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PJ/CaseStudy/2016-17/117
04 March 2017

Whether the credit of service tax paid on bills of clearing & forwarding agents be allowed ?

 
 
 
CASE STUDY
 
Prepared By: Akshit Bhandari
 
M/S INDIGO PAINTS PVT LTD.[OIO NO78/2016.-ST]
 
Relevant Legal Provisions:-
·         Rule 2(l) of the Cenvat Credit Rules, 2004.
 
Rule 2(l) of the Cenvat Credit Rules, 2004.-
 
(l) “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; but excludes—
(A)               service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for –
(a)               construction or execution of works contract of a building or a civil structure or a part thereof; or
(b)               laying of foundation or making of structure for support of capital goods, except for the provision of one or more of the specified services; or
(B)               services provided by way of renting of motor vehicle in so far as they relate to a motor vehicle which is not a capital goods; or
(BA) service of general insurance business, servicing, repair and maintenance, in so far as they relate to a motor vehicle which is not a capital goods, except when used by –
(a)               a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person; or
(b)               an insurance company in respect of a motor vehicle insured or reinsured by such person; or
(C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club,  such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee.
Issue Involved: Whether the credit of service tax paid on bills of clearing & forwarding agents be allowed ?
 
1.                  Brief Facts:- The brief facts of the case are that the assessee M/S INDIGO PAINTS PVT LTD  having service tax registration no. AAACI8094DXM004 and are engaged in
2.                  manufacture of cement paints and wall putty falling under chapter sub heading no. 32100011 and 32141000 of the First Schedule to the Central Excise Tariff Act, 1985. They are availing the facility of CENVAT credit. The department has alleged that they have wrongly availed Cenvat credit of service tax paid in respect of commission paid to their C&F agents namely namely M/s Jyoti International and M/s Pawan Kumar & Sons, HUF. amounting to Rs. 10,27,534/- (Service tax – Rs. 10,04,180/- + Education cess – Rs. 15,570/- + Secondary & Higher education Cess – Rs. 7,784/-) during the period from June 2014 to December 2015.
 A show cause notice was issued demanding Cenvat credit of service tax amounting to Rs. 10,27,534/- wrongly taken and utilized during the period from June, 2014 to December, 2015 in terms of rule 14 of Cenvat Credit Rules, 2004 read with section 11A(4) of Central Excise Act, 1944.
Interest was demanded under the provisions of Rule 14 of Cenvat Credit Rules, 2004 read with section 11AA of the Central Excise Act, 1944.
Penalty was demanded under Rule 15(1) of the Cenvat Credit Rules, 2004.
Penalty was demanded under Rule 25(d) of the Central Excise Rules, 2002.
 
Department has contended that in case of Commissioner of Central Excise, Ahmadabad- II V/s M/s Cadila Healthcare Ltd., The Hon’ble Gujarat High court has denied the Cenvat credit of Service Tax paid on selling commission  which is not a input service.
The Hon’ble High Court further observed that the term input service as defined in rules means any service used by a provider of taxable service for providing an output service or used by the manufacture whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal and includes services used in relation to various activities of the description provided therein including advertisement or sales promotion. Thus the portion of the definition of input service insofar as the same is relevant for the present purpose refers to any service used by the manufacture directly or indirectly in relation to the manufacture of final products and clearance of final products from the place of removal. Obviously, commission paid to the various agents would not be covered in this expression since it cannot be stated to be a service used directly or indirectly in or in relation to the manufacture or clearance of final products from the place of removal. The includes portion of the definition refers to advertisement or sales promotion. It was in this background that the court has examined whether the services of foreign agent availed by the assessee can be stated to services used as sales promotion. In the absence of any material record to indicate that such commission agents were involved in the activity of sales promotion, the commission agent is directly concerned with the sales rather than sales promotion and as such services provided by such commission agent would not fall within the purview of the main or inclusive part of the definition of input service.
The Hon’ble court had also observed that for an activity related to the business, it has to be an activity which is analogues to the activities mentioned after the words “as such” in the definition and therefore services rendered by commission agent is not related in any manner.
The assessee is asked to submit the details of availment and utilization of Cenvat credit on sales commission paid to their agents on sale of goods to Range officer.
Assessee also submitted to the Superintendent, Range II photocopies of the invoices issued and agreements with the sales agent. On the scrutiny of records, it was revealed that the agreement was entered between their registered office  and sales agent i.e. assessee is not recipient of service under the agreement and agreement is executed for the common services for both the units (jodhpur and Jharkhand) but the registered office had also not obtained registration of ‘Input service distributor’ and not followed the procedure as per Rule 7 of the CCR 2004 read with CBEC circular no. 178/4/2014-ST dated 11.07.2014. But when being asked, the assessee intimated to the Superintendent of Range II, complete services were availed at jodhpur factory only and no sale has been affected from Jharkhand factory.
Moreover, department contended that the invoice issued by the agents in the name of assessee unit do not contain the description of service, which is required to be mentioned as per Rule 4(a)(1)(iii) of the Service Tax Rules 1994.
 
Assessee’s ContentionThe assessee made following submissions before the adjudicating authority:- 
 
We submit that the impugned show cause notice has raised the demand of Rs. 10,27,534/- in total for recovering the input service credit availed on the services provided by our C&F agents namely M/s Jyoti International and M/s Pawan Kumar & Sons, HUF. While denying the credit it has been alleged that the services provided by our C&F agents is merely concerned with the sale of the goods rather than sales promotion; which does not fall in the definition of input service given in rule 2(l) of the Cenvat Credit Rules, 2004. The relevant extract from this definition is given below:
(l) “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; but excludes—
(C)               service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for –
(c)                construction or execution of works contract of a building or a civil structure or a part thereof; or
(d)               laying of foundation or making of structure for support of capital goods, except for the provision of one or more of the specified services; or
(D)              services provided by way of renting of motor vehicle in so far as they relate to a motor vehicle which is not a capital goods; or
(BA) service of general insurance business, servicing, repair and maintenance, in so far as they relate to a motor vehicle which is not a capital goods, except when used by –
(c)                a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person; or
(d)               an insurance company in respect of a motor vehicle insured or reinsured by such person; or
(C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club,  such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee.
An analysis of above definition makes it clear that this definition is very wide and covers a no. of services that are related to business. It is submitted that the word “includes” is generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and so used these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import, but also those things which the interpretation clause declares that they shall include. It is worthwhile to mention here that the larger bench of tribunal in case of CCE, Mumbai-V vs M/s GTC Industries Ltd. [2008-TIOL-1634-CESTAT-MUM-LB] has held that the word “includes” used in the definition of input services makes the definition very wide and as such, credit will be allowed on every service which forms part of cost of production of the goods. Due to this intention of government, the definition of input service has been drafted by using the word “includes” which has wide connotations, thereby all the activities relating to business and forming part of value of final products will be included in it. Accordingly, the credit will be allowed on the commission agent’s services that are related to business and forms part of cost of the goods. The impugned show cause notice denying the same is not sustainable and is liable to be quashed.
 
