Whether credit of service tax paid on commission paid to selling agents admissible ?

PJ/Case law/2014-15/2205

Case:- SALASAR COPPER VERSUS COMMISSIONER OF CENTRAL EXCISE, VAPI

Citation:- 2012 (277) E.L.T. 361 (Tri. - Ahmd.)

Brief facts:-Appellant is clearing their finished excisable goods on payment of central excise duty on transaction value. The Revenue entertained a view that the Cenvat credit availed by them of the service tax paid on commission paid towards services received from selling agents during the period from April, 2006 to September, 2009 cannot be considered as input service since the service received has no nexus with manufacturer and clearance of final product from the place of removal and services beyond the stage of manufacturer and clearance of goods from the place of removal.

Appellant’s contentions:-Learned advocate on behalf of the appellants submitted that the issue is settled now in favour of the appellants in view of the decisions of the Hon’ble High Court of Mumbai in the case of Coca Cola India Pvt. Ltd. reported in 2009 (242)E.L.T.168 (Bom.) = 2009 (15)S.T.R.657 (Bom.) and in the case of Ultratech Cement Ltd. reported in 2010-TIOL-745-HC-MUM-S.T. = 2010 (260)E.L.T.369 (Bom.) = 2010 (20)S.T.R.577 (Bom.). According to these decisions, service tax credit taken in respect of services relating to business activity is admissible and the commission agents are engaged in the activity of promoting sales of the goods manufactured by the appellants and therefore such credit is admissible. He also relies on the decision of this Tribunal in the case of Cadila Healthcare Ltd. reported in 2010-TIOL-59-CESTAT-AHD = 2010 (17)S.T.R.134 (Tri.-Ahmd.) wherein it was held that the service tax paid by the receiver of the services of foreign commission agents would be admissible as Cenvat credit.

Respondent’s contentions:- The learned DR drew my attention to para 5.4 of the order of the learned Commissioner (Appeals) wherein he has held that commission agents of the appellant are not C & F agents and the commissions paid were actually paid to the dealers and did not form part of the transaction value at all. The learned Commissioner (Appeals) has observed that the dealers are getting commission on account of different types of discounts which are claimed as deductions by the appellant while paying duty of excise. Therefore he submits that the impugned order has to be upheld since appellants are claiming credit of service tax on discounts and not on commissions. Further he also submits that such services do not have any nexus with the manufacture and manufacturing activity and therefore the credit is not admissible. He relies on the decisions in the Tribunal in the case of C.C.E., Mumbai v. GTC Industries Ltd. reported in 2008 (12)S.T.R.468 (Tri. - LB) and Chemplast Sanmar Ltd. v. C.C.E., Salem reported in 2010 (250)E.L.T.46 (Tri. -Chennai) = 2010 (17)S.T.R.253 (Tri.-Chennai).

Reasoning of judgment:- In the impugned order learned Commissioner has taken a view that service tax credit for commission agent services is not admissible because it has been given to the dealers and such commission has been claimed as a discount. However, it was found that even in the show cause notice issued by the department, this fact has not been stated. According to the show cause notice the demand was made on the ground that the services received from selling agents did not have any nexus with the manufacture and clearance of final product from the place of removal and service was beyond stage of manufacture and clearance of goods and therefore cannot be considered as input service. The question as to whether the commission was in the nature of discount or not was not at all discussed or brought out in the show cause notice. Further, it was also found that in the appeal memorandum also, the appellants have clearly stated that the demand of service tax credit has arisen in respect of service tax paid by them for the service received from their selling agents. They have clearly stated that the selling agents are providing the service of sales promotion of their finished excisable goods and they are charging service tax on their commission charges. It has also been stated that the appellants had engaged commission agents to procure orders and forward the same to the appellants so that they can dispatch the finished excisable goods. It could not be ascertained as to how or on what basis the learned Commissioner (Appeals) reached the conclusion that the commission was nothing but the discount passed on to the dealers and it had been deducted from the transaction value and claimed as a deduction. In view of the fact that the show cause notice does not make such a statement of fact and the ground for raising the demand in the show cause notice was totally different and also in view of the clear submissions in the appeal memorandum of the appellants, this observation of Commissioner (Appeals) cannot be considered as a ground for confirmation of the demand.

As regards the ground taken by the Revenue in the show cause notice, the decisions of the Hon’ble High Court of Mumbai in the case of Coca Cola India Pvt. Ltd. and Ultratech Cement Pvt. Ltd. are squarely applicable. In the case of Ultratech Cement Pvt. Ltd. in paras 28 & 29 Hon’ble High Court discussed the scope of inclusive part of the definition of input service and the expression “activities in relation to business”. The Hon’ble High Court also considered the decision of the Apex Court in the case of M/s. Maruti Suzuki Ltd. [2010 (260)E.L.T.369 (S.C.)] wherein Cenvat credit was held to be admissible only when there was a nexus with the manufacturing activity. The Hon’ble High Court took a view that the nexus to manufacturing activity need not be proved as regards input services in view of the inclusive part of the definition. It was found that both the decisions of the Hon’ble High Court of Mumbai cited by the learned advocate are applicable to the facts of this case since without sales promotion, the business activity cannot take place and sales promotion is necessarily a part of business activity. Further, it was also found that the reliance of the learned advocate on the decision of this Tribunal in the case of Cadila Healthcare Ltd. is also opt to the facts of this case. In that case, this Tribunal took the view that service tax paid on the commission paid to the foreign commission agents for sales promotion is admissible as Cenvat credit. If the credit paid to foreign commission agents for sales promotion is admissible, naturally, service tax paid to commission agents for sales promotion within the country also would be admissible. As regards the two decisions cited by the learned DR, the same is not considered in view of the fact that both these decisions have been rendered by the Tribunal and have not taken note of the decisions of the Hon’ble High Court of Mumbai in the case of Coca Cola India Pvt. Ltd. and Ultratech Cement Ltd. In view of the above discussion, appeal is allowed with consequential relief to the appellants.

Decision:- Appeal allowed.

Comment:- The analogy of the case is that service tax paid on the commission paid to the foreign commission agents for sales promotion is admissible as Cenvat credit in view of the High Court decision in the case of Coca Cola India Pvt. Ltd. and Ultratech Cement Ltd. However, recently, Gujarat High Court has denied the credit of service tax paid on commission paid to foreign commission agents in the case of Cadila Healthcare Ltd. Accordingly, there prevails ambiguity as regards availment of service tax credit on commission paid to agents.

Prepared By: Ranu Dhoot

Comments

PJ/Case law/2014-15/2205

Post a Comment

Query