can a asessee get credit of comission agent services ?

Case:-BHURUKA GASES LTD. VersusCOMMISSIONER OF C. EX., CUS. & S.T., BANGALORE-I

Citation :-2015 (37) S.T.R. 818 (Tri. - Bang.)

Brief facts:-In all the 8 appeals issue involved was common. Therefore even though orders were different, all the appeals were taken together and a common order was passed. The period covered by the orders was from March 2005 to August 2009. In respect of period from 31-8-2005 to 31-7-2007 there were 2 orders for the same period. This was because in the first round of litigation, out of Rs. 37,90,681/-, Rs. 12, 52,681/- was confirmed and in respect of the balance amount the matter was remanded and this amount was got subsequently confirmed. Therefore there are two orders on the same issue for the same period. In respect of same period there was also a question of limitation. It was the assessee’s claim that extended period could not have been invoked since the issue had already been raised earlier and show cause notice had been issued. In the second round of litigation for the same period, it had been held that since appellant did not provide the information called for and did not follow the decision already taken, extended period had been rightly invoked. Other than this in all other cases, the show cause notice had been issued within the normal period and therefore the demand was also for the normal period only. Penalties had been imposed in all the cases under Rule 15 of Cenvat Credit Rules, 2004.

Appellant’s contention:-The learned CA on behalf of the appellant submitted that the service received by the appellant had been considered as sales commission only and since no sales promotion was involved and if there is no sales promotion activity by the commission agent, the service received was not covered by the definition of ‘input service’. Hence Cenvat credit has been denied. Inclusive part of the definition of ‘input services’, did not include commission as observed by the lower authorities and unless the commission agent undertakes the activity of sales promotion and he pays the service tax under the category of Business Auxiliary Service, the stand taken by the Revenue that credit would not be admissible is correct. This was the view taken by Hon’ble High Court of Gujarat in the case of CCE, Ahmedabad v. Cadila Healthcare Ltd. [2013-TIOL-12-HC-AHM.-S.T. = 2013 (30)S.T.R.3 (Guj.)]. However in the decision of Hon’ble High Court of Gujarat, the issue under consideration was the eligibility of service tax paid by the assessee in the capacity of receiver since agents were located abroad. However in respect of domestic agents, the Tribunal had considered the issue in the case of CCE, Surat-II v. Astik Dyestuff Pvt. Ltd. [2013-TIOL-680-CESTAT-AHM. = 2013 (31)S.T.R.459 (Tri.-Ahmd.)] and the Tribunal took the view that whether the agent is located abroad or in India, the eligibility of credit has to be determined on the basis of the actual activity undertaken by the commission agent and if the commission agent has merely acted as a commission agent, credit would be admissible. The learned AR’s further e relied upon the observations of the Hon’ble High Court of Gujarat in paragraph 5.2 (vii) which is reproduced as under :
“The expression ‘sales promotion’ has been defined in the “Oxford Dictionary of Business” to mean an activity designed to boost the sales of a product or service. It may include an advertising campaign, increased PR activity, a free-sample campaign, offering free gifts or trading stamps, arranging demonstrations or exhibitions, setting up competitions with attractive prizes, temporary price reductions, door-to-door calling, telephone selling, personal letters etc. In the “Oxford Dictionary of Business English”, sales promotion has been defined as a group of activities that are intended to improve sales, sometimes including advertising, organizing competitions, providing free gifts and samples. These promotions may form part of a wider sales campaign. Sales promotion has also been defined as stimulation of sales achieved through contests, demonstrations, discounts, exhibitions or trade shows, games, giveaways, point-of-sale displays and merchandising, special offers, and similar activities. The Advanced Law Lexicon by P. Ramanatha Aiyar, third edition, describes the term ‘sales promotion’ as use of incentives to get people to buy a product or a sales drive. In the case of Commissioner of Income Tax v. Mohd. Ishaque Gulam, 232 ITR 869, a Division Bench of the Madhya Pradesh High Court drew a distinction between the expenditure made for sales promotion and commission paid to agents. It was held that commission paid to the agents cannot be termed as expenditure on sales promotion”.