In continuation to above, it is submitted that rule 2 (l) of CENVAT Credit Rules includes many of the services including sales promotion and also covers excluded services of various types. When excluded services are specifically mentioned in the Rules, there is no reasoning to stretch it further to other services. In this regard, reliance is placed on the decision of Hon’ble Calcutta CESTAT in the case of Collector of C. Ex. Vs Heavy Engineering Corporation Ltd. 1990 (49) E.L.T. 531 (Tribunal). In this case, hon’ble Tribunal hasheld that:
 
"What are excluded from the scope of an expression in a legal provision by such an exclusion clause are only those items mentioned specifically in the exclusion clause.This cannot be stretched by analogy to other items not so specifically mentioned, unlike an inclusion clause where the items covered by the expression would not be confined to those so included. The items included are illustrative and not exhaustive. Contrarily, the items excluded are exhaustive and not illustrative"
 
In view of this decision, since the exclusion clause of definition of input service does not exclude services provided by commission agents and the inclusive clause denotes wider connotation; services provided by C&F agents will be covered by this definition. Accordingly, credit will be allowed on the same whether or not the same are specifically covered in the inclusion clause. In view of this decision, the impugned show cause notice is not sustainable and is liable to be quashed.
 
 
     In continuation to above, it is submitted that the Cenvat Credit Rules have                     been introduced in the Central Excise law in order to allow the credit on all those expenses which form part of the assessable value liable to excise duty. While introducing CENVAT Credit Rules, 2004, Ministry of Finance issued a Press Note on 12th Aug, 2004 regarding CENVAT credit facility of taxable services. The relevant portion of the Press Note reads as under:
 
"In principle, credit of tax on those taxable services could be allowed that go to form a part of the assessable value of which excise duty is charged"
 
In view of above clarification issued via Press note at the time of introduction of Cenvat Credit Rules, 2004; it is clear that whichever service forms a part of the assessable value of final product, Service Tax paid on such services will be eligible for Cenvat credit as "input service". Due to this intention of government, the drafting of definition of input service has been done in an inclusive manner so as to include all the services that have been availed in course of business and forms part of assessable value. Thus, to be an input service under rule 2(l) of the Cenvat Credit Rules, 2004; the service should have been availed by the manufacturer and the same should have formed part of assessable value of the final products and excise duty should have been paid on the same. Thus, in view of this , wherever Sales commission paid to the commission agents forms part of the assessable value on which excise duty is payable, the credit should be allowed on the same.
 
 
Aligning with above, it is submitted that it is settled law laid down by the Hon'ble Supreme Court in the case of Coromandel Fertilisers
 Ltd vs Union of India & Ors [2002-TIOL-343-SC-CX] that commission paid to a commission agent is not available as deduction from the assessable value. Thus, the commission paid to agents forms part of the assessable value on which excise duty is payable by the manufacturer. Accordingly, in view of definition of input service and above referred press note, the inclusive part of the rule 2(l) duly covers the services of commission agents and thus, credit is admissible on the same. The impugned show cause notice denying the credit is not tenable and is liable to be set aside.
 
 
The impugned show cause notice has denied the credit on commission paid to our C&F agents by relying on the decision of COMMISSIONER OF CENTRAL EXCISE, AHMEDABAD-II V/S CADILA HEALTHCARE LTD [2013 (30) S.T.R. 3 (Guj.)]. While relying on this decision, it has been held that the commission agent is directly concerned with sales rather than sales promotion and thus, the services provided by them do not fall within the purview of main or inclusive part of the definition of input service. We submit that the denial of cenvat credit by solely placing reliance on the decision of the Hon’ble Gujarat High Court decision in the case of Cadila Healthcare Ltd. is totally erroneous. In this regard, it is submitted that the decision of M/s Cadila Healthcare was rendered in specific facts and circumstances and the said decision is clearly distinguishable in the present case. M/s Cadila Healthcare was paying the commission to its agent for causing the sale of their products. On the other hand, we have clear agreement with our C&F agents that they shall engage themselves in the sales promotion and advertising of our products alongwith other services. Due to this fact, these services duly fall within the purview of term “sales promotion” which is clearly included in the definition of input service and accordingly credit is allowed on the same. In order to substantiate their claim that the activities carried out by their C&F agents includes the sales promotion activities; we are enclosing the specimen copy of agreements entered with our C & F agents in Annexure-1. If the clauses 5, 6 and 7 of the agreement are pursued, it is observed that apart from dispatching our goods to various dealers, the C & F agent is also engaged in sales promotion activities of the company. The said clauses are reproduced for the sake of convenient reference as follows:-
“5) Assisting the company in promoting the sales of the company’s products by canvassing for sales of those products with various dealers in the State;
 
6) Organising sales promotional activities of the company by way of Painter Meets, Dealer Meets and Architect Meets in the State;
7) Assisting the company in its advertising efforts by arranging hoardings, display boards, and other advertising materials;
 
From the above produced extracts from the agreement, there leaves no room for doubt that the C & F Agent was involved in sales promotional activities of the company and thus the decision of M/s Cadila Healthcare relied by the impugned notice is not applicable in our case. Therefore, we are entitled to avail the cenvat credit of service tax paid on the commission paid to C & F Agent and the impugned show cause notice is liable to be set aside. 
 
 
In continuation to above, it is reiterated that the decision of M/s Cadila Healthcare is not applicable to the facts and circumstances of present case. To support this contention, we would like to reproduce an extract from para 2.2 at page 3 of the impugned show cause notice as follows:-
 
“…….The ‘includes’ portion of the definition refers to advertisement or sales promotion. It was in this background that the court has examined whether the services of foreign agent availed by the assessee can be stated to services used as sales promotion. In the absence of any material on record to indicate that such commission agents were involved in the activity of sales promotion, the commission agent is directly concerned with the sales rather than sales promotion and as such the services provided by such commission agent would not fall within the purview of the main or inclusive part of the definition of input service as laid down in the rule 2(l) of the Cenvat Credit Rules, 2004.” 
 
It is worthwhile to mention here that the above para has been given by impugned show cause notice while interpreting the decision of M/s Cadila Healthcare. An analysis of this para clearly indicates that the High Court gave the above decision as THERE WAS NO MATERIAL ON RECORD TO INDICATE THAT SUCH COMMISSION AGENTS WERE INVOLVED IN THE ACTIVITY OF SALES PROMOTION. This fact is clearly mentioned in the above para produced in the show cause notice. On the other hand, in our case, the C&F agents are also responsible for doing the sales promotion activities and this fact is clarified by the copies of agreement enclosed with this reply. Thus, the facts and circumstances under which decision of M/s Cadila Healthcare was rendered are totally different than our case. Therefore, this decision cannot be relied upon for denying the credit to us. Accordingly, the impugned show cause notice issued by erroneously relying on this decision is not tenable and is liable to be quashed.
 
