Indian Terrain Fashions Limited Vs Commissioner of GST and Central Excise (CESTAT Chennai)
The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) allowed the appeal filed by Indian Terrain Fashions Limited against an Order-in-Original confirming recovery of ₹51,82,020 as allegedly ineligible Cenvat credit, along with interest and a penalty of ₹5,00,000. The dispute related to Cenvat credit availed on outward freight, sales commission paid to franchisees, and commercial rent paid for franchisee retail outlets during February 2013. The Department alleged that these services were received beyond the place of removal and therefore did not qualify as input services under the Cenvat Credit Rules, 2004.
The Tribunal identified three issues for determination: whether Cenvat credit was admissible on outward freight from the factory to franchisee sales outlets, whether credit on sales commission paid to franchisees was allowable, and whether service tax paid on rent for retail outlets qualified for Cenvat credit. The appellant contended that goods were transferred to franchisee showrooms on a stock transfer basis, where they remained the property of the company until sold to customers, making the franchisee outlets the place of removal. It was also argued that sales commission represented sales promotion services and that rent paid for franchisee outlets had a direct nexus with the sale of the manufactured goods.
After examining the franchisee agreement, the Tribunal found that ownership of the goods remained with the appellant until sale, franchisees acted only as custodians and commission agents, sale proceeds were remitted to the appellant, the appellant bore transportation, rent, insurance and sales tax liabilities, and the goods were sold from the franchisee premises. Referring to the definition of “place of removal” under Section 4(3)(c) of the Central Excise Act, the Tribunal held that the franchisee showrooms constituted the place of removal. Consequently, transportation of goods from the factory to those outlets was held to be transportation up to the place of removal, making the outward freight eligible for Cenvat credit.
On the issue of sales commission, the Tribunal held that commission paid to franchisees for marketing, displaying and selling the appellant’s products amounted to sales promotion. It relied upon Rule 2(l) of the Cenvat Credit Rules, the CBEC Circular dated 29.04.2011 and judicial precedents holding that services by way of sale of dutiable goods on commission basis qualified as input services. It also noted that the subsequent amendment made through Notification No. 02/2016-CE (NT) was clarificatory in nature. Accordingly, the Tribunal held that Cenvat credit on sales commission was admissible.
With regard to showroom rent, the Tribunal observed that the retail outlets were the places from which the goods were ultimately sold and that the rented premises had a direct nexus with the manufacture and clearance of the final products. Relying on earlier Tribunal decisions, it concluded that service tax paid on rent of franchisee showrooms qualified as input service and the appellant was entitled to Cenvat credit.
Summarising its conclusions, the Tribunal held that Cenvat credit on outward transportation up to the franchisee sales outlets, sales commission paid to franchisees, and rent paid for retail outlets was admissible. Accordingly, the appeal was allowed with consequential benefits under law.
FULL TEXT OF THE CESTAT CHENNAI ORDER
Excise Appeal No. E/42033/2015 has been filed by M/s. Indian Terrain Fashions Limited (hereinafter referred to as ‘Appellant’) assailing the impugned Order-in-Original No. 05/2015 dated 30.06.2015 passed by Commissioner of Central Excise confirming the demand on ineligible Cenvat Credit of Rs.51,82,020/- under Rule 14 of the Cenvat Credit Rules, 2004 (CCR) read with Section 11A(1) of the Central Excise Act, 1944 (ACT), along with applicable interest and imposing a penalty of Rs.5,00,000/- under Rule 15(1) ibid.
2.1 The Appellant, engaged in the manufacture of readymade garments was availing Cenvat Credit on inputs, capital goods and also on various input services Viz. Goods Transport Agency on Outward Freight, Commission on Sales, Renting of Immovable Property, Advertisement, Consultancy, Security Services, etc. During verification caused by department, it appeared that the Appellant during February 2013, had availed ineligible credit of Service Tax paid on (i) outward freight beyond place of removal, (ii) Commission on sales paid beyond the place of removal in respect of sales effected in show rooms and (iii) Commercial rent paid to the premises of sales outlets, in contravention of Rules 3 & 4 of CCR. A Statement of Demand No. 15/2014 dated 21.02.2014 was issued to the Appellant seeking to disallow the ineligible Cenvat Credit and to recover the same under Rule 14 of CCR read with Section 11A(1) ibid along with applicable interest, besides proposing to impose penalty under Rule 15(1) ibid. The adjudicating authority confirmed the proposals put forth and imposed penalty. Being aggrieved, the Appellant has filed the present appeal before this forum.
3.1 The Ld. Counsel Mr. M. Karthikeyan representing the Appellant reiterated the grounds of appeal and submitted that the term ‘Input Service’ as defined under Rule 2(l) of the Cenvat Credit Rules 2004, covers any service which is used directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal (for the period under consideration) and hence the Input Credit availed on transportation of goods, sales commission and renting of commercial property was legally tenable and the contention of the department denying the credit on the ground that the said services were received after the place of removal was not legally sustainable.
