Whether credit allowed on service tax paid on commission agent service?

PJ/Case law/2014-15/2278

Case:- BAJAJ HINDUSTAN LTD. Versus COMMISSIONER OF CENTRAL EXCISE, LUCKNOW

Citation:- 2013 (30) S.T.R. 675 (Tri. - Del.)

Brief facts:-The appellant filed this appeal against the impugned order whereby the credit in respect of service tax which has been paid on the commission agent service is denied on the ground that commission agent service is nothing to do with the manufacturing of goods and its post manufacturing activity.

Appellant’s contentions:- The contention of the appellant is that appellants are engaged in the manufacture of sugar and therefore, the appellants availed business auxiliary services in respect of services of commission agent regarding the sale of sugar. The contention is that as per definition of ‘input service’ under Rule 2(l), the sale promotion used is covered under the scope of input service. The appellant relied upon the decision of Hon’ble Punjab and Haryana High Court in the case of C.C.E., Ludhiana V. Ambika Overseas reported in 2012 (25)S.T.R.348.

Further, the appellant submitted that Hon’ble Supreme Court has referred the issue to the Larger Bench to reconsider the decisions of the Hon’ble Supreme Court in the case of Maruti Suzuki Ltd. (supra) and in the case of Ramala Sahakari Chini Mills Ltd. v. C.C.E., Meerut-I reported in 2010 (260)E.L.T.321 (S.C.).

Respondent’s contentions:-Revenue relied upon the decision of the Tribunal in the case of KBACE Tech Pvt. Ltd. v. C.C.E and Service Tax, Bangalore reported in 2010 (18)S.T.R.281and submitted that the Tribunal held that definition of input service can be divided into three parts namely (a) specific part (b) inclusive part and (c) place of use. Therefore, while deciding what is an eligible input service for a specific output service, the claimed input service should also be required to meet the tests specified though the same were rendered in the context of goods rather than services. The contention is that Tribunal relied upon the decision of Hon’ble Supreme Court in the case of Maruti Suzuki Ltd. v. Commissioner of Central Excise reported in 2009 (240)E.L.T.641 (S.C.).
Revenue relied upon the decision of the Tribunal in the case of Chemplast Sanmar Ltd. v. C.C.E., Salem reported in 2010 (250)E.L.T.46 and submitted that the Tribunal followed the earlier decision where same view has been taken.

Reasoning of judgment:-The Hon’ble court find that credit has been denied in respect of service tax paid by commission agent which is in respect of sale of sugar manufactured by the appellant. As per the provision of Rule 2(l) ‘input service’ means any service used by a manufacturer, whether directly or indirectly in or in relation to manufacture of goods and clearance of final products from place of removal. For ready reference, the definition of ‘input service’ is reproduced below:

“Input service” means any service, -
(i) used by a provider of [output service] for providing an output service; or
(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal,

and includes services used in relation to modernisation, 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 upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal;

From the above definition it is clear that input service means any service which includes services in respect of sales promotion.

Hon’ble Punjab and Haryana High Court in the case of C.C.E, Ludhiana V. Ambika Overseas reported in 2012 (25)S.T.R.348 (P & H)held that the assessee a manufacturer is entitled to the credit of services provided by the Overseas Commission Agent for canvassing and procuring the order as these activities are sale promotion. Revenue relied upon the decision of the Tribunal whereby the Tribunal after relying upon the decision in the case of Maruti Suzuki Ltd. held in favour of Revenue. The Hon’ble Supreme Court in the case of Ramala Sahakari Chini Mills Ltd. V. C.C.E., Meerut-I (supra) referred the matter to Larger Bench for decision on the issue. In these circumstances, and in view of the Hon’ble P & H High Court in the case of Ambika Overseas (supra) which is specific on the issue, therefore, they find that the impugned order is not sustainable and the same is set aside. The appeal is allowed.

Decision:-Appeal allowed.

Comment:- The essence of the case that the Cenvat credit of service tax paid on commission agent service is admissible as it is covered by the sales promotion activity specifically included in the defination of input service. However, recently Gujarat High Court in the case of Cadila Healthcare has disallowed the credit of service tax paid to commission agents on the reasoning that the commission given to such agents is more appropriately linked with sales rather than sales promotion. But, as the assessee is situated in Lucknow, the decision of Punjab and Haryana High Court was made applicable and so the appeal was allowed. It is also worth observing that whenever there are different judgements given by the High Court on the same issue, differential treatment creeps in between assessees of different areas.

Prepared By:- Monika Tak

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PJ/Case law/2014-15/2278

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