In continuation to the above, we would also like to mention the discussion held on this issue in the Tariff Conference held on 28.10.2015/29.10.2015 and available as F. No. 96/85/2015-CX.1. The relevant portion is reproduced for quick reference as follows:- 
The conference discussed the issue in detail and the facts of both the cases where apparently conflicting judgments have been delivered. It was noted that the judgment of Hon’ble High Court of Gujarat was in a very specific set of circumstances where the sales commission agent seemed to be only trading in the goods i.e. buying and selling the goods without undertaking any sales promotion or advertising. In the said judgment, Hon’ble Court noted that “there is nothing to indicate that such commission agents were actually involved in any sales promotion activities as envisaged under the said expression. Obviously, commission paid to the various agents would not be covered in this expression since it cannot be stated to be a service used directly or indirectly in or in relation to the manufacture of final products or clearance of final products from the place of removal”.
 
Board Circular No. 943/4/2011-CX., dated 29.4.2011 at point no 5 on the other hand has explained the situation where the commission agent renders the service of sales promotion in following words – “……. Moreover the activity of sale promotion is specifically allowed and on many occasions the remuneration for same is linked to actual sale……. “ . Board circular directs that input service credit would be available when there is a element of sales promotion as sales promotion is a service. Thus, the conflict between the judgment and the circular is not as large as is perceived. Both the Board circular and case laws on the subject allow credit of input services, when the activity of the sales commission agent involves an element of sales promotion.
 
We submit that even the minutes of the tariff conference support our case and the show cause notice issued is not at all tenable and deserves to be dropped.
 
 
We further wish to place reliance on the decision given by the Hon’ble Punjab and Haryana High Court in the case of COMMISSIONER OF CENTRAL EXCISE, LUDHIANA VERSUS AMBIKA OVERSEAS [2012 (25) S.T.R. 348  (P&H)]. In this case, the cenvat credit of service tax paid on overseas commission agents was allowed on the grounds that the activities of canvassing and procuring the orders were done pre-removal of goods. We also wish to point out that as the decision of Cadila Healthcare relied upon by the revenue department was rendered in specific circumstances and is clearly distinguishable in our case, the benefit of the decision given in the case of M/s Ambika Overseas should be extended to us and the impugned show cause notice should be set aside.
 
Aligning with above it is submitted that the above stated decision of M/s Ambika Overseas has not been appealed by the department, therefore has become final and binding. Also, similar decision has also been rendered by hon’ble Punjab and Haryana High Court holding that the decision of Ambika Overseas is binding and by relying on this decision, once again hon’ble High Court has upheld the view that “broad activities which are having nexus to business and integrally connected are covered in the fold of term ‘input service’ as defined in Cenvat Credit Rules, 2004 and accordingly commission paid to overseas agent for canvassing and procuring orders is input service for which credit is available.” This decision has been cited at Commissioner v. Ambika Forgings- 2015 (40) S.T.R. J191 (P. & H.). It is worthwhile to mention here that similar view has also been taken by hon’ble Andhra Pradesh High Court and this judgment is cited as Commissioner v. Lanco Industries Ltd.- 2015 (38) S.T.R. J365 (A.P.). In this decision, hon’ble High Court upheld the view of hon’ble Tribunal by holding that “Cenvat credit of Service Tax admissible on sales commission paid to commission agent in respect of sales made through such agents, as held by Tribunal in 2008 (10) S.T.R. 382 (Tribunal)”. Therefore, it is ample clear that as on date there are three decisions of High Courts which are in our favour, however, the impugned show cause notice has relied upon one decision which is against and that too, passed under different facts and circumstances. In view of this, the impugned show cause notice is not viable in relying upon a single decision which is against us ignoring the fact that there are three favourable decisions on the same issue. Therefore, the impugned show cause notice is not tenable and is liable to be quashed.
 
Aligning with above it is submitted that the decision given by various High Courts to allow the credit on the services of commission agents have been categories followed in the subsequent recent decisions given by various appellate authorities. Some of these decisions are cited as follows:-
·         NOVOZYMES SOUTH ASIA PVT. LTD. Versus COMMISSIONER OF C. EX., BANGALORE [2015 (38) S.T.R. 204 (Tri. - Bang.)]
Cenvat credit of Service Tax - Input service - Credit availed against bill raised by commission agent - Eligibility - Cenvat credit admissible if commission agent also undertaking sales promotion activity - As per contract agreement, said commission agent procuring orders, soliciting customers and promoting products of assessee company - Nexus with manufacturing activity established - Commission agent’s service to be treated as input service - Cenvat credit admissible - Rule 2(l) of Cenvat Credit Rules, 2004. [2012 (25)S.T.R.348 (P & H) followed]. [paras 3, 4]
·         BHURUKA GASES LTD. Versus COMMISSIONER OF C. EX., CUS. & S.T., BANGALORE-I [2015 (37) S.T.R. 818 (Tri. - Bang.)]
Cenvat credit of Service Tax - Input services - Sales Commission Agents’ services held not involving sales promotion and not treatable as input services - HELD : Factually, as proved from letter written by two agents, besides sales commission, said agents helping in selling of product, in canvassing business, making their network available for expanding business and procuring of orders, which activity can be treated as sales promotion - Commission agents’ activity covered by definition of ‘input service’ and Cenvat credit admissible - Rule 2(l) of Cenvat Credit Rules, 2004. [paras 7, 8]
·         C.C.E. & S.T., SURAT-II Versus SHREE KAMREJ VIBHAG KHAND UDYOG SAHAKARI MANDLI LTD. [2014 (36) S.T.R. 814 (Tri. - Ahmd.)]
Cenvat credit of Service Tax - Input service - Commission charged for sale of goods - Chartered Accountant’s certificate clearly shows that commission paid for promoting sale - Factual matrix, recorded by appellate authority, indicate that amount paid is for sale promotion expenses - No infirmity in impugned order - Rule 3 of Cenvat Credit Rules, 2004. [paras 7, 8]
·                  BIRLA CORPORATION LTD. Versus COMMISSIONER OF C. EX., LUCKNOW [2014 (35) S.T.R. 977 (Tri. - Del.)]
Recovery of Cenvat credit - Input service - Credit on Commission Agent’s services for procuring sales orders - Denied as having no nexus with manufacture of final product - HELD : Following majority High Court Judgments in cases of Ultratech Cement Ltd. [2010 (20)S.T.R.577 (Bom.)] and Coca Cola India Pvt. Ltd. [2009 (15) S.T.R. 657 (Bom.)] impugned services includible in definition of ‘input service’ under Rule 2(l) of Cenvat Credit Rules, 2004 - Though expression ‘activities related to business’ excluded from inclusive portion of said definition vide amendment w.e.f. 1-4-2011, expression ‘advertisement or sales promotion’ retained therein - Clarification issued by C.B.E. & C. Circular No. 943/4/2011-CX., dated 24-9-2011 that definition of ‘input service’ allows all credit on services used for clearance of final product upto place of removal and as such, credit admissible on services of sale of dutiable goods on commission basis - In view of said Circular, service of Commission Agents are cenvatable services covered by term ‘advertisement or sales promotion’ under definition of ‘input services’ in Rule 2(l) ibid - Impugned order set aside - Rule 2(l) of Cenvat Credit Rules, 2004. [paras 7.1, 7.2, 8]
·         COMMR. OF C. EX., LUDHIANA Versus FORGINGS & CHEMICALS INDUSTRIES [2014 (34) S.T.R. 238 (Tri. - Del.)]
Cenvat credit of Service Tax - Input service - Business Auxiliary Service - Commission paid to overseas commission agent - Service of procuring orders from overseas commission agent covered by definition of input service eligible of Service Tax - Rule 3 of Cenvat Credit Rules, 2004. [para 4]
Cenvat credit of Service Tax - Input service - Business Auxiliary Service - Definition of input service to be interpreted in light of requirement of business and cannot be read restrictively to confine up to factory or depot of manufacture - Rule 2 of Cenvat Credit Rules, 2004. [para 4]
 
The analysis of above decisions makes it clear that the recent judicial pronouncements given by the various appellate authorities holds that the credit is admissible on the services of commission agents. Therefore, extending the benefit of these decisions, the impugned show cause notice should be quashed.
 
