CESTAT Upholds Assessee’s Right to Cenvat Credit on Commission Paid for Flat Sales, Explanation to Rule 2(l) Held Declaratory [Read Order]

The New Delhi Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has affirmed the order of the Commissioner allowing Cenvat credit, ruling that the assessee was entitled to avail credit of service tax paid on commission agents for sale of flats, as the Explanation to Rule 2(l) of the Cenvat Credit Rules, 2004 is declaratory and retrospectively effective.

The respondent, Krish Infrastructure Pvt. Ltd., was engaged in providing taxable services of Construction of Residential Complex, Real Estate Agent Services, and Business Auxiliary Services.

During an audit of records by the Central Excise Audit Commissionerate, it was observed that the respondent had wrongly availed Cenvat credit of service tax on commissions and brokerage paid to commission agents on the sale of flats during the period from January 2014 to March 2015.

The department alleged that this violated Rule 2(l) and Rule 3 of the Cenvat Credit Rules, 2004, as the service did not qualify as an input service.

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A Show Cause Notice (SCN) and a corrigendum were issued proposing recovery of the inadmissible credit by invoking the extended period of limitation.

The Adjudicating Authority disallowed the Cenvat credit and ordered recovery under Rule 14 of the Cenvat Credit Rules read with Section 73 of the Finance Act, 1994, along with interest under Section 75, and also imposed penalty under Rule 15(2) read with Section 78.

Aggrieved, the assessee filed appeals before the Commissioner (Appeals) and were allowed by the impugned order.

The Revenue challenged this order before the Tribunal. The issue for consideration relates to the availment of Cenvat credit on service tax paid on commission or brokerage on the sale of flats.

The Tribunal noted that the issue was no longer res integra and had been decided in a series of decisions. The tribunal relied on an earlier decision in the case of Essar Steel India Ltd. v. CCE (2016), which held that the Explanation to Rule 2(l), inserted by Notification No. 2/2016-CX (NT), was declaratory in nature and effective retrospectively. It was clarified that sales promotion includes services by way of the sale of dutiable goods on a commission basis.

In view of these decisions, the Bench comprising Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) held that the respondent was entitled to avail Cenvat credit on service tax paid as commission agents on the sale of flats.

Accordingly, the appeal filed by the Revenue was dismissed, and the order of the Commissioner was affirmed.

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