Cenvat credit on sales commission under protest, Service Tax

[vishakha bhagat]

Currently the cenvat credit on sales commission is not allowed as credit being under dispute and hence cenvat credit cannot be availed on the same. Therefore the service tax charged by the commission agents is not availed as credit and is transferred to deposit under protest account. Whether it is mandatory to inform Department regarding the Cenvat credit under question and transferred to protest account in books. If yes, what is the procedure, on yearly basis? And whether before or after entry in books.

Posts / Replies

[PAWAN KUMAR]

Sir,

As per my view, Cenvat is applicable of service tax on commission as it is sale promotion activity and eligible input service under rule 2 (l) of Cenvat Credit Rules, 2004.

[CS SANJAY MALHOTRA]

Dear,

Please follow Mr. Pawan views as am in agreement with him. Commission is sales promotion activity and is specifically covered under Rule 2L of CCR 2004.

regards

[vishakha bhagat]

Mr Pawan kumar and Mr. Malhotra, Thanks for your reply.

But i would like to bring to your notice that the said matter is under dispute in case of decision of Gujarat High Court in CCE v. Cadila Healthcare 59 VST 386 (Guj HC DB), 2013 (1) TMI 304 - GUJARAT HIGH COURT where it has been held that service of commission agent is not eligible as input service.for purpose of Cenvat credit.

Though the assessee company has filed appeal before Supreme Court, the decision of Gujarat High Court stands, unless stay is granted

[CS SANJAY MALHOTRA]

Dear Vishakha,

Please note the following extracts from Gujarat High Court Judgement":

Initial Para (Last phrase)

"In the absence of any material on record, as noted above to indicate that such commission agents were involved in the activity of sales promotion as explained in the earlier portion of the judgment, in the opinion of this court, the claim of the assessee was rightly rejected by the Tribunal.

CESTAT- same bench has decided cases in favour of Assessees, but in the present case, no justification or evidence was placed on record, hence the matter was rejected. Court Decisions are case based and facts presented in the same matter which may be different than others.

Secondly, Duty paid under protest needs to be intimated to department and mentioned in Returns too so that if future, if the case goes in your favour, the benefit of refund is admissible.

[Subhash Modi]

From 07-11-2012 up to 30-09-2014 (in case services were rendered by a foreign commission agent) only if you are an assesee in Gujarat then you should first take credit, reverse it on the same day under protest (protest letter) reserving your right to restore the credit if and as and when the Cadila case is upset by the Hon. Apex Court where it is in Appeal and early hearing application has been considered. From 01-10-2014 if the services are rendered by an agent abroad there is no need to pay service tax, no need to avail credit or question reversal as the definition of intermediary services (for goods) under place of provision of services rules has done away with service receiver being burdened with ST under RCM as person liable to pay ST. If the services were rendered by an agent in India then from 07-11-2012 till the final verdict in Cadila by the Hon. Apex Court take and simultaneously reverse under protest (to avoid inviting one year limitation for taking credit).

I am forwarding herewith extracts from an appeal which I have filed before the Hon. Tribunal from where you will gather that Cadila and 2 more rulings by the Hon. Gujarat High Court are not good law and the P&H ruling is more appropriate and holds good for the rest of India.

1. The credits have been legitimately taken on the basis of the clarification given by the Government viz. MOF, DOR, TRU in the Circular No. 943/04/2011-CX dated 29.04.2011 vide para 5 there in. The Circular had been issued specifically in context to the 2011 Budget changes viz. the changes in the Cenvat Credit Rules, 2004 particularly with reference to the changes in the said Rules made vide Notification 3/2011-CE (NT) 01.03.2011 the changes taking effect from 01.04.2011
2. The Cenvat Credit Rules 2004 Rule 2(l) prior to and post 01.04.2011 read as follows:Prior to 01.04.2011:

“input service” means any service,

1. used by a provider of taxable service for providing an output service; or
2. used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal,

and includes services used in relation to setting up, 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 up to the place of removal, procurement of inputs, activities relating to business such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry and security, inward transportation of inputs or capital goods and outward transportation up to the place of removal;

2. Post 01.04.2011:

“input service” means any service,

3. used by a provider of taxable service for providing an output service; or
4. used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to 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 up to 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 up to the place of removal;(Emphasis added)