It is further submitted that if two contrary interpretations are possible, the interpretation favouring the assessee should be taken. In the given case, if the interpretation of definition of input service as taken by the impugned show cause notice is accepted, the credit is not allowable on the services of commission agents. On the other hand, if the interpretation discussed in the forgoing paras it accepted, the credit is admissible on the services of commission agents. Thus, the two interpretations are possible for a single provision. In this regard attention is invited towards the ratio of Supreme Court judgment in the case of SNEH ENTERPRISES Versus COMMISSIONER OF CUSTOMS, NEW DELHI [2006 (202) E.L.T. 7 (S.C.)], in which the hon’ble Apex Court has held that:- 
 
“25.While dealing with a taxing provision, the principle of ‘Strict Interpretation’ should be applied. The Court shall not interpret the statutory provision in such a manner which would create an additional fiscal burden on a person. It would never be done by invoking the provisions of another Act, which are not attracted. It is also trite that while two interpretations are possible, the Court ordinarily would interpret the provisions in favour of a tax-payer and against the Revenue.”
 
The analysis of above decision makes it clear that where two interpretations of any provision is possible, the interpretation favouring the assessee will hold good. Thus, in view of this decision of Apex Court, the benefit of Cenvat credit on commission agents should be allowed to us and the impugned show cause notice should be quashed.
 
It is further submitted that the above referred interpretation in favour of assessees have also been clarified vide Circular No 943/04/2011-CX, dated April 29, 2011. The relevant extract from this circular is given as follows:-
 
“The definition of input services allows all credit on services used for clearance of final products upto the place of removal. Moreover activity of sale promotion is specifically allowed and on many occasions the remuneration for same is linked to actual sale. Reading the provisions harmoniously it is clarified that credit is admissible on the services of sale of dutiable goods on commission basis.”
 
In view of above clarification, credit is allowable on the services of commission agents even if the commission is linked to actual sale. This interpretation has been upheld by the Government by amending the definition of input service on 3.2.2016. This amendment has been made vide notification no. 02/2016-CE (NT) dt. 03/02/2016 by inserting a clarification in the definition of input service as follows:-
 
Explanation.-For the purpose of this clause, sales promotion includes services by way of sale of dutiable goods on commission basis.”
By virtue of this amendment, all the types of commission agents involved in sale of dutiable goods shall be treated as included in the term “sales promotion”. This amendment also clarifies the intention of law makers that the credit is allowed on the services of commission agents even if they are not involved in the sales promotion. Therefore, in view of this amendment, credit is undisputedly allowable on the services of C&F agents availed by us and the impugned show cause notice is liable to be quashed.
 
Aligning with above it is submitted that the above referred explanation added to the definition of input service on 3.2.2016 is clarificatory in nature as held by Ahmedabad CESTAT in the case of Essar Steel India Ltd Vs CCE & ST [2016 (335) E.L.T. 660 (Tri. - Ahmd.)]. In this decision, it has been held as follows:-
Cenvat credit of Service Tax - Input service - Sales promotion activities - Explanation to Rule 2(l) of Cenvat Credit Rules, 2004 inserted by vide Notification No. 2/2016-C.E. (N.T.), dated 3-2-2016 holding that sales promotion includes services by way of sale of dutiable goods on commission basis - C.B.E. & C. Circular No. 943/4/2011-CX, dated 29-4-2011 resolved the different views of the High Courts - Explanation inserted in Rule 2(l) ibid is declaratory in nature, hence, effective retrospectively. - An explanation inserted in a Section/Rule, is generally to explain the meaning of the words contained in the Section/Rules. The purpose of explanation is to explain the meaning and intendenments of the Section/Rule. Sometimes, the explanation may be inserted to clarify a doubtful point of law, which would be effectively retrospectively.[paras 20, 22]
 
Therefore, the hon’ble Ahmedabad CESTAT has held that the said amendment is clarificatory in nature and amendments which are of clarificatory in nature are applicable retrospectively even if the amending notification does not specifically provide for it. Therefore, in view of this decision, the services of C&F agents availed by us are clearly included in the definition of input service and credit is allowable on the same. The impugned show cause notice is liable to be dropped.
 
It is further submitted that the Government does not intends to levy the burden of service tax on the services provided by the commission agents. This intention is clarified by the following facts:-
·         Notification No. 17/2008-ST dated 1st Apr, 2008 was issued wherein the exemption by way of refund is provided for the service tax paid on the "Services provided by a commission agent, located outside India, and engaged under a contract or agreement or any other document by the exporter in India, to act on behalf of the exporter, to cause sale of goods exported by him".
 
·         Notification no. 18/2009-ST dated 7th July, 2009 was issued to provide the exemption from payment of Service Tax on the services provided by overseas commission agents had been provided subject to the filing of EXP-1 and half yearly Return in EXP-2.
 
·         Subsequently, Notification 14/2014-ST dated July 11, 2014 substituted clause 2(f) of Place of Provision of Rules, 2012 with effect from October 1, 2014 defining "intermediary" as a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the 'main' service) or a supply of goods, between two or more persons, but does not include a person who provides the main service or supplies the goods on his account.
The effect of this amendment was that the service of commission agent abroad for supply of goods got covered under Rule 9(c) of the said Rules. Accordingly, for such services of commission agents the location of service provider became the place of provision of service. As service tax is not leviable on services provided in non-taxable territory, no tax was payable on services of the commission agent located abroad with effect from October 1, 2014.
 
·         Due to issuance of notification no. 14/2014-ST amending the Place of Provision of Services Rules, 2012, the earlier notifications have been rescinded as the same have become redundant.
 
