Admissibility of Service tax credit on commission paid to commission agent.

PJ/Case Laws/2012-13/1495

Case:- BIRLA CORPORATION LTD. Versus COMMISSIONER OF C. EX., LUCKNOW

Citation:- 2013 (288) E.L.T. 427 (Tri.-Del.)

Brief Facts:-The appellants are manufacturers of cement. They avail Cenvat credit on inputs, capital goods and input services. One of the service in respect of which Cenvat credit has been taken is the service of commission agent for procuring the orders for sale of cement. In respect of this service, the appellant took Cenvat credit during 2004-05, 2005-06 & 2006-07 and Cenvat credit from May, 2007 to June, 2008. The department was of the view that this service is not covered by the definition of 'input service' and issued show cause notices for disallowing the Cenvat credit, its recovery along with interest and also imposition of penalty. Vide order-in-original passed by the Deputy Commissioner and Additional Commissioner respectively, the Cenvat credit demands were confirmed along with interest and penalties of equal amount under Rule 15(2) of the Cenvat Credit Rules, 2004 were imposed. On appeal to Commissioner (Appeals) these orders of the original adjudicating authorities were upheld vide Order-in-Appeal No. 187-188- CE/LKO/2009. Against the above order of the Commissioner (Appeals), these appeals have been filed along with the stay applications. Though these matters are listed for hearing of stay applications only, after hearing the same for some time, since a short issue is involved, the appeals themselves were taken up for final disposal. Accordingly, the requirement of pre-deposit is waived and with the consent of both the sides the matter was heard for final disposal.

Appellant Contentions:-The appellants submitted that the service of commission agents had been availed for procuring sales orders for the appellant's final product-cement; that the commission agents procured sales orders on commission, against which the appellant made the supplies of cement, that the service is covered by the main definition of the 'input service' as given in Rule 2(I), as the same is in respect of clearance from the place of removal, that the same is also covered by the inclusive portion of the definition of input service as it is an activity related to sales promotion and also activity related to manufacturing business; that in this regard he relies upon the judgments of the Tribunal:

·         Commissioner v. Abhishek Industries Ltd. - 2008 (9) S.T.R. 562 (Tri.-Del.),

·         Commissioner v. Bhilai Auxiliary Industries (Final Order No. 1611/2008-SM(BR), [2012 (277) E.L.T. 192 (Tribunal) = 2009 (14) S.T.R. 536 (Tribunal)],

·         CCE, Ludhiana v. Rightway Fabrics Pvt. Ltd. - 2011 (24) S.T.R. 505 (Tri.-Del.) and

·   Lanco Industries Ltd. v. CCE, Tirupathi reported in 2010 (17) S.T.R. 350 (Tri.-Bang.)

wherein the Tribunal has held that the commission agent's service is covered by the definition of 'input service' as defined under Rule 2(I) of the Cenvat Credit Rules.

Respondent Contentions:-Respondent defended the impugned order and reiterated the finding of the Commissioner (Appeals) and emphasized that this service is not eligible for Cenvat credit.

Reasoning of Judgment:-We have carefully considered the submissions made from both the sides. The point of dispute in this case is as to whether the services of commission agents for procuring sales orders received by the appellant is an input service or not for the purpose of availing Cenvat credit. Though, in the order-in-original the Additional Commissioner has given a finding that the commission and brokerage paid to the commission agents and brokers was the payment made for the service provided after the removal of cement from the place of removal and as such the said service does not fall within the 'input service' as defined under Rule 2(I) of the Cenvat Credit Rules, we find that no basis for this finding has been given. The services of commission agents/brokers are availed for procuring the sales orders against which the manufacturer makes direct supplies to the customers and the commission agents/brokers get the commission. These services, of commission agents/brokers are as in the nature of sales promotion, an activity specifically covered in the inclusive portion in the definition of 'input service. This service, in our view, would also be covered by the term "activity related to business" which was also covered by the definition of 'input service' during the period of dispute. We, therefore, hold that the services, in question, are covered by the definition of 'input service'. We are supported in this view by the Tribunal's judgments in the cases of Commissioner v. Abhishek Industries Ltd. - 2008 (9) S.T.R. 562 (Tri.-Del.), Commissioner v. Bhilai Auxiliary Industries (Final Order No. 1611/2008-SM(BR), dated 10-12-2008, CCE, Ludhiana v. Right way Fabrics Pvt. Ltd. - 2011 (24) S.T.R. 505 (Tri.-Del.) and Lance Industries Ltd. v. CCE, Tirupathi reported in 2010 (17) S.T.R. 350 (Tri.-Bang.) wherein it has been held that the services of commission agent for procuring sales orders for a manufacturer on commission is an activity related to business of manufacture and is covered by the definition of input service. In view of the above discussions, the impugned order disallowing the Cenvat credit in respect of commission agents service is not sustainable. The same is set aside. Appeals as well as stay applications are allowed.

Decision:-Appeal allowed.

Comments:- The substance of this case is that Cenvat Credit on service tax paid on the commission of commission agent is admissible as the same is specifically included as ‘sales promotion’ in the definition of ‘input service’. However, there has been contrary judgement of High Court in the case of Cadila Healthcare Ltd. wherein such credit has been disallowed.

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PJ/Case Laws/2012-13/1495

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