3. In view of the phrase activity relating to business being part of the inclusive part of the said definition 2(l) a number of activities falling within the definition of services (Section 65 of the FA, 1994) not necessarily used in or in relation to manufacture of and removal of the final goods up to the place of removal were being allowed by the Hon. Tribunals and also Hon. High Courts as input services and consequently cenvat credit of services tax paid on many such services were being allowed in context to the presence of the phrase “activities related to business” within the inclusive part of the said definite 2(l).
4. With effect from 01.04.2011 the phrase ‘activities relating to business’ was deleted from the definition 2(l) to restrict Cenvat Credit of service tax paid only to all services used, directly or indirectly, in or in relation to manufacture and removal of final products up to the place of removal including the services enumerated after the phrase “and includes” viz. the inclusion part of the definition.
5. It was specifically in context to the deletion of the phrase “activities relating to business” that the Government have after due consideration and conscientiously issued the said Circular dated 29.04.2011 to explain and emphasise that the activity of a commission agent is still a service used in or in relation to manufacture and removal of goods up to the place of removal from the contents the said Circular it is abundantly clear that:

1. Sales Commission was in the category of Business Auxiliary Service.

2. It does not cease to be an input service even after deletion of the phrase “activities related to business” from the ‘includes’ part of the definition 2(l).

3. It is to be considered as used for manufacture and clearance of final products up to the place of removal as it is specifically allowed.

4. The credit is allowed even if the remuneration for the service is linked to actual sale.

5. On a harmonious reading of provisions it was clarified that credit is admissible on services of sale of dutiable goods on commission basis.

6. Thus the Government have more than amply clarified that services of a commission agent canvassing order for manufactured dutiable goods fall under the BAS category and is an input service pre or post 01.04.2011 even after deletion of the phrase “activities related to business”, as “sales promotion” is within the inclusive part of the definition.

7. The said Circular is dated 29.04.2011 and in the present case the tax has been paid and credit taken between September, 2012 to July, 2013 i.e. after issue of the said Circular.

8. The credits have thus been legitimately taken on the basis of the authority of the said Circular issued by the Government (not the Board) which has not been so far been modified, rescinded or voided not even by any court of law including the Hon. Apex Court. The Circular remains unchallenged and still holds good.

9. The Hon. Gujarat High Court decision in the case: Commissioner of C. Ex., Ahmedabad-II Versus Cadila Healthcare Ltd. 2013 (30) S.T.R. 3 (Guj.) = 2013 (1) TMI 304 - GUJARAT HIGH COURT(Annex. 6) has been rendered per incuriam inasmuch as during the course of the arguments from 29-04-2011 till the final hearing and decision on 07.11.2012 the existence and particularly the contents of the said Circular dated 29.04.2011 were not bought to the notice of the Hon. High Court by the Appellant-Commissioner or the Respondent-Assessee and the decision was thus rendered without taking into consideration the said Circular or quashing the said Circular. The decision of the Hon. High Court is not a ratio decidendi but a precedent sub silentio and cannot have a binding effect.

10. The Section 65 (19) of the FA, 1994 relevant portion reads 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)

11. In the Section (Law) itself Business Auxiliary Service has been defined as (means) any service in relation to promotion or marketing or sale of goods and includes service as a commission agent. By law for the purpose of Section 65 (19) FA, 1994 promotion or marketing or sale of goods includes the services of a commission agent.

12. Further for the purpose of Section 65(19) the expression “Commission Agent” has also been explained as above for removal of doubts.

13. The sub-clause (iv) in the Explanation (a) encompasses any activity relating to such sale or purchase of goods. “Any activity” will include “sales promotion” also as it has not been excluded and the said Circular issued by the Government in context to the CCR, 2004 Rule 2(l)(also framed by the Government) and in particular the contents of the clarification when read harmoniously with the said Section 65(19) entitles availment of cenvat credit of service tax paid on commission paid to commission agents on sale of goods.

14. The Adjudicating Authority and the Appellate Authority have proceeded to deny availment of cenvat credit on the premise that the jurisdictional Hon. Gujarat High Court in the case: CCEX, Ahmedabad-II v/s. Cadila Healthcare Ltd. [2013(30) S.T.R. 3 (Guj.)] = 2013 (1) TMI 304 - GUJARAT HIGH COURT (Annex. 6) is binding on them.

