Tale of 3 territories: 1. non-taxable, the state of Jammu & Kashmir; 2. normally taxable, rest of India except Gujarat & Jammu & Kashmir; 3. differently taxable Gujarat alone.

[Subhash Modi]

Denial in Gujarat alone of cenvat credit of tax paid on certain input service viz. Service Tax paid on the services of a foreign/domestic sales commission agents for procuring orders for the goods sold by the registered manufacturer - a taxable service as well as input service (up to 30-09-2014).

Sales commission agents provide services as promoters and canvassers of orders for the sale of excisable and dutiable goods that a manufacturer sells in the market. The sales commission agents provide services in many ways and their involvement in promoting sales of goods in the market would fall under the category of "Market research, advertisement and sales promotion on the following facts:-

a) The sales commission agent identify the requirement in Market, identify the potential customer and such activity would squarely be covered under the category of 'Market research' also.

b) The sales commission agent meet the prospective customer and explain personally about the product, its advantages, how the product is best when compared to other brands and as a result he enriches the awareness of the product and also enrolls or convinces the customer to accept the product and to go for such product. Thus, this activity is to be considered as an 'advertisement' in the form of personal contacts with the customer.

c) Normally, the selling company advertise their products in Television, Media, Newspaper, wall painting and pamphlets with a view to reach the customers or consumer in mass. The result may be 0 to 100%. Even assume there is no sale improvement or new orders consequent to the above avenues of advertisement, still the Rules allow credit on the service tax on such advertisement whether the advertisements have yielded increased production and increased excise revenue or not.

d) On the other hand, the sales commission agent, after personal meeting with the customer, brings order to the company and thereby helps both the company and the Government. The manufacturer of goods pays commission to such an agent on post manufacturing and actual sale basis i.e. when revenue by way of excise (and other indirect taxes) is consequent to his efforts as an agent gets generated. For the manufacturing company higher volume of sales are achieved and thereby the Government also gets more Cenvat Duty. Thus, the sale commission agent not only renders direct service to the manufacturer but also renders indirect service to the Central Government to increase the excise duty revenue.

As per Section 65/FA 1994 "Business Auxiliary Service" (BAS) is a taxable service liable to tax. Section 65(19) defines BAS as follows:

Business Auxiliary Service means any service in relation to:

(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or

(ii) promotion or marketing of service provided on behalf of the client; and includes services as a commission agent but does not include any information technology service and any activity that amounts to manufacture within the meaning of clause (f) of Section 2 of Central Excise Act, 1944.

Explanation - For the removal of doubts, it is hereby declared that for the purposes of this clause,

(a) Commission Agent means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person,

(i) deals with goods or services or documents of title to such goods or services; or

(ii) collects payment of sale price of such goods or services; or

(iii) guarantees for collection or payment for such goods; or

(iv) undertakes any activities relating to such sale or purchase of such goods or services; (emphasis added).

From the statutory definition it emerges that:

• promotion or marketing or sale of goods is a service which is taxable;
• such taxable service includes the services as a commission agent;
• for removal of doubts and for the purpose of the said clause i.e. 65(19)(i) and (ii), commission agent has been explained in detail vide Explanation (a) (i) to (iv)
• and said Explanation clearly explains that Commission Agent is one who acts on behalf of another person and causes sale or purchase of goods.

To sum up, by statutory definition it is more than abundantly clear and unambiguous that the services of a commission agent who causes sale of goods is included within the definition of promotion or marketing or sale of goods i.e. sales promotion. Though each of the words 'promotion', 'marketing', ' sale' of goods in the sentence are separated by the disjunctive word 'or' it can be read as 'and' and by application of the principle: Noscitur a Sociis all the three words have a cognate meaning i.e. sales promotion as both the words 'promotion' and 'sale' are in context to the word 'goods. Thus promotion and sale of goods includes the services of a commission agent and has been defined in the Finance Act, 1994 - without doubt.

The CCR, 2004 Rule 2 (t) reads as follows:

(t) words and expressions used in these rules and not defined but defined in the Excise Act or the Finance Act shall have the meanings respectively assigned to them in those Acts.

The inclusive portion of the definition of the term 'input service' vide CCR, 2004 Rule 2(l) includes the words 'sales promotion' separated by 'or' 'advertisement'. Now both 'sales promotion' or 'advertisement' have not been defined under the CCR, 2004. However any service in relation to promotion or sale of goods which includes the services of a commission agent has been statutorily defined in the FA, 1994 vide Section 65(19). By virtue of the CCR, 2004 Rule 2(t) the meaning assigned to BAS in FA, 1994 which defined it as any service in relation to promotion or marketing or sale of goods including the services of a commission agent will also be the meaning assigned to the words 'sales promotion' used in the definition part of the expression 'input service' in CCR, 2004.