3.2 Regarding Cenvat credit availed on transport services from place of manufacture to franchisee showrooms, the Ld. Counsel submitted that the goods manufactured by the appellant were transferred to the franchisee showrooms where from the goods were sold to the customers, hence it was urged that the franchisee showroom was to be considered as the place of removal and the Input Credit availed on freight paid on transport of goods from place of manufacture till franchisee showroom should be allowed to the appellant. It was further put forth that the appellant had borne the entire transportation cost for such stock transfer and the appellant would discharge sales tax for the sales effected from the franchisee premises. Therefore, in terms of definition of ‘place of removal’ contained in Section 4(3)(c) of the ACT, which included the premises of a consignment agent or any other place from where the excusable goods are sold in clause (iii), the credit availed on outward GTA services for movement of goods from the appellant’s unit to Franchisee premises on stock transfer basis would be eligible as it is transportation of goods up to the place of removal. The Ld. Counsel has placed reliance on the following decisions in support of his contentions: –
i. Metro Shoes Pvt. Ltd. [2008 (1) TMI 155 – CESTAT, Mumbai]
ii. Sports and Leisure Apparel [2016 (6) TMI 468 – CESTAT Allahabad]
iii. Ramco Cement Ltd. [2023 (12) TMI 1332 CESTAT Chennai LB]
iv. M/s. India Yamaha Motor Pvt. Ltd. Versus The Commissioner of Central Excise [2023 (12) TMI 176 – CESTAT Allahabad]
3.3 The Ld. Counsel submitted that the Appellant had availed Input Services Credit on sales commission paid to the franchisee for marketing and selling the products manufactured by the appellants. It was submitted that the appellant had incurred expenses/paid commission to the franchisees for display of the products and effecting the sale of goods which was in the nature of promotion of sales of the said goods and placed reliance on the CBEC Circular No. 943/04/2011 from the F.No. 354/73/2011 – TRU dated 2904-2011 wherein it was clarified that the credit is admissible on the services of sale of dutiable goods on commission basis. The Ld. Counsel also placed reliance on the decision of the Tribunal, Delhi in the case of M/S. Ultratech Cement Ltd. Versus CCE, Jodhpur [2017 (12) TMI 882 – CESTAT New Delhi] wherein while analyzing the above said circular had held that there was no bar on availment of Cenvat credit on sales promotion service by way of sale of dutiable goods on commission basis.
3.4 The Ld. Counsel submitted that the CBIC vide Notification No. 02/2016CE(NT) dated 03.02.2016 had amended the definition of input service by adding an explanation which mentioned that the sales promotion included services by way of sale of dutiable goods on commission basis in line with the above said clarification dated 29-04-2011. It was pointed out that the said amendment being clarificatory in nature and any beneficial amendment should be applied retrospectively and hence the appellant would be eligible for the benefit of the said amendment. In this regard reliance was placed on the decision of Tribunal in the case of M/s. Essar Steel India Ltd. Versus Commissioner of C. Ex. & Service Tax [2016 (4) TMI 232 – CESTAT Ahmedabad] and the decision in the case of CGST & CCE, Alwar Versus Akash Optifibre [2019 (1) TMI 1027 CESTAT New Delhi], wherein it was held that the amendment made vide the above said notification being a beneficial amendment and clarificatory in nature will have to be given retrospective effect. He would submit further that the said decision was followed in the case of M/s. Himadri Speciality Chemical Ltd. Versus CGST & Excise [2019 (8) TMI 1838 – CESTAT Kolkata], against the said decision the revenue had preferred an appeal before the Hon’ble Calcutta High Court wherein the Hon’ble Court upheld the decision of the Tribunal as reported in Principal Commissioner of Central Excise, Kolkata-IV Versus M/s. Himadri Speciality Chemical Ltd. [2022 (9) TMI 1213 Calcutta High Court]. Therefore, it was stressed that the Appellant eligible for Input Credit availed on sale commission paid to the franchisee in view of the clarification dated 29.04.2011 and the notification dated 03.02.2016 and above decisions holding that the benefit of the said amendment should be made available even for the previous periods and hence the contention of the respondent denying the Input Credit on sales commission was not legally sustainable.
