The CESTAT, Kolkata bench has held that since the sale and manufacture are inter-connected, the cenvat credit is available on the amount of sales commission.
The Appellant is engaged in the manufacture of water, aerated water, fruit pulp-based drinks, Beverages in Bag (BIB), etc. The Appellant had entered into an agreement with M/s Nicco Parks and Resorts Ltd. for the sale of their products from the latter’s premises by paying them an upfront fee. The scrutiny revealed that the Appellant availed cenvat credit of service tax paid on invoices raised by M/s Nicco Parkland Resorts Ltd. towards the sales commission.
The department issued a show-cause notice observing that the credit availed by the appellant-assessee being sales commission in nature, does not qualify as eligible input services credit as per the judgment of the Hon’ble High Court of Gujarat in the case of M/s Cadila Healthcare Ltd.
Shri P.K.Choudhary, Member(Judicial) found that the sales commission is directly attributable to sales of the products.
“Any activity which amounts to sale of the products is deemed to be sales promotion activity in the normal trade parlance. The commission is paid on sales of the products/services with an intention to boost the Company. The commission paid on sales becomes part of sales promotion resulting in increased manufacturing activity. The sales commission has a direct nexus with the sales, which in turn is related to the manufacture of the products. If there is no sale, there would not be any need to manufacture the products. Be that so as it may, to increase the manufacturing activity an encouragement is being given by way of sales commission for achieving increased sales,” the Tribunal said.
Relying on the decision of the High Court of Punjab & Haryana in the case of Commissioner of Central Excise, Ludhiana Vs. Ambika Overseas it was held that the sale and manufacture are directed inter-related and the commission paid on sales needs to be accounted for as services related to sales promotion.
“Further, I follow the ratio of the decision of the Division Bench of this Tribunal in the case of Essar Steel India Ltd. cited supra, wherein the Tribunal, after discussing all the previous cases and Rules of interpretation, have held that the “Explanation” inserted in Rule 2 (l) of Cenvat Credit Rules, 2004 vide Notification No.2/2016-CE (N.T.) dated 03.02.2016 is declaratory in nature and is applicable retrospectively,” the Tribunal concluded.
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