2011 (1) TMI 599 - AT - Service Tax

Credit of service tax paid on input service - 100% EOU - foreign commission agents - Definition of the inputs services includes services used in relation to sales promotion , and these activities can rightly be described as sales promotion activities - Sales promotion activities undertaken at a given point of time also aims at sales of goods which are to be manufactured and cleared in future - Any advertisement given has a long term impact and cannot be treated as post clearance activities and therefore, sales promotion has been specifically included in the definition of input services. - Held that in the case of Cadila Healthcare Ltd. Vs. CCE, Ahmedabad - 2009 -TMI - 75189 - CESTAT, AHMEDABAD , credit of tax paid for foreign commission agents services being for sales promotion has been allowed - Decided in favour of assessee.

Summary

Issues:
- Denial of credit of service tax paid on commission to foreign agents for boosting exports by a 100% EOU.
- Interpretation of net foreign exchange earning under EXIM Policy.
- Applicability of precedent decisions regarding credit of tax paid for foreign commission agents' services.

Analysis:
The judgment by the Appellate Tribunal CESTAT, CHENNAI addressed the issue of denial of credit of service tax paid by a 100% EOU on commission to foreign agents for boosting exports. The appellant argued that the commission was essential for locating buyers and fulfilling their requirements to manufacture and export goods, thus contributing to boosting exports. The counsel relied on the EXIM Policy, specifically para 6.9.1, which considers the commission in calculating net foreign exchange earnings. The appellant also cited the Tribunal's decision in the case of CCE, Jallandhar Vs. Ambika Overseas, emphasizing that activities like sales promotion, including those related to locating buyers, are integral to the manufacturing and clearance process, not merely post-removal activities.

Regarding the interpretation of net foreign exchange earning under the EXIM Policy, the appellant contended that the commission paid to foreign agents should be factored into the calculation. The counsel referenced the decision in Cadila Healthcare Ltd. Vs. CCE, Ahmedabad, where credit for tax paid on foreign commission agents' services for sales promotion was allowed. On the other hand, the Department's representative acknowledged the precedent decisions cited by the appellant, conceding that the appellants were indeed entitled to the credit in question.

Ultimately, the Tribunal, after considering the arguments from both sides and the relevant precedent decisions, set aside the impugned orders and allowed both appeals. The judgment highlighted the importance of considering activities like sales promotion and buyer location as integral to the manufacturing and export process, thereby entitling the appellants to the credit of service tax paid on commission to foreign agents for boosting exports.