 
In view of the above, it is evident that the ultimate intention of government is to exempt Service Tax on commission either by way of exemption, CENVAT credit or refund. In the CBEC Circular No 120/01/2010-ST. dated: January 19, 2010, it has been clarified that:
 
"There cannot be different yardsticks for establishing the nexus for taking of credit and for refund of credit. Even if different phrases are used under different rules of Cenvat Credit Rules, they have to be construed in a harmonious manner"
 
It has been held in CCE, Jalandhar Vs Ambika Forgings 2010 (259) E.L.T. 593 (Tri. - Del.) that once the legislative mandate is apparent, no technical meaning need to be assigned to deny relief. Further, Appeal filed by Revenue has been rejected by the Principal Bench of Hon’ble CESTAT-Delhi in the case of CST Vs Convergys India Pvt. Ltd. (2009-TIOL-888-CESTAT-DEL) upholding the above principle that "there cannot be two different yardsticks, one for permitting credit and the other for eligibility for granting rebate. Therefore, in view of this discussion, it is once again clear that it is the intention of the law makers to allow the credit on the services of commission agents. Thus, the impugned show cause notice issued against the intention of law makes is not viable in the light of following decisions:-
·         BALWANT SINGH Versus JAGDISH SINGH [2010 (262) E.L.T. 50 (S.C.)]:-
Interpretation of statutes - Legislative intention - Provisions of statute including every word to be given full effect keeping legislative intent in mind to ensure achieving projected object- No provision treatable as enacted purposelessly - Court not to give interpretation to provisions to render them ineffective or odious. [para 14]
 
·         COMMISSIONER OF CENTRAL EXCISE, LUDHIANA Versus RALSON INDIA LTD. [2006 (202) E.L.T. 759 (P & H)]
Interpretation of statute - Question whether a statutory provision is mandatory or directory depends upon intent of Legislature, and not language in which the intent is couched - Literal construction which makes a particular provision manifestly absurd or leads to anomalous results, to be avoided. [para 9]
The analysis of above decisions of hon’ble Supreme Court and High Court makes it clear that the intention of the law makers is to be kept in mind while interpreting any provision.If any interpretation defeats the intention of the law makers, it should be avoided. In our case also, the interpretation taken by the impugned show cause notice is defeating the intention of law makers that the credit should be allowed on the services of commission agents. This intention is clarified by the discussion done in the forgoing paras. Therefore, the impugned show cause notice should be quashed and the proceedings initiated against us should be dumped. 
 
We further submit that the impugned show cause notice is alleging that the agreements submitted by us have been entered by our head office with the C&F agents, therefore, the benefit of same cannot be extended to us. In this regard, it is submitted that the essential factor to be examined here is that eventhough the agreement has been entered into with the head office, yet, the entire services pertaining to the same have been utilized by our Jodhpur unit and the invoices have also been raised on us which had been submitted alongwith reply to audit para. This fact of raising invoices in our name has been accepted by the impugned show cause notice at para 3.3. Since the entire services have been utilized and payment has also been made by us, the credit cannot be denied to us. The impugned order proposing to deny the said credit is not tenable and is liable to be set aside.
 
 
 
The impugned show cause notice is also alleging that the services availed in this category pertains to ‘Brand name’, therefore, the head office was liable to take the registration as “input service distributor” and distribute the credit in accordance with rule 7 of Cenvat Credit Rules, 2004 read with CBEC Circular no. 178/4/2014-ST dated 11.07.2014. Thus, the impugned show cause notice has proposed to deny the credit on the grounds that the head office has not followed proper procedure. In this respect, it is submitted that the impugned show cause notice is not viable in disallowing the credit on the grounds of default done by some other person. It is worthwhile to mention here that for the default done by the head office, the separate show cause notice should have been issued to it. The separate proceedings should have to be initiated against the head office rather than making allegations in the impugned show cause notice. So far as our case is concerned, since there is no doubt regarding the fact that the services in issue have been availed and utilized by us, the benefit of Cenvat credit cannot be denied to us. It is further submitted that there have been decisions of various appellate authorities wherein credit has been allowed to person who had actually utilized the services/goods involved in the bills/invoices/bill of entries which have been issued in the name of some other person. The main ground of allowing the credit was that where the duty paid nature of the goods/services is not disputed and so long as the goods/services are utilized by the manufacturer/service provider, credit is not deniable on grounds of technical lapses. Reliance is placed on the following decisions:-
·         INGERSOLL RAND (I) LTD. Versus COMMISSIONER OF C. EX., AHMEDABAD [2006 (205) E.L.T. 937 (Tri. - Mumbai)]
Cenvat/Modvat - Duty paying document - Bill of entry in the name of head office - Credit denied on the grounds of impugned document not in the name of appellant and non-receipt of entire quantity covered there under by appellant - Original order upheld on the ground of non-receipt of entire quantity by appellant - Contended by appellant that no allegation of non-receipt of entire quantity in show cause notice - No dispute about duty paid character of inputs and receipt of the same in appellant factory - Credit not deniable - Appeal allowed - Rule 9 of Cenvat Credit Rules, 2004. [paras 1, 2, 3, 4]
·         A.S.W.M. SPINNING MILLS Versus COMMISSIONER OF C. EX., CHANDIGARH [2002 (148) E.L.T. 325 (Tri. - Del.)]
Modvat/Cenvat - Modvat on inputs - Modvatable document - Bill of Entry - Denial of Modvat credit on the ground that the address given on the modvatable document, i.e., Bill of Entry is Ram Tirath Road, Amritsar whereas the benefit of credit is availed by the unit at Batala Road, Amritsar not sustainable when it has been proved that the two units are sister concerns, a fact averred by department in a number of proceedings and appellants receiving the entire consignment covered under impugned Bill of Entry - Board’s Circular Nos. 170/13/96-CX. 8, dated 29-2-1996 and 211/45/96-CX., dated 14-5-1996 - Erstwhile Rule 57A of Central Excise Rules, 1944. [para 3]
·         COMMR. OF CUS. & C. EX., AURANGABAD Versus PERFECT CIRCLE VICTOR LTD. [2002 (149) E.L.T. 678 (Tri. - Mumbai)]
Modvat/Cenvat - Modvat on inputs - Grinding wheel - Bill of entry - Eligibility to Modvat credit as input already decided by earlier decisions of the Tribunal - Board in its Circular No. 211/45/96-CX., dated 14-5-1996 directs where bill of entry shows registered office as recipient but goods are used in factory, Modvat credit should not be disallowed - Revenue appeal dismissed - Rule 57A of erstwhile Central Excise Rules, 1944. [paras 2, 3, 4]
·         DEPUTY GENERAL MANAGER (TAXATION), BHEL Versus COMMR. OF C. EX., DELHI-III [2007 (211) E.L.T. 135 (Tri. - Del.)]
Cenvat/Modvat - Duty paying document - Document issued in name of importer showing its address whereas credit availed by manufacturing unit - Modvat credit could not have been denied due to non-mention of assessee’s unit in bills of entry, genuineness of triplicate copies of which had never been disputed, nor has the fact about goods having been received under cover of such documents ever been disputed - Requirement of claiming credit under document falling in Rule 57G(3)(c) of erstwhile Central Excise Rules, 1944 duly satisfied. [para 8.3]
 
In all of the above cases, it was held that the credit cannot be denied on the grounds that the duty paying document is issued in the name of the head office or sister concern when there no dispute about the receipt and use of the inputs/input services received under the cover of those invoices. In the instant case, the cenvatable invoice has correct address and there is no doubt that the services have been actually used by us. Therefore, the impugned show cause notice is not tenable is liable to be quashed. 
 