It follows that the CCR, 2004 had in itself the meaning of 'sales promotion' by partaking it from the FA, 1994. It was, therefore, never required that the meaning of the words 'sales promotion' used in CCR, 2004 Rule 2(l) inclusive definition was to be fathomed out from other sources like dictionaries and other publications. There was a readily available statutorily binding definition in the parent Act itself which was required by binding rules to be adopted in the rules itself.

Notwithstanding the binding definition of 'sales promotion' in the Act [(65(19)] and consequently in the CCR, 2004 [CCR, 2004 Rule 2(t)] the Revenue authorities still frequently litigated up to the Hon. Tribunals which had ruled assessee-favour in all cases prior to and even after 01-04-2011 i.e. pre-and post removal of the phrase 'activities relating to business such as' from the CCR, 2004 Rule 2(l) definition. The words 'advertisement' or 'sale promotion' were at all the times pre- or post 01-04-2011 before/after the removal of the phrase 'activities relating to business such as' and the removal of the said phrase from the said input services definition did not change or affect the meaning of the word sales promotion as it was specifically always there in the definition 'includes service used in relation to sales promotion'.

Post 01-04-2011 amendment in the CCR, 2004 Rule 2(l) for removal of doubts the Ministry of Finance, Department of Revenue issued the Circular No. 943/04/2011-CX dated 29.04.2011 and vide para 5 there in clarified abundantly and with reasoning and justification that the services of a commission agent was within the scope of 'sale or promotion or marketing of goods' in the definition of BAS and credit of service tax paid on commission payable to agents even it was paid on sale of goods, was allowed. The said para 5 is reproduced below:

5

Is the credit of Business Auxiliary Service (BAS) on account of sales commission now disallowed after the deletion of expression “activities related to business”?

The definition of input services allows all credit on services used for clearance of final products up to 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.

 

However in Gujarat the Ahmedabad Excise Commissionerate preferred before the Hon. Gujarat High Court CEXA, 1944 a Section 35F Tax Appeal feeling aggrieved against the Tribunal Order in the Cadila case ruling that the tax paid on service rendered by a commission agent for sale of goods is available as credit being an input service.

The Hon. High Court on 07-11-2012 18 months after issue of the said Circular pronounced in the Cadila tax appeal [Commissioner of C. Ex., Ahmedabad-II Versus Cadila Healthcare Ltd. - 2013 (1) TMI 304 - GUJARAT HIGH COURT - that credit of tax paid on services of a commission agent is not available as his activities are not within the definition of 'sales promotion' qua the dictionaries and other resources meaning. The Hon. High Court after stating the entire FA, Section 65(19) in its Order wandered elsewhere into dictionaries and other publications to fathom out the meaning of the words 'sales promotion' used in CCR, 2004 Rule 2(l) definition. From 29-04-2011 till 07-12-2012 (for about 18 months) The neither the Appellant-Commissioner nor did the Assessee-Respondent had brought to the notice of the Hon. High Court the fact of existence of the said clarificatory Circular No. 943/04/2011-CX dated 29.04.2011. Further the Hon. High Court had not dealt with CCR, 2004 Rule 2(t) to determine whether the statutory definition of BAS, i.e. any service in relation to promotion or marketing or sale of goods which includes the services of a commission agent, is also the definition of the words 'sales promotion' used in CCR, 2004 Rule 2(l) or not and therefore the Commissioner could or could not have preferred the Tax Appeal in the face the binding statutory definition under said Section 65(19) read with the CCR, 2004 Rule 2(t) even for the purpose of CCR, 2004 or the dictionaries etc. meanings. The Hon. High Court was kept in the dark for about 18 months even when the Orders in the said tax appeal were being passed, about the existence of the Circular No. 943/04/2011-CX dated 29.04.2011. The Commissioner had the temerity to not only prefer the Tax Appeal notwithstanding the definition of sales promotion in the said Section 65(19) and its validity even in CCR, 2004 by virtue of CCR, 2004 Rule 2(t) but also lack of magnanimity in bringing to the notice of the Hon. High Court the existence of the Circular and withdrawing his Tax Appeal on that ground.

