Case Law Details
Phillips Carbon Black Limited Vs Commissioner of Central Goods & Service Tax (CESTAT Kolkata)
The appeals were filed against an Order-in-Original dated 20.02.2018 passed by the Commissioner of Central Goods & Service Tax. The appellant, a manufacturer of carbon black, had availed Cenvat credit on various inputs, capital goods, and input services, including services provided by commission agents. These agents promoted products, canvassed orders, effected sales, conducted market research, and provided information reports on behalf of the appellant. Their remuneration was linked to the actual sales generated.
The department took the view that the activities performed by commission agents were post-removal activities and therefore did not qualify as “input services” under Rule 2(l) of the Cenvat Credit Rules, 2004. Consequently, a show cause notice was issued proposing denial of Cenvat credit amounting to ₹3,34,04,404 for the period from April 2012 to June 2016. A personal penalty was also proposed against the Deputy Manager (Accounts) on the allegation that he was aware of the availment of inadmissible credit and failed to reverse it.
Upon adjudication, the authority dropped a portion of the demand amounting to ₹19,58,012 relating to the period from 03.02.2016 to June 2016, following an amendment made on 03.02.2016. However, it confirmed the disallowance of the remaining Cenvat credit of ₹3,14,46,392 on sales commission services and imposed penalties, including a personal penalty on the Deputy Manager (Accounts).
The appellant contended that the issue was no longer disputed because the Cenvat Credit Rules had been amended to expressly include “sales commission” within the scope of “sales promotion” under Rule 2(l). The explanation inserted under the rule clarified that sales promotion includes services involving the sale of dutiable goods on a commission basis. According to the appellant, this clarification established that service tax paid on sales commission qualified for Cenvat credit.
The appellant further relied on judicial precedents, including a decision of the Calcutta High Court affirming an earlier CESTAT ruling, which held that the amendment was clarificatory in nature and therefore operated retrospectively. Various other Tribunal decisions were also cited in support of the retrospective application of the explanation.
The appellant additionally referred to CBEC Circular No. 943/4/2011-CX dated 29.04.2011, which clarified that Cenvat credit is admissible on services relating to the sale of dutiable goods on a commission basis. It was argued that such circulars are binding on the department. On the issue of limitation, the appellant submitted that the credit had been availed under a bona fide belief regarding its admissibility and that there was no suppression of facts or intention to evade tax.
After hearing both sides, the Tribunal observed that the explanation inserted in Rule 2(l) specifically clarified that “sales promotion” includes services by way of sale of dutiable goods on a commission basis. The Tribunal held that the explanation was clarificatory and that sales commission services were covered within the expression “sales promotion.” Consequently, service tax paid on such services qualified for Cenvat credit.
The Tribunal also relied on the Calcutta High Court’s decision affirming that the amendment was retrospective because it was clarificatory in nature. Further support was drawn from the CBEC circular recognizing the admissibility of Cenvat credit on commission-based sales services.
Based on these findings, the Tribunal held that denial of Cenvat credit on sales commission services was legally unsustainable and set aside the demand. It also held that the extended period of limitation could not be invoked because the appellant had availed the credit under a bona fide belief and there was no evidence of suppression of facts or intent to evade tax.
Regarding the personal penalty imposed on the Deputy Manager (Accounts), the Tribunal observed that since the availment of credit itself was held to be proper, there was no basis for imposing a penalty on him. Accordingly, the penalty was set aside.
The Tribunal ultimately set aside the impugned order and allowed both appeals with consequential relief in accordance with law.
FULL TEXT OF THE CESTAT KOLKATA ORDER
The present appeals have been filed against the impugned Order-in-Original No. 38/Commr/Bol/2017-18 dated 20.02.2018 passed by the Commissioner of Central Goods & Service Tax Commissionerate Bolpur Nanoor Chandidas Road, Sian, Bolpur, Dist –Birbhum-7312047.
2. M/s. Phillips Carbon Black Ltd. (herein after referred as the Appellant) are engaged in the manufacture of carbon black of various grades at its manufacturing facility at Durgapur. In accordance with the principle of value addition, the Appellant availed Cenvat Credit of various inputs, capital goods and input services and utilized the same for payment of excise duty. Such input services on which the Appellant availed Cenvat Credit interalia included the services procured from Commission Agents like Suntec Enterprises and Bajaj Rubber Co. Pvt. Ltd. The said services were rendered for promoting, canvassing orders, effecting sales for and on behalf of the Appellant. The service providers were rendering the services of procuring and forwarding information reports, conducting market research and survey in accordance with the instructions of the Appellant. For the services rendered, Commission was paid based on the percentage of actual sales effected by such agents.