Based on these observations he submitted that in this case the lower authorities had recorded a finding that there was no sales promotion activity at all undertaken by the agents and therefore the decisions of the Hon’ble High Court of Gujarat and the Ahmedabad Bench of this Tribunal were applicable to the present case. Further the learned CA for the appellant relied upon the decision of the Hon’ble High Court of Punjab and Haryana in the case of CCE, Ludhiana v. Ambika Overseas reported in [2012 (25)S.T.R.348 (P & H)]. In paragraphs 8 & 9 of the decision, Hon’ble High Court had considered the issue and for better appreciation paragraphs 8 & 9 are reproduced:
“The Tribunal while affirming the order of Commissioner (Appeals) and adjudicating the issue in favour of the respondent had come to the conclusion that the activities in respect of which cenvat had been filed, were pre-removal activities and the same could not be held to be post-removal. It was further observed that canvassing and procuring orders were in relation to ‘sales promotion’ and would fall under sales promotion activities. These activities were, thus, included in the definition of input services and the assessee was entitled to benefit of cenvat credit of service tax. It would be advantageous to notice here the findings recorded by the Tribunal in para 6 of its order which are to the following effect:
“I have carefully considered the submissions from both sides. The canvassing and procuring orders are activities preceding removal of the goods by the manufacturers. Without the firm order, the respondents were not expected to remove the goods to a foreign destination. Therefore, the submission of the learned DR that these activities are post-removal activities cannot be accepted. Further, the definition of the ‘input services’ includes services used in relation to ‘sales promotion’ and these activities can rightly be described as sales promotion activities. Sales promotion activities undertaken at given point of time also aims at sales of goods which are to be manufactured and cleared on future. Any advertisement given as a long term impact cannot be treated as post-clearance activities and, therefore, sales promotion has been specifically included in the definition of input services. As regards the other contention that the documents on which the respondent has taken the credit is not the prescribed document, it is to be noted that the respondent is not a service provider per se. They are basically the service recipients. They are required to pay service tax as a deemed service provider. Under these circumstances, the respondents have paid service tax using TR-6 challans and taken credit treating the said documents as documents covered by Rule 9(1) of the CENVAT Credit Rules, 2004. There is nothing irregular about it.”
In the light of the aforesaid finding, learned counsel for the revenue was unable to justify that the claim of cenvat credit by the assessee was erroneous in any manner. No perversity or illegality could be shown by the learned counsel in the order passed by the Tribunal which may call for any interference by this court”.
The learned CA submitted that the decision of the Hon’ble High Court of Punjab & Haryana clearly went in favour of the appellant. He also submitted that in the case of Cadila Healthcare Ltd., Hon’ble High Court of Gujarat had referred to the decision of the Hon’ble High Court of Punjab & Haryana and further they had also observed that in the case of Cadila Healthcare Ltd. there was absolutely no evidence produced by the assessee to show that the commission agents had undertaken sales promotion activity. In the absence of any evidence, Hon’ble High Court had taken a view that if the commission agent had acted merely as a commission agent, in view of the definition of the ‘input service’, credit would not be available.
Learned CA also relied upon the decision of this Tribunal in the case of Novozymes South Asia Pvt. Ltd. - Final Order No. 27076/2013 in Appeal No. E/27918/2013 and submitted that in that case the Tribunal had considered the decisions in the case of Cadila Healthcare Ltd. and also Astik Dyestuff (P) Ltd. and Ambika Overseas and came to the conclusion that where there is evidence available about sales promotion activities, credit could be admissible. He relied upon paragraph 3 of the decision which is reproduced for better appreciation.
