2022 (9) TMI 1213 - HC - Central Excise

Tribunal decision affirmed: consignment stockists' services qualify for CENVAT Credit

The High Court upheld the Tribunal's decision that the services provided by consignment stockists qualified as input services for CENVAT Credit. The Court ... CENVAT Credit - agreement entered into by the noticee with their consignment stockist - sales promotion agreement or a commission agent agreement for sale of goods? - eligible input service or not - Explanation inserted by notification No. 02/2016-CE(NT) dated 03.02. 2016 into the definition of input service under Rule 2(l) of the CENVAT Credit Rules, 2004 is retrospective in nature or otherwise? - allegation against the respondent is that the commission paid to various parties was only for the purpose of procuring orders for the respondents and nothing more - Extended period of limitation - suppression of facts or not. HELD THAT:- The basis for issuance of the show cause notice was the decision in the case of COMMISSIONER OF CENTRAL EXCISE, AHMEDABAD – II VERSUS M/S CADILA HEALTH CARE LTD. [2013 (1) TMI 304 - GUJARAT HIGH COURT]. The said assessee was engaged in the manufacture of medicaments and had availed CENVAT Credit on service tax paid on the technical and analysis service, commission paid to the foreign agents, courier service etc. The revenue took a stand that CENVAT Credit of service tax paid on the above services is not admissible. Challenging the findings of the adjudicating authority, appeal was filed before the tribunal. Ultimately the matter travelled to the High Court. The High Court held that in the absence of any material on record, there is nothing to indicate that commission agent were involved in the activities of sales promotion and that the claim of the assessee was accordingly rejected. Thus, the Court took note of the factual position in the case that there was nothing to indicate that the commission agents were involved in the sales promotion activities, contrary to the case on hand where agreements were produced before the authority to show what is the nature of services rendered by those commission stockists. Firstly, the decisions of one other High Court in all cases will not bind another High Court and such decisions were held to be of persuasive value. In any event on facts in Cadila Health Care Limited, the Court found no material on record to indicate that commission agents were involved in the activities of sales promotion - Further it is seen that the commission paid by the respondent to the commission stockist is included in the assessable value of the goods on which excise duty has been paid by the respondent on the final products namely carbon black. In fact, this has been noted by the adjudicating authority. Extended period of limitation - suppression of facts or not - HELD THAT:- The respondent had also resisted the show cause notice by contending that extended period of limitation could not have been invoked. On plain reading of the show cause notice, it is clear that except for the use of the word “suppression of material facts”, that there is nothing on record to indicate as to on what basis the adjudicating authority invoked the extended period of limitation. More so, when the assessee had disclosed all the materials in their returns and the assessee was also subjected to audit earlier and there was no objection raised by the audit department. Therefore, on the said ground also the assessee is entitled to succeed. The appeal filed by the revenue is dismissed and the substantial questions of law are answered against the revenue. Issues Involved:1. Nature of the agreement with consignment stockists: sales promotion or commission agent agreement.2. Eligibility of services rendered by consignment stockists as input service under Rule 2(l) of the CENVAT Credit Rules, 2004.3. Retrospective applicability of the 'Explanation' inserted by notification No. 02/2016-CE(NT) dated 03.02.2016.4. Tribunal's decision on the core issue in the order in original dated 24.05.2018.5. Tribunal's consideration of specific allegations in the show-cause notice regarding the nature of the commission paid.Issue-wise Detailed Analysis:1. Nature of the Agreement with Consignment Stockists:The primary issue was whether the agreement with consignment stockists was for sales promotion or merely for acting as commission agents. The Department argued that the agreements were solely for procuring orders, as indicated by the description in the invoices stating 'commission on sales.' The respondent contended that the agreements included broader responsibilities such as warehousing, distribution, and sales promotion. The Tribunal, after examining the agreements, concluded that the consignment stockists were involved in sales promotion activities, thus qualifying as input services.2. Eligibility of Services Rendered by Consignment Stockists as Input Service:The respondent claimed that the services provided by the consignment stockists, including warehousing, distribution, and sales promotion, were eligible for CENVAT Credit under Rule 2(l) of the CENVAT Credit Rules, 2004. The Department's position was that these services were not eligible as input services. The Tribunal, referencing the definition of input services and related circulars, upheld that services related to sales promotion are included as input services, thus allowing the respondent to avail CENVAT Credit.3. Retrospective Applicability of the 'Explanation' Inserted by Notification No. 02/2016-CE(NT):The respondent argued that the explanation added to Rule 2(l) by notification dated 03.02.2016, which clarifies that sales promotion includes services by way of sale of dutiable goods on commission basis, should be applied retrospectively. The Tribunal agreed, noting that the explanation was clarificatory in nature and intended to resolve ambiguities, thus having retrospective effect.4. Tribunal's Decision on the Core Issue in the Order in Original Dated 24.05.2018:The Department contended that the Tribunal did not address the core issue of the original order. However, the Tribunal, being the final fact-finding authority, independently examined the facts and agreements, confirming that the services rendered were indeed for sales promotion and thus eligible for CENVAT Credit.5. Tribunal's Consideration of Specific Allegations in the Show-Cause Notice:The Department argued that the Tribunal failed to consider specific allegations that the bills were only for commission on sales. The Tribunal reviewed the agreements and invoices, concluding that the consignment stockists' activities included sales promotion, warehousing, and distribution, thereby supporting the respondent's claim for CENVAT Credit.Conclusion:The High Court dismissed the revenue's appeal, confirming the Tribunal's findings that the services rendered by consignment stockists were eligible for CENVAT Credit, the explanation in the notification dated 03.02.2016 was retrospective, and the extended period of limitation was not applicable due to the lack of suppression of facts by the respondent. The substantial questions of law were answered against the revenue.