15. However, the Hon. Gujarat High Court decision in the Cadila case is not res judicata but is still res integra as the decision is a precedent sub silentio and not a ratio decidendi for the following reasons:

1. In the said Cadila case the Appellant-Commissioner or the Respondent-Assessee, during the course of arguments from 29-04-2011 till 07-12-2012, when the judgment was issued, did not draw the attention to the said Circular dated 29-04-2011 at all and the judgment, consequently, has been rendered by the Hon. High Court oblivious of the existence of the circular.

2. 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 (34) S.T.R. 814 (Guj.)] = 2014 (1) TMI 776 - GUJARAT HIGH COURT though the Appellant 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 Para 4 and 5) that in the OIO dated 06.01.2010 the Department had relied upon the Cadila judgment (07.11.2012) and that while issuing the Circular on 29.04.2011 the CBEC (sic.) ought to have considered the Cadila judgment (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 Astik case, 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 dated 29-04-2011 were issued about 34 and 18 months prior to 07-11-2012. By virtue of the said judgment in the Astik case, 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 Astik judgment cannot be treated as passed on the basis of correct facts, fair play and reasonableness.

 

3. In another identical Tax Appeal in the case: Commissioner Versus Dynamic Industries Ltd [2014 (307) E.L.T. 15 (Guj.)] 2014 (8) TMI 713 - GUJARAT HIGH COURT the Hon. Gujarat High Court under para 7.4 admits that vide the Cadila judgement 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 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

16. Up to 29-04-2011 and even up to present times there is no binding or valid precedent that can estop or could have estopped the Government from issuing the said Circular dated 29-04-2011 or assail the Circular as not legal or proper or not binding. Notwithstanding the Hon. Gujarat High Court’s ruling against the Circular, vide the Astik case, the Hon. Tribunals and Hon. High Courts, in the rest of India, except Gujarat, after taking into consideration the Cadila case, are still upholding the Circular and allowing taking of credit more specifically on the basis of the Circular.

17. 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.

18. By denying credit or demanding recovery of credits earlier legitimately taken, relying on the Hon. Gujarat High Court’s verdicts, such 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 indulge in unjust enrichment which the law laid down by the Hon. Apex court does not allow.

19. All the 3 above judgements 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 circular 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.

20. 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 Circular 85/2002-Cus/11-12-2002is reproduced hereunder:

Circular No. 85/2002
11^th December, 2002

F.No. 467/41/2001-Cus.V
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Excise and Customs)

Subject: Supreme Court’s decision in the case of GMMCO [2001 (127) ELT 508] in the context of Related Party Transaction- regarding

I am directed to refer to the Tribunal’s decision against Revenue in the case of Collector of Customs, Madras Vs. General Marketing and Manufacturing Co. Ltd. (GMMCO), reported in [2001 (127) ELT 508], dated, 25^th August, 2000 2000 (8) TMI 509 - CEGAT, NEW DELHI. An appeal no. 2772-73/ 2001] filed in the Hon’ble Supreme Court against the Tribunal decision, has been dismissed in limine which reads as under:

“Delay condoned. The Civil Appeal is dismissed".

The effect of this judgment was consulted with Ministry of Law and Justice. The Opinion of Ministry of Law and Justice is as follows:

“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 p. 268 where therein our 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 Shama Rao Vs. State of Pondicherry p. 1680 = 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.

Here in the present matter, it is an admitted fact that the order of the Supreme Court is not a speaking one, as such, the same cannot be said to be a reasoned order. So, in view of the ratio of the judgments in M/s. Synthetic’s case (Supra) and Shama Rao’s case (Supra), no binding effect should be given to it and should not be treated as precedent."

In view of the above, it is requested that the Opinion of the Law Ministry may be circulated to all the officers under your jurisdiction for information and necessary action.

21. In the case: Commissioner Of Central Excise, Ludhiana Versus Ambika Overseas [2012 (25) STR 348 (P & H)] = 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 Cenvat Credit Rules, 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.’

22. 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.