2.1. The officers of the department was of the view that the activities carried out by commission agents, being post removal activity, do not fall within the ambit of Rule 2(l) of the Cenvat Credit Rules, 2004. Accordingly, a Show Cause Notice 43/COMMR/CE/DGP/16-17 dated 23.03.2017 was issued to the appellant proposing to deny Cenvat Credit of Rs. 3,34,04,404/- availed by the Appellant for the period from April 2012 to June 2016 based on the allegation that the activities carried out by the commission agents, being post removal activity, do not fall within the ambit of Rule 2(l) of the Cenvat Credit Rules, 2004. The Notice also proposed personal penalty on Shri. Santosh Kumbhakar, Deputy Manager, Accounts under Rule 26 of Central Excise Rules, 2002, on the allegation that of being well aware of the facts of availment of inadmissible credit and being involved in execution mechanism, and for not reversing the same.
2.2. On adjudication, the Ld. Adjudicating authority has dropped the demand of Cenvat Credit of Rs. 19,58,012/-, in respect of the credit availed from 3rd February 2016 to June 2016 based on the amendment dated 03.02.2016 and confirmed the disallowance of the remaining Cenvat Credit of Rs. 3,14,46,392/-availed on sales commission services during the underlying period. Personal Penalty has also been imposed on Shri. Santosh Kumbhakar, Deputy Manager, Accounts under Rule 26 of Central Excise Rules, 2002.
2.3. Aggrieved against the disallowance of Cenvat credit along with interest and penalty and imposition of personal penalty on Shri. Santosh Kumbhakar, Deputy Manager, Accounts, both the appellants have filed these appeals.
3. The appellant submits that the instant proceedings were initiated against them based on the allegation that the expenses incurred by the Appellant were in the form of sales commission for which Cenvat credit under Rule 2(l) of the Credit Rules is not eligible. In this regard, the appellant submits that the issue is no longer res integra since Cenvat Credit Rules have been amended to include ‘Sales Commission’ as ‘input service’. It has also clarified that sales commission has been included in sales promotion under Rule 2(l) of the Credit Rules. The explanation has been inserted as a clarification, and as a result of which, sale of goods on commission basis also stands covered under the expression ‘sales promotion’. Thus, the appellant submits that Cenvat credit of service tax paid is available for sales promotion which also includes sales commission. Therefore, the instant dispute is duly settled by way of insertion of this explanation. 3.1. The Hon’ble Calcutta High Court in the case of Pr. Commr. of C. Ex., Kolkata – IV v. Himadri Speciality Chemical Limited – 2022 (9) TMI 1213 – Calcutta High Court affirmed the decision of the CESTAT Kolkata in 2019 (8) TMI 1838 – wherein on an identical set of facts, it was held that the Amending Notification is applicable retrospectively since it is clarificatory in nature and therefore, Cenvat credit is eligible on sales commission.
3.2. Reliance is also placed on the following decisions wherein the explanation inserted to Rule 2(l) of CCR, 2004 is held to be applicable retrospectively –
- TDK India Pvt. Ltd v. CCE & CGST, Kolkata North, 2024 (3) TMI 450 – CESTAT Kolkata.
- Triveni Turbines Ltd. v. CCE, Bangalore, 2025 (3) TMI 1500 – CESTAT Bangalore.
- Commissioner, CGST, Jaipur v. M/s. Bharti Hexacom India Ltd., 2023 (5) TMI 520 – CESTAT New Delhi
- Stanley Seating v. CCE, Bangalore-III, 2017 (3) G.S.T.L. 137 (Tri. Bang.)
- CGST, C & CE, Alwar v. Krishi Icon, 2018 (7) TMI 97 – CESTAT New Delhi
- CCE Alwar v. Nirmal Developers, 2018 (9) TMI 376 – CESTAT New Delhi
3.3. Therefore, the appellant submits that, explanation to Rule 2(l) of CCR, 2004 clarifying the term ‘sales promotion’ to include sale on commission basis and is retrospective in nature.
3.4. Further, the appellant placed their reliance on the Board Circular No. 943/4/2011-Cx dated 29.04.2011 wherein it has been clarified that Cenvat credit is admissible on the services of sale of dutiable goods on commission basis. It is a trite law that circulars issued by CBEC are binding on the department.
3.5. Accordingly, the appellant submits that the denial of Cenvat credit availed by them on ‘Sales Commission’ is legally not sustainable.
3.6. Regarding invocation of extended period of limitation, the Appellant submits that they have availed Cenvat credit on sales commission expenses based on the bonafide belief that such credit is eligible. Thus, there is no suppression of facts with intention to evade the tax established in this case. Hence, extended period of limitation cannot be invoked in the instant case. Reliance in this regard is placed on the decision of Amit Metaliks Limited v. Commr. of Central Excise, Bolpur, 2023 (11) TMI 721 – CESTAT Kolkata.