 
 
In continuation to above it is submitted that the denial of credit on the grounds that the head office did not distribute it is not viable on the ground that there is no doubt regarding the genuineness of the credit availed. It has been held by the hon’ble CESTAT that non following the procedure of input service distributor is merely a procedural lapse and it cannot be a ground to deny the credit so long as there is no misuse of the credit. This has been decided in the following case:-
·         M/s Life Long India Ltd v/s CCE, Delhi [2011-TIOL-832-CESTAT-DEL]-
Credit on Invoices in the name of Registered Office: this is a matter which has been decided in many cases by the Tribunal and credit cannot be denied for that reason. The provision relating to input service distributor is not applicable here because credit is not getting distributed to many locations. If at all applicable, it is only a procedural requirement and credit cannot be denied so long as there is no case of misuse of credit: DELHI CESTAT;    
 
 
In view of above decision, the denial of credit on the grounds that the head office did not follow the provisions related to input service distributor is not tenable and the entire proceedings should be dropped.
 
 
Without prejudice to above submissions and without accepting the allegations leveled in the show cause notice, it is reiterated that the credit in the instant case cannot be denied to us. However, even if it is accepted for the sake of argument also that the allegations referred in the impugned show cause notice are correct, then too, the entire credit cannot be denied. Eventhough the services in the given case have been availed and utilized by us, yet for any reason the allegations of the impugned notice are upheld, the entire credit should not be denied; and only that much credit which can be attributed to our another unit (by following the procedure laid down in the rule 7 of the Cenvat Credit Rules, 2004 and impugned circular referred by the show cause notice) should be disallowed. The remaining credit should be allowed to us.
 
 
We submit that the impugned show cause notice has been issued by invoking the extended period of limitation by alleging that we have suppressed the facts with an intention to evade payment of excise duty. It has been alleged that we did not declared that we have been availing the services of commission agent. In this regard, it is submitted that there is no statutory requirement of disclosing these details in the ER-1 or any other return prescribed under Central Excise or Service tax law. There is only requirement of disclosing a consolidated figure of Cenvat credit availed which have been duly complied by us. Further, there is no provision in the central excise or service tax law which states that each and every act and procedure followed by the assessee should be intimated to department and that too suo motu as alleged in the impugned show cause notice. It has been held by hon’ble Gujarat High Court in the case of APEX ELECTRICALS PVT. LTD. Versus UNION OF INDIA [1992 (61) E.L.T. 413 (Guj.)] (Annexure- ) that non-furnishing of the information not required under law does not amount to suppression. The verdicts of hon’ble High Court are given as follows:-
 
“Demand - Limitation - Suppression - Information not required to be supplied under law if not supplied does not amount to suppression - Proviso to Section 11A(1) of Central Excises and Salt Act, 1944.”
Similar decision was given in the following cases:-
·         Gufic Pharma Vs. CCE - 1996 (85) ELT 67 (T) [Affirmed by Supreme Court at 1997 (93) ELT A186]
·         Prolite Engineering Co. Vs Union Of India [1995 (75) ELT 257 (GUJ.)]
·         Unique Resin Industries Vs. CCE - 1995 (75) ELT 861 (T)
In all the above cases, it was held that the information not required to be submitted under law, if not submitted, will not amount to suppression of facts. Thus the impugned show cause notice invoking the extended period of limitation on the grounds of non-furnishing of information (that was not required to be submitted under law), is not sustainable and is liable to be set aside.
 
 
The submissions made in the forgoing paras make it ample clear that there was no misstatement or willful suppression of facts on our part, thus, the show cause notice is barred by the clause of limitation. To invoke the extended period, the fraud, collusion or willful misstatement should be there. It was held in the case of Rainbow Industries v/s. CCE [1994 (74) ELT 3 (SC)] that for invoking the extended period, two ingredients are essential – (i) Willful suppression, mis-declaration, etc. and (ii) Intention to evade payment of duty. In absence of both of these extended period cannot be invoked. This has also been held in the case of Chemphar Drug & Limits reported in (2002-TIOL-266-SC-CX) wherein hon’ble Supreme Court held as under:-
 
“Demand – Central Excise – Limitation –Invoking extended period of five years – something positive other than mere inaction or failure on part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before the period of six months.”
 
Thus, in the light of above decision, extended period cannot be invoked blindly in every case. Where the assessees have been acting in the boundaries of law, the extended period cannot be invoked. Similar decision is given in the following cases:-
 
·          Pushpam Pharmaceuticals Company Vs. CCE, Mumbai reported in ( 2002-TIOL-235-SC- CX )
 
“Central Excise – Demand – Suppression of facts – Words and phrases – Where facts are known to both the parties the omission by one to do what he might have done and not he must have done, does not render it suppression – Suppression of facts must be deliberate to escape from payment of duty.”
 
·                     NESTLE INDIA LTD. Versus COMMISSIONER OF CENTRAL EXCISE, CHANDIGARH [2009 (235) E.L.T. 577 (S.C.)]
Demand - Limitation - Intermixture of vitamins cleared by assessee for more than 20 years prior to issue of show cause notice - Assessee offered to demonstrate but Department not availed opportunity to find out whether manufacture was involved - Extended period invocable only when there is positive act other than mere inaction or failure on the part of manufacturer and there must be conscious or deliberate witholding of information by manufacturer as held in 1989 (43)E.L.T.195 (S.C.) and 1989 (40)E.L.T.276 (S.C.) - Tribunal order on non-sustainability of invocation of extended period, upheld - Proviso to Section 11A of Central Excise Act, 1944. [para 17]
 
·         COMMISSIONER OF C. EX., BANGALORE Versus KARNATAKA AGRO CHEMICALS [2008 (227) E.L.T. 12 (S.C.)]
Demand - Limitation - Controversy regarding classification of micronutrient fertilizers not settled though these circulars were issued by Department - Conflict of views between Ministry of Finance and Ministry of Agriculture - Extended period of limitation not invocable - Section 11A of Central Excise Act, 1944. [para 27]
Castings — Machine parts — Milling, drilling and boring carried out on rough castings — Exemption under Notification No. 223/88-C.E., dated 23-6-1988 not available (2)Demand — Limitation — Department when aware of assessee’s activities at all times — Extended period of limitation not invokable (3) Appeal — Additional evidence — Documents not placed before adjudicating authority nor necessary for passing order in the case, not admissible
·         Collector v. Super Electricals – 1997 (95) E.L.T. A155 (S.C)
Demand — Limitation — Extended period of five years not applicable in the absence of suppression or mis-statement of facts or fraud (2)           Penalty — Retrospective amendment to Rule 9(2) not invokable for past period
·         ILAVIA ENTERPRISES Versus COLLECTOR OF C. EX., JAIPUR [1997 (91) E.L.T. 26 (S.C.)]
Demand - Limitation - Manufacture of goods commenced on 1st August, 1991 but requisite declaration filed in April, 1992 - Show Cause Notice issued on 10-5-1993 for the period 1-8-1991 to 30-12-1992 - HELD : No suppression of facts on the part of the assessee, nor they have acted with any mala fide intention - Demand to be restricted to six months period preceding to the date of Show Cause Notice - Extended period of limitation not invokable - `Shikakai’ bath powder whether an Ayurvedic medicine or cosmetic - Section 11A of the Central Excise Act, 1944.

