Custom, Excise & Service Tax Tribunal
Tdk India Pvt Ltd vs Kolkata North Commissionerate on 5 March, 2024
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
KOLKATA
REGIONAL BENCH - COURT NO.2
Excise Appeal No. 75843 of 2019
(Arising out of Order-in-Appeal No.35/KOL-NORTH/KOL/18 dated 27.12.2018 passed by
Commissioner of CGST & CX (Appeal-I), Kolkata)
M/s TDK India Pvt. Ltd
(Formerly known as EPCOS India Pvt. Ltd.
Kulia Kanchrapara Road, Netaju Subhas Sanatorium, P.O. Kalyani, District, Nadia, PIN-
741251)
Appellant
VERSUS
Commr. of CGST, Central Excise, Kolkata North
(180, Shantipally, Rajdanga Main Road, Kolkata-700107)
Respondent
APPEARANCE :
Mr. Vasudev A, Advocate for the Appellant Mr. P. K. Ghosh, Authorized Representative for the Respondent CORAM:
HON'BLE MR. R. MURALIDHAR, MEMBER (JUDICIAL) FINAL ORDER NO.75418/2024 Date of Hearing : 5th March 2024 Date of Decision: 5th March 2024 PER R. MURALIDHAR:
The Appellants are engaged in manufacture and clearance of Ferrite Core and Ferrite Power etc. During the period April 2012 to March 2013, they have taken the Cenvat Credit for the Service Tax paid on the Commission Charges and Sales Promotion Charges paid to their distributors. In the course of CERA Audit, an objection was taken by the Audit team and letter was issued on 02/04/2014 directing them to reverse the Cenvat Credit of Rs. 36,46,798/- on the ground that they are not eligible to take the Cenvat Credit for the commission amount paid to commission agent. For raising this objection, the Department relied on the case law of CCE, Ahmedabad Vs. Cadila Healthcare Ltd.-2013 (30) STR 3 (Guj. High Court). The Appellant filed their letter on 06/05/2014, clarifying that the amounts were being paid to the distributor not only for acting as 2 Excise Appeal No. 75843 of 2019 Commission Agent but also due to the fact that they are undertaking various activities like advertising, reporting, training of personnel etc., all amounting to promotion of principal's business. Therefore, Service Tax charged by the service provider under heading of "Business Auxiliary Service" has been correctly taken by the Appellant as Cenvat Credit. After this, a Show Cause Notice was issued on 11/11/2016, seeking to recover this amount along with interest and seeking to impose penalties. After due process, the demands were confirmed along with interest and penalty. Being aggrieved, the Appellant is before the Tribunal.
2. The Learned Advocate also points out that this decision of Cadila decided by Gujarat High Court was challenged in the case of Zydus Lifesciences Ltd. Vs. Commr. of C. Ex., Ahmedabad-II before the Hon'ble Supreme Court which vide their Order dated 22/11/2013 as reported in 2044 (80) GSTL 338 (SC) has held as under:-
13. In the result, the impugned judgment and order of the High Court dated 7-11-2012 as well as of the CESTAT dated 3-8-2009 [2010 (17) S.T.R. 134 (Tri. - Ahmd.) = [2009] 30 STT 224 (Ahd. - CESTAT)] are set aside to the extent of observations of the High Court as well as the CESTAT on the point of commission paid to the foreign agent only and the matters are remanded to the concerned CESTAT for a fresh adjudication on the point in controversy.
3. Therefore, he submits that as on date, the Cadila judgment of Hon'ble Gujarat High Court stands reversed and is no more in force.
4. The Learned Advocate submits that identical issue had come up before the Tribunal, wherein amendment carried out vide Notification No. 2/2016- CE(NT) dated 03/02/2016 was considered. The Explanation added is as under:-
"Explanation-For the purpose of this clause, sales promotion includes services by way of sale of dutiable goods on commission basis."3
Excise Appeal No. 75843 of 2019
5. The Learned Advocate appearing on behalf of the Appellant submits that the issue is no more res integra. This Bench in the case of Himadri Speciality Chemical Limited vide Final Order No. 76381/2019 dated 07/08/2019, has held that the assessee is eligible for Cenvat Credit, which has been affirmed by the Hon'ble High Court of Calcutta as reported in 2022 (66) GSTL 264 (Cal.).