4. Regarding personal penalty imposed on Shri. Santosh Kumbhakar, Deputy Manager, Accounts under Rule 26 of Central Excise Rules, 2002, he submits that penalty has been imposed on him on the allegation that he was well aware of the facts of availment of inadmissible credit and being involved in execution mechanism, and for not reversing the same. Since, there is no irregularity in the availment of credit, he submits that no penalty imposable on him. Accordingly, he prayed for setting aside the penalty imposed on him.
5. The Ld. A.R. reiterated the findings in the impugned order.
6. Heard both sides and perused the appeal documents.
7. We observe that Cenvat Credit availed by the Appellant for the period from April 2012 to June 2016, was denied on the allegation that the activities carried out by commission agents, being post removal activity, do not fall within the ambit of Rule 2(l) of the Cenvat Credit Rules, 2004.
7.1. We observe that Cenvat Credit Rules have been amended to include ‘Sales Commission’ as ‘input service’. It has also clarified that sales commission has been included in sales promotion under Rule 2(l) of the Credit Rules. The explanation inserted is reproduced herein below for ease of reference –
“Explanation – For the purpose of this clause, sales promotion includes services by way of sale of dutiable goods on commission basis.”
7.2. The aforesaid explanation was inserted as a clarification, and as a result of which, sale of goods on commission basis also stands covered under the expression ‘sales promotion’. Thus, we observe that Cenvat credit of service tax paid is available for sales promotion which also includes sales commission.
Therefore, we find that the instant dispute is duly settled by way of insertion of this explanation.
7.3. The Hon’ble Calcutta High Court in the case of Pr. Commr. of C. Ex., Kolkata – IV v. Himadri Speciality Chemical Limited – 2022 (9) TMI 1213 – Calcutta High Court affirmed the decision of the CESTAT Kolkata in 2019 (8) TMI 1838 – wherein on an identical set of facts, it was held that the Amending Notification is applicable retrospectively since it is clarificatory in nature and therefore, Cenvat credit is eligible on sales commission. The relevant portion of the decision is extracted below –
“11. As could be seen from the above clarification, the decision in Cadila Health Care was also taken note of by the department and the position stood clarified that sales promotion would include services by way of sale of goods on commission basis. As pointed out by the Hon’ble Supreme Court in Commissioner of Income Tax v. Vatika Township Private Limited [(2015) 1 SCC 1] that if a legislation confers the benefit on some persons but without inflicting the corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the object of the legislature, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. In Commissioner of Income Tax v. Archean Granite Private Limited [(2020) 117 taxmann.com 977 (Madras)] amendment made to Section 40(a)(ia) of the Finance Act, 2010 inserting proviso therein was held to be retrospective with effect from the assessment year 2005-06 and the Court followed the decision in the case of Commissioner of Income Tax v. Calcutta Export Company [(2018) 93 taxmann.com 51]. Therefore, we find that the approach to the issue in the manner done by the Learned Tribunal cannot be faulted.”
7.4. We also refer Board Circular No. 943/4/2011-Cx dated 29.04.2011 wherein it has been clarified that Cenvat credit is admissible on the services of sale of dutiable goods on commission basis. It is a trite law that circulars issued by CBEC are binding on the department. Accordingly, we hold that the denial of Cenvat credit availed by the appellant on ‘Sales Commission’ is legally not sustainable and hence we set aside the same.
7.5. Regarding invocation of extended period of limitation, we find that the appellant have availed Cenvat credit on sales commission expenses based on the bonafide belief that such credit is eligible. Thus, there is no suppression of facts with intention to evade the tax established in this case. Hence, we hold that extended period of limitation cannot be invoked in the instant case. This view is supported by the decision in the case of Amit Metaliks Limited v. Commr. of Central Excise, Bolpur, 2023 (11) TMI 721 – CESTAT Kolkata.
8. Regarding personal penalty imposed on Shri. Santosh Kumbhakar, Deputy Manager, Accounts under Rule 26 of Central Excise Rules, 2002, we observe that penalty has been imposed on him on the allegation that he was well aware of the facts of availment of inadmissible credit and being involved in execution mechanism. Since, there is no irregularity in the availment of credit, we hold that no penalty imposable on Shri. Santosh Kumbhakar, Deputy Manager, Accounts. Accordingly, we set aside the penalty imposed on Shri. Santosh Kumbhakar, Deputy Manager, Accounts.
9. In the result, we set aside the impugned order and allow the appeals filed by both the appellants with consequential relief, if any, as per law.
(Operative part of Order was pronounced in Open court)
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