Tribunal allows CENVAT credit on sales commission for tailor-made goods manufacturer

The Tribunal allowed the appeal filed by the manufacturer of tailor-made goods, setting aside the order disallowing CENVAT Credit on sales commission paid to commission agents. The Tribunal held that sales commission qualifies as input service credit under the CENVAT Credit Rules, noting its direct relation to sales promotion and manufacturing activity. Referring to relevant case law and a clarifying circular, the Tribunal concluded that commission paid on sales should be considered a service related to sales promotion. Consequently, the Tribunal granted consequential relief to the appellant in accordance with the law.

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Issues:
Admissibility of input service credit on sales commission paid to various agents.

Analysis:
The appellant, a manufacturer of tailor-made goods, appealed against the order of the Ld. Commissioner (Appeals) upholding the disallowance of CENVAT Credit on sales commission paid to commission agents. The Department alleged irregular availing of input service credit on services of Sales Commission, which did not qualify as input service of the Service Tax. The Adjudicating authority disallowed the CENVAT Credit and imposed a penalty. The Ld.Commissioner(Appeals) upheld the order-in-original, leading to the appeal before the Tribunal.

The appellant argued that commission agents provided various services beyond procuring purchase orders, such as liaison services, letter of credit services, and dispute resolution. The appellant contended that the commission paid to agents qualified as input service credit. The Department, however, maintained that the credit on sales commission did not qualify as eligible input service credit.

The Tribunal analyzed the definition of input service under the CENVAT Credit Rules, 2004, and noted the change in the definition effective from 01.04.2011. The Department relied on the Cadila judgment to support its contention that sales commission is not covered in the definition of input service. However, the appellant cited Circular No. 943/4/2011-CX, which clarified that credit on sales commission for sale of dutiable goods on a commission basis is admissible.

The Tribunal observed that sales commission is directly attributable to sales and deemed as sales promotion activity. It noted that the commission paid on sales is related to boosting sales and increasing manufacturing activity. Referring to relevant case law, including a decision by the Hon'ble High Court of Punjab & Haryana, the Tribunal held that the sales and manufacture are interrelated, and commission paid on sales should be accounted for as services related to sales promotion. The Tribunal also considered a previous decision by the Division Bench of the Tribunal, which held that an explanation inserted in the CENVAT Credit Rules is declaratory in nature and applicable retrospectively.

Ultimately, the Tribunal set aside the impugned order, allowing the appeal filed by the Appellant with consequential relief as per law.

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