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CGST, C&CE, Jaipur V/S National Engineering Industries Ltd.


Company & Directors' Information:- NATIONAL ENGINEERING INDUSTRIES LIMITED [Active] CIN = U29130WB1946PLC013643

Company & Directors' Information:- D P ENGINEERING INDUSTRIES LIMITED [Active] CIN = U27310DL2008PLC176856

Company & Directors' Information:- A K ENGINEERING INDUSTRIES (INDIA) PRIVATE LIMITED [Active] CIN = U25206DL1997PTC085204

Company & Directors' Information:- G L ENGINEERING INDUSTRIES PRIVATE LIMITED [Active] CIN = U28920MH1981PTC023662

Company & Directors' Information:- B V M ENGINEERING INDUSTRIES LIMITED [Active] CIN = U28111DL1972PLC005983

Company & Directors' Information:- R R R ENGINEERING INDUSTRIES PRIVATE LIMITED [Strike Off] CIN = U74899DL1993PTC055069

Company & Directors' Information:- A. V. ENGINEERING INDUSTRIES PRIVATE LIMITED [Strike Off] CIN = U99999DL1974PTC007360

Company & Directors' Information:- G D R ENGINEERING INDUSTRIES PVT LTD [Strike Off] CIN = U27109UP1971PTC003388

Company & Directors' Information:- L S ENGINEERING INDUSTRIES PRIVATE LIMITED [Strike Off] CIN = U74899DL1977PTC008484

Company & Directors' Information:- I B I ENGINEERING INDUSTRIES PRIVATE LIMITED [Strike Off] CIN = U45202PB1974PTC003422

Company & Directors' Information:- A H B ENGINEERING INDUSTRIES PVT LTD [Strike Off] CIN = U35999WB1988PTC044786

Company & Directors' Information:- O K ENGINEERING INDUSTRIES PRIVATE LTD [Active] CIN = U74899DL1987PTC027660

Company & Directors' Information:- R P ENGINEERING INDUSTRIES PRIVATE LIMITED [Strike Off] CIN = U99999DL1973PTC006781

Company & Directors' Information:- NATIONAL INDIA ENGINEERING PVT LTD [Strike Off] CIN = U27100MH1946PTC004895

Company & Directors' Information:- S V ENGINEERING INDUSTRIES PVT LTD [Under Liquidation] CIN = U74210TG1981PTC003174

Company & Directors' Information:- NATIONAL INDUSTRIES PVT LTD [Strike Off] CIN = U51109WB1938PTC009457

Company & Directors' Information:- THE NATIONAL ENGINEERING COMPANY (INDIA) LIMITED [Dissolved] CIN = U99999MH1935PTC002259

Company & Directors' Information:- NATIONAL INDUSTRIES LIMITED [Dissolved] CIN = U99999MH1943PLC007506

Company & Directors' Information:- NATIONAL INDUSTRIES LTD. [Dissolved] CIN = U99999MH1949PLC007203

    Excise Appeal No. 51217 of 2018 (SM) (Arising out of the Order-in-Appeal No. 70 (SM) CE/JPR/2018 dated 21/02/2018 passed by The Commissioner (Appeals), Central Excise, Jaipur) and Final Order No. 52381/2018

    Decided On, 02 July 2018

    At, Customs Excise Service Tax Appellate Tribunal Principal Bench New Delhi

    By, THE HONORABLE JUSTICE: AJAY SHARMA
    By, MEMBER

    For Petitioner: K. Poddar, Authorized Representative (DR) And For Respondents: Sukriti Das, Advocate



Judgment Text


1. The instant appeal has been filed from the order-in-appeal No. 70 (SM) CE/JPR/2018 dated 21/02/2018.

2. The respondent/assessee are engaged in the manufacture of Ball Bearing falling under Chapter 84 of the Schedule to the Central Excise Tariff Act, 1985. A show cause notice dated 17/12/2005 was issued to the respondent alleging thereunder that they have wrongly availed Cenvat credit amounting to Rs. 15,74,528/- on the ineligible input service rendered by the sales agents/commission agents during the period December 2014 to October 2015. They were called upon to show cause and explain as to why:-

(i) Cenvat credit amounting to Rs. 15,74,528/- (S. Tax 15,55,681/- + Edu. Cess Rs. 12,565/- + SHE Cess Rs. 6,282/-) wrongly availed by them should not be recovered from them under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11A(1) of the Central Excise Act, 1944;

(ii) Interest on wrongly availed Cenvat credit should not be recovered from them under Rule 14 of the Cenvat Credit Rules, 2004, read with Section 11AA of the Central Excise Act, 1944 and

(iii) Penalty under Rule 15(1) of the Cenvat Credit Rules, 2004 read with Section 11AC(1)(a) of the Central Excise Act, 1944 should also not be imposed upon them.

