Whether the assessee eligible to avail service tax credit on commission paid to the commission agents?

PJ/Case Laws/2012-13/1550

Case:- C.C.E., Vs. M/s Paras Motors Mfg. Co. & M/s Paras Motors Mfg. Co. Vs CCE.

Citation:- 2013-TIOL-525-CESTAT-AHM

Brief Facts:- The appellant has availed cenvat credit of service tax paid on the commission paid to the commission agents for the sale of their goods. It is also noticed that the appellant is to indicate the said availment of credit in their returns which has been filed with the authorities. The audit party took an objection that appellant is not eligible for such credit of the service tax paid on the commission paid to the commission agents as per the provisions of Rule 2(l) of the Cenvat Credit Rules, 2004. Accordingly, show cause notice was issued which after due process of law was adjudicated and the adjudicating authority confirmed the reversal of the cenvat credit availed of the service tax paid on the commission paid to the commission agents and also directed to pay the interest on the said amount and imposed equivalent amount of penalty under Section 15 of the Cenvat Credit Rules read with the Section 11AC of the Central Excise Act, 1944. Aggrieved by such an order appellant preferred an appeal before the first appellate authority who concurred with the views of the adjudicating authority and upheld the confirmed demands by the department by reducing the penalty 25% if the amount of penalty is paid within 30 days from the receipt of the order in appeal. Thereafter an appeal has been filed by the department against the impugned order only on the ground that the first appellate authority has extended the benefit of partial payment of penalty as per provisions of Section 11AC and their appeal seeks for enhancement of 100% penalty. There is also an Appeal filed by the assessee for setting aside the impugned order which has denied them the cenvat credit of the service tax paid on the commission paid to the commission agents and also filed Cross objection by the assessee against the appeal filed by the Revenue.

Appellant’s Contention:- None appears on behalf of the appellant despite notice but contention of the appellant as their grounds of appeal raised and also from cross objection filed by them is that the cenvat credit availed by them on the service tax paid on the commission paid to the commission agents is eligible as cenvat credit has been upheld by the various decisions of this bench. It is also the contention of the appellant that the Larger Bench of the Tribunal in the case of GTC Industries Ltd. - 2008 (12) STR 468 =(2008-TIOL-1634-CESTAT-MUM-LB)and Coca Cola India Pvt. Ltd. - 2008 (223) ELT 69 =(2007-TIOL-723-CESTAT-MUM)which indicates that any services which are rendered in connection with the business of the assessee, service tax paid on such amount is eligible for availing the cenvat credit. As regards the penalty imposed, it is their claim of the appellant no penalty is imposable as appellant has been filing the returns with the authorities as a manufacturer indicating therein the cenvat credit availed by them and there was no objection to the said such credit till the audit party took a different view.

Respondent’s Contention:- The respondent submit that the judgment of the Hon'ble High Court of Gujarat in the case of Cadila Healthcare Ltd. in tax appeal No.353 of 2010 and 204 of 2011 = 2013-TIOL-12-HC-AHM-ST has held that service tax paid on the commission paid to an agent is not eligible as cenvat credit. He would submit that the department's appeal is for the enhancement of penalty to 100% as the assessee has not divulged to department that they had availed cenvat credit of the service tax paid on the commission paid to the commission agents. It is also his submission that this suppression/ misstatement of the facts in order to avail ineligible cenvat credit.

Reasoning of Judgment:- Tribunal heard both the parties considered the submissions made at length by the respondent and also perused the records. At the outset, Tribunal finds that as regards the eligibility to avail cenvat credit of the service tax paid on the commission to the commission agents, the same now stands settled by the judgment of the Hon'ble High Court of Gujarat in the case of Cadila Healthcare Ltd. (supra) wherein their lordships have held that such service tax is ineligible for availment of cenvat credit on this issue, on merit, Tribunal find that the appellant has no case and the appeal to that extent is rejected.

The Tribunal also finds that the appellant is liable to pay the interest on the amount of service tax credit taken by him and utilised during the material period. To that extent also, the appeal of the appellant is rejected.

The Tribunal finds in regards the penalty imposed, both the lower authorities have imposed the equivalent amount of penalties on the appellant under Rule 15 of the Cenvat Credit Rules, 2004 read with provisions of Section 11AC of the Central Excise Act, 1944. The Tribunal find the strong force in the contentions raised by the appellant in grounds of appeal, as to that during the relevant period, there were decisions which indicated that service tax paid on the commission to the commission agents is eligible for availment of cenvat credit and accordingly appellant availed the cenvat credit. It is also undisputed that the appellant is a manufacturer and was filing regular monthly ER-1 returns to the authorities and indicating therein availment of such cenvat credit. In Tribunal’s view, the action of the appellant in taking the cenvat credit of the service tax to the commission agents could be out of bonafide belief as to eligibility to cenvat credit as it is in relation to the business of manufacturing and selling. Tribunal finds that the said bonafide belief of the appellant cannot be considered as erroneous and that too, to invoke the extended period of limitation for imposition of equivalent amount of penalty. In Tribunal’s view, the appellants have made out a case for setting aside the penalties imposed by the lower authorities. Accordingly, Tribunal set aside that portion of the order which imposes equivalent amount of penalty on the appellant under the provisions of Rule 15 of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944.

The appeals are disposed of as indicated herein above i.e. assessee's appeal allowed partly and department's appeal is rejected and the cross objection filed by the assessee is also disposed of.

Decision:- Appeal party allowed

Comment:-The substance of this case is that the credit availed onservice tax paid on the commission to the commission agents would be liable to reversal of Cenvat credit as per decision of Hon'ble High Court of Gujarat in the case of Cadila Healthcare Ltd. wherein it has been held that such service tax is ineligible for availment of cenvat credit. However, it is also clear that equal penalty under Section 11AC should not be impossible in view of the bonafide belief of the assessee that credit is admissible.

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PJ/Case Laws/2012-13/1550

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