CESTAT Kolkata Allows CENVAT Credit On Sales Commission For Goods Sold Through Depots

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata, has ruled that commission paid to agents for procuring orders, arranging dispatches, and collecting payments for goods sold through a manufacturer's depots is eligible for CENVAT credit where the depot is the place of removal.

A Bench comprising Judicial Member R. Muralidhar and Technical Member K. Anpazhakan held that the commission services qualified as input services under Rule 2(l) of the CENVAT Credit Rules, 2004.

The tribunal observed that “a 'Depot' is a place of removal” under Section 4(3)(c) of the Central Excise Act, 1944, making services connected with the manufacture and sale of goods up to the depot eligible for credit.

In the case of Century Plyboards (I) Ltd., the tribunal also held that the credit distributed by the company's Head Office through Input Service Distributor (ISD) invoices was admissible.

Century Plyboards had availed CENVAT credit of ₹49,97,802 on service tax paid on sales commission for the period 2011-12 to 2014-15. The credit related to commission paid to Varanasi Ply Agencies and Archi's Marketing Consortium. The company's Head Office had distributed the credit through ISD invoices.

During an audit, the Department questioned the company's eligibility to claim the credit. It argued that the commission services were used beyond the stage of manufacture and clearance of goods from the factory.

The Department contended that commission agents were not directly concerned with sales of goods manufactured in the factory. It therefore argued that their services did not qualify as input services under the CENVAT Credit Rules, 2004.

A show-cause notice proposed disallowance of the credit. The proceedings culminated in an order disallowing the credit, confirming interest and imposing a penalty equal to the amount disallowed.

Before the tribunal, Century Plyboards submitted that it maintained depots at Ludhiana, Chandigarh and Lucknow. Manufactured goods were transferred to these depots on a stock-transfer basis.

The company had entered into memoranda of understanding with the commission agents for its depot operations. Archi's Marketing Consortium handled the Ludhiana and Chandigarh depots, while Varanasi Ply Agencies was associated with the Varanasi area.

The agents procured orders from dealers, arranged dispatches from the depots and collected payments through cheques, drafts or RTGS transfers in the company's name. They raised commission invoices on the company's Head Office and paid service tax on the commission received.

The Head Office subsequently distributed the credit through ISD invoices. Century Plyboards argued that its depots constituted the place of removal and that services connected with sales up to that point qualified as input services.

The company relied on the Gujarat High Court's decision in Commissioner of Central Excise, Ahmedabad-II v. Cadila Healthcare Ltd. It cited the ruling in support of its contention that commission agent services connected with sales from depots were eligible for CENVAT credit.

The tribunal examined the definition of input service under Rule 2(l) of the CENVAT Credit Rules, 2004. It noted that the definition covered services used directly or indirectly in or in relation to the manufacture and clearance of final products up to the place of removal.

The tribunal found that the agents' services were connected with the sale of goods manufactured by Century Plyboards. It held that the commission paid to them qualified as an input service and found no infirmity in the credit distributed by the Head Office through ISD invoices.

“Accordingly, we observe that service tax paid on the commission received by the Agents qualify as 'input service' as the said commission is related to sale of goods manufactured by the Appellant,” the tribunal observed.

It further held that the company was eligible to avail the credit passed on by its Head Office as an ISD. The disallowance of credit, along with interest and penalty, was legally unsustainable, it ruled.

Allowing the appeal, the tribunal set aside the order disallowing CENVAT credit of ₹49,97,802. It also set aside the consequential interest and penalty and granted consequential relief in accordance with law.

For Appellant: S. P. Siddhanta, Consultant

For Respondent: S. Dutta, Authorised Representative