Chevron Phillips Chemicals India Pvt. Ltd. Vs Commissioner of CGST (CESTAT Mumbai)
The appeal before CESTAT Mumbai challenged the denial of refund of unutilised accumulated CENVAT credit of ₹88,29,142 for the period from October 2015 to June 2017 claimed under Rule 5 of the CENVAT Credit Rules, 2004 read with Notification No. 27/2012-CE (NT) dated 18.06.2012. The refund was denied on the ground that the appellant’s services were not exports because the place of provision of service was considered to be in India under Rule 9(c) of the Place of Provision of Services Rules, 2012 (POPS Rules). The Commissioner (Appeals) upheld the denial through the Order-in-Appeal dated 11.10.2018.
The appellant was registered with the Service Tax Department for providing Business Auxiliary Services. It provided sales promotion and sales support services to its associated company, M/s Chevron Phillips Chemicals Global FZE (CPC Global), Dubai. The appellant received consideration in the form of commission calculated as a percentage of sales taking place in India in terms of Clause 5 of the agreement executed with CPC Global. The Department treated the services as “intermediary services” under Rule 2(f) of the POPS Rules, 2012 read with Rule 9 and had periodically denied refund claims since July 2012. The present appeal related to the refund claim for October 2015 to June 2017.
The appellant submitted that the issue was no longer res integra since the Tribunal had already decided the issue in its favour for earlier periods by final orders dated 20.12.2019, reported in 2021 (53) GSTL 268 (Tri.-Mumbai), and dated 20.12.2022, reported in (2024) 15 CENTAX 102 (Tri.-Bom.), which had subsequently been affirmed by the Supreme Court and reported in (2024) 15 CENTAX 103 (SC). It submitted that the present appeal involved the same issue and the refund had been denied on identical grounds. The appellant further contended that Clause 10.1 of the agreement expressly described the relationship as that of an independent contractor operating on a principal-to-principal basis, excluding the appellant from the definition of an intermediary. It also argued that receipt of consideration calculated as a percentage of actual sales in foreign exchange did not determine the existence of a principal-agent relationship.
The Department supported the reasoning contained in the order of the Commissioner (Appeals). During the hearing, the Department acknowledged that its appeal against the Tribunal’s earlier order in the appellant’s own case had not been admitted by the Supreme Court.
The Tribunal examined the agreement, the POPS Rules, the CENVAT Credit Rules, 2004, and the earlier decisions rendered in the appellant’s own case. It observed that the earlier appeal covering the period from July 2012 to September 2015 had been decided by separately considering the periods before and after 01.10.2014, when the definition of “intermediary” in Rule 2(f) of the POPS Rules was amended to include supply of goods. The Tribunal noted that the earlier decisions had relied upon Lubrizol Advanced Materials India Pvt. Ltd. and R.S. Granite Machine Tools Pvt. Ltd.
The Tribunal also examined Clause 5 of the agreement reproduced in the order of the Commissioner (Appeals), which provided that CPC Global would pay commission to the appellant on sales of products for services rendered by the appellant. It further observed that Clause 10.1 described the appellant as an “independent contractor agent” rather than a salaried agent of CPC Global.
The Tribunal recorded that, on the facts available, it would have disagreed with the earlier decisions of the coordinate Bench and referred the matter to a Larger Bench. However, it noted that the appeal against one of those decisions had travelled to the Supreme Court, which had declined to admit the Department’s appeal. The Tribunal also referred to the newly introduced Clause 26A read with Clause 29A of Article 366 of the Constitution of India, stating that services mean “anything other than goods” with effect from 08.09.2016 and that tax on sale or supply of goods under Clause 29A takes such activity out of the service tax net. Guided by the Supreme Court’s decision affirming the Tribunal’s earlier order in the appellant’s own case, the Tribunal held that the order of the Commissioner (Appeals) could not be sustained.
Accordingly, the Tribunal allowed the appeal and set aside Order-in-Appeal No. MKK/291/RGD-APP/2018-19 dated 11.10.2018.
Cases Discussed
- Chevron Phillips Chemicals India Pvt. Ltd. (Supreme Court), (2024) 15 CENTAX 103 (SC)
- Chevron Phillips Chemicals India Pvt. Ltd. (CESTAT Mumbai), (2024) 15 CENTAX 102 (Tri.-Bom.)