3. The Adjudicating Authority vide order-in-original dated 28/06/2016 dropped the proceeding initiated vide show cause notice dated 17/12/2015 and held that the facts of the case clearly reflect that the sale and service representative/agents were engaged by the respondent/assessee to identify/develop/nurture market for the respondent/assessee. Further, once the order is placed, to ensure that the same is taken to its logical course these activities are nothing but are sale promotion activities and, therefore, the element of sales promotion was very much involved in the services provided by these representatives. She further recorded that the insertion of the explanation vide Notification No. 02/2016 - CE (NT) dated 03/02/2016 in the definition of "input services" clarifying that "sales promotion" include services by way of sale of dutiable goods on commission basis and, therefore, the respondent/assessee is eligible to avail Cenvat credit of service tax paid on commission to sales agents/commission agents. Aggrieved the Revenue filed appeal before the Commissioner (Appeals) and the learned Commissioner (Appeals) vide impugned order dated 21/02/2018 rejected the appeal filed by the Revenue and held that in the light of clarification dated 29/04/2011 in Notification dated 03/02/2016 it can safely conclude that the activity of commission agent for selling of goods/products of the respondent/assessee is squarely covered under the scope of definition of input services provided under Rule 2(l) of the Cenvat Credit Rules, 2004. As such, the respondent/assessee was entitled to avail the credit and the same has been correctly availed.

4. I have heard learned DR for the Department and learned Advocate for the respondent/assessee and perused the record.

5. The issue involved in the instant appeal is whether the commission paid to the sales/commission agents is related to promotion of any activity specified in the inclusive part of the definition of input service provided under Rule 2(l) of the Cenvat Credit Rules, 2004. Rule 2(l) of Cenvat Credit Rules as well as amendment carried out in the definition of input services under Rule 2(l) vide Notification No. 2/2016-CE (ST) dated 03/02/2016 which are necessary for the purposes of determining of the issue involved in the instant appeal are extracted as under:-

"Rule 2(l) "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";

XXX XXX XXX

"Cenvat Credit Rules, 2004 -- Second Amendment of 2016

In exercise of the powers conferred by section 37 of the Central Excise Act, 1944 (1 of 1944) and section 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules further to amend the CENVAT Credit Rules, 2004, namely:-

1. (1) These rules may be called the CENVAT Credit (Second Amendment) Rules, 2016.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. In the CENVAT Credit Rules, 2004 (here-in-after referred to as the said rules), in rule 2, in clause (l), after sub-clause (C), the following Explanation shall be inserted, namely:-

"Explanation. - For the purpose of this clause, sales promotion includes services by way of sale of dutiable goods on commission basis.".

3. In the said rules, in rule 3, in sub-rule (4), after the sixth proviso, the following proviso shall be inserted, namely:-

"Provided also that the CENVAT credit of any duty specified in sub-rule (1) shall not be utilised for payment of the Swachh Bharat Cess leviable under sub-section (2) of section 119 of the Finance Act, 2015 (20 of 2015):".

[Notification No. 2/2016-C.E. (N.T.), dated 3-2-2016]"

6. According to learned DR, the explanation inserted in the Rule 2(i) vide notification dated 03/02/2016 shall be effective only from the date of publication in the official gazette i.e. shall have only prospective application and that the learned Commissioner (Appeals) has erred in applying the said explanation retrospectively. He further submitted that there is no nexus between the sales/commission agent activities and the manufacturing activities and that manufacturing can be undertaking without availing the services of sales/commission agent.

7. The learned Advocate appearing for the respondent/assessee on the other hand supported the impugned order passed by the learned Commissioner (Appeals).

8. Whether the explanation added in Rule 2(l) of Cenvat Credit Rules, 2004 vide notification dated 03/02/2016 has retrospective effect or not, has come before this Tribunal in the matter of Essar Steel India Ltd. vs. CCE & ST, Surat - I reported in : 2016 (335) E.L.T. 660 (Tri. - Ahmd.) in which this Tribunal has held that the explanation inserted in Rule 2(l) of Rules 2004 by Notification No. 2/2016-CX (NT) (supra) should be declaratory in nature and effective retrospectively. The relevant paragraph of the said decision has been extracted as under:-

"20. But, the Hon'ble Gujarat High Court in the case of Cadila Healthcare Ltd. (supra) was unable to concur with the contrary view taken by the Hon'ble Punjab & Haryana High Court in the case of Commissioner of Central Excise, Ludhiana v. Ambika Overseas (supra). The Hon'ble Gujarat High Court held that this issue is concerned, the question is answered in favour of the Revenue and against the assessee. In this background, legislature explained the meaning of the sales promotion by inserting Explanation in Rule 2(l) of Rules, 2004 and declared that sales promotion includes services by way of sale of dutiable goods on commission basis. In other way, Explanation to Rule 2(l) of Rules says in clear terms that there is no bar on availment of the Cenvat credit on sales promotion service by way of sale of dutiable goods on commission basis. Further, by inserting the Explanation in the Rule 2(l), it has confirmed the Board Circular and resolved the different views of the High Courts. Taking into circumstances under which the Explanation was inserted in Rule 2(l) of Rules, 2004 and consequence of the Explanation to extend the benefit to the assessee as per Board Circular, we hold that the Explanation inserted in Rule 2(l) of Rules, 2004 by Notification No. 2/2016-CX (N.T.) (supra) should be declaratory in nature and effective retrospectively".
9. The said decision of Essar Steel India Ltd. (supra) has been further followed by this Tribunal in a batch of matter titled as M/s. Mangalam Cement Ltd. vs. CCE, Udaipur vide final order No. 56683-56685/2017 dated 28/08/2017, in which this Tribunal following its decision in Essar Steel Ltd. (supra) allowed the appeals filed by the appellants and the said decision in M/s. Mangalam Cement Ltd. (supra) has been followed by this Tribunal further in the matter of Excise appeal No. 53650/2015 titled as M/s. National Engineering Industries Ltd. vs. CCE & ST, Jaipur - I in which this Tribunal vide order dated 10/10/2017 while following its decision in the case of M/s. Mangalam Cement Ltd. (supra) allowed the appeal filed by the assessee and held as under:-

