Whether Cenvat credit can be availed on the Commission charged by bank on collection of sale proceeds of goods exported?

PJ/CASE LAW/2016-17/3082

Case-COMMISSIONER OF CENTRAL EXCISE, SURAT-II VersusVISHAL MALLEABLES LTD.

Citation-2016 (41) S.T.R. 857 (Tri. - Ahmd.)

Brief Facts-This appeal is filed by the Revenue against Order-in-Appeal No. SKSS/246/SRT-II/2010, dated 23-12-2010. The issue involved in this case is that during the period April, 2008 to February, 2009, the respondent herein was charged by the bank for bank commission charges and charged Service Tax from the respondent. The respondent took the CENVAT Credit of the bank commission charges for collection of sale proceeds of their goods. Show Cause Notice was issued for denial of such CENVAT Credit which was adjudicated after following the due process of law. The adjudicating authority confirmed the demand along with interest and also imposed equal amount of penalty. Aggrieved by such an order, the respondent preferred an appeal, and first appellate authority following the law laid down by the various decisions of the Tribunal and also relying upon Notification No. 19/2009-S.T. allowed the appeal on the ground that such bank services are in relation with the business activity and would fall under the definition of input services as given in [Rule] 2(l)(ii) of Cenvat Credit Rules, 2004.

Appelants Contention-Ld. D.R. submits that these findings of first appellate authority are incorrect as bank commission charges for the bank service rendered by the bank to the appellant was in respect of sale proceeds of the finished goods. It is his submission that the sale proceeds of the finished goods can take only after the clearance of the goods manufactured in the premises of the appellant and hence it is rendered beyond the place of removal.

Respondents Contention-Ld. Counsel would submit that the issue is no more res integra and has been decided by the decision of the Tribunal in the case of Jeans Knit Pvt. Ltd. - 2011 (21)S.T.R.460 (Tri.-Bang.) and in the case of JSW Steel Ltd. - 2012 (281)E.L.T.582 (Tri.-Mumbai).

Reasoning Of Judgement-On careful consideration of the submissions made by both sides, tribunal find that it is not in dispute that the amount of Service Tax charged by the bank towards bank commission charges is not for the collection of sale proceeds of the export goods. This would indicate that such charges were in relation to the business of manufacture and sale of the appellant. They find that the first appellate authority has recorded the following findings:
“5.4 I also find that in respect of exports, Central Government vide Notification No. 19/2009-S.T., dated 7-7-2009 allows refund of Service Tax on certain specified taxable services used in export of goods. Sr. No. 12 of said notification provides for refund of Service Tax paid on following services used in export of goods” -
(i)         Service provided in relation to collection of export bills;
(ii)        Service provided in relation to export letters of credit such as advising commission, advising amendment, confirmation charges;
(iii)       Service of purchase of sale of foreign currency, including money changing provided to an exporter in relation to export goods.
They find that in terms of the above notification, an assessee is entitled to get refund of Service Tax paid on services provided in relation to collection of export bills. In respect of exports, the taxes are not to be exported. The exporter can claim refund of taxes paid on export goods by different routes viz. rebate under Rule 18 of Central Excise Rules, 2002 or drawback or CENVAT Credit refund under Rule 5 of Cenvat Credit Rules, 2004 or refund of Service Tax under aforesaid notification. Therefore, on harmonious interpretation of the above notification with provisions of Cenvat Credit Rules, 2004, an exporter is also entitled to take CENVAT Credit of Service Tax paid on said specified services, because both refund of Service Tax and credit of Service Tax are only different routes for refund of taxes paid on export goods. The only condition is that the assessee cannot claim both the benefits simultaneously.
In the instant case, the appellant has submitted that in case of exports, payment transaction is made through bank and while realizing sale proceeds from the buyer through Bank, Bank collects some charges as Bank charges and also charges Service Tax on such bank charges and accordingly they availed the CENVAT Credit of such Service Tax charged by the bank. Thus, the credit of Service Tax taken by the assessee pertains to services mentioned at Sr. No. 12(i) of the table to the said notification, and going by reasoning above, they are entitled to avail such credit provided that they do not claim refund of Service Tax paid on such services. Further, the collection of sale proceeds has direct relation to the business activities of the appellant. Therefore, they hold that the appellant is eligible for CENVAT Credit of Service Tax paid on Bank Commission charges in view of the definition of ‘Input Service’ given in Rule 2(l)(ii) of Cenvat Credit Rules, 2004, the provisions of Notification No. 19/2009-S.T., dated 7-7-2009 and keeping in view the decision of various benches of the Tribunal mentioned hereinabove.”
It can be seen from the above reproduction that the first appellate authority has taken a view, which is in consonance with the law and it is undisputed that the said bank commission charges are in respect of business of the appellant. The co-ordinate Bench of the Tribunal in the case of Jeans Knit Pvt. Ltd. (supra) (wherein I was one of the Member), had considered this issue in detail for the purpose of refund of such amount on the goods which are exported. In their view, the ratio laid down by the decision in the case of Jeans Knit Pvt. Ltd., is the ratio followed by the first appellate authority in coming to conclusion that if the goods are exported, refund of Service Tax on the services which are used in relation to the goods exported, needs to be refunded. They also find that the said decision was following by the co-ordinate Bench of the Tribunal in the case of JSW Steel Ltd. (supra) wherein various other decisions was also followed and case was decided in favour of the assessee. In my considered view, the issue is no more res integra. In view of the foregoing and also various judicial pronouncements, they find that the appeal filed by the Revenue is devoid of merits and is liable to be rejected and hold that the impugned order is correct, legal and does not suffer from any infirmity. The appeal filed by the Revenue is rejected.

Decision-Appeal rejected

Comment-The crux of the case is that the commission on collection of sale proceeds of goods exported collected by bank is an input service according to previous Rule 2(l) of Cenvat Credit Rules, 2004 andsince such bank commission charges are in relation to business activities of assessee, therefore service tax paid in respect of the same would be eligible to input service credit. This was based on the landmark decision in the case of Jeans Knit Pvt. Ltd.

Prepared By-Neelam Jain

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PJ/CASE LAW/2016-17/3082

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