2026 (3) TMI 1061 - AT - Central Excise

Cenvat credit for agency commission where services include sales promotion and marketing, resulting in credit allowance and relief.

Service tax paid on sales/agency commission qualifies as an input service under the Cenvat Credit Rules where the agency agreement shows marketing, sales ... Eligibility of CENVAT credit for service tax on sales/agency commission as an input service - sole selling agreement - sales promotion and advertisement as components of marketing qualifying as input service - definition of 'input service' in Rule 2(1) - invocation of extended period of limitation. Eligibility of CENVAT credit - HELD THAT:- It is evident that the marketing activity always encompasses advertisement and sales promotion and the same are integral part and parcel of the marketing function and the activities of advertisement and sales promotion are not independent, exclusive, divorced or distinct from the marketing activity and marketing and promotion always go together. Further, following the ratio of the decision relied by the appellant in the matter of Federal Mugul TRP (India) Ltd. [2020 (11) TMI 893 - CESTAT BANGALORE], M/s. Zydus Lifesciences Ltd. [2023 (12) TMI 6 - SC ORDER] and the CBEC Circular vide F. No. 96/85/2015-CX1, dated 7-12-2015, we find that the appellant is eligible for cenvat credit on sales commission as claimed by them. Further we find that demand confirmed for the period from April 2015 to September 2015 and for the period from October 2015 to March 2015 were set aside by Commissioner (Appeals) as per the Order-in-Appeal No. 28/2021-22 dated 21.07.2022 and in the absence of any appeal challenging the said finding, following the ratio of the judgment of the Hon’ble Supreme Court in the matter of M/s. Marsons Fan Industries [2008 (1) TMI 290 - SUPREME COURT], the issue is no more res-integra. Thus, demands with interest and penalty as per impugned orders are unsustainable and impugned orders are liable to be set aside. CENVAT credit on the service tax paid on the sales commission to the sole selling agent is allowable and the impugned demands on this ground are unsustainable. Invocation of extended period of limitation - HELD THAT: - The Tribunal noted there was no allegation of suppression of facts to justify invocation of the extended period of limitation and, following the material and precedents relied upon by the appellant, held that the demands confirmed by invoking the extended period were not sustainable in law. [Paras 12, 15, 16] The demands confirmed under the extended period of limitation are unsustainable and set aside. Final Conclusion: The appeals are allowed; the Tribunal set aside the impugned orders, held that CENVAT credit on service tax paid on sales/agency commission to the sole selling agent is admissible as an input service (sales promotion/advertisement being integral to marketing), and directed that demands (including those confirmed by invoking the extended period) with interest and penalty are unsustainable. Issues: (i) Whether service tax paid on sales/agency commission paid to sole selling agents qualifies as Cenvat creditable input service under Rule 2(1) and Rule 3 of the Cenvat Credit Rules, 2004; (ii) Whether demands confirmed (including interest and penalty) for the periods in issue are sustainable having regard to limitation.Issue (i): Whether service tax paid on sales/agency commission paid to sole selling agents qualifies as input service eligible for Cenvat credit.Analysis: The definition of 'input service' in Rule 2(1) of the Cenvat Credit Rules, 2004 includes services used 'in or in relation to the manufacture of final products and clearance of final products up to the place of removal' and expressly includes 'advertisement or sales promotion'. The agreement governing the agency/marketing arrangement shows that the agent performed marketing functions that encompassed promotion, identification of prospective customers, negotiation, order forwarding and collection, maintenance of sales network and related activities. Administrative and statutory clarifications and amendments (Circular No. 943/4/2011-CX dated 29.04.2011; F. No. 96/85/2015-CX1 dated 07.12.2015; Notification No. 2/2016-CE (NT) dated 03.02.2016) treat sales promotion to include sale of dutiable goods on commission basis and explain that where the agent undertakes sales promotion activities, the service falls within the input service definition. Tribunal and appellate precedents applying these principles where promotional elements are present were followed, and prior adverse authority limited to pure trading agents was distinguished.Conclusion: The service tax paid on sales/agency commission is an input service and Cenvat credit is allowable where the agency services include sales promotion and marketing activities; decision is in favour of the assessee on this issue.Issue (ii): Whether demands (including interest and penalty) for the periods in issue are sustainable having regard to limitation.Analysis: The orders confirming demands for certain subsequent periods were set aside on appeal by the tax authority and were not challenged further. There is no finding of suppression warranting invocation of extended limitation in the record relied upon by the adjudicating authority for the periods under appeal.Conclusion: The demands with interest and penalty for the periods under challenge are unsustainable; conclusion is in favour of the assessee.Final Conclusion: The appeals are allowed and the impugned orders confirming denial of Cenvat credit on sales/agency commission and imposing related demand, interest and penalty are set aside; the assessee is entitled to consequential relief in accordance with law.Ratio Decidendi: Where agency/commission arrangements demonstrably include sales promotion and marketing functions, service tax on commission constitutes an 'input service' under Rule 2(1) of the Cenvat Credit Rules, 2004 and is eligible for Cenvat credit; amendments and board circulars clarifying that sales on commission can amount to sales promotion are applicable.