Custom, Excise & Service Tax Tribunal
Reliance Industries Ltd. vs Commissioner Ce &Amp; St (Ltu) Mumbai on 21 June, 2019
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, MUMBAI
WEST ZONAL BENCH
COURT No.
Appeal No. E/1526/2011
(Arising out of Order-in-Original No. 001/COMMR(KAP)/LTU-M/2011
dated 15.07.2011 passed by Commissioner of Central Excise & Service
Tax, LTU, Mumbai)
Reliance Industries Ltd. Appellant
P.O. Dahej, Tal. Vagra,
Bharuch,
Gujarat - 392 130.
Vs.
Commissioner of Central Excise & ST Respondent
(LTU), Mumbai 29th floor, Centre-1, World Trade Centre, Cuffe Parade, Mumbai 400 005.
WITH Appeal No. E/1627/2011 (Arising out of Order-in-Original No. 001/COMMR(KAP)/LTU-M/2011 dated 15.07.2011 passed by Commissioner of Central Excise & Service Tax, LTU, Mumbai) Commissioner of Central Excise & ST Appellant (LTU), Mumbai 29th floor, Centre-1, World Trade Centre, Cuffe Parade, Mumbai 400 005.
Vs. Reliance Industries Ltd. Respondent P.O. Dahej, Tal. Vagra, Bharuch, Gujarat - 392 130. Appearance:
Shri Vipin Jain, Advocate for the Appellant/Assessee Ms. Anuradha Parab, Authorised Representative for the Respondent/Revenue CORAM:
Hon'ble Dr. D.M. Misra, Member (Judicial) Hon'ble Mr. P. Anjani Kumar, Member (Technical)
2 E/1526,1627/2011 FINAL ORDER NO. A/86160-86161/2019 Date of Hearing: 25.02.2019 Date of Decision: 21.06.2019 PER: DR. D.M. MISRA These two appeals are filed, one by the Revenue and another by the assessee against the same order- in-original No. 001/COMMR(KAP)/LTU-M/2011 dated 15.07.2011 passed by Commissioner of Central Excise & Service Tax, LTU, Mumbai.
2. Briefly stated the facts of the case are that the appellant M/s. Reliance Industries Ltd. (formerly known as M/s. IPCL) are engaged in the manufacture of various excisable goods falling under headings 2720, 2939 of the Central Excise Tariff Act, 1985. The appellant during the relevant period from June 2005 to October 2008 availed total cenvat credit of Rs.5,32,86,675/- on input services, namely, service tax paid on the commissions paid to Del Credere agent on the basis of the invoices issued by their registered office as 'input service distributor' (ISD). Alleging that the commissions paid to Del Credere agents does not fall within the scope of the definition of 'input service' as prescribed under Rule 2(l) of Cenvat Credit Rules, 2004 and the input service invoices issued by ISD is not valid, show cause notice was issued to them for recovery of the said credit amount with interest and penalty. On adjudication, the learned Commissioner 3 E/1526,1627/2011 confirmed an amount of Rs.78,47,108/- with equivalent penalty and interest but dropped the balance amount of demands. Revenue filed appeal against the amount dropped by the Commissioner, whereas the assessee is in appeal against confirmation of the demand with interest and penalty.
3. At the outset, the learned Advocate, Shri Vipin Jain, for the appellant supporting the impugned order, submits that the Del Credere agents were appointed by the appellant to promote the sale of the products manufactured by them. The agents were required to furnish to the appellant with details of financial soundness, reputation and goodwill of the customer, the general market condition etc. In addition to the said services, the agents were also required to and responsible to collect the payment from the customer on the due date and in case of default on the part of the customer, the appellant was free to recover the defaulted amount from the agents.