6. The Tribunal held that since this clarifies the issue, the same would have retrospective effect. On appeal by the Revenue before the Calcutta High Court, the Hon'ble High Court has held that the Tribunal was right in taking this decision.
7. The Learned Advocate also relies on the case law of Commr. of CGST, Jaipur Vs. M/s. Bharti Hexacom India Limited-2023 (5) TMI 520-CESTAT, New Delhi wherein, the Principle Bench of CESTAT, New Delhi has relied on the judgment of Hon'ble Calcutta High Court in the case of Himadri Speciality Chemical Limited and has held that the Respondent was entitled to avail the Cenvat Credit of the Service Tax discharged on the commission paid. Therefore, he submits that the impugned Order is to be set aside on merits.
8. He further submits that though they have been taking the Cenvat Credit and reflecting the same in their ER-1 Returns during the period under dispute, the Show Cause Notice was issued only after more than three years on 11/11/2016 by invoking the extended period provisions. It is also on record that CERA Audit was conducted in April 2014 and the Appellants have filed their Reply on 06/05/2014. Hence the Department was fully aware of the details by that date itself. Hence, the issue of Show Cause Notice issued by invoking the extended period provisions after more than two & half years after their letter dated 06/05/2014 is legally not sustainable. In view of these factual details, he submits that the impugned Order is required to be set aside on account of limitation also.
4Excise Appeal No. 75843 of 2019
9. The Learned AR reiterates the findings of the lower authorities and justifies the confirmed demand.
10. Heard both sides and perused the Appeal Papers and the submissions made before me.
11. I find that the issue is no more res integra. This Bench vide Final Order No. 76381/2019 dated 7.8.2019 in the case of cited case law of Himadri Speciality Chemical Limited, has held as under"-
the Ld. Commissioner to deny credit by merely relying on the Gujarat High Court decision is not correct inasmuch as the facts appearing in the said decision is clearly distinguishable with the case in hand. We have also perused the amendment made in the definition of 'input service' whereby an Explanation has been added vide Notf. no. 2/2016-CE(NT) dtd 03.02.2016 which reads as below-
"Explanation. - For the purpose of this clause, sales promotion includes services by way of sale of dutiable goods on commission basis."
We find that the issue relating to eligibility of credit on commission agent services is no longer res-integra inasmuch as this Tribunal in Essar Steel India Ltd. (Supra), as also relied by the appellant, has held that the above amendment would be applicable retrospectively and would cover cases for the past period also. The co-ordinate Bench of this Tribunal at Ahmedabad held as below:
"22.An explanation inserted in a Section/Rule, is generally to explain the meaning of the words contained in the Section/Rules. The purpose of explanation is to explain the meaning and intendenments of the Section/Rule. Sometimes, the explanation may be inserted to clarify a doubtful point of law, which would be effective retrospectively. In the present case, the expressions in the explanation as inserted by Notification No. 2/2016-C.E. (supra), make it clear that it is for explaining the meaning of clause "sales promotion" in the context of Rule 2(l) of the Rules, 2004. It is to provide an additional support to the dominant object of the word "sales promotion" in Rule 2(l) in order to make it meaningful and purposeful. The language of the explanation is consistent with Board Circular to the benefit of the assessee and it would be effective retrospectively. The Hon'ble Supreme Court in the case of Vatika Township Pvt. Ltd. (supra), in the identical situation, held that if a legislation confers a benefit on some other 5 Excise Appeal No. 75843 of 2019 person or on the public generally, and where to confer such benefit appears to have been the legislature's object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect...."
Similar view has also been taken in the case of Simbhaoli Sugar Ltd. v. CCE, Meerut-II 2018 (363) ELT 1172 (Tri-All) wherein it has been held that -
"2. Cenvat credit has sought to be denied to the appellant relying on the decision of Hon'ble High Court of Gujarat in the case of Commissioner of Central Excise, Ahmedabad-II v. Cadila Healthcare Ltd. reported in 2013 (30) S.T.R. 3 (Gujarat) wherein it has been held that such commission agents are not engaged in the activity of sales promotion. The said judgment has been examined by this Tribunal in the case of Essar Steel India Ltd. v. Commissioner of Central Excise & Service Tax, Surat-I reported in 2016 (335) E.L.T. 660 (Tri.-Ahmedabad) after examining the issue of sales promotion activity, as per Section 65(19) of the Finance Act, 1994 which defines the Business Auxiliary Service. While examining the definition of Business Auxiliary Service, where the agent is engaged in either promotion or marketing or where sale of goods produced or provided by or belonging to the appellant, the Hon'ble High Court has considered the issue of sales promotion and has not considered the issue of marketing or sale of goods and this Tribunal has examined that issue in the case of Essar Steel India Ltd. (supra) wherein it has been held that the assessee is entitled to avail Cenvat credit for commission paid to the commission agent who effected the sale of goods manufactured by the appellant. Further, I find that Hon'ble High Court of Punjab & Haryana in the case of Commissioner of Central Excise, Ludhiana v. Ambika Overseas reported in 2011 (07) LCX 0196 has held that Cenvat credit on service tax paid to selling agent for sale of goods is admissible as Cenvat credit.
