Case Law Details

Case Name : CGST C&CE Vs M/s Krishi Icon (CESTAT Delhi)
Appeal Number : Service Tax Appeal No. 51179 of 2018 (SM)
Date of Judgement/Order : 02.07.2018
Related Assessment Year :
Courts : All CESTAT (831) CESTAT Delhi (281)

CGST C&CE Vs M/s Krishi Icon (CESTAT Delhi)

Explanation to Rule 2 (l) of Rules 2004 says it in clear terms that there is no bar on availment of Cenvat credit on sales promotion service by way of sale of dutiable goods on commission basis. During the period from 2008 onwards this issue has been considered by various appellate authorities and the Board has also issued clarification vide Circular dated 29/04/2011 specifically under point No. 5 which contains the wording that “… Moreover activity of sales promotion is specifically allowed and on many occasion the remuneration for same is linked to actual sale. Reading the provisions harmoniously it is clarified that credit is admissible on the services of sales of dutiable goods on commission basis”. From this clarification itself it is understood that if a commission agent is paid commission on account of sales of goods, his services are qualify to be input service and Cenvat credit of service tax paid on such service is admissible to the recipient of service. I find that the issue stand settled after the said clarification itself. Further this issue has also been clarified at point B-30 of Minutes of Tariff Conference of Central Excise held on 28-29th October 2015 circulated vide F. No. 96/85/15-CX. I dated 07/12/2015 wherein subject service has been considered as input service. Taking into consideration the circumstances under which the explanation was inserted in Rule 2 (l) of Rules 2004 and consequences of the explanation to extent the benefit to the assessee as per Board Circular, this Tribunal has constantly taken the view that the explanation inserted in Rule 2 (l) of Rules 2004 by notification dated 03/02/2016 is declaratory in nature and has to be complied retrospectively. I do not find any reason to differ with the above-mentioned constant view taken by this Tribunal in catena of decisions. In view thereof the appeal filed by the Department is rejected.

FULL TEXT OF THE CESTAT JUDGMENT

The instant appeal has been filed from the order-in-appeal dated 16/01/2018.

2. The respondent/assessee is engaged in providing the “construction of residential complex services, real estate agent services and business support services”. During the course of audit of records of the respondent/assessee it was observed that the assessee had availed Cenvat credit of service tax paid on “commission/brokerage on sale of flats” amounting to Rs. 40,56,453/- during the period from July 2013 to September 2015. Accordingly, a show cause notice was issued to the respondent/assessee as to why :-

(i) Cenvat credit of service tax amounting to Rs. 40,56,453/-should not be recovered from them under Rule 14 of the Cenvat Credit Rules, 2004 readwith proviso to Section 73 (1) of the Finance Act, 1994 ;

(ii) Interest under Rule 14 of the Cenvat Credit Rules, 2004, readwith Section 75 of the Finance Act, 1994 should not be recovered from them on the above Cenvat Credit of Rs. 40,56,453/- and

(iii) Penalty should not be imposed upon them under Rule 15 (2) of the Cenvat Credit Rules, 2004 readwith Section 78 of the Finance Act, 1994.

3. It was alleged in the said show cause notice that the respondent/assessee have wrongly availed Cenvat credit of service tax paid on amount of commission paid to sales/ commission agents as the said commission agents were concerned with sale but not related to promotion of their goods, as such their activity was not related to any activity specified in the inclusive part of the definition of input service provided under Rule 2 (l) of Cenvat Credit Rules, 2004.

4. The amount of recovery of Rs. 40,56,453/- alongwith interest and penalty was confirmed by the Adjudicating Authority vide order-in-original dated 29/06/2016. Aggrieved the respondent/assessee filed appeal before the Commissioner (Appeals). The Commissioner (Appeals) vide impugned order dated 16/01/2018 allowed the appeal filed by the respondent/ assessee and held as under :-

“10. In view of above discussion and in the light of the clarification dated 24/09/2011 and notification dated 03/02/2016, I can safely conclude that the activity of commission agent for selling the products of the appellants is squarely covered under the scope of definition of input service provided under Rule 2 (l) of the Cenvat Credit Rules, 2004, as such the appellants were entitled to avail the subject credit and the same has been correctly availed. I therefore, find it proper to set aside the impugned orders disallowing the credit and ordering for recovery of the same alongwith interest. Consequently, imposition of penalties becomes void”.

5. I have heard learned DR for the Department and learned Consultant for the respondent/assessee and perused the record.

6. The issue involved in the instant appeal is whether the commission paid to the sales/commission agents is related to promotion of any activity specified in the inclusive part of the definition of input service provided under Rule 2 (l) of the Cenvat Credit Rules, 2004. Rule 2 (l) of Cenvat Credit Rules as well as amendment carried out in the definition of input services under Rule 2 (l) vide Notification No. 2/2016-CE (NT) dated 03/02/2016 which are necessary for the purposes of determining of the issue involved in the instant appeal are extracted as under :-

―Rule 2 (l) “input service” means any service, –

(i) used by a provider of [output service] for providing an output service; or

(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, and includes services used in relation to 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 upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal”;

XXX                                                         XXX                                                                                        XXX

“Cenvat Credit Rules, 2004 — Second Amendment of 2016

In exercise of the powers conferred by section 37 of the Central Excise Act, 1944 (1 of 1944) and section 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules further to amend the CENVAT Credit Rules, 2004, namely :-

1. (1)  These rules may be called the CENVAT Credit (Second Amendment) Rules, 2016.

    (2) They shall come into force on the date of their publication in the Official Gazette.

2. In the CENVAT Credit Rules, 2004 (here-in-after referred to as the said rules), in rule 2, in clause (l), after sub-clause (C), the following Explanation shall be inserted, namely :- “Explanation. – For the purpose of this clause, sales promotion includes services by way of sale of dutiable goods on commission basis.”.