23. In the case: Wadpack Pvt. Ltd Vs CCE, Bangalore [2013 (293) ELT 400 (Tri-Bang)] = 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.
24. In the case: M/s. Birla Corporation Ltd Vs CCE [2013 (288) ELT 427 (Tri.-Del.)] = 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.

[GOKARNESAN.S SUBRAMANIAN]

Mr. Subhash Modi has given an elaborate reply to the query like a reply to the show cause notice and grounds of appeal before appellate authorities. I fully agree with his views. Congratulations to Mr. Modi.

I also wish to add some more points:-

The sales commission agent service 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 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 compare to other brands and as a result he enrich the awareness of the product and also make 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 company make advertisement 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 advertisement, still the Rules allows credit on the service tax on such advertisement.

d) On the other hand, the sales commission agent, after personal meeting with the customer, brings order to the company and thereby help both the company and the Government. For the company higher volume of sales achieved and thereby the Government also gets more Cenvat Duty. Thus, the sale commission agent not only render direct service to the manufacturer but also render indirect service to the Central Government to increase the excise duty revenue.

e) Thus, the credit is entitled.

Regards

S. GOKARNESAN

Advocate - Chennai

098400 87349

mail: [email protected]

Subhash Modi-

[Mahir S]

Sir,

regarding your query, there is no any provision to inform the department regarding cenvat credit availed on sales commission nor any practice to transfer to protest account in the books.

Agreed that it is being disallowed in the Cadila case and department audit is issuing show cause notices for the same, so it is advisable not to avail and utilize such cenvat credit.

The best way out is to avail such cenvat credit but not to utilise it and keep the balance of availment of cenvat in your cenvat credit account register, till the issue is clarified.

[GOKARNESAN.S SUBRAMANIAN]

Mr. Mahir

With due respect to your views, I still differ from you.

The issue of taking credit on sales commission is in dispute today.

There are conflict decision rendred by High Court of Ahemedabad and High Court of Panjab & Haryana. There are other favourable decision by various Tribunals. For the benefit of the viewers, the list below showing some of the decisions:

Decided Case Laws

Decision favourable to Department:-

1. CCE Ahemedabad II Vs Cadila Health Care Ltd – 2013 (1) TMI 304 - GUJARAT HIGH COURT in Order dated 18.10.2012 and 7.11.2012

Decision favourable to Assessee:-

CCE Ludhiana Vs Ambika Overseas (reported in 2012-25 STR 348 (Punjab & Haryana High Court)= 2011 (7) TMI 980 - PUNJAB & HARYANA HIGH COURT

Bajaj Hindustan Ltd Vs CCE Lucknow (2013-30-STR 675 Tribunal Delhi)= 2013 (6) TMI 616 - CESTAT NEW DELHI

Birla Corporation Ltd Vs CCE Lucknow (2014-35-STR 977 – Tribunal Delhi)= 2014 (6) TMI 385 - CESTAT NEW DELHI

Wadpack P Ltd Vs CCE Bangalore – (2013-293-ELT 400 – Tribunal Bangalore)= 2012 (11) TMI 566 - CESTAT BANGALORE

C.C.E. & S.T., SURAT-II Versus SHREE KAMREJ VIBHAG KHAND UDYOG SAHAKARI MANDLI LTD. (reported in 2014-36-STR 814 Tribunal Ahemedabad)= 2014 (8) TMI 15 - CESTAT AHMEDABAD

Century Rayon Vs CCE Thane I (reportedin 2014-33-STR 427 – Tribunal Mumbai) = 2011 (12) TMI 120 - CESTAT, MUMBAI

Seksaria Biswan Sugar Factory Ltd Vs CCE Lucknow (reported in 2014-33-STR 292 – Tribunal Delhi)= 2014 (6) TMI 548 - CESTAT NEW DELHI

Bharuka Gases Ltd Vs CCE (reported in 2015-37-STR 818 – Tribunal Bangalore)= 2014 (1) TMI 1662 - CESTAT BANGALORE

Novozymes South Asia P Ltd Vs CCE (reported 2015-38-STR 204 Tri Bangalore)

CBEC Circular No.943/4/2011 CX.dated 29.4.2011 – para 5

Further, the Circular No. 943/4/2011 Cx daged 29.4.2011 has clarified that the credit on sales commission service is eligible. This circular is binding on the Officers of the Department.