3.5 Regarding credit availed on rent paid on franchisee showroom, Ld. Counsel submitted that the appellants have entered into agreements with the franchisees to stock, display and sell their branded garments in the franchisee showrooms for which the rent is paid by the appellant and the Input credit on the same is availed. Further, it was submitted that the goods were transferred from the place of manufacture to the franchisee showroom, wherefrom the goods are sold to the customer, therefore the franchisee showroom is the place of removal of goods by the appellant and hence the credit of service tax paid towards rent of franchisee showroom is said to be validly availed by the appellant. It was submitted that the credit of service tax on immovable property is squarely covered within the definition of Input Credit as stipulated in Rule 2(1) of the Cenvat Credit Rules 2004, when the service had nexus with the manufacture of goods. Therefore, it was urged that the Input Credit on rent paid could be said to be validly taken, relying on the following judgements: –
i. Tally Solutions Pvt. Ltd. Versus Commissioner of Central Excise [ 2016 (8) TMI 292 – CESTAT Bangalore],
ii. Navabharat Ventures Ltd. Versus CCT, Vishakapatnam [2018 (9) TMI 739 – CESTAT Hyderabad].
iii. CCE, Delhi-III Versus M/s. Mark Exhaust Systems Ltd. [2015 TMI 1472 – CESTAT New Delhi].
iv. LG Electronics India Pvt. Ltd. CCE, Pune [2013 (12) TMI 841-CESTAT Mumbai]
v. Cantabil Retail Limited & Others Vs. CCE, Delhi-I [2017 (9) TMI 205-CESTAT, New Delhi]
4.1 The Ld. Authorized Representative Mr. Anoop Singh for the Department reiterated the findings in the impugned order and submitted that the Appellant had availed ineligible credit which was liable to be recovered under the CCR and penalty imposed on the Appellant is justified.
4.2 He has contended that the place of removal has to be determined as Factory Gate on the basis of analysis of the provisions of the Act ibid and Sales of Goods Act, 1930. The Ld. AR has relied upon the case of Commissioner of Central Excise and Service Tax Versus Ultra Tech Cement Ltd. [2018 (9) G.S.T.L. 337 (S.C.)], wherein the Hon’ble Supreme Court held as follows: –
“11. As can be seen from the reading of the aforesaid portion of the circular, the issue was examined after keeping in mind judgments of CESTAT in Gujarat Ambuja Cement Ltd., 2007 (6) S.T.R. 249 (Tribunal) and M/s. Ultratech Cement Ltd., 2007 (6) S.T.R. 364 (Tri.- Ahd.). Those judgments, obviously, dealt with unamended Rule 2(l) of Rules, 2004. The three conditions which were mentioned explaining the ‘place of removal’ as defined under Section 4 of the Act, there is no quarrel upto this stage. However, the important aspect of the matter is that Cenvat Credit is permissible in respect of ‘input service’ and the Circular relates to the unamended regime. Therefore, it cannot be applied after amendment in the definition of ‘input service’ which brought about a total change. Now, the definition of ‘place of removal’ and the conditions which are to be satisfied have to be in the context of ‘upto’ the place of removal. It is this amendment which has made the entire difference. That aspect is not dealt with in the said Board’s circular, nor it could be.
12. Secondly, if such a circular is made applicable even in respect of post amendment cases, it would be violative of Rule 2(l) of Rules, 2004 and such a situation cannot be countenanced.
13. The upshot of the aforesaid discussion would be to hold that Cenvat Credit on goods transport agency service availed for transport of goods from place of removal to buyer’s premises was not admissible to the respondent. Accordingly, this appeal is allowed, judgment of the High Court is set aside and the Order-in-Original dated August 22, 2011 of the Assessing Officer is restored.”
4.3 He has further argued relying on the decision of CESTAT Mumbai in the case of LG Electronics India Pvt. Ltd. Vs. Commissioner of Central Excise, Pune [2023 (12) TMI 841-CESTAT Mumbai] wherein it was held that the ‘place of removal’ is a concept which enables duty leviable on manufacture to be restricted to such value as is attributable to cost involved in production and clearance from the factory but which, nevertheless, includes such expenses when such sale occurs at a further point. There is no doubt that the goods removed by the appellant are subject to assessment at the value declared as ‘retail selling price’ subject to abatement. The amendment effected in Rule 2(l) of CENVAT Credit Rules, 2004 enabling ‘goods transport agency service’ to be availed of till ‘place of removal’ and the consequential decision of the Hon’ble High Court of Karnataka affirmed by the Hon’ble Supreme Court in Commissioner of Central Excise, Belgaum Vs. Vasavadatta Cements Ltd. [2018 (3) TMI 993 – SUPREME COURT] did not exclude the possibility of such outward transport included in the assessable value from being eligible for availment of credit when circumstances so warranted. Evaluation of the submissions of the appellant on this score had not been undertaken by the original authority. The matter has been remanded to the Original Authority for fresh decision keeping all the issues open.
5. We have heard both sides and carefully considered the rival submissions and evidences on record.
6. The issues which arise for determination are: –
i. Whether the assessee is eligible to avail input service credit on outward freight from factory to sales outlets?
ii. Whether the Input Credit availed by the Appellant on sales commission paid to the franchisee for marketing and selling the products manufactured by the appellants is allowable or not? And
iii. Whether the Appellant is eligible to avail input service credit on service tax on rent paid for the Retail outlets?
