Metro Shoes Pvt. Ltd. Vs. Commissioner of C. Ex. - Court Judgment

Excerpt:
1. this is an application for waiver of pre-deposit of service tax amounting to rs. 78,50,491/- for which cenvat credit was denied along with a penalty of equivalent amount and interest payable on the amounts demanded.2. the brief facts of the case are that the applicant is engaged in the activity of manufacturing as well as trading of footwear and its accessories. insofar as its manufacturing activities are concerned, the applicant purchases footwear from small manufacturers in loose form and thereafter carries out the activity of packing and labelling on the said footwear. this activity amounts to manufacture under the central excise act, 1944. in addition to manufacturing and selling such footwear, the applicant also trades in shoes which are manufactured by other manufacturers such as floresheim, red tape, lee cooper, etc. the bulk of its business (approximately 70%) comprises of goods manufactured and sold by it and only small portion of its turnover relates to the trading activity. for selling footwear manufactured by it, a number of selling agents and retail agents have been appointed.these selling agents and retail agents are paid commission as a percentage of sales effected by them. the invoices in respect of various services received by it are raised on the head office, which in turn distributes it to its manufacturing units. the input services credit availed by the head office which are in dispute comprise of (i) business auxiliary services, (ii) advertising (iii) agency services, (iv) storage and warehouse services, (v) maintenance or repair services, (vi) general insurance services, (vii) security agency services, (vii) courier services, (ix) internet services, (x) travel agency services, (xi) good. transport by road, (xii) telephone and pager services, (xiii) banking services, (xiv) hire services. out of rs. 78,50,491, a bulk amount of rs. 53,29,447/- is in respect of business auxiliary services that is service tax paid by the commission agents which are employed to sell their goods. another amount of rs. 6,59,506/-is in respect of advertisement. input service has been defined in the cenvat credit rules, 2004 as under: (i) used by a provider of taxable service for providing an output service; or (ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal, and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage up to the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal.it was contended that the commission agents promote their sales and therefore they are entitled to cenvat credit of service tax paid by them in respect of commission agent's services. the commissioner has however denied the same on the ground that the services of the commission agent are activities of selling of the goods and not in relation to the manufacture of the goods and clearance of final products from the place of removal. the commission was paid for conducting sales and not on promoting sale. commissioner has drawn a distinction between promoting of sale and sale of goods. another rs. 13,27,497/- has been denied as this amount related to the goods sold by them as part of their trading activity. however, since they have paid this amount, for the limited purpose of stay, they are not contesting this amount. as regards the credit relating to manufacturing activity, it was stated that revenue has circulated draft cenvat credit rules, 2004 to all and invited comments in which it was specifically stated that service tax on input service is also admissible on services which are not directly related to manufacture but are related to sale of manufactured. in view of this, service tax credit on the business auxiliary services (commission agent's services) are squarely admissible and cannot be disallowed. on the same logic, the credit of service tax paid on the other input services such as advertisement, goods transport services, warehousing and other services is also clearly admissible. as per definition of input service, credit can be availed on services which may not be related to manufacture or clearance of final products as the inclusive list of the definition of input services includes services which are not directly related to manufacture such as accounting, auditing, financing, recruitment, quality control, coaching and training, computer networking, share registry, security, etc. hence the input service credit would be admissible irrespective of whether or not the said service is used in or in relation to manufacture of finished goods. another ground for denying the credit by the commissioner was that the services other than business auxiliary services are common to all activities. however commissioner instead of restricting the same to the services used for manufacturing has denied the entire credit, even though in respect of advertisement services involving credit of rs. 6,59,506/-, they have stated that the advertisement was done only in respect of their own products and not for others.3. we have considered the submissions. we find that so far as the amount of rs. 53,29,447/- is concerned, the same relates to the commission agent services for promoting the sale of the goods manufactured by the appellant themselves. the commission agents prima facie do promote the sale and once the definition of the input service includes services used for advertisement or sale promotion, market research the same shall be squarely covered by the definition of the input service, more so when it forms part of assessable value for which no deduction is permissible. in respect of the balance amount, we find that an amount of rs. 13,27,497/- has already been deposited and another rs. 6,59,506/-relates to advertisement services for which the commissioner has not cited any evidence to show that the advertisement was done both for manufactured goods as well as traded goods. as the applicants have been able to make out a prima facie case in their favour, we consider the payment of rs. 13,27,497/- as sufficient deposit and accordingly waive pre-deposit of balance amount of duty, interest and penalty and stay recovery thereof till disposal of the appeal.