In this situation, the action to be taken by the assesse is below:

1. Take the credit
2. Immediately reverse the credit under protest explaining the conflict views of the courts on this issue and majority of the decisions are in favour to the assesse.
3. Inform the department that the credit is revered under protest for the reason stated with a liberty to take back the credit once the issue is resolved by the higher Court (i.e. Apex Court)
4. Request the Department to issue a Speaking Order to enable to keep the issue alive under litigation.

The above action is justified on the following reasons:-

1. If no credit is taken now and after two years the decision of Apex Court is in favourable to assesses, at that time the assesse cannot take credit because of the ONE YEAR limitation for taking credit is provided in the Cenvat Credit Rules. This provision will not apply when the case is under litigation.

2. Even if credit is taken and keep the same in closing balance as un-utilised, still the assesse is liable to pay interest and penalty, consequent to amendment made in Rule 14 of Cenvat Credit Rules. Sub rule (2) has been inserted which says the opening balance of the current month is deemed to have been utilized first for payment of excise duty on finished goods or payment of service tax on output service.

3. There is no provision in Cenvat Credit Rules to take the credit for the past period beyond ONE YEAR when there is a favourable decision rendered subsequently.

Hence, it is better advise the assesse to take credit and litigate the issue as suggested above.

Regards

S. GOKARNESAN

Advocate

98400 87349

[email protected]

[CS SANJAY MALHOTRA]

Dear Friends,

My submission is one should follow what is written in the CENVAT Credit Rules 2004 and forget about the litigation and case laws. Appellate Authorities explain the law and not write the law.

CENVAT Credit of Commission (Sales Promotion) is specifically spelt out in the Input Service definition under Rule 2L of CCR Rules, besides clarified by CBEC vide its Circular No. 943 dated 29.04.2011. Hence Credit is admissible.

Concerned person has to take call whether to follow what's specify in law i.e. CCR 2004 or to go ahead with the conflicting decisions of Appellate authorities. Even Majority Central Excise officers across the country accepts CBEC circular as referred above and has not issued notices at all.

Litigation has arisen in majority of the cases where neither the concerned person nor the departmental officers were aware of the Circular No. 943 dated 29.04.2011, and wherever the facts of circular were brought to notice of officers, majority of the case have not been subjected to litigation.

Follow the Rules first and if the same clearly substantiates the fact, opt for it and forget about litigation. Even if the same happens, the law can't be changed as once again to reiterate that Appellate Authorities explains the law and not write the law.

regards

[Subhash Modi]

Respected Shri Malhotra you are right but the Hon. Gujarat High Court have written the law which is for the time being binding on all authorities in Gujarat including the Hon. Tribunal. Therefore, as far as the assessees in Gujarat are concerned they are in a discriminatory disadvantageous position as the Department post Cadila started issuing SCNs up to 5 years back period and also started disallowing credits, demanding interest and imposing CCR, 2004 penalties. It is fortunate that the Appellate Authorities dropped the demand for the extended period as time-barred and also dropped penalties under the grounds of interpretation. However for the period one year prior to Cadila judgment date demands with interest (sans penalty) have been confirmed; similarly notices issued post Cadila are also being confirmed by the adjudicating, the Appellate authorities and the Tribunal, Ahmedabad on the premise that the Guj. High Court judgment has a binding effect.

While your views and suggestions aptly apply to the rest of India as the Circular and also the P&H ruling as well as assesee favourable decisions based on the P&H ruling still prevail unfortunately assesses in Gujarat are hapless and the Commissioners are taking shelter under the Guj. High Court judgment.

In fact the Ahmedabad Tribunal had been issuing assessee-favour orders including in the Cadila case against which the Commissioner filed a Tax Appeal notwithstanding that the Section 65(19) FA, 1994 definitions and explanations left no doubt on the issue. While the Tax Appeal was pending in the High Court, on 29-04-2011 came the Circular adding absolute clarity of binding nature on the issue. Up to 07-11-2012 (18 months) the Appealing Commissioner still pursued the Appeal instead of withdrawing it on the basis of the Circular and luckily got a helping hand from the High Court in not only the Cadila case but also the subsequent Astik case in which the High Court went to the extent of ruling that the OIO against the assesee was rightly issued in 2010 based on the 2012 High Court judgment and that the Government on 29-04-2011 did not take into account the 2012 judgment when issuing the Circular. In the subsequent Dynamic case also the High Court in the judgment only mentioned that the Counsel had cited the Circular during the course of arguments but then in the entire Order the High Court never ruled against or in favour of the Circular; it only stuck steadfast with the Cadila case.