  • COLLECTOR OF CENTRAL EXCISE Versus H.M.M. LIMITED [1995 (76) E.L.T. 497 (S.C.)]

Demand - Limitation for extended period not invokable unless show cause notice puts assessee to notice specifically as to which of the various commissions or omissions stated in the proviso to Section 11A(1) of Central Excises & Salt Act, 1944 had been committed. [para 2]
Demand - Limitation for extended period - Non-declaration of waste/ by-product in classification list - Inference of intention to evade payment of duty not drawable automatically - Show cause notice must contain an averment to that effect pointing out specifically as to which of the various commissions or omissions stated in the proviso to Section 11A(1) of Central Excises & Salt Act, 1944 had been committed by assessee and adjudicating authority must specifically deal with assessee’s contention in rebuttal thereof. [para 2]
Penalty not imposable unless Department is able to sustain its demand show cause notice which was under challenge on the ground of limitation - Rules 9(2) and 173Q of Central Excise Rules, 1944.
 
·         COSMIC DYE CHEMICAL Versus COLLECTOR OF CENTRAL EXCISE, BOMBAY [1995 (75) E.L.T. 721 (S.C.)]
Demand - Limitation - Intent to evade duty must be proved for invoking proviso to Section 11A(1) of Central Excises & Salt Act, 1944 for extended period of limitation - Intent to evade duty built into the expressions “fraud” and “collusion” but “mis-statement” and “suppression” being qualifiedbyimmediately preceding words “wilful” and “contravention of any of the provisions of this Act or rules” being qualified by the immediately following words “with intent to evade payment of duty”,.
- It is, therefore, not correct to say that there can be a suppression or mis-statement of fact, which is not wilful and yet constitutes a permissible ground for the purpose of the proviso to Section 11A. Mis-statement or suppression of fact must be wilful. [para 6]
Demand - Limitation - SSI manufacturer not including value of clearances of fully exempted goods in his declaration for previous financial year due to bona fide impression gained from two High Court judgments which held that fully exempted goods were not includible in the definition of “excisable goods” as defined in clause (d) of Section 2 of Central Excises & Salt Act, 1944 - Mis-statement or suppression of fact in the SSI declaration cannot be called wilful - Extended period of limitation not invokable - Proviso to Section 11A(1) ibid. [para 8]
 
Words and phrases - “Wilful” means intent to evade duty - Proviso to Section 11A(1) of Central Excises & Salt Act, 1944. [para 6]
 
Words and phrases - “Fraud” and “collusion” - Intent to evade duty is built into these very words - Proviso to Section 11A(1) of Central Excises &Salt Act, 1944. [para 6]
 
·         COMMISSIONER OF C. EX., MUMBAI Versus S. NARENDER KUMAR & CO. [2011 (267) E.L.T. 577 (S.C.)]
Demand - Limitation - Extended period, invocation of - Assessee regularly filing classification list with Department and same approved over the years - SCN issued invoking extended period after issuance of Circular subsequently regarding classification of Jaljira masala - Case identical to Apex Court decision in 2005 (188)E.L.T.149 (S.C.) and 2005 (180)E.L.T.300 (S.C.) where also classifications approved by Department from time to time and where it was also held that Department could have called upon assessee to produce catalogues in case of some confusion/doubt - No infirmity in Tribunal’s order holding absence of wilful suppression - Extended period not invocable - Proviso to Section 11A(1) of Central Excise Act, 1944. [paras 6, 8]
 

  • Padmini Products v/s Collector of Central Excise– reported in 1989 (43) ELT 195 (SC)

 
“Demand- Limitation- Extended period of 5 years inapplicable for mare failure or negligence of the manufacturer to take out license pr pa duty when there was scope  for doubt that goods were not dutiable – Dutiability of goods in doubt because to Trade notice Scope of fraud, collusion, willful mis-statement or suppression of facts or contravention of rule with intent evade duty- Rule 9(2) of the Central Excise Rules, 1994 and Section 11 S of Central Excise and Salt Act, 1994.when in view of the trade notice there is scope for believing that the goods were entitled to exemption and consequently no licence is required to be taken out, then the extended period of limitation for demand under Section 11 A is inapplicable. Mere failure or negligence on the part of the manufacturer either not to take out a licence or not pay duty in case where there was scope for doubt, does not attract the extended limitation. Unless there is evidence that the manufacturer knew that goods were liable to duty or he was required to take out of licence. For invoking extended period of five limitation duty should not had been said, short levied or short paid erroneously refunded  because of either any fraud, collusion or willful mis-statement or suppression of facts of facts or contravention of any provision of the Act or Rules made there under. These ingredients postulate a positive act, therefore, failure to pay duty or take out a licence is not necessary due to fraud or collusion or willful mis-statement or suppression of facts contravention of any provisions of the Act. Likewise suppression of facts is not failure to disclose to the legal consequences of a certain provision.”
 

  • Tamil Nadu Housing Board v/s Collector of Central Excise, Madras[1994 (74) ELT 9 (SC)]

 
Demand – Limitation for extended period invokable only if existence of both situations (1) suppression, fraud, collusion etc. and (2) intent to evade payment of duty proved- initial burden on Department- once department discharges such burden, it shifts and then applicability of provision to Section 11A(1) of Central Excise and Salt Act, 1944 is to be construed liberally.
In the above cases, it was held that mere inaction would not be a valid ground for invoking the extended period of limitation. There should be deliberate withholding of information with an intent to evade payment of duty without which extended period is not invokable. This has not been proved by the impugned show cause notice.  As such, the benefit of these decisions is extendable to us and the impugned show cause notice is liable to be quashed for wrongly invoking the extended period of limitation.
 
We further submit that the impugned show cause notice is also proposing the penalty under rule 15(1) of the Cenvat Credit Rules, 2004 and under rule 25(d) of Central Excise Rules, 2002. In this regard, we submit that when there is no malafide intention to evade duty or to suppress facts from the department, penalty is not imposable in view of Supreme Court judgment given in the case of Hindustan Steel Vs. State of Orissa [1978 2 ELT J 159 (Supreme Court)]. In this case it was held that an order imposing penalty for failure to meet statutory obligation is a result of proceedings which are quasi judicial in nature and penalty should not ordinarily be imposed unless the person acted deliberately in defiance of law or was guilty of misconduct or dishonest or acted in conscious disregard of his obligation. In view of Supreme Court judgment, since intention to evade payment of duty is not there, penal provisions cannot be invoked. The show cause notice is thus liable to be dropped.
 