"4. After hearing both the parties, we note that identical issue has come up before the Tribunal in the case of M/s. Mangalam Cement Ltd. vs. CCE, Udaipur. The Tribunal vide final order No. 56683-56685/2017 dated 28/08/2017 held as under:-

"4. With regard to availment of Cenvat credit on the commission paid for sale promotion activities, the CBEC vide Circular No. 943/4/2011-CX Dated 29/04/2011 has clarified that Cenvat credit is admissible on the services of the sale of the dutiable goods on commission basis. The said circular was endorsed by the Central Government vide Notification No. 2/2016-CE (NT) dated 03/02/2016. In the case of Cadila Healthcare Ltd. (supra), the Hon'ble Gujarat High Court had not referred to the Circular dated 29/04/2011 and also there were divergent views by the Hon'ble Punjab & Haryana High Court in the case of CCE, Ludhiana vs. Ambika Overseas : 2012 (25) S.T.R. 348 (P & H). Considering the conflict in judgments of different High Courts and also the notification dated 03/02/2016, this Tribunal in the case of Essar Steel India Ltd. (supra) has held that the said notification should be considered as declaratory in nature and effective retrospectively. The relevant paragraph in the said decision is extracted herein below:-

"20. But, the Hon'ble Gujarat High Court in the case of Cadila Healthcare Ltd. (supra) was unable to concur with the contrary view taken by the Hon'ble Punjab & Haryana High Court in the case of Commissioner of Central Excise, Ludhiana v. Ambika Overseas (supra). The Hon'ble Gujarat High Court held that this issue is concerned, the question is answered in favour of the Revenue and against the assessee. In this background, legislature explained the meaning of the sales promotion by inserting Explanation in Rule 2(l) of Rules, 2004 and declared that sales promotion includes services by way of sale of dutiable goods on commission basis. In other way, Explanation to Rule 2(l) of Rules says in clear terms that there is no bar on availment of the Cenvat credit on sales promotion service by way of sale of dutiable goods on commission basis. Further, by inserting the Explanation in the Rule 2(l), it has confirmed the Board Circular and resolved the different views of the High Courts. Taking into circumstances under which the Explanation was inserted in Rule 2(l) of Rules, 2004 and consequence of the Explanation to extend the benefit to the assessee as per Board Circular, we hold that the Explanation inserted in Rule 2(l) of Rules, 2004 by Notification No. 2/2016-CX (N.T.) (supra) should be declaratory in nature and effective retrospectively".

5. In view of the above settled position and law, we do not find any merits in the impugned orders. Accordingly, after setting aside the same, we allow the appeals in favour of the appellants".

10. Thereafter again this issue came up before this Tribunal in a batch of matters in which this Tribunal vide final order Nos. 51412-51426 of 2018 dated 16/04/2018 while following its decision in the matter of National Engineering Industries Ltd. (supra) dismissed the appeal filed by the Revenue.

11. Explanation to Rule 2(l) of Rules 2004 says it in clear terms that there is no bar on availment of Cenvat credit on sales promotion service by way of sale of dutiable goods on commission basis. During the period from 2008 onwards this issue has been considered by various appellate authorities and the Board has also issued clarification vide Circular dated 29/04/2011 specifically under point No. 5 which contains the wording that "... Moreover activ

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ity of sales promotion is specifically allowed and on many occasion the remuneration for same is linked to actual sale. Reading the provisions harmoniously it is clarified that credit is admissible on the services of sales of dutiable goods on commission basis". From this clarification itself it is understood that if a commission agent is paid commission on account of sales of goods, his services are qualify to be input service and Cenvat credit of service tax paid on such service is admissible to the recipient of service. I find that the issue stand settled after the said clarification itself. Further this issue has also been clarified at point B-30 of Minutes of Tariff Conference of Central Excise held on 28-29th October 2015 circulated vide F. No. 96/85/15-CX. I dated 07/12/2015 wherein subject service has been considered as input service. Taking into consideration the circumstances under which the explanation was inserted in Rule 2(l) of Rules 2004 and consequences of the explanation to extent the benefit to the assessee as per Board Circular, this Tribunal has constantly taken the view that the explanation inserted in Rule 2(l) of Rules 2004 by notification dated 03/02/2016 is declaratory in nature and has to be complied retrospectively. I do not find any reason to differ with the above-mentioned constant view taken by this Tribunal in catena of decisions. In view thereof the appeal filed by the Department is rejected.
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