The Appealing Commissioner was not magnanimous in all the 3 cases Viz. Cadila, Astik and Dynamic to plead no contest in view of the binding Circular and withdraw the Appeals and at the same time the High Court did not condescend from it stand in Cadila in the Astik and the Dynamic case fully aware that in the face of the Circular the Department did not have any case at all.

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 the hapless assessees in Gujarat have per force to adopt the instant reversal under protest remedy to remain protected till the case gets settled by the Hon Apex Court.

[MUKUND THAKKAR]

Dear Bhagat,

Agree with S V Modi sir view, as a Gujrarati we are not eligalbe to take credit, But you can mention in Balance sheet that " cenvat credit is receivable(Right to availment of credit) " and write to letter to chief commissioner/ commissioner as well as division office regarding to your right is stand for availment of cenvat credit,till matter is finalized. do not write under protest any where in letter to avoid any complication in future.

[Yogesh Desai]

Respected Shri Modi Saheb,

I fully agree with you that the Hon. Gujarat High Court decision in the case: Commissioner of C. Ex., Ahmedabad-II Versus Cadila Healthcare Ltd. = 2013 (1) TMI 304 - GUJARAT HIGH COURT = 2013 (30) S.T.R. 3 (Guj.) has been rendered per incuriam inasmuch as during the course of the arguments from 29-04-2011 till the final hearing and decision on 07.11.2012 the contents of the Circular dated 29.04.2011 were not bought to the notice of the Hon. High Court and the decision was thus rendered without taking into consideration the said Circular. The decision of the Hon. High Court is not a ratio decidendi but a precedent sub silentio and cannot have a binding effect.

However, when we take the above plea before the Excise Authorities, they take shelter of the decision of the Constitution Bench of Hon’ble Supreme Court in CCE, Bolpur Vs Ratan Melting & Wire Industries reported in 2008 (10) TMI 5 - SUPREME COURT OF INDIA  = 2008 (231) ELT 22 (SC) wherein it is held that the circular contrary to statutory provisions has no existence in law.

I would be obliged if you could guide me how to overcome this judgment.

[Subhash Modi]

Kindly refer the definition of BAS under Section 65. I am reproducing the same at the end of this message In the FA, 1994 the Parliament have defined BAS which includes promotion. marketing or sale of goods and it has been further defined that it includes services of a commission agent and for removal of doubts and for the purpose of the said clause commission agent has been elaborately defined.

 

The Act itself defines BAS, defines sales promotion and defines commission agent without leaving any room for doubt.

 

It was, therefore not at all justified and proper for the Commissioner after losing before the Tribunal in the Cadila case to file a tax appeal in view of the abundant clarity provided in the FA. In the tax Appeal before the High Court the Commissioner has not opposed the statutory definition in the FA, 1994; in fact he has not brought to the notice of the High Court that a definition already exists and he has not admitted that though he is bound by the statutory definition he still disputes the definition. In the same way vide Para 5.2 (v) in the judgment the 65(19) BAS definition has been produced verbatim; despite that and the fact that sales promotion includes the services of commission agent in the definition itself the High Court has ignored the statutory definition despite mentioning it and instead wandered around as per Para 5.2 (vi) and thereafter into dictionary etc. to find out the meaning of sales promotion when it has already been statutorily defined for the purpose of 65(19).

The Commissioner thus did not approach the High Court with clean hands and the High Court only tended to help him.

 

The Circular is not against the statutory provision; in fact it is for the statutory definition and issued as a precaution to remove doubts, if any as the statutory definition allowed services of commission agent to be within the meaning of sales promotion. CCE, Bolpur therefore does not apply.

 

It is the Commissioner and the High Court which have gone against the statutory definition and explanations and not the Government.