4. Referring to the sample copy of the agreement between the appellant and the agents, particularly clause 3, clause 7, clause 8 and clause 10 of the said agreement and also referring to the meaning and definition of Del Credere agent mentioned under different dictionaries, various books on Indian Contract Act, the learned Advocate has submitted that the agents appointed by the appellant were mainly sales promotion rendering service of 4 E/1526,1627/2011 the goods manufactured by the assessee. Further, he has submitted that the commissions paid to the agents were not merely for guaranteeing the collection of defaulted amount but also were required to undertake the sales promotion, furnish market information etc. to the appellant. It is their contention that the commissions paid to these agents were nothing but sales promotion being in the primary function and the collection of the defaulted amount is incidental and ancillary to the said function. Further, the learned Advocate has submitted that the commissions paid to commission agents are held to be input service within the scope of Rule 2(l) of the Cenvat Credit Rules, 2004 in the case of Essar Steel India Ltd. vs. CCE - 2016 (335) ELT 660 (T) and Lanco Industries Ltd. vs. CCE - 2010 (17) STR 350 (T).
5. Further, they have submitted that the explanation added to the definition of 'business auxiliary service' with effect from 16.06.2005 explaining the scope of 'commission agent' includes the condition of collection of payment, as service rendered by a Del Credere agent. It is his contention that, therefore, the learned Commissioner has rightly observed that the service tax discharged on the commissions paid to Del Credere agent could be availed as cenvat credit by the appellant.
6. In support of their appeal, the learned Advocate has contended that initially their office at Shantikunj, Opp.
5 E/1526,1627/2011 Government Polytechnic, Ahmedabad 380 015 was registered for the purpose of input service distribution from where the invoices were issued to avail credit by the Unit which included the activities at their branch office situated at Satellite office at Ahmedabad. Later, the major activities were shifted to the office at Satellite, Ahmedabad. Hence, they requested for change of address of ISD on 1st March 2006. It is his contention that the cenvat credit availed on the input invoices issued in their earlier address prior to 01.03.2006 has been wrongly denied by the Commissioner in the impugned order. It is his contention that even if the office is not registered as an ISD, still cenvat credit has been held to be admissible by the Hon'ble Gujarat High Court in the case of CCE vs. Dashion Ltd. - 2016-TIOL-111-HC-AHM-ST. Further, the principle laid down in the said judgment has been accepted by the Board vide Circular No.1063/2/2018-CX dated 16.02.2018. Therefore, cenvat credit for the period prior to 01.03.2006 availed on the input invoices is admissible.
7. Per contra, learned AR for the Revenue reiterates the grounds of appeal. He has submitted that the learned Commissioner has failed to appreciate that the agents appointed by the assessee, M/s. Reliance Industries Ltd. had undertaken to collect the sale proceeds from the customers. In the event the customer failed to pay the consideration amount, the agents were required to make good of the said amount to the assessee. Therefore, the 6 E/1526,1627/2011 activities/service rendered by the agents cannot be called as commission agent, as they do not undertake sales promotion. Hence, such activity falls outside the scope of definition of 'input service' defined under Rule 2(l) of the Cenvat Credit Rules, 2004. Further, the learned AR for the Revenue has submitted that the invoices issued prior to 01.03.2006 on which the assessee has availed credit cannot be considered as valid document as held by the Commissioner, since during the said period their Satellite office was not registered as input service distributor.
8. Heard both sides and perused the records.
9. The limited issues involved in the present appeals for determination are:
(i) Whether the appellant-assessee is eligible to avail cenvat credit of service tax paid on commissions to Agents who sell the goods and undertake the guarantee of payment;
(ii) Whether the appellant-assessee has correctly availed cenvat credit on the input service invoices issued by their office as ISD prior to 01.03.2006, when the registered address was different.
10. Before analyzing the issues, it is relevant to scrutinize the relevant clauses of the Agency agreement between the appellant and the agents, reproduced as follows:-
"3. The Agent agrees to promote the sale of the Product(s) to the best of its ability and salesmanship. The Agent further agrees and undertakes to comply with all the relevant provisions of law and adhere to code of conduct prescribed by IPCL for its del-credre agents and 7 E/1526,1627/2011 distributors and follow policies, procedures and guidelines framed by IPCL from time to time.
