CESTAT Mumbai Allows MIRC Electronics CENVAT Credit On Commission, Insurance, Detention Charges

The Mumbai bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has allowed MIRC Electronics Ltd. (OnIda Electronics) to claim CENVAT credit on brokerage and commission, membership fees, detention charges, and insurance expenses.

Judicial Member S.K. Mohanty held that these expenses qualified as “input services” under the CENVAT Credit Rules, 2004. The tribunal, however, upheld the denial of credit on staff welfare expenses relating to canteen and bus facilities.

CENVAT credit allows a manufacturer to set off certain taxes paid on inputs and services against the excise duty payable on finished goods. The dispute was whether the services used by MIRC Electronics qualified as “input services” and could therefore be used to claim the credit.

On brokerage, commission, and membership fees, the tribunal found a link with the company's sales promotion activities. MIRC had taken memberships in different associations and federations as part of activities aimed at promoting sales and increasing sales volume.

Rule 2(l) of the CENVAT Credit Rules defines “input service." It specifically includes services used for “advertisement or sales promotion." The tribunal held that brokerage, commission, and membership fees fell within this part of the definition.

The order also noted an amendment that took effect on February 3, 2016. It clarified that sales promotion includes services involving the sale of dutiable goods on a commission basis. Since the dispute covered January 2016 to June 2017, the tribunal held that the commission paid by MIRC also qualified as an input service.

The tribunal also allowed credit on detention charges. The charges arose when imported goods and raw materials remained in warehouses beyond the stipulated time before being taken to the factory.

The imported goods were intended for use in manufacturing. The detention charges had also been included in the value of the goods for accounting purposes. The tribunal therefore held that the charges qualified as an input service under the main part of Rule 2(l).

MIRC had claimed credit on insurance premiums covering its factory plant and machinery, stock stored in warehouses, and goods in transit. A practicing chartered accountant had certified that the insurance was for the company's assets and not for the personal benefit of employees.

The tribunal accepted this position. It held that the insurance services did not fall within the exclusion for services used primarily for the personal use or consumption of employees.

The claim relating to staff welfare expenses did not succeed. MIRC argued that canteen and bus facilities were provided pursuant to its statutory obligations under the Factories Act, 1948.

The tribunal relied on the Karnataka High Court's ruling in Toyota Kirloskar Motor Pvt. Ltd. v. Commissioner of Central Tax, Bangalore, which was subsequently upheld by the Supreme Court. The tribunal held that CENVAT credit on the canteen and bus facilities was not permissible.

There was no ruling on the merits of the rent-a-cab claim. MIRC had accepted that it was not entitled to the credit and had already reversed it. The tribunal left the issue to be examined by the original authority.

The tribunal also upheld a 10% penalty on the irregularly availed credit. It clarified that the penalty would apply only to the rent-a-cab and staff welfare expenses.

The tribunal consequently set aside the denial of CENVAT credit on brokerage and commission, detention charges, insurance and membership fees. It upheld the denial relating to staff welfare expenses, while the rent-a-cab issue was left to the original authority. The appeal was partly allowed.

For MIRC: Shreya Mundra and Pavni Lakhanpal, Advocates, appeared for MIRC Electronics.

For Revenue: Tanuj Bhist, Authorised Representative, appeared for the Revenue.