Judgment:
1. This is an application for waiver of pre-deposit of service tax amounting to Rs. 78,50,491/- for which Cenvat credit was denied along with a penalty of equivalent amount and interest payable on the amounts demanded.

2. The brief facts of the case are that the applicant is engaged in the activity of manufacturing as well as trading of footwear and its accessories. Insofar as its manufacturing activities are concerned, the applicant purchases footwear from small manufacturers in loose form and thereafter carries out the activity of packing and labelling on the said footwear. This activity amounts to manufacture under the Central Excise Act, 1944. In addition to manufacturing and selling such footwear, the applicant also trades in shoes which are manufactured by other manufacturers such as Floresheim, Red tape, Lee Cooper, etc. The bulk of its business (approximately 70%) comprises of goods manufactured and sold by it and only small portion of its turnover relates to the trading activity. For selling footwear manufactured by it, a number of selling agents and retail agents have been appointed.

These selling agents and retail agents are paid commission as a percentage of sales effected by them. The invoices in respect of various services received by it are raised on the head office, which in turn distributes it to its manufacturing units. The input services credit availed by the head office which are in dispute comprise of (i) Business Auxiliary Services, (ii) Advertising (iii) Agency Services, (iv) Storage and Warehouse Services, (v) Maintenance or Repair Services, (vi) General Insurance Services, (vii) Security Agency Services, (vii) Courier Services, (ix) Internet Services, (x) Travel Agency Services, (xi) Good. Transport by Road, (xii) Telephone and Pager Services, (xiii) Banking Services, (xiv) Hire Services. Out of Rs. 78,50,491, a bulk amount of Rs. 53,29,447/- is in respect of business auxiliary services that is service tax paid by the commission agents which are employed to sell their goods. Another amount of Rs. 6,59,506/-is in respect of advertisement. Input service has been defined in the Cenvat Credit Rules, 2004 as under: (i) used by a provider of taxable service for providing an output service; or (ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal, and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage up to the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal.

It was contended that the commission agents promote their sales and therefore they are entitled to Cenvat credit of service tax paid by them in respect of commission agent's services. The Commissioner has however denied the same on the ground that the services of the commission agent are activities of selling of the goods and not in relation to the manufacture of the goods and clearance of final products from the place of removal. The commission was paid for conducting sales and not on promoting sale. Commissioner has drawn a distinction between promoting of sale and sale of goods. Another Rs. 13,27,497/- has been denied as this amount related to the goods sold by them as part of their trading activity. However, since they have paid this amount, for the limited purpose of stay, they are not contesting this amount. As regards the credit relating to manufacturing activity, it was stated that Revenue has circulated draft Cenvat Credit Rules, 2004 to all and invited comments in which it was specifically stated that service tax on input service is also admissible on services which are not directly related to manufacture but are related to sale of manufactured. In view of this, service tax credit on the business auxiliary services (commission agent's services) are squarely admissible and cannot be disallowed. On the same logic, the credit of service tax paid on the other input services such as advertisement, goods transport services, warehousing and other services is also clearly admissible. As per definition of input service, credit can be availed on services which may not be related to manufacture or clearance of final products as the inclusive list of the definition of input services includes services which are not directly related to manufacture such as accounting, auditing, financing, recruitment, quality control, coaching and training, computer networking, share registry, security, etc. Hence the input service credit would be admissible irrespective of whether or not the said service is used in or in relation to manufacture of finished goods. Another ground for denying the credit by the Commissioner was that the services other than business auxiliary services are common to all activities. However Commissioner instead of restricting the same to the services used for manufacturing has denied the entire credit, even though in respect of advertisement services involving credit of Rs. 6,59,506/-, they have stated that the advertisement was done only in respect of their own products and not for others.

3. We have considered the submissions. We find that so far as the amount of Rs. 53,29,447/- is concerned, the same relates to the commission agent services for promoting the sale of the goods manufactured by the appellant themselves. The commission agents prima facie do promote the sale and once the definition of the input service includes services used for advertisement or sale promotion, market research the same shall be squarely covered by the definition of the input service, more so when it forms part of assessable value for which no deduction is permissible. In respect of the balance amount, we find that an amount of Rs. 13,27,497/- has already been deposited and another Rs. 6,59,506/-relates to advertisement services for which the Commissioner has not cited any evidence to show that the advertisement was done both for manufactured goods as well as traded goods. As the applicants have been able to make out a prima facie case in their favour, we consider the payment of Rs. 13,27,497/- as sufficient deposit and accordingly waive pre-deposit of balance amount of duty, interest and penalty and stay recovery thereof till disposal of the appeal.