7. It shall be the responsibility of the Agent to obtain payment(s) from the customers on the due dates and remit the same immediately upon receipt thereof to IPCL by demand drafts/cheques drawn on any scheduled bank in Vadodara or by means of telegraphic transfer for credit to IPCL's account with any scheduled bank at Vadodara or in such other manner as may be advised by IPCL from time to time and IPCL does not assume any liability whatsoever in respect thereof. The expenses with respect to obtaining payment(s) from customers shall be borne by the Agent and IPCL is not liable to reimburse any part thereof. The Agent shall maintain an account of the Product(s) supplied to the customers direct on the orders placed by the Agent and/or the customers and the price realized and shall furnish a statement of such account of sales at the end of each month to IPCL.
8. In the event the customer(s) commit default in payment of price for the Product(s) sold on the due date(s), IPCL shall be entitled to recover such defaulted amount(s) together with interest at such rate(s) as may be decided by IPCL from time to time during the period the default continues from the Agent and from the securities provided or which may at any time hereafter be provided by the Agent or from any other moneys due or which may at any time become due from IPCL to the Agent, whether singly or jointly with another, or other. The Agent shall indemnify absolutely, unconditionally and fully and at all times keep indemnified IPCL against any loss or damage caused to or suffered by IPCL by reason of non-payment of the price of the Product(s) supplied to any customer or by reason of breach by the Agent of any of the terms or conditions of this Agreement or by reason of the Agent's failure to perform this Agreement.
10. The Agent agrees and undertakes to submit to IPCL monthly estimates of likely purchases of the Products by its customers prior to the commencement of each month. The Agent further agrees to furnish to IPCL the true and correct information and details regarding the financial 8 E/1526,1627/2011 soundness, reputation and goodwill of the customers and the general market conditions and such other information as may be required by IPCL from time to time."
11. A plain reading of Clause 3 of the agreement makes it clear that the agents are required to promote the sale of the products to their best of ability and salesmanship; also in Clause 7, it is stipulated that the agents' responsibility is to collect the payments from the customers. Clause 8 of the agreement prescribes that the agents shall indemnify the appellant fully against the defaulted amount with interest as may be decided by the appellant. Clause 10 stipulates about the estimates relating to likely purchases of the products of the appellant at the beginning of each calendar month and also the requirement to furnish the details of financial conditions of the customer and general market conditions to the appellant.
12. Reading these stipulations cumulatively, there cannot be any doubt that the agents rendered services for promotion of the sale of the manufactured products of the appellant; besides, they were also obliged to collect payments i.e. sale proceeds from the customers or in the event of default such payemnt, to make good of the said defaulted amount to the appellant. Therefore, the primary objective of the appellant in appointing the agents is sales promotion of the product and the secondary objective is to ensure that their payments are secured by way of a guarantee provided by the agent, which is called a del 9 E/1526,1627/2011 credere service. The commission paid to the said agent is a consolidated one, which comprises of the activities of causing sale and distribution, promotion of sale; including the guarantee of payment. This position will be further clear when we read the meaning of Del Credere Agent, referred by both sides which reads as follows:-
"A del credere is an agent who guarantees the solvency of third parties with whom the agent contracts on behalf of the principal. As a token for the guaranty given, the agent receives an additional commission for sales. The promise of such an agent is almost universally held not to be within the statute of frauds. Such an agent assumes the position of a surety who is liable to his principal if the vendee make default. Such agents are commonly referred to in English law. They are also known as del credere factor."
13. A plain reading of the scope of commission agent and the Del Credere Agent, it can be inferred that the Del Credere Agent is the one who guarantees payment from the customer's for the sale and in the event of default in such payment, makes good of the same to the prinipal. In the present case, besides, the activity of sales promotion, the agents have also undertaken to act as a Del Credere Agent. Therefore, merely because of the fact they were also act as Del Credere Agent, the activities/services provided by such agents in promotion of the sale of the product cannot in any manner be diluted. Therefore, in our opinion, the activities/services rendered by the agents through the agency agreement reproduced above clearly indicate that the services provided by them are in the nature of sales promotion activities in addition to 10 E/1526,1627/2011 the service as Del Credere Agent, hence, fall within the scope of definition of 'input service' as prescribed under Rule 2(l) of the Cenvat Credit Rules, 2004.