- Chevron Phillips Chemicals India Pvt. Ltd. (CESTAT Mumbai), 2021 (53) GSTL 268 (Tri.-Mumbai)
- Lubrizol Advanced Materials India Pvt. Ltd. Vs. Commissioner (CESTAT), 2019 (22) GSTL 355 (Tribunal)
- R.S. Granite Machine Tools Pvt. Ltd. Vs. CGST & Central Excise (CESTAT Chennai), 2019 (1) TMI 1179-CESTAT Chennai
FULL TEXT OF THE CESTAT MUMBAI ORDER
Denial of refund of unutilised accumulated CENVAT Credit of ₹88,29,142/- for the period from October, 2015 to June, 2017 sought under Rule, 5 of CENVAT Credit Rules, 2004 read with Notification No. 27/2012-CE(NT) dated 18.06.2012 on the ground that the services were not exported as place of provision of service was in India in view of provision contained in Rule, 9(c) Place of Provision of Service Rules, 2012 (POPS) and the confirmation of the said order of denial of refund by the Commissioner (Appeals) is assailed by the Assessee-Appellant in the present appeal.
2. Facts of the case, in brief, is that Appellant was registered with Service Tax Department for providing “Business Auxiliary Services”. It is an incorporated company that was providing sale-promotion and sale-support service to its associated company namely M/s. Chevron Phillips Chemicals Global FZE (“CPC Global”) established in Dubai. It was receiving consideration in the form of commission which was calculated on certain percentage of sales taking place in India (as per para 5 of terms of agreement between Appellant and CPC Global). Holding the same to be “intermediary” services as provided under Rule, 2(f) of the POPS Rules, 2012 read with Rule, 9A periodic denial of refund were made by the Respondent-Department since July, 2012. This appeal pertains to the period from October, 2015 to June, 2017 concerning denial of refund that got confirmed vide Order-in-Appeal dated 11.10.2018, as referred above.
3. During course of hearing of the appeal learned Counsel for the Appellant Ms. Rinki Arora submitted that issue is no more res integra in view of final order passed in Appellant’s own case for two other periods by this Tribunal on 20.12.2019, as reported in 2021 (53) GSTL 268 (Tri.- Mumbai) and final order dated 20.12.2022 as reported in (2024) 15 CENTAX 102 (Tri.-Bom.) that had been affirmed by Hon’ble Apex Court as reported in (2024) 15 CENTAX 103 (SC) and this appeal is filed for the subsequent period in which issue involved is similar and denial of refund was made on similar ground. Her further submission is that Clause 10.1 of the agreement clearly states that it is an agreement with independent contractor and service provided by the Appellant to CPC Global was on principle-to-principle basis, that excludes the Appellant clearly from the purview of being called as ‘intermediary’. She explained that though pre-agreed percentage of actual value of goods sold was paid to the Appellant in foreign exchange, the said mechanism cannot be considered as criteria for determining principal-agency relationship, for which the order passed by the Commissioner (Appeals) is also unsustainable in law and facts.
4. Learned Authorised Representative for the Respondent-Department Mr. Badhe Piyush Barasu argued in support of the reasoning and rationality of the order passed by the Commissioner (Appeals), while admitting that in their appeal filed against the order passed by this Tribunal in Appellant’s own case was not admitted for hearing by the Hon’ble Supreme Court of India.