“The learned counsel submitted that, the first issue is whether the stand taken by the Revenue that there is no nexus is correct or not. The first submission by the learned counsel was that the Commissioner has not at all gone into this aspect and has indicated that he need not go into the merits in view of the fact that the document on the basis of which credit was taken was defective and therefore credit itself was totally inadmissible. Unfortunately, he submitted that in this case, even though the bill was raised as commission bill, in reality the Commission Agent was engaged in sales promotion activity. The learned AR submitted that the service provided by the Commission Agent cannot be considered as sales promotion activity and for this purpose he relied upon the decision in the case of Commissioner of Central Excise, Ahmedabad v. Cadila Healthcare Ltd. [2013 (30)S.T.R.3 (Guj.)] and the decision of the Ahmedabad Bench of the Tribunal in the case of Commissioner of Central Excise, Surat v. Astik Dyestuff (P) Ltd. [2013 (31)S.T.R.459 (Tri.-Ahmd.)] wherein services rendered by a domestic commission agent was considered by the Tribunal and the Tribunal came to the conclusion that the services of commission agent cannot be considered as eligible service in the absence of sales promotion. Learned counsel in his rejoinder relied upon the decision of the Hon’ble High Court of Punjab and Haryana in the case of Commissioner of Central Excise v. Ambika Overseas [2012 (25)S.T.R.348 (P & H). He also submitted that in the case of Cadila Health Care Ltd. (supra), Hon’ble Gujarat High Court came to the conclusion that the benefit of CENVAT credit was not admissible in view of the fact that in that case there was no evidence whatsoever relied by the appellants. In fact in sub-para 8 of para 5.2, Hon’ble High Court observed “However there is nothing to indicate that such commission agents were actually involved in any sales promotion activities as envisaged under the said expression...”. Therefore, it is his submission that the conclusion of Hon’ble High Court indicated that the commission agents in that case were only acting as simply commission agents there was no evidence to indicate that they were actually undertaking sales promotion activity. In the case of Ambika Overseas (supra) Hon’ble High Court upheld the observation of the Tribunal that canvassing and procuring orders were in relation to sales promotion and would fall under sales promotion activities. It is his submission that a combined consideration of the two decisions of the two High Courts would lead to the conclusion that if a commission agent is undertaking sale promotion also and he is not merely commission agent, credit would be admissible. Canvassing and procuring orders, according to the Hon’ble High Court of Punjab and Haryana was in the nature of sales promotion. The learned counsel for the appellants drew my attention to the contract. The relevant portions of the contract are reproduced below :
“2.1. The agent shall at all times during the term of this agreement uses his best efforts to solicit customers situated in the Territory”
“2.4   The agent shall be responsible for all general marketing necessary to diligently promote products in the Territory”
“3.1   The agent shall independently and continually promote sales and collect orders for products from customers in the Territory on behalf of Novozymes.”
The learned CA further relied upon the letter written by one of the two agents namely Agnes Bruno Ltd. dated February 15th 2007. In this letter, Agnes Bruno Ltd. had informed the appellant that they lend a helping hand to the Business Houses to sell their products. They undertake canvassing of business not only to retain the existing clientele of the company but to find new customers as well. They also stated that the appellant could take the best advantage of their network available throughout the country to sell their bulk products viz., Liquid Gases on commission basis. They also gave details of Registration, Income Tax, Sales tax, Service Tax, Balance Sheet etc. In respect of another agent namely SPS Metal Cast & Alloys Ltd., the appellant could not show any letter or agreement. However in every debit note, the opening sentence reads as under :
“Being our commission towards the procurement of order for the liquid nitrogen to various parties as per details given below”