14. The 'commission agent' also includes a Del Credere agent is clear from the definition of 'Business Auxiliary Service' under which service tax is levied on commission agents, which reads as follows:-
"Business Auxiliary Service" means any service in relation to, -
(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or
(ii) promotion or marketing of service provided by the client; or
(iii) any customer care service provided on behalf of the client; or
(iv) procurement of goods or services, which are inputs for the client;
[Explanation - For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, "inputs" means all goods or services intended for use by the client;]
(v) production or processing of goods for, or on behalf of the client; or
(vi) provision of service on behalf of the client; or
(vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, but does not include any information technology service and any activity that amounts to "manufacture" within the meaning of clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944).
[Explanation - For the removal of doubts, it is hereby declared that for the purposes of this clause,-
(a) "commission agent" means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a 11 E/1526,1627/2011 consideration, and includes any person who, while acting on behalf of another person -
(i) deals with goods or services or documents of title to such goods or services; or
(ii) collects payment of sale price of such goods or services; or
(iii) guarantees for collection or payment for such goods or services; or
(iv) undertakes any activities relating to such sale or purchase of such goods or services;"
Thus the amount of service tax paid to these commission agents have been rightly held by the Commissioner is in the nature of sales promotion, accordingly, eligible to cenvat credit.
15. Regarding the second issue of eligibility of cenvat credit of Rs.78,47,108/- denied by the learned Commissioner, the contention of the appellant is that they had initially obtained registration of their office premises at Shantikunj, Opp. Government Polytechnic, Ahmedabad as an ISD as on 10th August 2005 for the purpose of input Service Distributor(ISD). At the relevant time, their Satellite office was a unit included in the list of units for distribution of credit submitted to the department.
However, later, due to shifting of the business operations to Satellite office, change of address in the ISD Registration Certificate was requested and allowed from 1st March 2006. The learned Commissioner has denied the credit on the input invoices issued prior to 01.03.2006.
We do not find substance in the observation of the learned Commissioner in denying credit on such input invoices, in view of the principle of law laid down by the Hon'ble Gujarat High Court in the case of Dashion Ltd. (supra).
Their Lordships analyzing the issue observed that for non-
12 E/1526,1627/2011 registration as an ISD, credit cannot cannot be denied. Their Lordships observed as below:-
"7. The second objection of the Revenue as noted was with respect of non-registration of the unit as input service distributor. It is true that the Government had framed Rules of 2005 for registration of input service distributors, who would have to make application to the jurisdictional Superintendent of Central Excise in terms of Rule 3 thereof. Sub-rule (2) of Rule 3 further required any provider of taxable service whose aggregate value of taxable service exceeds certain limit to make an application for registration within the time prescribed. However, there is nothing in the said Rules of 2005 or in the Rules of 2004 which would automatically and without any additional reasons disentitle an input service distributor from availing Cenvat credit unless and until such registration was applied and granted. It was in this background that the Tribunal viewed the requirement as curable. Particularly when it was found that full records were maintained and the irregularity, if at all, was procedural and when it was further found that the records were available for the Revenue to verify the correctness, the Tribunal, in our opinion, rightly did not disentitle the assessee from the entire Cenvat credit availed for payment of duty. Question No. 1 therefore shall have to be answered in favour of the respondent and against the assessee."
13. Following the aforesaid judgment, therefore, the impugned order of the learned Commissioner to the extent of denying the credit of Rs.78,47,108/- on the input invoices issued for the period prior to 01.03.2006 is hereby set aside and the appeal filed by the assessee is allowed to this extent.
13 E/1526,1627/2011
14. In the result, the Revenue's appeal is rejected and the assessee's appeal is allowed.
(Order pronounced in the open court on 21.06.2019) (Dr. D.M. Misra) Member (Judicial) (P. Anjani Kumar) Member (Technical) tvu