7. We find that the appellant was issued with a statement of demand proposing to recover the ineligible Service Tax Credit of Rs. 51,82,020/- availed for the month of February 2013 on the basis of scrutiny of ER-1 filed and the Adjudicating Authority confirmed the demand and also imposed penalty. The appellant have contended that the goods are stock transferred to the franchisee showrooms and therefrom the goods are sold to the Customers and therefore the franchisee showroom should be considered as the place of removal and hence the credit on service tax availed on transportation charges paid and rent paid for the franchisee showroom would be eligible as credit for the appellant. It is further submitted that the credit of service tax paid towards sales commission paid to the franchisee for the goods sold relates to the sales promotion of the goods manufactured and hence the same is covered within the inclusive definition of the Input Service. It is not disputed that the Appellant has retail outlets and stocks are being transferred to the retail outlets for eventual sale to Customers.
8. We find that initially, the expression used in Rule 2(l) of the Cenvat Credit Rules, 2004 is ‘from the place of removal’. Therefore, Cenvat credit of Service Tax paid on goods transport agency service availed for transport of final product from the place of removal upto the first point, whether it is a depot or the customer’s premises, was being allowed. The amendment of Rule 2(L) with effect from April 1, 2008, by Notification No. 10/2008-C.E. (N.T.), dated March 1, 2008, whereby the expression ‘from the place of removal’ was substituted by ‘upto the place of removal’. Thus, from April 1, 2008, with the amendment, the Cenvat credit is available only upto the place of removal whereas under the unamended Rule, it was available from the place of removal upto either the place of depot or the place of customer, as the case may be.
9.1 On the issue of Cenvat Credit eligibility on Outward freight from the factory to the sales outlets, it is of utmost importance first to ascertain the ‘place of removal’ in terms of CESTAT, Chennai Larger Bench decision in the case of M/s. The Ramco Cements Limited Vs. Commissioner of Central Excise, Puducherry [2013 (12) TMI 1332-CESTAT Chennai-LB] wherein it was held that in a case where clearances of goods are against FOR contract basis, the authority needs to ascertain the ‘place of removal’ by applying the judgments of the Supreme Court in Commissioner Central Excise, Mumbai-III Versus M/s. Emco Ltd. [2015 (8) TMI 200 – SUPREME COURT] and Commissioner, Customs and Central Excise, Aurangabad Versus M/s. Roofit Industries Ltd. [2015 (4) TMI 857 – SUPREME COURT], the decision of the Karnataka High Court in Bharat Fritz Werner Ltd. and Mapal India Private Limited Versus The Commissioner of Central Tax, Bangalore [2022 (7) TMI 352 – KARNATAKA HIGH COURT], and the Circular dated 08.06.2018 of the Board to determine the admissibility of CENVAT credit on the GTA Service upto the place of removal. The relevant portion of the Large Bench decision is extracted for easy reference as below: –
“31. The Karnataka High Court in Bharat Fritz Werner considered the judgment of the Supreme Court in Ultratech Cements and also the Circular dated 08.06.2018 of the Board and held as follows:
“13. The CESTAT, in the case of Bharat Fritz Werner Ltd. v. C.C., C.E. & S.T-Commissioner of Central Tax [CEA 56/2019], has recorded in paragraph No. 5 that as per the purchase orders, appellant was required to supply the goods at the buyer’s premises and the price of goods would include ‘outward freight’. Similarly, in the case of MAPAL India Pvt. Ltd. [CEA 71/2019], the CESTAT has recorded a similar finding.
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16. This Court in the case of Madras Cements Ltd., has held as follows:
“11. From the facts of the present case, it is clear from the invoices that title of the goods had passed on from seller to buyer only at the place of destination, which is the address of the buyer. As such, the buyer had no right over the goods till delivered to it. The Tribunal has not considered this aspect and has only relied on the amendment made to the definition of “input service” with effect from 1-4-2008 and rejected the claim of the appellant-assessee after that date. No further reason has been given by the Tribunal nor any finding has been recorded with regard to place of completion of sale of the goods.
12. Since we are of the opinion that the sale had concluded only after the delivery of the goods was made at the address of the buyer, in the facts of the present case the appellant-assessee would be entitled to the benefit of Cenvat credit on Service Tax paid on outward transportation of goods by the assessee even after 1-4-2008. The appellant-assessee would thus be entitled to such benefit for the period 1-4-2008 to 31-72008 which has been denied to it by the authorities below.
13. For the forgoing reasons, this appeal stands allowed. The question of law is answered in favour of the assessee and against the Revenue. The order of the Tribunal to the extent of disallowing Cenvat credit to the appellant for the period after 31-3-2008 is quashed.”
