission is directly attributable to sales of the products. Any activity which amounts to sale of the products is deemed to be sales promotion activity in the normal trade parlance. The commission paid on sales of the products/services with an intention to boost of the Company. The commission paid on sales becomes part of sales promotion resulting in increased manufacturing activity. The sales commission has a direct nexus with the sales, which in turn is related to the manufacture of the products. If there is no sale, there would not be any need to manufacture the products. Be that so as it may, to increase the manufacturing activity an encouragement is being given by way of sales commission for achieving increased sales. Hon’ble High Court of Punjab & Haryana in the case of COMMISSIONER OF CENTRAL EXCISE, LUDHIANA VERSUS AMBIKA OVERSEAS [2011 (7) TMI 980 - PUNJAB & HARYANA HIGH COURT], had clearly held that the sale and manufacture are directed inter-related and the commission paid on sales needs to be accounted for as services related to sales promotion. Division Bench of this Tribunal in the case of M/S ESSAR STEEL INDIA LTD. VERSUS COMMISSIONER OF C. EX. & SERVICE TAX, SURAT-I [2016 (4) TMI 232 - CESTAT AHMEDABAD], wherein the Tribunal, after discussing all the previous cases and Rules of interpretation, have held that the “Explanation” inserted in Rule 2 (l) of Cenvat Credit Rules, 2004 vide Notification No.2/2016-CE (N.T.) dated 03.02.2016 is declaratory in nature and is applicable retrospectively. The impugned order cannot be sustained and is, therefore, set aside - Appeal allowed - decided in favor of appellant. Issues:Cenvat credit on input services disallowed - Eligibility of sales commission as input service - Interpretation of Cenvat Credit Rules, 2004 - Applicability of retrospective effect of Explanation in Rule 2(l) - Limitation period for demand of duty - Nexus of sales commission with sales and manufacturing activities.Analysis:1. Cenvat Credit Disallowance:The Appellant availed Cenvat credit on service tax paid for sales commission to M/s Nicco Parks, contending it as an eligible input service linked to sales promotion. The Adjudicating Authority disallowed the credit, invoking Rule 14 of Cenvat Credit Rules, 2004, leading to demand of Central Excise duty, interest, and penalty. The lower Appellate Authority upheld this decision, prompting the appeal before the Tribunal.2. Eligibility of Sales Commission as Input Service:The Appellant argued that sales commission is directly related to sales and manufacturing activities, constituting sales promotion. Referring to the definition of 'input service' in the Cenvat Credit Rules, the Appellant asserted that the sales commission qualifies as an eligible input service. The Appellant relied on various judicial decisions and circulars to support this claim, emphasizing the nexus between sales commission, sales, and manufacturing.3. Retrospective Effect of Explanation in Rule 2(l):The Appellant contended that the Explanation added to Rule 2(l) of the Cenvat Credit Rules, 2004, with retrospective effect from 03.02.2016, covers the period preceding the amendment. Citing precedents, the Appellant argued that the Explanation is declaratory in nature and applies retrospectively, supporting the eligibility of sales commission as an input service.4. Limitation Period for Demand of Duty:The Appellant asserted that the demand is time-barred under Section 11A(4) of the Act, as conditions like fraud or suppression of facts necessary for invoking an extended limitation period were absent. The Appellant maintained that all Cenvat credits were duly recorded and submitted to the Department, fulfilling their obligations, and the Department had ample opportunity to act within the normal limitation period.5. Nexus of Sales Commission with Sales and Manufacturing:The Tribunal analyzed the direct relationship between sales commission, sales, and manufacturing activities. Recognizing sales commission as a sales promotion activity incentivizing increased manufacturing, the Tribunal emphasized the integral connection between sales commission, sales, and subsequent manufacturing requirements. Relying on judicial precedents, the Tribunal concluded that sales commission is a legitimate input service linked to sales promotion and manufacturing.6. Decision:After considering the arguments and precedents, the Tribunal set aside the impugned order disallowing the Cenvat credit on sales commission. The Tribunal allowed the appeal filed by the Appellant, granting consequential relief in accordance with the law.This detailed analysis of the judgment highlights the key legal issues, arguments presented, and the Tribunal's decision, providing a comprehensive understanding of the case.