2022 (8) TMI 773 - AT - Central Excise

Tribunal decision on input services eligibility under CENVAT Credit Rules

M/s L & T Constructions Equipment Ltd. Versus Commissioner Of Central Tax, Bangalore North

M/s L & T Constructions Equipment Ltd. Versus Commissioner Of Central Tax, Bangalore North - TMI Issues Involved:1. Eligibility of availing CENVAT credit on services of 'Commission Agent' under Rule 2(l) of CENVAT Credit Rules, 2004.2. Invocation of the extended period of limitation.3. Imposition of penalties under Section 11AC of the Central Excise Act, 1944, and Rule 25 of the Central Excise Rules, 2004.Issue-wise Detailed Analysis:1. Eligibility of Availing CENVAT Credit on Services of 'Commission Agent':The appellants argued that the services provided by M/s L&T Ltd. under the Marketing Agreement, including advertisement, sales promotion, and customer support, qualify as 'input service' under Rule 2(l) of the CENVAT Credit Rules, 2004. They relied on various judgments, including Coca Cola India Pvt Ltd, Ultra tech Cement Ltd, and ONGC, asserting that the phrase 'directly or indirectly, in or in relation to manufacture' is broad enough to cover sales promotion services. The appellants also contended that the commission paid to L&T was included in the assessable value of the final products, thus qualifying for CENVAT credit.The department countered that the services provided by M/s L&T Ltd. were post-manufacturing activities related only to sales and not to the manufacture of final products. They cited the Gujarat High Court's decision in Cadila Healthcare Ltd., which distinguished between sales promotion and sales commission services, holding that commission agents' services do not qualify as 'input service.'The tribunal examined the Marketing Agreement and found that the general tenor and purport of the Agreement were sales and not sales promotion. The payment terms were based on a percentage of sales turnover, and no payments for sales promotion activities like advertisement were agreed upon. The tribunal concluded that the services rendered by M/s L&T Ltd. did not qualify as 'input service' as they were not used in or in relation to the manufacture of goods by the appellants.2. Invocation of the Extended Period of Limitation:The appellants argued that the extended period of limitation could only be invoked in cases of willful suppression with intent to evade duty. They contended that the dispute was purely interpretative, with no factual suppression involved. The fact of availing CENVAT credit was communicated to the department, and the issue was well within the department's knowledge.The tribunal accepted the appellants' contention, noting that the dispute involved the interpretation of legal provisions and there was no evidence of willful suppression or intent to evade duty. Therefore, the invocation of the extended period of limitation in Appeal No. E-639/2010 was deemed unwarranted.3. Imposition of Penalties:The appellants contended that penalties under Section 11AC of the Central Excise Act, 1944, and Rule 25 of the Central Excise Rules, 2004, could only be imposed in cases of fraud, collusion, or willful suppression with intent to evade duty. They argued that the issue involved was a bona fide dispute about the interpretation of law, and there was no evidence of clandestine removal or suppression.The tribunal found the appellants' contention acceptable. It held that penalties under Section 11AC and Rule 25 were not sustainable as the issue involved was interpretative and did not pertain to clandestine removal. However, the tribunal upheld the penalties imposed under Rule 15 of the CENVAT Credit Rules, 2004, as the appellants were not eligible to avail the impugned credit before the amendment effective from 03.02.2016.Orders:1. Appeal No. E/639/2010: Duty demand confirmed within the normal period; extended period not invokable; penalty under Section 11AC set aside.2. Appeal No. E/288/2011: Duty demand confirmed; penalty under Rule 25 set aside.3. Appeal No. E/247/2012: Duty demand confirmed; penalty under Section 11AC set aside.4. Appeal No. E/675/2012: Duty demand confirmed; penalty under Rule 25 set aside.5. Appeal Nos. E/25288/2013, E/28106/2013, E/21368/2015, and E/21432/2017: Rejected.6. Miscellaneous Applications: Disposed of in the above terms.Conclusion:The tribunal concluded that the services rendered by M/s L&T Ltd. did not qualify as 'input service' under Rule 2(l) of the CENVAT Credit Rules, 2004, and the extended period of limitation was not invokable. Penalties under Section 11AC and Rule 25 were set aside, but penalties under Rule 15 were upheld.