Eligibility of credit of service tax paid to commission agents

pj/case law/2016-2017/3429

Brief Facts- The brief facts of the case are that appellants have availed CENVAT credit of Service Tax paid on various taxable services received from Foreign Commission Agents who do not have any office in India. The Foreign Commission Agents were providing service in relation to sale of excisable goods for export and charged an amount as commission from the appellants, who make the payment and paid Service Tax in terms of Section 68(2) of the Finance Act. Four show cause notices were issued to the appellant and the lower authorities confirmed the duty demand on the appellant holding that Cenvat credit of Service Tax paid by them on behalf of foreign person on commission which was availed and utilized by them is not proper and legal under the provisions of Central Excise Act, 1944. The appellants filed (Appeals) before the Commissioner of Central Excise (Appeals) against the orders passed by the original authority and Commissioner (Appeals) vide impugned orders dated 9-9-2009 has rejected the appeal. Hence, the appellants are before this Bench.
Appellant’s Contention- The learned Advocate appearing for the appellant submits that the impugned order is based on total misinterpretation of the provisions of law and under the law the appellants are entitled to claim the credit of Service Tax paid by them under Section 66A of the Finance Act read with Section 68(2) again read with Rule 2(1)(d)(iv) of the Service Tax Rules. He further submitted that Commission paid to the agents, who were causing sale of the goods manufactured by the appellant qualifies the input service used in relation to the manufacture of the goods and service rendered by the commission agent will be covered by the expression sales promotion in the definition. He further submitted that the taxable services provided from outside India and received in India shall not be treated as output services under Rule 5 of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. He also pointed out that order-in-appeal is clearly contrary to the clarification given by the Board contained in Board Circular No. 345/1/2008-TRU dated 27-6-2008. He also submitted that learned Commissioner (Appeals) has relied upon the Board Circular of 2005 and have not taken into account the clarification of June 2008 which covers as the appellants case. He also relied upon the decision of Punjab & Haryana High Court in the case of Commissioner of Central Excise Ludhiana v. M/s. Ambika Overseas, reported in AIT-2011-379-HC = 2012 (25) S.T.R. 348 (P&H), in which the assessee was allowed to avail the Cenvat credit on the services provided by Overseas Commission Agents (provided in relation to canvassing and procuring of orders) as input services.
Respondent’s Contention- The learned Appraiser (A.R.) for the Revenue reiterated the findings of the Commissioner (Appeals).

Reasoning Of Judgement- After hearing both the sides, the Honorable court found that the issue involved in these appeals is whether the appellants are eligible for the Cenvat credit of Service Tax paid by them on the services provided to them by the foreign person (Foreign Commission Agent). The Honorable court found that Commissioner (Appeals) has denied the benefit of the Service Tax credit relying on the Board Circular dated 3rd October 2005. The Honorable court found that in this Circular it was clarified by the Board as under :-
“The view that such recipient of taxable services even if they discharge their service tax liability under Section 68(2) are not entitled to avail credit of the service tax paid on taxable services received by them under CENVAT Credit Rules, 2004, is in accordance with the statutory provisions and there is no scope for any other interpretation”.
In 2008 Board has issued another Circular vide F. No. 345/1/2008-TRU dated 27-6-2008, it was clarified as under:-
“The recipient of the service is required to pay service tax under Section 66A though the service is actually provided not by the recipient but by a person located in a country other than India. Such taxable services, not being actually provided by the person liable to pay service tax, are not treated as “output services” for the purpose of CENVAT Credit Rules, 2004. However, service tax paid under Section 66A is available as “input credit” under CENVAT Credit Rules, 2004 provided the said services are used as input services by the manufacturer or producer of final products or a provider of output taxable service”.
There is no doubt that appellants are manufacturer of excisable goods and in such a case Board Circular of 2008 will prevail over Circular of 2005.
TheHonorable court also found that the issue was further confirmed by the Punjab & Haryana High Court in the case of Commissioner of Central Excise Ludhiana v. M/s. Ambika Overseas (supra) where the High Court has held that the CESTAT was correct in holding that the respondent is entitled to avail the Cenvat credit on the services provided by Overseas Commission Agents (provided in relation to canvassing and procuring of orders) as input services. In view of the Board Circular 2008 and as well as the decision of Punjab and Haryana High Court, theHonorable court found that the appellants are eligible for Cenvat credit of the service tax paid by them on commission paid to the ‘overseas commission agents’ and accordingly appeals are allowed.

Decision- Appeal allowed.
Comment- The crux of the case that the credit of service tax paid on commission paid to foreign agent is admissible in view of decision given by the Punjab & Haryana High Court in the case of Commissioner of Central Excise Ludhiana v. M/s. Ambika Overseas and clarification issued by the Board. Moreover, the issue has been resolved as the dispute was created by contrary decision given by the Hon’ble Gujarat High Court in the case of Cadila Healthcare Ltd. and now amendment has been made in the definition of input service under Rule 2(l) wherein explanation has been inserted. Hence, the credit of service tax paid to commission agents is admissible.

Prepared By – Prateeksha Jain

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