Whether services of commission agent received by assessee covered under the definition of input service in Rule 2 (l) of CCR, 2004?

PJ/Case Laws/2011-12/1447

Case: Commissioner of C. Ex, Ludhiana Vs Right way Fabrics Pvt. Ltd.

Citation: 2011(24) S.T.R. 505 (Tri.-Del.)

Issue:- Whether services of commission agent received by assessee covered under the definition of input service in Rule 2 (l) of CCR, 2004?

Brief Facts:- Respondent-manufacturer received service of Commission Agent. They sought to avail cenvat credit of service tax paid for the said service. Revenue issued show cause notice denying credit on the ground that services of commission agent is not available as per the definition of input service as given in Rule 2 (l) of Cenvat Credit Rules, 2004, only the services received up to the place of removal would be covered by this definition.

The Adjudicating Authority confirmed the demand. Respondent filed appeal. The Commissioner (Appeals) allowed the appeal. Hence, Revenue is before the Tribunal.

Appellant’s Contention:- Revenue pleaded that as per the definition of input service as given in Rule 2(l) of Cenvat Credit Rules, 2004, only the services received up to the place of removal would be covered by this definition, that the service, in question, is received after the sale of goods and, hence, the same is not covered by the definition of input service. Reliance placed on the judgment of High Court in the case of Ambuja Cements Ltd. v. Union of India [2009 (236) E.L.T. 431 (P & H)] wherein the High Court held that the service of outward transport from the factory/depot to the customers premises would be treated as input service only if the sales are on FOR destination basis. In this judgment the High Court held that extended the credit beyond the point of duty would be contrary to the scheme of Cenvat Credit Rules. That ratio of this judgment of High Court is squarely applicable to this case.

Respondent’s Contention:- Respondent submitted that the activity of commission agent is procuring orders for their clients for sale of their goods for which they receive commission. That this activity of the commission agents is in the nature of sale promotion, that advertisement and sales promotion is squarely covered in definition of 'input service' is in Rule 2(l) of Cenvat Credit Rules. This Tribunal in a series of judgments has held that the service of commission agents for procuring orders for commission is an activity related to business of the manufacturer and is covered by the definition of 'input service'. The relied upon judgments are C.C.E., Raipur v. H.E.G. Ltd [2010 (06) LCX 0136], Lanco Industries Ltd. v. C.C.E., Tirupathi [2010 (17) S.T.R. 350 (Tri.-Bang.)]; C.C.E., Raipur v. Bhillai Auxiliary Industries [2009 (14) S.T.R. 536 (Tri. - Del.)] andC.C.E., Ludhiana v. Abhishek Industries Ltd [2008 (9) S.T.R. 562 (Tri.-Del)].

It was submitted that the judgment of the High Court in the case of Ambuja Cements Ltd. v. Union of India cited by Revenue is in respect of service of outward transport from the factory/depot to the customer's premises and the ratio of that judgment is not applicable to this case.

Reasoning of Judgment:- The Tribunal held that the service received by respondent from commission agent is of procuring sales orders from the customers for which the commission is paid to them. This service can be treated as in the nature of sales promotion and in any case, an activity related to business of the manufacturer, as it is an essential activity for sale. Inclusive part of the definition of 'input service', as given in Rule 2(l) specifically covers advertisement and sales promotion and activities relating to business. The Bombay High Court's judgment in the case of C.C.E., Nagpur v. Ultratech Cement Ltd [2010 (260) E.L.T. 369 (Bom.)] interpreting the term 'input service' as defined in Rule 2(l) of Cenvat Credit Rules, has held that the term "activities in relation to business" in the definition of "input service" would cover all the activities integrally connected with the business of manufacture and that the definition is not restricted to services used directly or indirectly in or in relation to manufacture of final product, but also cover various services used in relation to business of manufacture, whether prior to manufacture or after manufacture. Every manufacturer for selling the goods manufactured by him would have to use the service of commission agents. There is nothing in the definition of 'input service' from which it can be concluded that the services, either mentioned in the main definition or mentioned in the inclusive portion of the definition of 'input service' have to be provided upto the place of removal only, as, if this criteria is adopted, a number of services like coaching and training, market research, credit rating, share registry etc. would not be eligible for Cenvat credit.

The Tribunal also held that the judgment of the High Court in case of Ambuja Cements Ltd. v. Union of India cited by Revenue is in respect of the service of outward transportation from the factory/depot and in respect of that service only the High Court has held the same would be treated as input service only if the sales are on FOR destination basis. However, the ratio of this judgment would not be applicable to this case. The Tribunal also found that the Tribunal in the series of judgments C.C.E., Raipur v. Bhillai Auxiliary Industries and C.C.E., Ludhiana v. Abhishek Industries Ltd has held that the service of commission agents received by a manufacturer is an input service eligible for Cenvat credit. No infirmity found in the impugned order.

Decision:- Appeal dismissed.

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PJ/Case Laws/2011-12/1447

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