Therefore, as there are contrary judgments, in that circumstance without relying on either of the judgment of the Hon'ble High Courts, we decide the issue independently in the light of the decision of this Tribunal in the case of Maheshwari Solvent Extraction Ltd. v. Commissioner of Central Excise, Nagpur reported in 2014 (299) E.L.T. 116 (Tri.-Mumbai) wherein it has been held that if there are contrary view of the Apex Court, in that circumstance the Adjudicating Authority is independent to take any view on merits of the case. Therefore, we are taking independent view and hold that appellants are entitled to avail Cenvat credit on commission paid to the selling agent for selling the goods in terms of Rule 2(l) of the Cenvat Credit Rules, 2004.
6Excise Appeal No. 75843 of 2019 The aforesaid views have also been taken by this Tribunal in the following cases-
Birla Corporation Ltd. vs. CCE Lucknow 2014 (35) STR 977 (TriDel) CCE Alwar vs. Orient Refractories Ltd (CESTAT Delhi Final Order no 50494/2019 In view of the above discussions, we agree with the submissions made by the Ld. CA that the appellant is legally eligible for credit. Further, in so far as limitation is concerned, it is not in dispute that the availment of credit was duly disclosed in ER-1 returns. The observations made by the Ld. Commissioner that the nature of credit availed was not disclosed by appellant in the return is not correct for the reason that in the absence of any column in the return requiring the assessee to disclose the nature of input service, the same cannot be construed to mean that there is a malafide intention on the part of the appellant. [Emphasis supplied]
12. Being aggrieved, the Revenue has filed an Appeal before the Hon'ble High Court of Calcutta, which has held as under:-
11. As could be seen from the above clarification, the decision in Cadila Health Care was also taken note of by the department and the position stood clarified that sales promotion would include services by way of sale of goods on commission basis. As pointed out by the Hon'ble Supreme Court in Commissioner of Income Tax v. Vatika Township Private Limited [(2015) 1 SCC 1] that if a legislation confers the benefit on some persons but without inflicting the corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the object of the legislature, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. In Commissioner of Income Tax v. Archean Granite Private Limited [(2020) 117 taxmann.com 977 (Madras)] amendment made to Section 40(a)(ia) of the Finance Act, 2010 inserting proviso therein was held to be retrospective with effect from the assessment year 2005-06 and the Court followed the decision in the case of Commissioner of Income Tax v. Calcutta Export Company [(2018) 93 taxmann.com 51].
Therefore, we find that the approach to the issue in the manner done by the Learned Tribunal cannot be faulted.
13. Since the issue is identical in the present case, relying on these decisions, I allow the Appeal on merits.
7Excise Appeal No. 75843 of 2019
14. I also see force in the Appellant's arguments that the Show Cause Notice issued on 11/11/2016 is time barred. The Appellant has been taking the Cenvat Credit and were reflecting the same in their Monthly Returns. These Returns were audited by CERA in April 2014 and objection was raised on this specific count. Immediately, in the Month of May, 2014, the Appellants have made their stand clear. Therefore, the Department was in full knowledge of the transactions made by the Appellant by May 2014 itself. Therefore, the Department had no reason to delay the issue of Show Cause Notice by another two and half year. The Department has not made out any case of suppression on the part of the Appellant except for relying on the Cadila Case law relied by the Hon'ble Gujarat High Court. Therefore, I hold that the confirmed demand is not sustainable even on account of limitation.
16. The Appeal stands allowed with consequential relief, if any, as per law.
(Dictated and pronounced in the open court.) Sd/-
(R. Muralidhar) Member (Judicial) Pooja