17. The Ministry of Finance (Department of Revenue) Central Board of Indirect Taxes and Customs, New Delhi, has issued Circular dated 8-6-2018 and clarified the definition, ‘Place of Removal’. In Para 5 of the Circular, the Ministry has referred to the judgment in the case of CCE & ST v. Ultra Tech Cement Ltd. [Civil Appeal No. 11261 of 2016, dated 1-2-2018] [2018 (9) G.S.T.L. 337 (S.C.)] and stated that, in that case, the Apex Court has held that Cenvat credit on GTA Service from the place of removal to the buyer’s premises is not admissible.
18. In the instant cases, the place of removal is buyer’s premises. Therefore, the authority in the case of Madras Cements Ltd., is applicable to the facts of this case and these appeals merit consideration. Hence, the following :
ORDER
(a) The questions of law framed by this Court in CEAs No. 56/2019 and 71/2019 are answered in favour of the assessee holding that the Tribunal’s view is unsustainable in law;
(b) CEA No. 56/2019 is allowed and impugned order vide Final Order Nos. 21960-21962/2018, dated 31-12-2018 passed in Appeal Nos. E/21756/2017-SM, E/21757/2017-SM and E/21758/2017-SM are set aside; and
(c) CEA No. 71/2019 is allowed and impugned order vide Final Order No. 20224/2019, dated 27-2-2019 passed in Appeal No. E/20302/2018-SM is set aside.”
32 The interpretation of the judgment of the Supreme Court by the High Courts as above throws light on the controversy. The Rajasthan High Court in Mangalam Cements simply referred to the judgment of the Supreme Court without analyzing its applicability in the context of the case in denying the credit on GTA service. The Supreme Court set aside the said judgment and remanded the case to examine the facts in the light of the judgment. On the other hand, in the judgment of the Karnataka High Court in Bharat Fritz Werner, all aspects of the case have been considered, including the Circular dated 08.06.2018 of the Board, and the judgments of Supreme Court in Emco Ltd. and Roofit Industries to conclude that the place of removal is the buyer’s premises.
33. No evidence has been placed by either side that the said judgment of the Karnataka High Court has been challenged before the Supreme Court by the department.
34. In such circumstances, following the ratio laid down by the Larger Bench of the Tribunal in Collector of Central Excise, Chandigarh vs. Kashmir Conductors [1997 (96) E.L.T. 257 (Tri.)], it is the judgment of Karnataka High Court which would be binding on the Tribunal.
35. In the result, in a case where clearances of goods are against FOR contract basis, the authority needs to ascertain the ‘place of removal’ by applying the judgments of the Supreme Court in Emco and Roofit Industries, the decision of the Karnataka High Court in Bharat Fritz Werner, and the Circular dated 08.06.2018 of the Board to determine the admissibility of CENVAT credit on the GTA Service upto the place of removal.”
9.2 In the subject case the Appellant had contested that the goods were stock transferred to the franchisee showroom wherefrom the goods were eventually sold to the retail customers and hence the franchisee outlet should be considered as the ‘place of removal’ and input service credit availed on transportation charges paid should be allowed. We find from clause (k) of the Franchisee agreement dated 01.08.2012 that the goods stock transferred to the franchisee for sale on behalf of the Appellant is the property of the company and that the Franchisee is only a custodian of the stock without any right of lien. As per clause (l) of the said agreement, the Franchisee sells the products on consignment basis at the retail prices fixed by the company and the entire sale proceeds would be remitted to the appellant and the franchisee is entitled for commission only. We also find from records that the rent for the franchisee showroom is borne by the Appellant and sales tax in respect of the goods stock transferred to the outlet is suffered by the Appellant as per Clause 7 of the Franchisee agreement. Further we find that as per clause 9 of the said agreement, the appellant bears the cost of transportation of stock transferred to the franchisee outlet and for the unsold stock transferred back to the Appellant by the Franchisee. Besides, as per Clause 10 of the agreement, the insurance coverage for showroom stock is taken by the Appellant. We also find that the definition of ‘place of removal’ contained in Section 4(3)(c) of Central Excise Act, 1944 includes the premises of a consignment agent or any other place from where the excisable goods are sold. Under the above circumstances, we are of the view that the Franchisee showroom is the place of removal and therefore the credit availed on outward GTA services for movement of goods from the appellant’s unit to Franchisee premises on stock transfer basis is eligible as it is for transportation of goods up to the place of removal.
9.3 The Ld. Authorized Representative’s reliance on the decision of CESTAT Mumbai in the case of LG Electronics India Pvt. Ltd. Vs. Commissioner of Central Excise, Pune [2023 (12) TMI 841 – CESTAT MUMBAI] is only a remand order to ascertain the ‘place of removal’ on the basis of the facts obtaining in that case. The question that was answered in the case of Commissioner of Central Excise and Service Tax Vs. Ultra Tech Cement Ltd. [2018 (9) GSTL 337 (SC)] (in para 4.2 above) relates to eligibility of CENVAT credit on outward transport from the ‘place of removal’ to buyer’s premises. Whereas the issue involved in the present appeal is related to determine the ‘place of removal’ and eligibility of input services utilized upto the place of removal.
