Order date – 10 August 2022

Facts – 

• The Appellant, M/s L & T Constructions Equipment Ltd., is engaged in the manufacture of hydraulic excavators.
• During the course of an investigation conducted by the Department it was observed that the appellants were availing credit of Service tax on the sales commission paid by them to M/s L&T Ltd, who were marketing their products in India, as per Sole selling Agreement entered in to with them.
• It appeared that the activity of sales agency carried out by appellant is not an ‘input service’ and that the appellants have contravened the provisions of Rule 3 of CENVAT Credit Rules, 2004 read with Rule 2(l).
• A Show Cause Notice dated 04.03.2009, covering the period 2006-07 and 2007-08, was issued invoking the extended period, seeking to demand back the credit taken along with interest while proposing to levy penalty. The allegations in the Show Cause Notice were confirmed by Order-in-Original dated 26-02-2010.
• Aggrieved the appellant filed an appeal.

Issue – 

• Whether the appellants are eligible to avail credit on the services of “Commission Agent” received from Larsen & Toubro Ltd. and whether the same constitutes “Input Service” in terms of Rule 2(l) of CENVAT Credit Rules, 2004 and whether extended period can be invoked?

Order – 

• The Tribunal observed that general tenor and purport of the Agreement is sales and not sales promotion. It can be inferred from the Agreement that the terms of payment are only as a percentage of sales and the payment terms have no relation with any activity of sale promotion like advertisement etc. for which the appellants have not paid any money to M/s L&T Ltd. 
• Therefore, it is a clear-cut understanding between the parties that M/s L&T Ltd would work as Commission Agents for sales and get a fixed percentage of the sales turnover.
• Therefore, the learned Commissioner has correctly held that the impugned service does not qualify as Input Service as the same was not used in or in relation to manufacture of goods by the appellants and therefore, the credit availed is illegal. The same view was taken in Commissioner vs. Cadila Healthcare Ltd.
• Regarding the invocation of extended period of limitation issue the Tribunal held that since the entire controversy pertains to the interpretation of law and there is no factual suppression involved and therefore, penalty under Section 11AC cannot be imposed, 
• Also, the issue involved does not pertain to clandestine removal etc. and therefore, the question of confiscation and penalty under the provisions of Rule 25 of the Central Excise Rules do not arise, so penalty imposed under Section 11AC of Central Excise Act and Rule 25 of Central Excise Rules are not sustainable.
• Therefore, duty demand confirmed within normal period and extended period was not invokable. Penalty under Section 11AC and rule 25 of central excise act is set aside and Duty demand was confirmed.
• Appeal partly allowed.