2024 (1) TMI 386 - AT - Central Excise

Revenue appeal dismissed on sales commission CENVAT credit demand due to time-bar limitations

CESTAT Ahmedabad dismissed Revenue's appeal regarding CENVAT credit on sales commission for period April 2010-March 2014. The merit question on ... Principles of Res-Subjudice - CENVAT Credit - input services - service of Sales Commission - invocation of extended period of limitation - HELD THAT:- As regard the merit of the case, whether the assessee is eligible to avail the Cenvat credit on Sales Commission the issue is pending before the Hon’ble jurisdictional High court of Gujarat in the case of commissioner Vs. Essar Steel Ltd [2016 (6) TMI 1305 - GUJARAT HIGH COURT]. Therefore, the merit of the case cannot be taken up. Whether the demand for extended period is sustainable or the same was rightly set aside by the learned commissioner? - HELD THAT:- The period involved in the present case is April-2010 to March-2014. During this period, there was no dispute about admissibility of the Cenvat Credit on Sales Commission to the assessee. The Revenue has heavily relied upon the decision of Hon’ble Supreme Court in the case of M/S. MARUTI SUZUKI LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, DELHI-III [2009 (8) TMI 14 - SUPREME COURT] which was on general principle of Cenvat Credit Rules. Whereas, the specific issue of availment of Cenvat Credit on Sales Commission has been decided in various judgments. The judgments dealing with the specific issue will prevail over the judgment in respect of general principle of the Cenvat Credit Rules - there are no mala fide on the part of the respondent. Therefore the Adjudicating Authority’s order setting aside the demand of Cenvat credit on Sales Commission exclusively on the ground of time bar is not found any fault. Therefore, the extended period was not invokable for the demand beyond the normal period. There are no infirmity in the impugned order setting aside the demand on the ground of time bar, therefore impugned order to the extent it set aside the demand on time bar is upheld - Revenue’s appeal is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the respondent was entitled to avail Cenvat credit in respect of services described as Sales Commission. 2. Whether the demand for Cenvat credit in respect of Sales Commission could be sustained for the extended period (i.e., whether the extended period was invokable) - specifically, whether there was suppression or mala fide conduct permitting reopening beyond the normal limitation period. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entitlement to Cenvat credit on Sales Commission (merits) Legal framework: Cenvat Credit Rules and the definition of 'input service' (services used in or in relation to manufacture or clearance of final products), and general principles restricting credit to services having nexus with manufacture/clearance. Precedent Treatment: Multiple Tribunal and High Court decisions during the relevant period held that sales- related activities such as canvassing/procuring orders and overseas commission agents constitute sales-promotion or pre-removal activities and thus fall within 'input service' entitling claim to Cenvat credit. Conversely, a Supreme Court authority established the proposition that services lacking nexus with manufacturing activity are not eligible for credit (general principle). Interpretation and reasoning: The Tribunal emphasised that canvassing and procuring orders precede removal and directly relate to sales promotion necessary for manufacture/clearance; such activities were therefore properly characterized as input services. Documents and payment mechanisms used by service recipients to discharge service tax (e.g., TR-6 challans) were acceptable in context. The Court in the present judgment declined to decide the substantive entitlement because the specific issue was pending before the jurisdictional High Court; however, it noted that during the period April 2010-March 2014 there existed a body of binding and persuasive decisions in favour of allowing credit on sales commission. Precedent Treatment (followed/distinguished/overruled): The Court effectively followed and relied on contemporaneous Tribunal and High Court decisions that allowed credit on sales commission (e.g., decisions characterizing overseas commission/canvassing as sales-promotion/pre-removal). The Supreme Court authority on the general principle was distinguished on grounds that specific judicial decisions dealing expressly with sales commission during the relevant period governed the position for assessees acting in accordance with law as then understood. Ratio vs. Obiter: Observations upholding the view that sales commission may constitute input services reflect ratio in cited Tribunal/High Court decisions; the present Court's comments endorsing the existence of favourable precedent are ratio insofar as they ground its time-bar conclusion. The Court did not pronounce a final ratio on the substantive entitlement because it expressly refrained from deciding the merit pending the jurisdictional High Court's decision. Conclusions: The Court did not decide the substantive question on entitlement on merits but recorded that, during the relevant period, the legal position as reflected in multiple authoritative decisions supported the respondent's claim to Cenvat credit on sales commission. Issue 2 - Invokability of extended period; suppression or mala fide conduct Legal framework: Limitation provisions for recovery of wrongly availed Cenvat credit and statutory grounds for invoking an extended period where there is suppression of facts or fraud; principle that extended period can be invoked only upon evidence of suppression/mala fide intent to evade duty. Precedent Treatment: Earlier decisions establish that extended period is invokable only when there is deliberate suppression or mala fide; bona fide reliance on judicial precedents or on law as reasonably understood negates intent to suppress. Tribunal/High Court decisions contemporaneously allowing credit are relevant to assess bona fides of assessees' claims. Interpretation and reasoning: The Court analysed the temporal context (April 2010-March 2014) and concluded that there existed a series of authoritative rulings favourable to claimants treating sales commission as input/sales-promotion services. Given that an assessee is entitled to act according to prevailing Tribunal/High Court law, the respondent's availment of credit in that period could be a bona fide exercise based on then-available precedent. The Revenue's reliance on a Supreme Court decision establishing a general principle against credit for services lacking nexus was insufficient to establish mala fide suppression here, because the specific issue of sales commission had been decided in various forums in favour of credit. Consequently, there was no demonstration of deliberate concealment or intent to evade duty that would justify invoking the extended period. Precedent Treatment (followed/distinguished/overruled): The Court followed the line of authority that a taxpayer's reliance on contemporaneous Tribunal/High Court decisions can rebut assertions of mala fide and preclude invocation of the extended period. It distinguished the Supreme Court authority on general principles by holding that specific decisions on sales commission prevailing in the relevant period governed the taxpayer's conduct for limitation purposes. Ratio vs. Obiter: The finding that extended period is not invokable in the absence of suppression/mala fide where there were favorable precedents is ratio as applied to the facts; the Court's comparative assessment of general versus specific authorities is part of its reasoning and forms the operative conclusion in this appeal. Conclusions: The demand for recovery beyond the normal limitation period was not sustainable because the respondent's availment of Cenvat credit on sales commission during the relevant period was supported by contemporaneous judicial decisions, negating a finding of suppression or mala fide. Therefore, the adjudicating authority correctly set aside the extended period demand on time-bar grounds, and the extended-period demand cannot be sustained.