2025 (11) TMI 1192 - AT - Central Excise

Revenue appeal rejected; CENVAT credit on sales commission and general services allowed as input services under Rule 2(l)

CESTAT Bangalore dismissed the revenue's appeal and upheld the order allowing the respondent CENVAT credit on sales commission and general services on ... Eligibility of cenvat credit - Sales Commission and General Services availed by the respondent - service tax was paid on RCM basis - General service. Eligibility of cenvat credit - Sales Commission and General Services availed by the respondent - service tax was paid on RCM basis - HELD THAT:- The issue is squarely covered by the decision of the Board vide circular 943/4/2011-CX dated 29.4.2011 wherein it was held that 'The definition of input services allows all credit on services used for clearance of final products upto the place of removal. Moreover, activity of sale promotion is specifically allowed and on many occasions the remuneration for same is linked to actual sale. Reading the provisions harmoniously it is clarified that credit is admissible on the services of sale of dutiable goods on commission basis.' The issue is no more res integra and settled as per the judgment of the Hon’ble High Court of the Kolkata in the matter of CCE, Kolkata-IV vs. Himadri Specialty Chemical Ltd. [2022 (9) TMI 1213 - CALCUTTA HIGH COURT] wherein it was observed that '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.' CENVAT credit on General Services - HELD THAT:- The adjudicating authority considered the correlation between the input service and the output service against each and every service on which the cenvat credit was claimed by the appellant. In the absence of any admissible evidence to deny the benefit of such cenvat credit, there are no infirmity in the impugned order. The impugned order is upheld and appeal is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether cenvat credit is admissible on service tax paid under Reverse Charge Mechanism (RCM) for sales commission services rendered by foreign/commission agents, including for periods prior to the insertion of the Explanation to Rule 2(1) of the Cenvat Credit Rules, 2004. 2. Whether cenvat credit is admissible on various 'general services' received from a foreign service provider and paid under RCM, having regard to the required nexus between input services and manufacture/clearance of dutiable goods. 3. Whether extended period of limitation (invocation of extended time) is justified where proceedings arise from returns filed by the assessee and there is no suppression with intent to evade tax. ISSUE-WISE DETAILED ANALYSIS - (1) Admissibility of Cenvat Credit on Sales Commission paid under RCM Legal framework: Rule 2(1) (definition of 'input service') of the Cenvat Credit Rules, 2004 and Board Circular No. 943/4/2011-CX dated 29.4.2011; post-amendment Explanation to Rule 2(1) inserted by Notification effective 03.02.2016 clarifying inclusion of services of commission agents where sales promotion element exists. Precedent treatment: Conflicting High Court and Tribunal decisions noted - some decisions disallow credit where commission agents acted merely as traders (no sales promotion), while other Tribunal/High Court decisions and the Board circular permit credit where the commission service includes sales promotion. The Court/Tribunal relied on a later High Court decision that interpreted the circular and factual matrix to allow credit where services demonstrated sales promotion activities. Interpretation and reasoning: The Tribunal harmonizes the circular and case law: cenvat credit is admissible for sales commission services only when the commission service includes an element of sales promotion or activities used directly or indirectly in relation to manufacture/clearance of final products. Application depends on factual matrix (terms of agreement, invoices, nature of services). The Board circular explicitly clarifies that where remuneration is linked to actual sale and the agent performs sales promotion, such services fall within 'input services'. The Tribunal found the impugned facts and agreements showed services aimed at sale promotion, and noted subsequent judicial interpretation endorsing credit even for pre-Explanation periods where facts show promotional activity. Ratio vs. Obiter: Ratio - credit on sales commission is admissible where the commission agent's service involves sales promotion or is used directly/indirectly for manufacture/clearance of final products; factual determination required. Obiter - observations about the CAG report and general conflict between circular and certain High Court rulings serve as contextual commentary but do not displace the factual-ratio. Conclusion: The Tribunal upheld the finding that cenvat credit on sales commission (even for the period before the 03.02.2016 Explanation) was admissible on the facts because the services evidenced sales promotion activity in accordance with the Board circular and subsequent judicial treatment; demand for such credit was rightly dropped. ISSUE-WISE DETAILED ANALYSIS - (2) Admissibility of Cenvat Credit on General Services paid under RCM Legal framework: Rule 2(1) of Cenvat Credit Rules, 2004 - definition of 'input service'; requirement that input services be used in relation to manufacture or clearance of final products; requirement of nexus between service and output activity. Precedent treatment: Authorities cited indicate that each service claimed as input must be examined for nexus; prior decisions recognize credit where services are directly or indirectly associated with manufacture/clearance. Reliance placed on Tribunal/High Court decisions that examined agreements and service descriptions to determine eligibility. Interpretation and reasoning: The adjudicating authority performed service-by-service correlation between the claimed 'general services' and the respondent's output (manufacture of dutiable goods). The services agreement and appendices were examined to identify scope and purpose of services provided by the foreign entity. In absence of admissible evidence negativing the nexus, services found to be directly or indirectly associated with manufacturing/clearance qualified as input services. The Tribunal found no infirmity in that factual/legal analysis and no contrary admissible evidence was produced by Revenue to displace the finding of nexus. Ratio vs. Obiter: Ratio - where an evidential nexus exists between specific services and manufacture/clearance of dutiable goods, cenvat credit on such general services paid under RCM is admissible; factual assessment is essential. Obiter - generalized statements about service categories do not substitute for service-specific nexus analysis. Conclusion: The Tribunal sustained the adjudicating authority's allowance of cenvat credit on the listed general services because each service had been examined and found to bear the necessary nexus to manufacture/clearance, and Revenue failed to produce admissible contrary evidence. ISSUE-WISE DETAILED ANALYSIS - (3) Extended Period of Limitation Legal framework: Principles governing invocation of extended period of limitation require suppression of facts or fraud/intent to evade tax; assessments initiated on returns ordinarily attract normal limitation unless suppression is established. Precedent treatment: Multiple authorities were cited (Tribunal and High Court decisions) supporting the proposition that initiation of proceedings based on returns and absence of suppression preclude invocation of extended limitation. Interpretation and reasoning: The show-cause proceedings expressly arose from the returns filed by the respondent (as recorded in the notice). There was no material demonstrating suppression of facts with intent to evade tax. In such circumstances, extension of limitation was not justified. The Tribunal accepted precedents invoked by the respondent to support this position. Ratio vs. Obiter: Ratio - extended period cannot be invoked where proceedings stem from returns and no suppression/intent to evade is established; evidentiary burden on revenue to show suppression. Obiter - references to particular prior cases are illustrative of the settled principle. Conclusion: The Tribunal agreed with the adjudicating authority that extended period of limitation was not sustainable on the facts; extended-period demand was not justified. OVERALL CONCLUSION The Tribunal affirmed the adjudicating authority's order: cenvat credit on sales commission and the assessed general services (paid under RCM) were properly allowed based on factual nexus and the Board circular/controlling judicial interpretation; extended period of limitation was not attractable in the absence of suppression. The appeal by Revenue was dismissed.