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2019 (3) TMI 236 - AT - Central ExciseCENVAT Credit - input services - Development of vendor network - Development of dealer network - Support for quality management - Marketing and promotion support - Assistance in statutory compliance - Assistance in collection of funds - Market information service - Business support service - Held that:- The Adjudicating Authority erred in determining the nature of services concerned herein. The Appellant in its appeal has discussed the nature of services received from HMSI in great detail. The Appellant has also enclosed evidences in form of photographs and e-mail correspondences which duly evidence the nature of services received. These services do not tantamount to sales commission agency. The Adjudicating Authority has merely relied upon the manner of determining consideration, i.e. percentage of sales, to arrive at the decision - the nature of a service depends on the activity undertaken and its intended object. The parties to contract are free to determine the consideration. If the revenue’s contention is accepted, the nature of services will be sales commission wherever consideration is determined basis the sales percentage regardless of the activity undertaken. The contention flies in face of logic. The definition of input service is contained in Credit Rules, whose overall objective is to eliminate cascading effect. The cascading effect has degenerative effect on the economy and burdens the ultimate consumer. The beneficent intent of Credit Rules calls for a liberal approach to interpretation of provisions contained therein. The Means clause is not merely restricted to processing and clearing of goods. The activity of manufacture is not possible without use of inputs, capital goods and input services. Thus, services received for procurement of inputs and capital goods will also fall within the sweep of Means clause - The Inclusive clause further extends the scope of input service to cover services used in relation to broad heads mentioned therein. These broad heads cover, legal, accounting, credit rating, share register, financing. These broad heads cover a range of services which are not theoretically essential for undertaking manufacturing activity but are important for infusing commercial feasibilities and practicalities in the business of manufacture. Development of vendor network - Held that:- HMSI identifies potential vendors and undertakes scrutiny by inspecting their premises, raw materials, quality and processes employed. The activity of manufacture is not possible without vendors supplying raw materials. Thus, the above service qualifies under Means clause and ‘procurement of inputs’ under Inclusive clause - Credit allowed. Development of dealer network - Held that:- HMSI inspects two-wheelers upon receiving a complaint. In case defect is found in any of the parts, HMSI issues an alert to Appellant for undertaking necessary measures. The Appellant may on such alert identify the stocks kept, cease procurements from certain vendors and hold dispatches. The above services form advance alert mechanism helping the Appellant ensure quality of manufactured final products supplied - these services squarely qualify under ‘quality control’ specifically mentioned under Inclusive clause - credit allowed. Support for quality management - Held that:- HMSI inspects two-wheelers upon receiving a complaint. In case defect is found in any of the parts, HMSI issues an alert to Appellant for undertaking necessary measures - The above services form advance alert mechanism helping the Appellant ensure quality of manufactured final products supplied. Thus, these services squarely qualify under ‘quality control’ specifically mentioned under Inclusive clause - credit allowed. Marketing and promotion support - Held that:- Evidently, Appellant forms the only supplier of Honda genuine parts and accessories. The above services help the Appellant in securing the sales of its final products. Accordingly, these services qualify under ‘sales promotion’ specifically mentioned under Inclusive clause - credit allowed. Assistance in statutory compliance - Held that:- HMSI assists the Appellant by following up with dealers for From-C and intimating the Appellant about status of such dealers. The above services are safely covered as services received in relation to ‘legal’ and ‘accounting’ under Inclusive clause - credit allowed. Assistance in collection of funds - Held that:- The Appellant takes recourse to field staff of HMSI for undertaking follow-ups with dealers for settlement of accounts and balance reconciliations. HMSI also intimates Appellant with respect to impending termination of dealer to ensure timely recovery of sale proceeds. It is trite that sales proceeds form a major source of internal finances - the services are squarely covered under ‘financing’ in Inclusive clause - credit allowed. Market information service - Held that:- The sustenance of a strong vendor and dealer network is vital for continuous manufacturing activity. The Appellant through such interactions can ensure that the concerns highlighted by vendors and dealers can be rectified in timely manner without having an adverse impact on manufacturing activity. The above services are part and parcel of business of manufacturing activity covered under Means clause - The above services are also covered under ‘procurement of inputs’, ‘sales promotion’ and ‘quality control’ specifically mentioned under Inclusive clause - credit allowed. Also, there is no merit in the revenue’s contention that services must be received within the factory in order to qualify as ‘input service’. Services of sales commission agent - Held that:- Since, it s already held that impugned services do not qualify as ‘sales commission agent’ and further observed that impugned services fall within the sweep of definition of ‘input services’, there is no need to examine the admissibility of credit on services of sales commission agent. Penalty - extended period of limitation - Held that:- Since the Appellant has rightly availed credit on impugned services, there is no question of imposition of penalty in the present case - Also, there is no positive activity on the part of Appellant to avail inadmissible credit or defraud the revenue. For this reason, neither any penalty is imposable nor extended period is invokable. Appeal allowed - decided in favor of appellant.
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