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2024 (3) TMI 1426 - AT - Central ExciseDenial of CENVAT credit of service tax paid - Bank Guarantee charges under Banking and other Financial Services and Sales Commission to agents under Business Auxiliary Services used in connection with supply commissioning and installation of Turbo Generator (TG) sets - HELD THAT - The issues are no more res-integra. The issue regarding availment of cenvat credit of service tax paid on Bank Guarantee charges is settled as per the decision of this Tribunal in the matter of M/s RMS Infotech Pvt Ltd. Vs. CC Bangalore 2021 (11) TMI 1108 - CESTAT BANGALORE . The issue of Sales Commission was also considered by this Tribunal in the matter of M/s Beloorbayir Biotech Limited 2018 (5) TMI 24 - CESTAT BANGALORE wherein it is held that The commission is paid on sales of the products/services with an intention to boost the sale of the company. In view of the same the sales commission has a direct nexus with the sales which in turn is related to the manufacture of the products. It is to be understood that there need not be manufacture unless there is sale of product. To increase the manufacturing activity encouragement is being given for increased sales. Hence the commission paid on sales becomes part of sales promotion resulting in increased manufacturing activity. The dispute regarding CENVAT credit availed against the sales commission was considered by this Tribunal in the matter of M/s Federal Mogul TRP (India) Ltd 2020 (11) TMI 893 - CESTAT BANGALORE wherein it is held that sales commission fall under definition of input service . Conclusion - Denial of CENVAT Credit of the service tax paid on Bank Guarantee commission and Sales Commission is not sustainable in law hence the impugned order is liable to be set aside Appeal allowed.
ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this appeal were:
ISSUE-WISE DETAILED ANALYSIS 1. Entitlement to CENVAT Credit on Bank Guarantee Charges and Sales Commission Relevant legal framework and precedents: The CENVAT Credit Rules, 2004, particularly Rule 2(l), defines 'input services' to include services related to business activities such as financing. The appellant relied on precedents like M/s RMS Infotech Pvt Ltd Vs. CC, Bangalore, which supported the inclusion of banking services as input services before 1-4-2011. Court's interpretation and reasoning: The Tribunal found that the execution of Bank Guarantees was integral to the appellant's business operations, particularly in fulfilling contractual obligations. The Tribunal also recognized the sales commission as directly linked to sales promotion activities, which are considered input services under the amended rule. Key evidence and findings: The appellant provided agreements and invoices demonstrating the necessity of Bank Guarantees in their contractual dealings and the payment of service tax on sales commissions. The Tribunal noted that similar cases had been settled in favor of allowing such credits. Application of law to facts: The Tribunal applied the broad definition of input services to include the disputed services, emphasizing their role in the appellant's business operations. The Tribunal referenced previous decisions that interpreted the explanatory amendment to Rule 2(l) as declaratory and retrospective. Treatment of competing arguments: The department's argument that the services were not used in manufacturing was countered by the Tribunal's broader interpretation of business-related activities qualifying as input services. Conclusions: The Tribunal concluded that the denial of CENVAT credit on both Bank Guarantee charges and sales commission was not sustainable in law. 2. Invocation of Extended Period of Limitation Relevant legal framework and precedents: The extended period of limitation under the Central Excise law is applicable in cases of suppression of facts with intent to evade duty. The appellant cited Gannon Dunkerley & Co. Ltd Vs. CST, New Delhi, to argue against the invocation of the extended period. Court's interpretation and reasoning: The Tribunal found no evidence of suppression or intent to evade duty by the appellant, as the credit was availed based on invoices and disclosed in regular returns. Key evidence and findings: The Tribunal noted that the appellant had consistently disclosed the credit in their returns, negating the department's claim of suppression. Application of law to facts: The Tribunal applied the principle that mere availability of credit without concealment does not justify the use of the extended period. Treatment of competing arguments: The department's reliance on the extended period was deemed unjustified due to the appellant's transparent conduct. Conclusions: The Tribunal held that the show cause notice was barred by limitation, as there was no suppression of facts. SIGNIFICANT HOLDINGS Preserve verbatim quotes of crucial legal reasoning: The Tribunal stated, "The sales commission has a direct nexus with the sales which in turn is related to the manufacture of the products. It is to be understood that there need not be manufacture unless there is sale of product." Core principles established: The Tribunal reaffirmed that input services encompass a wide range of business-related activities, including financial services and sales promotion, and that amendments clarifying this scope are declaratory and retrospective. Final determinations on each issue: The Tribunal set aside the impugned order, allowing the appeal with consequential relief, recognizing the appellant's entitlement to CENVAT credit on both disputed services and rejecting the invocation of the extended period of limitation.
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