9.4 Further, we refer to the decision of the CESTAT New Delhi in the case of Cantabil Retail India Ltd., Rajesh Rohilla, Ani Bansal, Director Vs. Commissioner of Central Excise, Delhi-I [2017 (9) TMI 205-CESTAT NEW DELHI] wherein it was held as follows: –
“7. We have heard Shri RK Phillips, ld. Advocate for the appellant-assessee and Shri Dharam Singh, ld. AR for Revenue. We have examined the appeal records carefully. The original authority in both the proceedings held that the services on which credit were availed by the appellant-assessee are not covered by the scope of ‘input services’ under Rule 2(l) of Cenvat Credit Rules, 2004. We note that the main point of dispute in these appeals is the determination of ‘place of removal’ of excisable goods. The main appellant-assessee categorically stated that they transfer their goods to their warehouses from where they further transport them to the retail outlets or warehouses of their commission agents, from where the goods were sold. Hence, it was pleaded that place of removal in terms of Section 4 of Central Excise Act 1044 should be retail outlet/warehouses of commission agents. The goods remain in their ownership, till the time of sale from these retail outlets owned by them or up to the warehouses of commission agents, as the case may be. Freight also is paid by the main appellant-assessee up to the retail outlets/commission agents warehouses. We note that the original adjudicating authority fell in error in arriving at the correct factual position regarding ‘place of removal.’ In fact, we note the Commissioner (Appeals) in his order dated !4.03.2014 has examined these issues in great detail. We are in agreement with the findings of the Commissioner (Appeals). The relevant portion of the said findings are as below:
“7.1 In order to seek reply to these observations, the definition of input services as given under Rule 2(l) of Cenvat Credit Rules, 2004 has to be seen in the light of the nature and the use of these input services. Rule (l) on ‘input service’, as it existed during relevant period i.e. for March, 2012, says as under:
“Input services” means any service –
(i) Used by a provider or taxable service for providing an input service: Or
(ii) Used by the manufacturer, whether directly or indirectly, in or in relation to the manufacturers of final products and clearance of final products up to the place of removal And includes services used in relation to setting up, modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage up to the place of removal, procurement of inputs, activities relating to business such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation up to the place of removal.’
The impugned order has not discussed the kind and nature of the individual services. Yet, the question ‘whether the “categories of input services” claimed by the appellant (Service Tax paid on renting charges, freight and cartage, postage and courier charges, security, legal and professional charges, advertising, insurance, software & website maintenance and development charges and commission charges) could legitimately be comprehended as input service for availing ‘Cenvat credit’, is the question that falls for appellate consideration. From the submissions made by the appellants it can be seen that they have taken the credit of Service Tax paid on i) Renting charges paid for company run retail out lets, warehouse for storage of duty paid goods; ii) Freight and Cartage for purchase of inputs used for manufacture of dutiable goods and out ward freight for removal of finished goods from factory of production to company owned retail outlets or up to the warehouse of the company’s commission agents on stock transfer basis, iii) Postage & Courier services availed for correspondence and to send small post parcels of goods to the retail outlets and up to the premises of the company commission agents on stock transfer basis; iv) The security services used for guarding factory, retail outlets and warehouses of the company; v) legal and professional services received from advocates and other professionals such as chartered accountant, fashion designers, consultants etc.; vi) the advertising services used to advertise the products manufactured and sold by the appellants in print and other modern advertising media; vii) the insurance services used to insure the building, stock in trade and furniture & fixtures at factory, warehouses and retail outlets owned by the appellants to safeguard against theft, fire, rioting and other natural calamities; viii) software & website maintenance and development services used for running nation wide inventory and sales control at company owned retail outlets, warehouses and commission agents; ix) the commission charge paid for receiving the Business Auxiliary Services from the commission agents who earn commission on sale of goods on behalf of the appellants; and x) on the services used for organizing the annual general meetings of the company.
7.2 On true and fair construction of Rule 2(l) of the Cenvat Credit Rules, 2004, insofar as is relevant to the facts on hand, it is clear that any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal would constitute input services. From the perusal of the input service received by the appellants and the nature of these services, it is evident that all the services are essential in running manufacturing business of the appellants and in view of the inclusive clause stipulated under Sub-rule (ii) of Rule 2(I) of the Cenvat Credit Rules, 2004, all the above mentioned services can certainly be attributed to have been termed as activities relating to the business of the appellants and used prior to the clearance of the subject goods to the ultimate consumer from the final place of removal.”