Reasoning of judgment: -afterhearing both sides it was held that the above observations would show that the issue to be considered in this case was whether the decisions of the Hon’ble High Court of Gujarat and the Tribunal discussed above were applicable to the facts of this case and whether the agents of the appellants have acted merely as commission agents or they have also indulged in sales promotion or provided sales promotion service to the appellants. Before proceeding to examine the fact, it would be appropriate to consider the learned AR’s submission as regards what exactly constitutes ‘sales promotion’. He relied upon the observations of the Hon’ble High Court of Gujarat in paragraph 5.2 (vii) which is reproduced as under :
“The expression ‘sales promotion’ has been defined in the “Oxford Dictionary of Business” to mean an activity designed to boost the sales of a product or service. It may include an advertising campaign, increased PR activity, a free-sample campaign, offering free gifts or trading stamps, arranging demonstrations or exhibitions, setting up competitions with attractive prizes, temporary price reductions, door-to-door calling, telephone selling, personal letters etc. In the “Oxford Dictionary of Business English”, sales promotion has been defined as a group of activities that are intended to improve sales, sometimes including advertising, organizing competitions, providing free gifts and samples. These promotions may form part of a wider sales campaign. Sales promotion has also been defined as stimulation of sales achieved through contests, demonstrations, discounts, exhibitions or trade shows, games, giveaways, point-of-sale displays and merchandising, special offers, and similar activities. The Advanced Law Lexicon by P. Ramanatha Aiyar, third edition, describes the term ‘sales promotion’ as use of incentives to get people to buy a product or a sales drive. In the case of Commissioner of Income Tax v. Mohd. Ishaque Gulam, 232 ITR 869, a Division Bench of the Madhya Pradesh High Court drew a distinction between the expenditure made for sales promotion and commission paid to agents. It was held that commission paid to the agents cannot be termed as expenditure on sales promotion”.
Based on these observations he had submitted that in this case the lower authorities had recorded a finding that there was no sales promotion activity at all undertaken by the agents and therefore the decisions of the Hon’ble High Court of Gujarat and the Ahmedabad Bench of this Tribunal were applicable to the present case. Further the learned CA for the appellant relied upon the decision of the Hon’ble High Court of Punjab and Haryana in the case of CCE, Ludhiana v. Ambika Overseas reported in [2012 (25)S.T.R.348 (P & H)]. In paragraphs 8 & 9 of the decision, Hon’ble High Court had considered the issue and for better appreciation paragraphs 8 & 9 are reproduced :
“The Tribunal while affirming the order of Commissioner (Appeals) and adjudicating the issue in favour of the respondent had come to the conclusion that the activities in respect of which cenvat had been filed, were pre-removal activities and the same could not be held to be post-removal. It was further observed that canvassing and procuring orders were in relation to ‘sales promotion’ and would fall under sales promotion activities. These activities were, thus, included in the definition of input services and the assessee was entitled to benefit of cenvat credit of service tax. It would be advantageous to notice here the findings recorded by the Tribunal in para 6 of its order which are to the following effect:
“I have carefully considered the submissions from both sides. The canvassing and procuring orders are activities preceding removal of the goods by the manufacturers. Without the firm order, the respondents were not expected to remove the goods to a foreign destination. Therefore, the submission of the learned DR that these activities are post-removal activities cannot be accepted. Further, the definition of the ‘input services’ includes services used in relation to ‘sales promotion’ and these activities can rightly be described as sales promotion activities. Sales promotion activities undertaken at given point of time also aims at sales of goods which are to be manufactured and cleared on future. Any advertisement given as a long term impact cannot be treated as post-clearance activities and, therefore, sales promotion has been specifically included in the definition of input services. As regards the other contention that the documents on which the respondent has taken the credit is not the prescribed document, it is to be noted that the respondent is not a service provider per se. They are basically the service recipients. They are required to pay service tax as a deemed service provider. Under these circumstances, the respondents have paid service tax using TR-6 challans and taken credit treating the said documents as documents covered by Rule 9(1) of the CENVAT Credit Rules, 2004. There is nothing irregular about it.”
In the light of the aforesaid finding, learned counsel for the revenue was unable to justify that the claim of cenvat credit by the assessee was erroneous in any manner. No perversity or illegality could be shown by the learned counsel in the order passed by the Tribunal which may call for any interference by this court”.
In that case as can be seen from the above, Hon’ble High Court agreed and upheld the view taken by the Tribunal that canvassing and procuring order were in relation to sales promotion and would fall under sales promotion activity. Further the Hon’ble High Court also upheld the view taken that these activities cannot be considered as post-removal activity and had to be treated as pre-removal activities. At this juncture it had to be noted that one of the main grounds taken for rejecting the claim of the appellant for CENVAT credit was that the activity of the commission agents was post-removal and if the activity was post-removal, credit was not admissible. The learned CA submitted that the decision of the Hon’ble High Court of Punjab & Haryana clearly went in favour of the appellant. He also submitted that in the case of Cadila Healthcare Ltd., Hon’ble High Court of Gujarat had referred to the decision of the Hon’ble High Court of Punjab & Haryana and further they had also observed that in the case of Cadila Healthcare Ltd. there was absolutely no evidence produced by the assessee to show that the commission agents had undertaken sales promotion activity. In the absence of any evidence, Hon’ble High Court had taken a view that if the commission agent had acted merely as a commission agent, in view of the definition of the ‘input service’, credit would not be available.