 
It is reiterated that the mens rea is an essence of invoking the penal provisions. Reliance is also placed on the following judgments:-
 
·         2010 (258) ELT 465 (SC) – Sanjiv Fabrics
·         2007 (207)  ELT 27 (P &H) – UT Ltd
·         2007  (5) STR 251 (P & H) – Kamal Kapoor
·         2009 (238) ELT 3 (SC) – Rajasthan Spinning & Weaving Mills
·         2009 (238) ELT 209 (P&H) – J. R. Fabrics
·         2009 (238) ELT 226 (Mad) – Thirumala Alloys Castings
·         2008 (228) ELT 31 (Del) – K. P. Pouches
 
In view of these judgments, no penalty can be imposed unless mens rea or intention to evade payment of duty is proved.
 
 
In continuation to the above, it is submitted that the issue involved herein is that of interpretation of legal provisions and where interpretation of legal provisions is involved penalty cannot be imposed on the assessee. This contention has been upheld in the case of Uniflex Cables Ltd v/s Commissioner of Central Excise, Surat-II [2011-TIOL-85-SC-CX] wherein it was held as under:
Central Excise – No penalty in a case of interpretational nature: The Commissioner, himself in his order-in-original has stated that the issue involved in the case is of interpretational nature, Keeping in mind the said factor, the Commissioner thought it fit not to impose harsh penalty and a penalty of an amount of Rs. 5 lakhs was imposed on the appellant while confirming the demand of the duty. Therefore, in the facts and circumstances of the present case, penalty should not have been imposed upon the appellant.
Thus, hon’ble Supreme Court has held that penalty is not imposable in the issues involving the interpretation of legal provisions. In the given case the issue involved is interpretation of definition of input service, therefore the benefit of above referred decision of Supreme Court is extendable to us. As such, the impugned show cause notice is not tenable in imposing the penalties and deserves to be quashed.
 
Reasoning of judgment:-
The adjudicating authority went through the case records and the main issue was whether there is element of promotion of sale is available in the sale of goods by their C & F Agents namely M/s Jyoti International and M/s Pawan kumar & sons, HUF. On going through the agreement executed with their C & F Agents submitted by the assessee, the authority found that they have clear agreement with their C & F Agents that they shall engage themselves in the sales promotion and advertising of their products alongwith other services. The said clauses of the agreement are reproduced:-
 
“5) Assisting the company in promoting the sales of the company’s products by canvassing for sales of those products with various dealers in the State;
 
6) Organising sales promotional activities of the company by way of Painter Meets, Dealer Meets and Architect Meets in the State;
7) Assisting the company in its advertising efforts by arranging hoardings, display boards, and other advertising materials;
Fromthe above it is clear that the C & F Agent will involve themselves by way of Assisting the company in promoting the salesof the company’s products by canvassing for sales of those products with various dealers in the State and Organising sales promotional activitiesof the company by way of Painter Meets, Dealer Meets and Architect Meets in the Stateand Assisting the company in its advertising efforts by arranging hoardings, display boards, and other advertising materials. Their C& F Agents were involved in sales promotional activities of the company. Due to this fact, these services duly fall within the purview of term “sales promotion” which is clearly included in the definition of input service and accordingly credit will be allowed on the same. Apart from dispatching their goods to various dealers, the C&F agent is also engaged in sales promotion activities of the company.
 
The Hon’ble authority further found that the credit on sales commission has been denied by relying on the decision of COMMISSIONER OF CENTRAL EXCISE, AHMEDABAD-II V/S CADILA HEALTHCARE LTD. We would like to reproduce an extract from para 2.2 at page 3 of the impugned show cause notice as follows:-
 
“….The ‘includes’ portion of the definition refers to advertisement or sales promotion. It was in this background that the court has examined whether the services of foreign agent availed by the assessee can be stated to services used as sales promotion. In the absence of any material on record to indicate that such commission agents were involved in the activity of sales promotion, the commission agent is directly concerned with the sales rather than sales promotion and as such the services provided by such commission agent would not fall within the purview of the main or inclusive part of the definition of input service as laid down in the rule 2(l) of the Cenvat Credit Rules, 2004.” 
 
While examining the decision of M/s Cadila Healthcare and analysis of this para clearly indicates that the High court gave the above decision as THERE WAS NO MATERIAL ON RECORD TO INDICATE THAT SUCH COMMISSION AGENTS WERE INVOLVED IN THE ACTIVITY OF SALES PROMOTION. This fact is clearly mentioned in the above para produced in the show cause notice. While relying on the decision, it has been held that the commission agent is directly concerned with sales rather than sales promotion and thus, the services provided by them do not fall within the purview of main or inclusive part of the definition of input service. The decision of M/s Cadila Healthcare was rendered in specific facts and circumstances and the said decision is clearly distinguishable in the present case. M/s Cadila Healthcare was paying the commission to its agent for causing the sale of their products. On the other hand, in this case, the C&F agents are also responsible for doing the sales promotion activities and this fact is clarified by the copies of agreement enclosed with reply and discussions in foregoing paras. Thus, the facts and circumstances under which decision of M/s Cadila Healthcare was rendered are totally different than this case. Therefore, this decision of M/s Cadila Healthcare relied by the impugned notice is not applicable in this case and credit cannot be denied to them.
The Hon’ble authority gone through the discussion held on the issue in the tariff conference held on 28.10.2015/29.10.15 submitted by the assessee with their reply and also available as F.No. 96/85/2015-CX.1. The relevant portion is reproduced for quick reference as follows:-
 
The conference discussed the issue in detail and the facts of both the cases where apparently conflicting judgments have been delivered. It was noted that the judgment of Hon’ble High court of Gujarat was in a very specific set of circumstances where the sales commission agent seemed to be only trading in the goods i.e. buying and selling the goods without undertaking any sales promotion or advertising. In the said judgment, the Hon’ble Court noted that “there is nothing to indicate that such commission agents were actually involved in any sales promotion activities as envisaged under the said expression. Obviously, commission paid to the various agents would not be covered in this expression since it cannot be stated to be a service used directly or indirectly in or in relation to the manufacture of final products or clearance of final products from the place of removal “.
 
Board Circular No. 943/4/2011-CX dated 29.4.2011 at point no 5 on the other hand has explained the situation where the commission agent renders the service of sales promotion in following words – “… Moreover the activity of sale promotion is specifically allowed and on many occasions the remuneration for same is linked to actual same…”.  Board circular directs that input service credit would be available when there is element of sales promotion as sales promotion is a service. Thus, the conflict between the judgment and the circular is not as large as is perceived. Both the Board circular and case laws on the subject allow credit of input service and accordingly the Show cause notice is not sustainable and deserves to be dropped.
 
Conclusion:  The gist of the case is that department has denied the Cenvat credit of service tax paid on bills of C&F agents as they are not involved in sales promotion activities but on scrutiny of agreement it was found that they are involved in “ Assisting the company in promoting the sales , Organising sales promotional activities by way of dealers meet, painters meet and architect meets , Assisting the company in its advertising efforts by arranging hoardings etc. Therefore they are providing sales promotion services which is specifically included in the definition of input services.
Hence the credit is allowed and the show cause notice is dropped by the authority.
 
 
 
 
 
 
 
 

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