Disallowance of CENVAT credit of the amount of service tax paid by sub-brokers.

PJ/CASE LAW/2016-17/3221

Case- Shri R.K. Singh, Member (T) N.R. WIRES PVT. LTD. Versus COMMISSIONER OF CENTRAL EXCISE, RAIPUR

Citation- 2016 (43) S.T.R. 290 (Tri. - Del.)

Brief Facts-The appellant is a broker/commission agent and had been paying service tax under Business Auxiliary Service (BAS) on the commission received for assisting its clients in relation to sale and purchase of goods. In certain cases, it took support of certain sub-brokers and paid commission to them and took credit of the amount of service tax paid by sub-brokers. The lower authorities have held that in certain cases, the commission paid by the appellant to sub-brokers was more than the commission it received from its clients, which was proof enough to hold that such commission to sub-brokers was paid in respect of goods other than the goods for which it received the commission as no one would pay more commission than it received in respect of same goods and therefore the services rendered by sub-brokers would not be eligible to be called input service for the appellant and hence the disallowance of the impugned credit along with interest and penalty.

Appelants Contention-Ld. advocate appearing for the appellant contended that (i) it was not in every case that it paid commission to sub-brokers at a rate higher than the commission received by it as is evident from Paras 3C and 3F of the impugned order. (ii) It was only in certain cases when it was difficult to find a buyer that the commission to sub-brokers was paid at higher rate and in some such cases the appellant also recovered commission at the higher rates from its clients. (iii) The observation in Para 5.2 of the impugned order that it received commission from M/s. Mahalaxmi Steel Industries and M/s. G.P. Global Industries Pvt. Ltd. is incorrect because they were the sub-brokers to whom the commission was paid by it. Ld. advocate also drew my attention to the agreements entered into by the applicant with various sub-brokers wherein as per some agreements (for example the agreement entered into with M/s. Pawan Industries) the rate was to be decided at the time of sale, depending on the size, quality and type of material after mutual consultation.

Respondents Contention-Ld. Departmental Representative on the other hand referred to the cross-objections filed by Revenue, wherein it is contended that it would be absurd to avail of the services of sub-brokers at a rate higher than the rate of commission received and that is the proof enough to hold that such commission to sub-brokers was paid in respect of goods other than the goods for which it received the commission and therefore the services rendered by sub-brokers would not be eligible to be called input service for the appellant.

Reasoning Of Judgement-It is seen that overall commission received by the appellant is more than that the commission paid to the sub-brokers. As the appellant has pleaded, in certain cases when it was difficult to find buyers ,then the higher rate of commission was paid to sub-brokers and in some cases, the higher amount was also recovered from its clients. It is a matter of business strategy of the appellant as to in which cases it would like to pay higher rate of commission to sub-brokers to sell certain goods for which it was difficult to find buyers so as to maintain its relationship with its clients. The Cenvat Credit Rules clearly allow credit of such services of sub-brokers because those services were used by the appellant for providing taxable service on which service tax was paid. The fact that in some cases, commission paid was higher than the commission received by the appellant may at best raise some suspicion about the same being in respect of certain goods which were not the same on which it received commission, but there is no evidence to elevate such suspicion to a level to come to an inference that the higher commission (than the commission received by the appellant) was paid to sub-brokers in respect of goods other than the goods for which it received commission from its clients.

Decision-Appeal allowed

Comment-The crux of the case is that in some cases commission paid was higher than the commission received by the appellant which raised suspicion about the same being in respect of goods other than goods on which the commission was received. However, the disallowance of Cenvat credit by the lower authorities is not based on any sustainable grounds and therefore the impugned order cannot be sustained

Prepared By-Ritika Mehta

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PJ/CASE LAW/2016-17/3221

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