8. In the appeals, the Revenue contended that the services availed at retail outlets cannot be considered for credit to the main appellate assessee. The Revenue contended that these services used in retail outlets had no remote connection in the manufacture of ready-made garments. We note that the original authority did not appreciate the legal scope of Rule 2(l) of the Cenvat Credit Rule, 2004. The Revenue presumed that the services should be in or in relation to manufacture of ready-made garments, whereas Rule 2(l) clearly talks about services used by manufacturers, whether directly or indirectly in or in relation to the manufacture of final products and clearance of final products up to the place of removal. A plain reading of the said statutory provision will indicate that the presumption of the Revenue is not sustainable.
- The Tribunal had occasion to examine similar issue in Sports & Leisure Apparel Limited, 2016-TIOL-887-CESTAT-ALL. The Tribunal observed as below:
“4.2 As per the above provisions a depot, premises of a consignment agent or any other place or premises from where excisable goods are to be sold, after their clearance from the factory, can also be the place of removal. In the instant case, no sales are effected from the factory gate. Central Excise duty in all cases has to be paid at the time of clearance from the factory but it does not mean that place of removal in all cases should be the factory gate by virtue of definition given in Section 4 (3) (c) of the Central Excise act, 1944. In the existing factual matrix in the case of the appellant since the goods are not sold at the factory gate but are sold at the retail outlets, therefore, by virtue of the express provisions of Section 4 (3) (c) (iii) of the Central Excise Act, 1944, the place of removal in the case of appellant will be the retail outlets from where goods are sold. This view is also forfeited by the relied upon case law of Metro Shoes Act Pvt Ltd Vs Commissioner of Central Excise, Mumbai-i (Supra) where CESTAT, Mumbai has held as follows in para 6:
“6…… ”1) Input service “means any service, –
(i) Used by a provider of taxable service for providing an Output service; or
(ii) Used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal and includes services used in relation to setting up, modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage up to the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control coaching and training, computer networking, credit rating, share registry/And security, inward transportation of inputs or capital goods and outward transportation upto the place of removal”.
It can be seen from the above reproduced portion that the input services definition is having three different parts. Presumably, the first part i.e. used by provider of taxable service for providing an output service “is not an issue in this case. The second part of the definition used by the manufacturer…. from place of removal” is being strongly contested by both sides. On a plain reading of the second part of the definition, we find that any input service used by the manufacturer, whether directly or indirectly in or in relation to the manufacturer of final product and clearance of final product from the place of removal, stands eligible for availing as credit. It is also undisputed that the sale of said shoes take place from the said showrooms only and did not take place from the factory premises. If that be so, it has to be accepted that the show rooms which are belonging to the appellant herein, have to be considered as place of removal. The services utilised by the appellant till the place of removal and the service tax paid thereon are to be considered as services utilised by him for the manufacture of final product and the clearance of the same from the place of removal. This would indicate that the services which are rendered by various service providers during the course of transportation of the final product from the appellant’s factory premises to their own showrooms located in various place, for e.g GTA, warehousing facilities, C&F agents, insurance, internet services, security, courier services, telecom services, pest control services, bank services etc. And service tax paid on such services would be eligible as credit being the services used by the appellant directly or indirectly in or in relation to the final product and the clearance of the same from the place of removal. As such, we find that the credit of the service tax paid by the service providers and charged to appellant till the sale of the goods from the retail showroom, the appellant is eligible to avail said credit as input service credit.”
4.3 Similar view has been taken by CESTAT, Delhi in the case of L.G. Electronics (India) Pvt Ltd Vs Commissioner of Central Excise, Noida (Supra) wherein paras 4.2.4, 5.1, 6.1 & 7 it has been held that if deliveries are on FOR destination basis then the point of sale will be treated as ‘place of removal’ and CENVAT Credit upto such place of sale will be admissible.”
9.5 In view of the above discussions and in compliance to the judicial discipline, we are inclined to hold that the Appellant is entitled to avail the Cenvat credit of transportation paid on goods stock transferred to the franchisee outlets.
10. Regarding Cenvat credit on sales commission paid to the Franchisees for marketing and selling the products manufactured by the Appellants, it would be expedient to extract the provisions of Rule 2(1) of Cenvat Credit Rules, 2004 which reads as follows: –
“2(l) ”Input service” means any service –
(i) used by a provider of taxable service for providing an output service, or,
(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and (clearance of final products up to the place of removal), and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage up to the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit relating, share registry, and security, inward transportation of inputs or capital goods and outward transportation up to the place of removal.”