The statutory text and the statutory definition shall prevail and have primacy over dictionary meaning as laid down judgments/decisions in the cases:

1) Collector of CEX v/s. Parle Exports (P) Ltd - 1988 (11) TMI 108 - SUPREME COURT OF INDIA and

2) Sharpmax Engineers v/s. Collector Of Central Excise, Rajkot 1994 (5) TMI 112 - CEGAT, NEW DELHI.

The Hon. Gujarat High Court judgment in the  case Commissioner of C. Ex., Ahmedabad-II Versus Cadila Healthcare Ltd. - 2013 (1) TMI 304 - GUJARAT HIGH COURT has been rendered per incuriam. The decision of the Hon. High Court is not a ratio decidendi but a precedent sub silentio and cannot have a binding effect in as much as the definition vide Section 65(19)/FA, 1994 also applied to the words 'sales promotion' used in the inclusive part of the definition of 'input service' vide CCR, 2004 Rule 2(l) by virtue of CCR, 2004 Rule 2(t) which was not at all discussed and analysed nor the Circular No. 943/04/2011-CX dated 29.04.2011 which escaped notice.

In an identical subsequent Tax Appeal before the Hon. Gujarat High Court in the case: Astik Dyestuff Pvt. Ltd. Versus Commissioner of C. Ex. & Customs [2014 (1) TMI 776 - GUJARAT HIGH COURT ] though the Appellant-Assessee had drawn the Hon. Court’s attention to the said circular and argued that the Department cannot go against the Circular; the Hon. High Court thereafter have passed the judgment revenue-favour by ruling (vide Paras 4 and 5) that in the OIO dated 06.01.2010 the Department had relied upon the  judgment  Commissioner of C. Ex., Ahmedabad-II Versus Cadila Healthcare Ltd. - 2013 (1) TMI 304 - GUJARAT HIGH COURT (passed later on 07.11.2012) and that while issuing the Circular on 29.04.2011 the CBEC (sic.) ought to have considered the judgment Commissioner of C. Ex., Ahmedabad-II Versus Cadila Healthcare Ltd. - 2013 (1) TMI 304 - GUJARAT HIGH COURT (07.11.2012). The Hon. High Court observations under Para 5 also state the OIO (06.01.2010) was passed by relying on the binding High Court judgment (07.11.2012). The Hon. High Court in the said  case Astik Dyestuff Pvt. Ltd. Versus Commissioner of C. Ex. & Customs [2014 (1) TMI 776 - GUJARAT HIGH COURT ], under which the Bench’s attention was drawn to the Government’s Circular dated 29-04-2011, instead of upholding or overruling the said Circular, with reasons, bestowed beneficial retrospective effect of its judgment dated 07-11-2012 to the OIO dated 06-01-2010 and at the same time arraigned and denounced the Government in not having prior considered on 29-04-2011 the Hon. Court’s ruling dated 07-11-2012. The OIO dated 06-01-2010 and the Circular No. 943/04/2011-CX dated 29.04.2011 were issued about 34 and 18 months, respectively, prior to 07-11-2012. By virtue of the said judgment in the case Astik Dyestuff Pvt. Ltd. Versus Commissioner of C. Ex. & Customs [2014 (1) TMI 776 - GUJARAT HIGH COURT ], the OIO dated 06-01-2010 has been undeservedly and undesirably dignified as proper and correct and the Circular dated 29-04-11, justifiably issued in public interests by an Authority within its powers and rights, has been faulted with for wrong reasons and ostracized and banished out of Gujarat though in the rest of India the Circular still commands the respect, obedience and the sanctity it deserves. Under these circumstances the  judgement Astik Dyestuff Pvt. Ltd. Versus Commissioner of C. Ex. & Customs [2014 (1) TMI 776 - GUJARAT HIGH COURT ] cannot be treated as passed on the basis of correct facts, fair play and reasonableness.

In another identical Tax Appeal in the case: Commissioner Versus Dynamic Industries Ltd [2014 (8) TMI 713 - GUJARAT HIGH COURT] the Hon. Gujarat High Court under para 7.4 admits that vide the judgment  Commissioner of C. Ex., Ahmedabad-II Versus Cadila Healthcare Ltd. - 2013 (1) TMI 304 - GUJARAT HIGH COURT cenvat credit of tax paid on commission was allowed but later under para 11 have ruled that such credit is not allowed. Further vide para 4.5 it has been stated that Assessee-Respondent had taken support of the said Circular No. 943/04/2011-CX dated 29.04.2011 in the course of the arguments but thereafter the Hon. Court has preferred to remain absolutely silent and avoided altogether to discuss or deal with the Circular at all in the entire judgment as if the Circular did not exist at all.

