At, Customs Excise Service Tax Appellate Tribunal South Zonal Bench At Chennai
By, THE HONORABLE JUSTICE: SULEKHA BEEVI C.S.
By, MEMBER AND THE HONORABLE JUSTICE: MADHU MOHAN DAMODHAR
For Petitioner: V.S. Manoj, Advocate And For Respondents: A. Cletus, Addl. Commissioner (AR)
1. Brief facts of the case are that the appellants who are engaged in manufacture of parts of cooler, parts of o-separators, parts of mill, machinery parts etc. and are registered with the Central Excise Department. They availed the facility of CENVAT credit of inputs, capital goods and input services. On scrutiny of ER-1 of March 2006, it was noticed that the appellants have taken credit of service tax on sales commission paid to M/s. Agnes Bruno Limited, Calcutta for securing Rs. 123.5 crores design, engineering, manufacture and supply contract order for plant and machinery to M/s. Binani Cement Ltd. On verification of records, it was found that the appellants had manufactured and supplied excisable goods only to the tune of Rs. 8,26,73,721/- to M/s. Binani Cement Ltd. The remaining part of materials valued to the tune of Rs. 1,11,51,44,499/- which were supplied by the appellant to M/s. Binani Cement Ltd. were not goods manufactured by appellant, but were bought out materials. The department was of the view that the appellant are not eligible for CENVAT credit of service tax on the value of bought-out goods as they are not manufactured in the factory of the appellant. Thus, availment of input tax credit to the value of Rs. 55,75,722/- on sales commission is ineligible. Show cause notice was issued proposing to recover the credit along with interest and also for imposing penalties. After due process of law, the adjudicating authority confirmed the demand. Hence, appellants are now before the Tribunal.
2. On behalf of the appellant, Ld. counsel Shri V.S. Manoj submitted that the department has denied the credit on the ground that the goods supplied includes bought-out goods which is nothing but trading. The activity of trading is not liable to excise duty/service tax and that therefore the availment of credit is not in accordance with law. That the said allegation is without any basis. The sales commission was paid for procuring the contract. The definition of input service expressly include the activity of sales promotion. Thus the input services falls within the inclusive part of the definition and the appellants are eligible to avail credit. That such input services need not be used directly or indirectly in or in relation to the manufacture of final products. The definition of input service, as it stood during the relevant period clearly states that the services used for sales promotion activities and activities relating to business is eligible for credit. The services of sales promotion were consumed in relation to business and therefore qualifies for credit. Further, the word includes used in the definition of input services enlarges the scope of the definition. The Commissioner has travelled beyond the scope of the definition making his own presumption that services consumed in relation to manufacture alone qualifies for credit without even looking into the inclusive part of the definition. The Commissioner failed to appreciate that once the expenses are incurred in connection with business activities, the services fall within definition of service and the tax paid is eligible for credit. Merely because the bought-out goods were also used for executing the contract it cannot be said that appellant is not eligible for the input service tax credit paid on the commission. The appellant has paid the sales commission to M/s. Agnes Bruno Limited for securing the contract order from M/s. Binani Cement Ltd. Without procuring the contract order, the appellant could not have supplied the goods. The input service of sales promotion being used by appellant for procuring the contract, the credit has been rightly availed.
3. The Ld. AR reiterated the findings in the impugned order. As per the contract, the appellants are engaged by M/s. Binani Cement Ltd. and M/s. Binani Cement Ltd. has paid only for the supply of list of equipments identified in the agreement. To execute this contract, appellant not only used the goods manufactured by them but also supplied bought-out items and imported items. Out of the total contract value of Rs. 123.5 crores, the appellant manufactured and supplied excisable goods valued to the tune of Rs. 8,26,73,721/-. Therefore, for the substantial contract value, (Rs. 111.51 crores) materials supplied to M/s. Binani Cements Ltd. were bought-out from various persons. The service tax credit availed by the appellant was used for discharging duty on the machineries manufactured by them. The input service of sales promotion thus does not have any nexus to the manufacture of the final products as the service tax paid mainly corresponds to the trading activity of the appellant. The credit has been rightly denied and the order passed is legal and proper.
4. Heard both sides.
5. The main ground of argument put forward by the Ld. counsel is that the input services of BAS upon which the appellant paid the sales commission and availed credit of service tax paid need not have any direct nexus with the manufacture of final products. It is thus submitted by him that though appellant has availed credit on the service tax paid on the commission for procuring the work order and even though bought-out items were supplied to the customer, it would not make the input services ineligible for credit. We do not find any merit in this contention. The appellant has mainly advanced his arguments stating that the sales promotion services being qualified as input service as per the definition laid down in Rule 2(1) of CENVAT Credit Rules, 2004, would be
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eligible for credit. The allegation in the show cause notice is that the appellant is not eligible for credit for the reason that the major part of the goods supplied for which the commission was received is for bought out items and not goods manufactured by appellant. The appellant has not been able to put forth any persuasive argument on this finding of the Commissioner. We therefore do not find any ground to interfere with the impugned order passed by the adjudicating Commissioner. The impugned order is upheld and the appeal is dismissed. (Operative portion of the order was pronounced in open court.)