3. In the said rules, in rule 3, in sub-rule (4), after the sixth proviso, the following proviso shall be inserted, namely :- “Provided also that the CENVAT credit of any duty specified in sub-rule (1) shall not be utilised for payment of the Swachh Bharat Cess leviable under sub-section (2) of section 119 of the Finance Act, 2015 (20 of 2015):”.

[Notification No. 2/2016-C.E. (N.T.), dated 3-2-2016]”

7. According to learned DR, the explanation inserted in the Rule 2 (i) vide notification dated 03/02/2016 shall be effective only from the date of publication in the official gazette i.e. shall have only prospective application and that the learned Commissioner (Appeals) has erred in applying the said explanation retrospectively. He further submitted that there is no nexus between the sales/commission agent activities and the manufacturing activities and that manufacturing can be undertaking without availing the services of sales/commission agent.

8. The learned Consultant appearing for the respondent/ assessee on the other hand supported the impugned order passed by the learned Commissioner (Appeals).

9. Whether the explanation added in Rule 2 (l) of Cenvat Credit Rules, 2004 vide notification dated 03/02/2016 has retrospective effect or not, has come before this Tribunal in the matter of Essar Steel India Ltd. vs. CCE & ST, Surat – I reported in 2016 (335) E.L.T. 660 (Tri. – Ahmd.) in which this Tribunal has held that the explanation inserted in Rule 2 (l) of Rules 2004 by Notification No. 2/2016-CX (NT) (supra) should be declaratory in nature and effective retrospectively. The relevant paragraph of the said decision has been extracted as under :-

“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”.

10. The said decision of Essar Steel India Ltd. (supra) has been further followed by this Tribunal in a batch of matter titled as M/s Mangalam Cement Ltd. vs. CCE, Udaipur vide final order No. 56683-56685/2017 dated 28/08/2017, in which this Tribunal following its decision in Essar Steel Ltd. (supra) allowed the appeals filed by the appellants and the said decision in M/s Mangalam Cement Ltd. (supra) has been followed by this Tribunal further in the matter of Excise appeal No. 53650/2015 titled as M/s National Engineering Industries Ltd. vs. CCE & ST, Jaipur – I in which this Tribunal vide order dated 10/10/2017 while following its decision in the case of M/s Mangalam Cement Ltd. (supra) allowed the appeal filed by the assessee and held as under :-

“4. After hearing both the parties, we note that identical issue has come up before the Tribunal in the case of M/s Mangalam Cement Ltd. vs. CCE, Udaipur. The Tribunal vide final order No. 56683-56685/2017 dated 28/08/2017 held as under :-

“4. With regard to availment of Cenvat credit on the commission paid for sale promotion activities, the CBEC vide Circular No. 943/4/2011-CX. Dated 29/04/2011 has clarified that Cenvat credit is admissible on the services of the sale of the dutiable goods on commission basis. The said circular was endorsed by the Central Government vide Notification No. 2/2016-CE (NT) dated 03/02/2016. In the case of Cadila Healthcare Ltd. (supra), the Hon’ble Gujarat High Court had not referred to the Circular dated 29/04/2011 and also there were divergent views by the Hon’ble Punjab & Haryana High Court in the case of CCE, Ludhiana vs. Ambika Overseas 2012 (25) S.T.R. 348 (P&H). Considering the conflict in judgments of different High Courts and also the notification dated 03/02/2016, this Tribunal in the case of Essar Steel India Ltd. (supra) has held that the said notification should be considered as declaratory in nature and effective retrospectively. The relevant paragraph in the said decision is extracted herein below :-

“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”.

5. In view of the above settled position and law, we do not find any merits in the impugned orders. Accordingly, after setting aside the same, we allow the appeals in favour of the appellants”.

11. Thereafter again this issue came up before this Tribunal in a batch of matters in which this Tribunal vide final order Nos. 51412-51426 of 2018 dated 16/04/2018 while following its decision in the matter of National Engineering Industries Ltd. (supra) dismissed the appeal filed by the Revenue.

12. Explanation to Rule 2 (l) of Rules 2004 says it in clear terms that there is no bar on availment of Cenvat credit on sales promotion service by way of sale of dutiable goods on commission basis. During the period from 2008 onwards this issue has been considered by various appellate authorities and the Board has also issued clarification vide Circular dated 29/04/2011 specifically under point No. 5 which contains the wording that “… Moreover activity of sales promotion is specifically allowed and on many occasion the remuneration for same is linked to actual sale. Reading the provisions harmoniously it is clarified that credit is admissible on the services of sales of dutiable goods on commission basis”. From this clarification itself it is understood that if a commission agent is paid commission on account of sales of goods, his services are qualify to be input service and Cenvat credit of service tax paid on such service is admissible to the recipient of service. I find that the issue stand settled after the said clarification itself. Further this issue has also been clarified at point B-30 of Minutes of Tariff Conference of Central Excise held on 28-29th October 2015 circulated vide F. No. 96/85/15-CX. I dated 07/12/2015 wherein subject service has been considered as input service. Taking into consideration the circumstances under which the explanation was inserted in Rule 2 (l) of Rules 2004 and consequences of the explanation to extent the benefit to the assessee as per Board Circular, this Tribunal has constantly taken the view that the explanation inserted in Rule 2 (l) of Rules 2004 by notification dated 03/02/2016 is declaratory in nature and has to be complied retrospectively. I do not find any reason to differ with the above-mentioned constant view taken by this Tribunal in catena of decisions. In view thereof the appeal filed by the Department is rejected.

(Order pronounced in open court on 02/07/2018.)

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