Learned CA also relied upon the decision of this Tribunal in the case of Novozymes South Asia Pvt. Ltd. - Final Order No. 27076/2013 in Appeal No. E/27918/2013 and submitted that in that case the Tribunal had considered the decisions in the case of Cadila Healthcare Ltd. and also Astik Dyestuff (P) Ltd. and Ambika Overseas and came to the conclusion that where there is evidence available about sales promotion activities, credit could be admissible. He relied upon paragraph 3 of the decision which is reproduced for better appreciation.
“The learned counsel submitted that, the first issue is whether the stand taken by the Revenue that there is no nexus is correct or not. The first submission by the learned counsel was that the Commissioner has not at all gone into this aspect and has indicated that he need not go into the merits in view of the fact that the document on the basis of which credit was taken was defective and therefore credit itself was totally inadmissible. Unfortunately, he submitted that in this case, even though the bill was raised as commission bill, in reality the Commission Agent was engaged in sales promotion activity. The learned AR submitted that the service provided by the Commission Agent cannot be considered as sales promotion activity and for this purpose he relied upon the decision in the case of Commissioner of Central Excise, Ahmedabad v. Cadila Healthcare Ltd. [2013 (30)S.T.R.3 (Guj.)] and the decision of the Ahmedabad Bench of the Tribunal in the case of Commissioner of Central Excise, Surat v. Astik Dyestuff (P) Ltd. [2013 (31)S.T.R.459 (Tri.-Ahmd.)] wherein services rendered by a domestic commission agent was considered by the Tribunal and the Tribunal came to the conclusion that the services of commission agent cannot be considered as eligible service in the absence of sales promotion. Learned counsel in his rejoinder relied upon the decision of the Hon’ble High Court of Punjab and Haryana in the case of Commissioner of Central Excise v. Ambika Overseas [2012 (25)S.T.R.348 (P & H). He also submitted that in the case of Cadila Health Care Ltd. (supra), Hon’ble Gujarat High Court came to the conclusion that the benefit of CENVAT credit was not admissible in view of the fact that in that case there was no evidence whatsoever relied by the appellants. In fact in sub-para 8 of para 5.2, Hon’ble High Court observed “However there is nothing to indicate that such commission agents were actually involved in any sales promotion activities as envisaged under the said expression...”. Therefore, it is his submission that the conclusion of Hon’ble High Court indicated that the commission agents in that case were only acting as simply commission agents there was no evidence to indicate that they were actually undertaking sales promotion activity. In the case of Ambika Overseas (supra) Hon’ble High Court upheld the observation of the Tribunal that canvassing and procuring orders were in relation to sales promotion and would fall under sales promotion activities. It is his submission that a combined consideration of the two decisions of the two High Courts would lead to the conclusion that if a commission agent is undertaking sale promotion also and he is not merely commission agent, credit would be admissible. Canvassing and procuring orders, according to the Hon’ble High Court of Punjab and Haryana was in the nature of sales promotion. The learned counsel for the appellants drew my attention to the contract. The relevant portions of the contract are reproduced below :
“2.1. The agent shall at all times during the term of this agreement uses his best efforts to solicit customers situated in the Territory”
“2.4   The agent shall be responsible for all general marketing necessary to diligently promote products in the Territory”
“3.1   The agent shall independently and continually promote sales and collect orders for products from customers in the Territory on behalf of Novozymes.”
Now the question to be considered was whether in this case the agents had undertaken sales promotion activity or not. If the answer was yes, the credit would be admissible and otherwise no. The learned CA relied upon the letter written by one of the two agents namely Agnes Bruno Ltd. dated February 15th 2007. In this letter, Agnes Bruno Ltd. had informed the appellant that they lend a helping hand to the Business Houses to sell their products. They undertake canvassing of business not only to retain the existing clientele of the company but to find new customers as well. They also stated that the appellant could take the best advantage of their network available throughout the country to sell their bulk products viz., Liquid Gases on commission basis. They also gave details of Registration, Income Tax, Sales tax, Service Tax, Balance Sheet etc. This showed that even though the invoice which spoke particularly sales commission, taking note of the letter of the agent that they would help in selling the products, in canvassing business and make their network available for expanding the business, in his opinion this was nothing but sales promotion. In respect of another agent namely SPS Metal Cast & Alloys Ltd., the appellant could not show any letter or agreement. However in every debit note, the opening sentence reads as under :
“Being our commission towards the procurement of order for the liquid nitrogen to various parties as per details given below”
In the case of Ambika Overseas, Hon’ble High Court of Punjab & Haryana had taken the view that procurement of orders was one of the aspects of sales promotion.
The above discussion show that in respect of both the agents, the appellants had been able to show that the agents not only acted as commission agents but also undertake sales promotion. Therefore he considered that appellants hadx made out a case on merits in respect of the eligibility for CENVAT credit.
In the result all the appeals were allowed with consequential relief, if any, to the appellants.

Decision:-appeal allowed

Comment:-the gist of this case is that the services of commission agent if is relatable to sales promotion then only the credit is admissible. As the commission sales agent of assessee above had helped assessee in canvassing and procuring order, and had made readily available there business network to the assessee for expanding business, it was ample clear that their services were relatable to that of sales promotion. Applying the ratio of landmark cases CCE, Ahmedabad v. Cadila Healthcare Ltd. and case CCE, Ludhiana v. Ambika Overseas the credit was made admissible to the assessee.

{prepared by:- Prayushi Jain}

Comments

PJ/CASE LAW/2015-16/2674

Post a Comment

Query