 

The Commissioner has failed to look at and appreciate the definitions and the explanations within 65(19) and so have the High Court.

 

In the Astik case the Guj. High Court have wantonly brushed aside the Circular by saying that 34 months before 07-11-2012 in 2010 the Adjudicating Authority had issued the Order based on 07-11-2012 judgment and the Government was wrong about 18 months earlier on 29-04-2011 in issuing the Circular without taking into consideration the future 07-11-2012 judgment.

 

In the Dynamic case also only mention is made of the Circular but no ruling has been given for or against the Circular.

 

Cadila which by itself is delivered against the assessee despite the clear statutory definition is not a good law but has been taken blindly and sheepishly as the Gujarat Anthem in all cases instead of National Anthem being played at every place in India except Gujarat.

 

The law clearly allows taking of the credit but it is the tyranny of the Commissionerates in Gujarat and the overbearing High Court and now also the Appellate and the Gujarat Tribunal that are blocking taking of the credit notwithstanding that it is allowed. Under the same law, the same definitions under 65(19) and the same Circulars, the Commissionerates, Appellate Commissioners, Tribunals and High Courts are allowing taking of credits at every place

other than Gujarat.

 

The Government itself as a respondent should now rise to the occasion and ask the SC for early hearing in the Cadila appeal and admit before the Hon. SC that there was never any provision or even intention to deny the credit and that the credit is being allowed everywhere in India except Gujarat. The Government ought to see that there cannot be 2 or more classes of assesses one entitled to taking credit and the other not entitled.

 

1. The Section 65(19) of the FA, 1994 relevant portion reads 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)

2. In the Section (Law) itself Business Auxiliary Service has been defined as (means) any service in relation to promotion or marketing or sale of goods and includes service as a commission agent. By law for the purpose of Section 65(19) FA, 1994 promotion or marketing or sale of goods includes the services of a commission agent.

3. Further for the purpose of Section 65(19) the expression “Commission Agent” has also been explained as above for removal of doubts.

4. The sub-clause (iv) in the Explanation (a) encompasses any activity relating to such sale or purchase of goods. “Any activity” will include “sales promotion” also as it has not been excluded and the said Circular issued by the Government in context to the CCR, 2004 Rule 2(l)(also framed by the Government) and in particular the contents of the clarification when read harmoniously with the said Section 65(19) entitles availment of cenvat credit of service tax paid on commission paid to commission agents on sale of goods.

[Ashok Aggarwal]

I agree with Mr Modi and Mr Subramanian that the best course of action for assessees in Gujarat is to take credit and reverse the same under protest. Inform the jurisdictional Superintendent/ AC about the protest on record. This action will protect them from any departmental action and at the same time their right to take credit once the issue is settled by the Apex court.

[Subhash Modi]

Further to the discussions, so far, on this issue I would like to draw attention of all the colleagues and friends that the expression 'sales promotion' in the inclusive part of the definition of input services under Rule 2(l) of the CCR, 2004 has not been defined in the said Rules but has been very clearly and elaborately, lucidly defined without doubt under Section 65(19) of the FA, 1994 i.e. sales promotion includes the services of commission agent.

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.

Accordingly the meaning assigned in the FA, 1994 [vide Sec. 65(19)] to the expression 'sales promotion' will have the same meaning when the same expression 'sales promotion' has been used in input service inclusive definition vide 2(l) in CCR, 2004.

In the face of Rule 2(t) there was never any cause, whatsoever, for the learned Assessing, Adjudicating, Appellate authorities and the learned Tribunal members and the learned High Court judges to fathom from dictionaries and other sources the meaning of 'sales promotion', in so far as the CCR, 2004 Rule 2(l) expression 'sales promotion' is concerned; it is well defined in the Finance Act itself and percolates uninterrupted into CCR, 2004 as if it existed in the Rules also.

Unfortunately as far as my observation goes the learned Advocates in the pleadings before the Appellate , Commissioners the Tribunal and the High Court have, if I am not wrong, never invoked CCR, 2004 Rule 2(t) to nail home the point that the FA, 1994 definition of 'sales promotion' is THE definition in the CCR, 2004 as far as the expression 'sales promotion' used in the inclusive part of Rule 2(l) is concerned.