Whether service tax credit admissible on banking charges and foreign sales commission paid abroad?

PJ/Case Law/2013-14/1719

Case:- LUPIN LTD Vs COMMISSIONER OF CENTRAL EXCISE & ST (LTU)

Citation:- 2013-TIOL-1416-CESTAT-MUM

Brief Facts:- The appellant is manufacturer of drugs. The appellants were exporting the bulk drugs and availing the banking and financial services of the banks situated outside India. The appellant also paid export commission to foreign agents. The appellant has paid service tax on the same under banking and financial services and business auxiliary service. The appellant has also taken credit on these services. The adjudicating authority denied credit in respect of banking and financial services and business auxiliary service on the ground that the same are not in or in relation to manufacturing of goods and passed order against the appellant. Thereafter appellant preferred an appeal before Commissioner (Appeals). But the Lower Appellate Authority dismissed the appeal. Aggrieved by the order of Commissioner (Appeals) appellant filed appeal before Tribunal.

Appellant’s Contention:-The appellant submit that banking and financial services is a financial charge taken by the foreign banks for collecting and remitting the appellants' sale proceeds from the foreign countries. Since these banks are situated abroad, the appellant being a ‘service recipient' paying service tax and taking cenvat credit. In respect of export commission, the appellant paid commission to foreign agents for obtaining orders for their products abroad. These agents are situated abroad and the appellant paid commission based on the orders obtained and goods exported against them. On this the appellant paid service tax as a service recipient and took cenvat credit of the same. In respect of sales promotion, the appellants' contention is that for marketing of their products, they have a lot of expenses like advertisement, promotional activities, sale force etc. which are outsourced abroad. All these services are for promotion and enhancement of their sales abroad. Since these service providers have no office in India, the appellant as a service recipient paid service tax and took cenvat credit of the same. Export commission and sales promotion are falling under business auxiliary service hence entitled for credit. The contention is that as per the definition of ‘input service' as provided under Rule 2(l), the appellants are entitled for credit.

Respondent’s Contention:-The Revenue relied upon the findings of the lower authority and submitted that the input services on which credit has been availed are not used directly or indirectly in the manufacture of final products and the same are availed after the clearance of the goods from the place of removal, hence credit was rightly denied.

Reasoning of judgment:-We find that the appellant availed credit of input services. For ready reference, the definition of ‘input service' as provided under Rule 2(l) is reproduced below:

“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;

The appellant paid the service tax as recipient of service under the reverse charge mechanism in respect of banking and financial services and business auxiliary service. There is no evidence on record to show that these services are not in relation to the goods manufactured and exported by the appellant. The services under consideration are specifically covered under the definition of ‘input service' as reproduced above. In these circumstances, we find merit in the contention of the appellant.

Consequently, the OIA set aside and appeal allowed with consequential relief.

Decision:-Appeal is allowed.

Comment:-The crux of this case is that as per the definition of ‘input service' as provided under Rule 2(l) the services availed are specifically covered under the definition of ‘input service' and so the same are eligible for availing credit.

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PJ/Case Law/2013-14/1719

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