In the case of Monarch Catalyst Pvt. Ltd. Vs. Commissioner of Central Excise, Thane-I, it was held that the services of commission agent abroad is input services as the commission agent procured the orders for the appellant and thereafter the appellant manufactured the goods. Therefore, CENVAT credit of service tax paid on such services is available.
Facts of the Case
The appellant is engaged in the manufacture of nickel catalyst and other catalyst, nickel aluminium alloy etc. classifiable under Chapters 28, 38 and 75 of the Central Excise Tariff Act, 1985 and are chargeable to duty. The appellant also sells their products to customers located outside India. In order to procure orders from the foreign buyers, the appellant has appointed commission agents at various locations outside India under written agreement. These agents promote the sale of the product and procure orders for the appellant and the commission is paid on the FOB value of the goods exported. The appellant further alleged that in terms of the provisions of Rule 4 of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, the appellant has registered with the central excise and as receivers of services in India pays service tax on reverse charge basis as required under the provisions of Section 66A of the Finance Act, 1994 read with Rule 2(iv) of the Service Tax Rules, 1994 and files returns in form ST-3. The appellant has been paying service tax and availing credit of service tax paid being input services and there has been no dispute raised by the department during the period from 2006 i.e. from the time the appellant has been availing credit of such service tax on the amount paid to the commission agent located outside India. The appellant further alleged that by Notification 41/2007-ST dated 6.10.2007, exemption is provided to the services received by the exporter from certain service providers, which are specifically specified in the said notification. This notification was further amended by Notification No.17/2008-ST dated 1.4.2008 and by this notification, exemption is specifically provided to services provided by the commission agent located outside India and engaged under a contract or agreement. The appellant further submits that for the first time in February 2010, the departmental audit officers objected to the availment of credit by the appellant on the ground that w.e.f. 7.7.2009, the services of commission agent located outside India became exempt in terms of Notification No.18/2009-ST dated 7.7.2009 and there was no need of payment of service tax on such services. Thereafter the appellant received a show cause notice wherein the department sought to recover cenvat credit amounting to Rs.34,69,947/- allegedly wrongly availed by the appellant during the period from April 2006 to June 2009 under the proviso to sub-section (1) of Section 11A of the Central Excise Act read with Rule 14 of the Cenvat Credit Rules, 2004 along with interest and penalty under Section 11AB and 11AC respectively. The appellant submitted detailed reply to the show cause notice denying all the allegations in the show cause notice with the help of decided cases by the Tribunal and the Hon’ble High Court. The learned Additional Commissioner, however, vide his order dated 31.8.2012 accepted the submission of the appellant that services rendered by the commission agent based outside India are input services for the appellant but failed to accept the submissions on limitation and availability of cenvat credit instead of refund under Notification No. 41/2007-ST and consequently passed the order against the appellant. Thereafter the appellant filed appeal before the Commissioner (Appeals) who vide his order dated 20.2.2013 upheld the order-in-original. Hence the present appeal before this Tribunal.
Contentions of the assessee
The appellant submitted that the issue whether the services of the commission agents located abroad are input services for the appellant has already been decided in favour of the appellant by the adjudicating authority vide para 15 of the order-in-original and the Commissioner (Appeals) has wrongly held that the services by the commission agent abroad are input services. It was further submitted that the impugned order needs to be set aside on the ground that the same is contrary to the decision of the Tribunal in the case of CCE, Jalandhar vs. Ambika Overseas reported in 2010 (20) STR 514 (Tri.-Del.) and further in the case of CCE, Ludhiana vs. Jainson Industries reported in 2011 (24) STR 234 (Tri.-Del.). As per Notification 41/2007-ST dated 6.10.2007 as superseded by Notification 18/2009-ST dated 7.7.2009, the appellant is entitled to avail cenvat credit on the service tax paid on the services of commission agent located abroad. It is optional for the exporter to either claim exemption by way of refund or avail cenvat credit and the appellant has chosen to avail cenvat credit as there is no requirement under the said notification to follow any particular procedure as provided in the notification which is required to be followed only when an exporter is claiming such exemption by way of refund.
Contentions of the Revenue
The revenue reiterated the findings of the Commissioner (Appeals) and contended that the demand was correctly upheld.
Held by Hon’ble CESTAT
The Hon’ble CESTAT referred to various decisions rendered in the context of expression “input services” as defined under Rule 2(l) of the Cenvat Credit Rules, 2004. The Tribunal in the case of CCE, Jalandhar vs. Ambika Overseas reported in 2010 (20) STR 514, cited supra, the Tribunal has held as under:-
“The canvassing and procuring orders are activities preceding removal of the goods by the manufacturers. Without the firm order, the respondents were not expected to remove the goods to a foreign destination. Therefore, the submission of the learned DR that these activities are post removal activities cannot be accepted. Further, the definition of the “inputs services” includes services used in relation to “sales promotion”, and these activities can rightly be described as sales promotion activities. Sales promotion activities undertaken at a given point of time also aims at sales of goods which are to be manufactured and cleared in future. Any advertisement given has a long term impact and cannot be treated as post clearance activities and therefore, sales promotion has been specifically included in the definition of input services.”
This decision has been affirmed by the Hon’ble Punjab & Haryana High Court as reported in 2012 (25) STR 348 (P&H). Similarly, in the case of CCE, Ludhiana vs. Jainson Industries reported in 2011 (24) STR 234 (Tri.-Del.), cited supra, the Tribunal has held as under:-
“The definition of “input service” as given in Rule 2(l) of the Cenvat Credit Rules, 2004 specifically covers “advertisement or sale promotion services”. The service received by the respondent is of commission agent appointed by them abroad who secure the export orders from them. I am of the, prima facie, view that the service of commission agent is a service of the sale promotion and would be covered by the definition of “input service”.
It is pertinent to mention that in para 15 of the order-in-original, the adjudicating authority has specifically held that the services of commission agent abroad is input services as the commission agent procured the orders for the appellant and thereafter the appellant manufactured the goods. For holding the services of commission agent abroad as input services, the adjudicating authority relied upon the decisions cited above and while reversing the findings, the Commissioner (Appeals) did not give any reasons as to why the decisions cited by the appellant are not applicable in the facts and circumstances of the present case. Further, as per Notification 41/2007-ST dated 6.10.2007 as superseded by Notification 18/2009-ST dated 7.7.2009, the appellant has an option either to avail cenvat credit or to claim refund and the appellant has chosen to claim cenvat credit and this fact has been reflected in the records of the appellant also, but the respondent has never raised any objections all through. Earlier to the present audit, the department has conducted the audit on two occasions but the department never raised this issue.
Further, with regard to limitation, the entire demand is barred by limitation as there is no material placed on record by the department to show that the appellant has suppressed the material facts with intent to evade duty. On the other hand, the appellant has placed on record two audit reports conducted by the department, wherein certain other objections were raised, but this issue was never raised which is sought to be raised now by the present show cause notice dated 27.4.2011 for the period from April 2006 to June 2009 by invoking the extended period of limitation. Further, the appellant has been disclosing the payment of commission to foreign based agent in all their shipping bills and also in their periodical returns submitted to the department.
Therefore, keeping in view all the facts and circumstances and the definition of “input services” as well as Notification No.18/2009-ST and the judgments cited supra, the appellant is entitled to avail cenvat credit in respect of commission paid to the commission agent based abroad and the impugned order is liable to be set aside and the appeal is allowed.