Thus a glaring objectionable, assailable and unmitigated discrimination is being faced by assesses in Gujarat only at the hands of the Commissionerates subordinate under the very Government which has justifiably issued the benign Circular even when undeniably binding on the very same Commissionerates. In a manner of speaking it cannot be denied that a bona fide and well meaning Circular has been and is being subjected to step motherly treatment in Gujarat only at every redressal fora.

Notwithstanding the statutory binding definition under Section 65(19)/FA, 1994 and also by virtue of Rule 2(t)/CCR, 2004 in the CCR, 2004 still by denying credit or demanding recovery of credits earlier legitimately taken, relying on the Hon. Gujarat High Court’s verdicts which are res integra, such denied or recovered amounts of money are being usurped in Gujarat only at the cost of the hapless assesses. This way the assesses in Gujarat only suffer unjust impoverishment while the Commissionerates in Gujarat indulge in unjust enrichment which the law laid down by the Hon. Apex court does not allow.

All the 3 above judgments rendered solely by the Hon. Gujarat High Court, on the identical issue, on which the Commissionerates (only in Gujarat) are piggybacking, do not appeal to a conscientious mind as ratio decidendi for the lack of discussion or appreciation of the statutory definition of sales promotion, the Rule 2(t) of the CCR, 2004 and the circular dated 29-04-2011 or even, without reasons or explanations, back-dating of the of the Hon. High Court judgment dated 07.11.2012 to prior to 06.01.2010 and 29.04.2011. In all the 3 cases viz. Commissioner of C. Ex., Ahmedabad-II Versus Cadila Healthcare Ltd. - 2013 (1) TMI 304 - GUJARAT HIGH COURT, Astik Dyestuff Pvt. Ltd. Versus Commissioner of C. Ex. & Customs [2014 (1) TMI 776 - GUJARAT HIGH COURT ] and Commissioner Versus Dynamic Industries Ltd [2014 (8) TMI 713 - GUJARAT HIGH COURT] the Commissioner as Appellant or Respondent, despite the existence of the Circular and its binding effect as well as the binding effect of the definition of BAS in the Act as well in CCR, 2004, did not condescend to inform the Hon. Court that the Department had no case and that it was withdrawing the tax appeal as an Appellant knowing well at least in the Astik Dyestuff Pvt. Ltd. Versus Commissioner of C. Ex. & Customs [2014 (1) TMI 776 - GUJARAT HIGH COURT ] and the Commissioner Versus Dynamic Industries Ltd [2014 (8) TMI 713 - GUJARAT HIGH COURT] cases that existence since 29-04-2011 of the said Circular was also brought to the notice of the Hon. Court. The Commissioner did not aid the Hon. Court in appreciating the Circular and arriving at the correct decision. The Commissioner was more motivated and driven by a penchant for a pecuniary gain to the Department rather than serving the interests of justice and fair play.

The Commissionerates in Gujarat and the Hon. Ahmedabad Tribunal, after the decision in the  case Commissioner of C. Ex., Ahmedabad-II Versus Cadila Healthcare Ltd. - 2013 (1) TMI 304 - GUJARAT HIGH COURT, have closed their eyes and ceased to distinguish Commissioner of C. Ex., Ahmedabad-II Versus Cadila Healthcare Ltd. - 2013 (1) TMI 304 - GUJARAT HIGH COURT, Astik Dyestuff Pvt. Ltd. Versus Commissioner of C. Ex. & Customs [2014 (1) TMI 776 - GUJARAT HIGH COURT ] and Commissioner Versus Dynamic Industries Ltd [2014 (8) TMI 713 - GUJARAT HIGH COURT] and on the contrary are taking refuge under: 'binding effect of the jurisdictional Hon. High Court' syndrome.

Board’s Circular No.85/2002-Cus dated 11.02.2002 also enjoins not to treat even the Hon. Apex Court’s judgement as ratio decidendi if it is a decision which is not expressed and is not founded on reasons nor it proceeds on consideration of issue.

The Hon’ble Supreme Court in a case reported in 1991 JT Vol. III, State of U.P. Vs. M/s. Synthetics and Chemicals Ltd. and Another [1991 (7) TMI 297 - SUPREME COURT] where therein the lordships have observed, ‘a decision which is not expressed and is not founded on reasons nor it proceeds on consideration of issue cannot be deemed to be a law declared to have a binding effect as is contemplated by Article 141. Uniformity and consistency are core of judicial discipline. But that which escapes in the judgments without any occasion is not ratio decidendi."