11. On going through the said provisions, we find that the inclusive part of the provisions of Rule 2(l) of Cenvat Credit Rules, 2004 provides for availment of Cenvat credit on sales commission paid to franchisees. The appellant had incurred expenses/paid commission to the franchisees for display of the products and effecting the sale of goods which was attributable to the promotion of sales of the said goods. The CBEC Circular No. 943/04/2011 clarified that the credit would be admissible on the services of sale of dutiable goods on commission basis. The Ld. Counsel placed reliance on the decision of the Tribunal in the case of M/s. Ultratech Cement Ltd. Versus CCE, Jodhpur [2017 (12) TMI 882 – CESTAT New Delhi] wherein the Tribunal relying on the above said circular had held that there was no bar on availment of Cenvat credit on sales promotion service by way of sale of dutiable goods on commission basis. In the case of Essar Steel India Ltd. Versus Commissioner of C.EX. & S.T., Surat-I [2016 (42) S.T.R. 869 (Tri. – Ahmd.)], the Tribunal had an occasion to examine a similar issue and held as follows: –
“20. But, the Hon’ble Gujarat High Court in the case of Cadila Healthcare Ltd. (supra) was unable to concur with the contrary view taken by the Hon’ble Punjab & Haryana High Court in the case of Commissioner of Central Excise, Ludhiana v. Ambika Overseas (supra). The Hon’ble Gujarat High Court held that this issue is concerned, the question is answered in favour of the Revenue and against the assessee. In this background, legislature explained the meaning of the sales promotion by inserting Explanation in Rule 2(l) of Rules, 2004 and declared that sales promotion includes services by way of sale of dutiable goods on commission basis. In other way, Explanation to Rule 2(l) of Rules says in clear terms that there is no bar on availment of the Cenvat credit on sales promotion service by way of sale of dutiable goods on commission basis. Further, by inserting the Explanation in the Rule 2(l), it has confirmed the Board Circular and resolved the different views of the High Courts. Taking into circumstances under which the Explanation was inserted in Rule 2(l) of Rules, 2004 and consequence of the Explanation to extend the benefit to the assessee as per Board Circular, we hold that the Explanation inserted in Rule 2(l) of Rules, 2004 by Notification No. 2/2016-CX (N.T.) (supra) should be declaratory in nature and effective retrospectively.
…
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24. In view of the above discussion, we set aside the impugned order. Accordingly, the appeal filed by the appellant is allowed with consequential relief.”
As such, we hold that the Appellant is eligible for Input Credit availed on sales commission paid to the franchisees.
12.1 On the third issue of Cenvat credit availed on rent paid for retail outlets/ show rooms, it is not disputed that the goods manufactured were transferred from the factory premises to the franchisee showroom, from where the goods were sold to eventual customers. WE find that the issue is no more res integra as there is a catena of judgements delivered by various forums which is applicable to the present appeal. The Tribunal in the case of Commissioner of C.EX., Delhi-III Vs. Mark Exhaust Systems Ltd. [2017 (47) S.T.R. 167 (Tri. – Del.)], on a similar issue held as follows: –
“5. I find from the available records that the motor vehicles manufactured by the respondent are sold to its buyer through the Depot situated outside the factory premises. Since the duty paid vehicles were removed to the depot, from where the same were sold to the customers, such activity squarely falls under the definition of “input service” under the category of “storage up to the place of removal”, itemised therein. In the above referred cases, the Tribunal has allowed the services availed for the Go-down/Depot by holding that the services have nexus with the ultimate manufacturer of final product”
12.2 Similarly in the case of Tally Solutions Pvt. Ltd. Versus Commissioner of C.EX., Bangalore-I [2017 (47) S.T.R. 148 (Tri. – Bang.)], the Tribunal held as follows: –
“5. In this case, I find that the credit of service tax paid on immovable property rent on sales office has been denied on the ground that the same has been availed after the place of removal and therefore, is not covered under the definition of ‘input service’. Further submission of the learned CA is that they are actually in the sales promotion activity such as conducting maintenance of software, providing after sale service and also making efforts to sell the product and this sales promotion is specifically covered in the inclusive part of the definition of ‘input service’.
6. After hearing both the parties and perusal of the record and the definition of ‘input service’, I am of the considered opinion that the appellant’s case is squarely covered in the definition of ‘input service’ and consequently appellant is entitled to Cenvat credit of service tax paid on immovable property rent. In view of the foregoing, I allow the appeal of the appellant by setting aside the impugned order with consequential relief, if any.”
12.3 After appreciating the facts and applying the ratio of above decisions to the facts of the case, we are of the considered view that the Cenvat Credit on rent paid on immovable property in respect of retail outlets is eligible for Cenvat Credit.
13. To summarize: –
i. Cenvat Credit on outward transportation upto the place of removal is allowed and the place of removal is determined to be the sales outlets (franchisees stores).
ii. Cenvat Credit on Sales commission paid to the franchisees is allowed. and,
iii. Cenvat credit availed on commercial rent paid for retail outlets/ show rooms is allowed.
14. In the result, the appeal is allowed with consequential benefits, if any, under law.
(Order pronounced in open court on 23.04.2025)