5. We have perused the case record, the agreement copy, relevant provisions contained in POPS Rules, 2012, CENVAT Credit Rules, 2004 and the relied upon judgments in which the earlier demand was passed by this Tribunal for different periods. As could be noticed from the said order appeal of the Appellant for the period from July, 2012 to September, 2015 was disposed of after bifurcating it into two periods up to 01.10.2014 and after 01.10.2014, from which day definition of “intermediary” had undergone change with inclusion of ‘supply of goods’ in the said Rule, 2(f) of the POPS Rules, 2012 and for the period post 01.10.2014, reliance was placed by this Tribunal on its previous order passed in the case of Lubrizol Advanced Materials India Pvt. Ltd. Vs. Commissioner as reported in 2019 (22) GSTL 355 (Tribunal) and R.S. Granite Machine Tools Pvt. Ltd. Vs. CGST & CENTRAL EXCISE as reported in 2019 (1) TMI 1179-CESTAT Chennai. Para 6 of Lubrizol Advanced Materials India Pvt. Ltd. and para 5 of R.S. Granite Machine Tools Pvt. Ltd. were reproduced in the final order of Lubrizol Advanced Materials India Pvt. Ltd. but going by its content, we are constrained to note that in Lubrizol Advanced Materials India Pvt. Ltd. consideration paid was calculated on the basis of ‘cost plus mark-up’ price and in R.S. Granite Machine Tools Pvt. Ltd. the nature of service was stated to be that of obtaining/procuring orders for its foreign principle which were unconnected to supply/sale of goods. However in the instant case going by para 5 (page 46 of the appeal memo) of the agreement copy, agent commission on all sale of products was only payable to the Appellant for providing services (promotional and other sale services as noted in para 3) by the principle namely CPC Global but in carrying forward the same observations made in the previous order the subsequent order was passed with reference to those two paragraphs noted in Lubrizol Advanced Materials India Pvt. Ltd. and R.S. Granite Machine Tools Pvt. Ltd. respectively by holding that consideration received by the Appellant from M/s CPC Global as a service provider was not directly linked with the sale of products by the selling company in India. However para 5 of the agreement, which was reproduced by learned Commissioner (Appeals) in his order at para 7.3.5 would go to reveal that apart from commission received on sale of products, there was no other consideration flowing from the principle to the agent, It reads:
“5. Commission
In full compensation for the services rendered hereunder, CPC Global shall pay Agent a commission in accordance with Exhibit B1 on all sales of products by the selling Companies to customers in the Territory on which Agent shall have provided services hereunder at the request of CPC Global. Commissions shall be calculated on the total invoice, less any rebates, freight, handling charges and other costs (insurance, customs duties, taxes, etc.) that are included in the total invoice of the Product. Unless otherwise agreed, Commissions shall be paid to Agent in the currency of the invoice for Products. Commissions shall be payable within 30 days of the last day of the month in which payment in full is received by CPC Global or the Selling Companies for Products sold subject to this Agreement, provided however, on Products payment for which is guaranteed by confirmed irrevocable letter of credit, commissions shall be payable 30 days from invoice date. It is understood and agreed that Agent shall not be entitled to commissions on orders for which payment is not received by CPC Global or Selling Companies. Commissions on sales of one year or longer duration, in which Agent may be involved, shall be negotiated on a case basis between Agent and CPC Global.
If it is necessary that CPC Global pay a commission or other compensation to third parties in connection with any sales of Products in the Territory. Agent’s commission as computed on Exhibit B shall be reduced by the amount of such payment; provided, however, in recognition of Agent’s responsibilities and activities in coordinating sales of the Products through such third parties, Agent’s commission shall not be reduced to less than one-quarter of one percent (0.25%) computed on the basis specified above.”
(underlined to emphasise)
6. Further both are treated as independent entities only in view of general Clause prescribed under 10.1 that explicitly puts the Appellant in the nature of ‘independent contractor agent’ and not an salary paid agent of CPC Global. This being the facts on record, we would have disagree with the decisions of Co-ordinate Bench of this Tribunal and referred the matter to the Larger Bench, had appeal against one of such orders not travelled up to the Hon’ble Supreme Court and resulted in denial of admission of the appeal filed by the Respondent-Department against the said order. Having regard to the newly introduce Clause 26A read with Clause 29A of Article 366 of the Constitution of India that puts “services” under the meaning as “anything other than goods” (w.e.f. 08.09.2016) and tax on sale or supply of goods under Clause 29A takes the activity out the Service Tax Net, and also being guided by the decision of the Hon’ble Supreme Court whereby order of this Tribunal is subsumed with the order of Hon’ble Supreme Court, the following order is passed.
THE ORDER
7. The appeal is allowed and the order passed by the Commissioner of Central Tax (Appeals), Raigad, Navi Mumbai vide Order-in-Appeal No. MKK/291/RGD-APP/2018-19 dated 11.10.2018 is hereby set aside.
(Order pronounced in the open court on 09.07.2024)
Notes:
1 Exhibit ‘B’ contains the list of products and the percentage of commission on sale of those products.