The Hon’ble Apex Court in a matter reported in AIR 1967 SC B. Shama Rao Vs. State of Pondicherry [1967 (2) TMI 74 - SUPREME COURT OF INDIA] has held:

“It is trite to say that a decision is binding not because of its conclusions but in regard to its ratio and the principles laid down therein. Any declaration or conclusion arrived without application of mind or preceded without any reason cannot be deemed to be a declaration of or authority of a general nature binding as a precedent. Restraint in dissenting or over-ruling is for sake of stability and over-ruling is for sake of stability and uniformity but rigidity beyond reasonable limits is inimical to the growth of law.

In the case: Commissioner Of Central Excise, Ludhiana Versus Ambika Overseas [2011 (7) TMI 980 - PUNJAB & HARYANA HIGH COURT] the Hon. High Court have ruled that:

‘Tribunal finding that these activities were ‘sales promotion’, and pre-removal of goods, within the ambit of definition of input service under Rule 2(l) of CCR, 2004, for which assessee was entitled to take Cenvat credit of Service tax paid by them as recipient of those services - Department unable to show any perversity or illegality in the order of Tribunal - In that view, availment of credit upheld.’

In the case: JPP Mills Pvt. Ltd. and 2 others v/s. CCEX, Salem [2013 (12) TMI 1122 - CESTAT CHENNAI] the Hon. Tribunal vide para 12 therein, after viewing both the Ambika and the Cadila conflicting judgments of the Hon. High Courts, have ruled that the issue stands accepted by the Government vide the said Circular dated 29-04-2011.

In the case: Wadpack Pvt. Ltd Vs CCE, Bangalore [2012 (11) TMI 566 - CESTAT BANGALORE] the Hon. Tribunal have ruled that the activity of a commission agent is a sales promotion activity which is covered by the inclusion part of the definition in which one need not bother to examine whether it has satisfied the ingredients of the main part of the definition.

In the case: M/s. Birla Corporation Ltd Vs CCE [2012 (7) TMI 820 - CESTAT NEW DELHI] the Hon. Tribunal have held that the services, of commission agents/brokers are as in the nature of sales promotion, an activity specifically covered in the inclusion portion in the definition of input service.

Decisions/rulings/judgments in the following cases also uphold that the tax paid on services of a commission agent is available as cenvat credit 1) Bajaj Hindustan Ltd Vs CCE Lucknow (2013 (6) TMI 616 - CESTAT NEW DELHI;

2) C.C.E. & S.T., Surat-II Versus Shree Kamrej Vibhag Khand Udyog Sahakari Mandli Ltd. ( 2014 (8) TMI 15 - CESTAT AHMEDABAD;

3) Century Rayon Vs CCE Thane I  2011 (12) TMI 120 - CESTAT, MUMBAI;

4) Seksaria Biswan Sugar Factory Ltd Vs CCE Lucknow ( 2014 (6) TMI 548 - CESTAT NEW DELHI;

5) Bharuka Gases Ltd Vs CCE  2014 (1) TMI 1662 - CESTAT BANGALORE; and

6) Novozymes South Asia P Ltd Vs CCE 2013 (12) TMI 1474 - CESTAT BANGALORE.

The manufacturers: Cadila and Astik have appealed against the Hon. High 07-11-2012 and the subsequent judgment before the Hon. Apex Court. Let us hope that the Government, at least, before the Hon. Apex court in the Cadila Appeal avoids contesting and straightaway informs the Court that Cenvat credit was and is allowed and was never intended to be not allowed; it is just that the matter went awry before the High Court.

In the meantime we have at present 3 distinct territories i.e. (1) Jammu & Kashmir non-taxable in term of FA, 1994 (2) rest of India other than Jammu & Kashmir and Gujarat, normally and uniformly taxable under FA, 1994 and (3) Gujarat alone differently taxable partially under the dictates of the Hon. Gujarat High Court and partially (rest) under the FA, 1994.

Mera Bharat Mahan.

Discussions to this article

[kailash singhal]

dear sir,

it is better to incorporate in the agreement that agent will do the activity of advertisement and promotion of goods in the market to come out from this problem

regards

ca kc singhal, silvassa 9824102121

[Subhash Modi]

Yes, agreed. In fact there 2 recent cases before the Hon. Tribunal, Ahmedabad where under credit was rules as allowed based on agreement as sales promotion agent rather than commission agent.