2014 (6) TMI 385 - AT - Central Excise

Duty demand - CENVAT Credit - whether the service of procuring sales orders of cement through commission agents i.e. business auxiliary services being received by them is covered by definition of input service or not - Held that - while there is a direct judgement of Hon ble Punjab & Harayana High Court in the case of Ambika Overseas (2011 (7) TMI 980 - PUNJAB & HARYANA HIGH COURT), which is in favour of the appellant, there is another judgement of the Hon ble Gujarat High Court in the case of Cadila Health Care Ltd. (2013 (1) TMI 304 - GUJARAT HIGH COURT), wherein in para 5.2, a contrary view has been taken and in that judgement, Hon ble Gujarat High Court after discussing in detail, has held that the service of commission agent for procuring sales orders is neither covered by the expression sales promotion nor by the expression activities relating to business . Hon ble High Court in this judgement has observed that the term, activities relating to business in the definition of input service has to be interpreted on the basis of the activities mentioned after the words such as following this expression and that the activities covered by this expression must be similar to the activities which are mentioned as illustrative activities and on this basis, Hon ble High Court has given a finding that procuring sales orders through commission agents is not an activity, which is similar to the activities mentioned as illustration of the activities relating to business . Rule 2 (l) of Cenvat Credit Rules, 2004 was amended w.e.f. 1.4.2011 and by this amendment, the expression activities related to business in the inclusive portion of the definition of input service was excluded. However, the expression advertisement or sales promotion was retained. The Board vide Circular No.943/4/2011-CX dated 29.4.2011 (S.No.5 of the Table) in respect of the question Is the credit of Business Auxiliary Service (BAS) on account of sales commission now disallowed after the deletion of expression activities related to business clarified as under The definition of input service 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 the same is linked to actual sale. Reading the provision harmoniously, it is clarified that credit is admissible on the services of sale of dutiable goods on commission basis - service of commission agents (Business Auxiliary Service) is covered by the term advertisement or sales promotion . In my view, there is nothing in this circular which is contrary to the provisions of law and hence the same would be binding on the Departmental officers. Thus, in view of this circular also, though it is in respect of definition of input service during period w.e.f. 1.4.2011, commission agents service would be cenvatable as the term advertisement and sale promotion was there in the definition of input service even during period prior to 1.4.2011 - Decided in favour of assessee.

Summary

Issues:
1. Whether the service of procuring sales orders through commission agents qualifies as an 'input service' for availing cenvat credit.

Analysis:

Issue 1:
The main contention revolved around whether the service of procuring sales orders through commission agents could be considered an 'input service' for cenvat credit. The appellant, a cement manufacturer, availed services of commission agents for sales promotion, arguing that such services fell under the definition of 'input service' as per Rule 2(l) of the Cenvat Credit Rules. The appellant cited various judgments, including those by the Tribunal and High Courts, supporting the admissibility of cenvat credit for such services. On the other hand, the department contended that the service had no nexus with the manufacturing process, referencing a judgment by the Gujarat High Court that contradicted the appellant's position.

Analysis of Issue 1:
The Tribunal analyzed the conflicting judgments, noting the differing views of the Punjab & Haryana High Court and the Gujarat High Court on whether commission agent services qualify as 'input services.' The Tribunal referred to a judgment by the Bombay High Court, which provided a broader interpretation of 'activities relating to business' under the definition of 'input service.' The Bombay High Court emphasized that services integral to the business of manufacturing final products, including sales-related activities, should be considered 'input services.' The Tribunal also highlighted a circular clarifying that commission agent services fall under 'advertisement or sales promotion,' making them eligible for cenvat credit. Considering the supportive judgments and the circular, the Tribunal concluded that the impugned order denying cenvat credit for commission agent services was not sustainable and allowed the appeal in favor of the appellant.

This detailed analysis of the judgment showcases the legal arguments presented by both parties and the Tribunal's reasoning in resolving the issue at hand.