Cenvat Credit on Sales Commission to Agents Admissible: CESTAT [Read Order]

The CESTAT Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that Cenvat credit on sales commission paid to agents is admissible.

Tamilnadu Petroproducts Ltd, the appellant, is a manufacturer of chemicals, including Linear Alkyl Benzene and Epichlorohydrin. During an audit, the department found that the appellant had availed Cenvat credit on service tax paid on sales commission paid to domestic marketing agents from April 2011 to December 2014.

The department issued a show cause notice demanding reversal of ₹68,31,452 in Cenvat credit along with interest and penalty, arguing that commission on sales did not qualify as “input service” since it related to post-removal activities, which are outside the scope of Rule 2(l) of the Cenvat Credit Rules.

The appellant’s counsel argued that the sales commission was paid to agents for procuring orders and promoting sales, which qualifies as “sales promotion” under the inclusive part of Rule 2(l). It was argued that sales promotion is explicitly covered under input service and that CBEC Circular No. 943/4/2011 clarified that credit on commission paid for sale of dutiable goods on commission basis is admissible.

The counsel argued that the 2016 amendment clarifying that sales promotion includes commission services was declaratory in nature and retrospective, supporting the appellant’s claim. The counsel also argued that all details of the availed credit were declared in ER-1 returns, and hence, there was no suppression or misstatement justifying the extended period.

The revenue counsel argued that the commission expenses were post-clearance activities unrelated to manufacturing and should not be allowed as input services, relying on the Gujarat High Court’s decision in Cadila Healthcare Ltd, which held that commission on sales is not covered under input service definition. They argued that the appellant wrongly availed the credit, and the demand with interest and penalty was justified.

The two-member bench comprising Ajayan T.V. (Judicial Member) and Vasa Seshagiri Rao (Technical Member) observed that the agreement with marketing agents clearly showed that the agents were engaged in procuring orders, coordinating with customers, displaying advertisements, and promoting sales, establishing that the services were in the nature of sales promotion covered under the inclusive definition of input service in Rule 2(l). It further observed that CBEC’s circular and subsequent clarifying amendments support the eligibility of Cenvat credit on sales commission.

The tribunal explained that the Gujarat High Court’s Cadila Healthcare decision was based on facts where the commission agents did not engage in sales promotion, unlike in the present case, where evidence of sales promotion by agents was available. It also held that since the appellant disclosed the credit availed in statutory returns and there was no evidence of suppression or intent to evade duty, the extended period invocation and penalty under Section 11AC were not sustainable.

The tribunal set aside the demand, interest, and penalty and allowed the appeal with consequential relief to Tamilnadu Petroproducts Ltd.

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