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TMI Blog2022 (8) TMI 773X X X X Extracts X X X X X X X X Extracts X X X X ..... ivity have been agreed upon in an Agreement. Therefore, it is a clear-cut understanding between the parties that M/s L T Ltd would work as Commission Agents for sales and get a fixed percentage of the sales turnover. The learned Commissioner has correctly held that the impugned service does not qualify as Input Service as the same was not used in or in relation to manufacture of goods by the appellants and therefore, the credit availed is illegal. Gujarat High Court has gone into this issue in an elaborate manner and had made a final distinction between Sales Promotion and Sales Commission Services in the case of COMMISSIONER OF CENTRAL EXCISE, AHMEDABAD II VERSUS M/S CADILA HEALTH CARE LTD. [ 2013 (1) TMI 304 - GUJARAT HIGH COURT] has held that though the business activities mentioned in the definition are not exhaustive, the service rendered by the commission agents not being analogous to the activities mentioned in the definition, would not fall within the ambit of the expression activities relating to business . The appellants are not eligible to avail CENVAT credit on the Sales Commission paid to M/s L T Ltd. We find that the appellants have also submitted that in case the ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Komatsu Limited) are engaged in the manufacture of hydraulic excavators; During the course of an investigation conducted by the Department it was observed that the appellants were availing credit of service Tax on the sales commission paid by them to M/s L&T Ltd, who were marketing their products in India, as per Sole selling Agreement entered in to with them; It appeared that the activity of sales agency carried out by M/s L& T is not an 'input service' and that the appellants have contravened the provisions of Rule 3 of CENVAT credit Rules, 2004 read with Rule 2(l) ibid; A show Cause Notice dated 04.03.2009, covering the period 2006-07 and 2007-08, was issued invoking the extended period, seeking to demand back the credit taken along with interest while proposing to levy penalty. The allegations in the Show Cause Notice were confirmed by Order-in-Original dated 26-02-2010. Thereafter periodic Show Cause Notices were issued and confirmed by the respective Orders-in- Original/Orders-in-Appeal as follows. Sl. No Appeal No SCN date OIO/ OIA Date Demand Confirmed Period 1. E-639/2010 04.03.2009 26.02.2010 61,44,78,463 April 2005 to December 2008 2. E-288/2011 27.01.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nternational Ltd 1983 (14) E.L.T. 1896 (S.C.). He relies on the following decisions: (i). Coca Cola India Pvt Ltd 2009 (15) S.T.R. 657 (Bom.) (ii). Press Note dated 12-8-2004 issued by Ministry of Finance, explaining the proposed scheme of Cenvat credit. (iii). Ultra tech Cement Ltd 2010 (260) E.L.T. 369 (Bom.) (iv). ONGC 2013 (32) S.T.R. 31 (Bom.) (v). GTC Industries Ltd. [2008 (12) S.T.R. 468 (Tri. - LB)] 2.2. He submits that, in view of the above, the services provided by L&T qualify as "input service" in terms of Rule 2(l) of the Credit Rules as the Activity of Advertisement and Sales Promotion is specifically covered in the inclusive part of the definition; with the deletion of the phrase "activities relating to business" w.e.f. 01.04.2011, doubts arose regarding the availability of CENVAT Credit with respect to various services; The CBIC vide Circular No. 943/4/2011-CX., dated 29-4-2011 clarified that 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; read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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. * • Further, this entire controversy of difference between sales promotion and sales commission agency has been put to rest with the introduction of the amendment in 2016 which has clearly stated that even services of causing sales on commission basis would also be considered as Sales Promotion; the decision of the Gujarat High Court in the case of Cadila (supra) was rendered before the introduction of this amendment and accordingly, is not relevant any further; * the agreement dated 01.02.1998 between the Appellant and L & T Ltd shows that L&T was engaged/involved in Sales promotion and marketing as defined by the Hon'ble Gujarat High Court. 3. Learned Counsel submits that extended period of limitation can be invoked when there is a positive act of willful suppression with an intent to evade payment of duty as held in the cases of Pahwa Chemicals Private Limited 2005 (189) ELT 257 (SC), Continental Foundation in 2007 (216) ELT 177 (SC) and Damnet Chemicals Pvt Ltd in 2007 (216) ELT 3 (SC); in the present fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... criteria is that the service has to be used by manufacturer in or in relation to the manufacture of final products; in the instant case, M/s L & T Ltd have provided the services as a sole selling agent to the appellants; these services do not have any connection with the manufacture of final products by the appellants as these services are in the nature of post-manufacturing activities; the said services are related only to sales and not manufacture; appellant is paying sales commission to M/s L & T for the services rendered as sole selling agent, in terms of the contract; the said services are neither advertisement nor sale promotion and are not covered under the inclusive part of the definition of input service also; the appellant's contention that advertisement, sales promotion, market research and customer support, are carried on by M/s L&T as a continuous activity cannot be accepted as rightly held by the adjudicating authority (Para 20 of OIO dated 26/2/2010). 5.1. He submits that the appellant's contention that Cenvat Credit is to be allowed when the value of the commission paid is included in the assessable value of the final products with reference to which the Central E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de product support for the equipment and L&T accepts such appointment. Article 3.1. For the services rendered by L&T towards the sale and service of equipment in territory A, L&T Komatsu shall pay agency commission to L&T, and the rate and the other terms shall be stipulated in Annexure B attached thereto. Article 9. Advertisement: L&T shall promote sales of products by means of advertising, exhibition and demonstration of products or any other means suitable and territories at its own account. Article 13(2). Servicing Products: (2) Field Campaign L&T, shall at L&T Komatsu, rendered a field campaign for updating product, requested by L&T Komatsu, in accordance with the terms of the "service letter" which will be furnished to L&T by L&T Komatsu from time to time. 7. We find that Annexure A lists out Komatsu products and L&T products and the "Agency Commission" for the products is stated to be on a percentage basis of actual sales in Territory A and a certain percentage of list price in Territory B and in respect of spare parts, list price less 20% discount. We find that the appellants argue that M/s L&T Ltd not only work as Agents, for a Sales Commission, but also promote s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars to us that the contractor is entitled to make use of the machinery for purpose of execution of the work of the petitioner and there is no transfer of right to use as such in favour of the contractor. We have reached this conclusion because the effective control of the machinery even while the machinery is in the use of the contractor is that of the petitioner company. The contractor is not free to make use of the same for other works or move it out during the period the machinery is in his use. The condition that he will be responsible for the custody of the machinery while the machinery is on the site does not militate against the petitioner possession and control of the machinery. For these reasons, we are of the opinion that the transaction does not involve transfer of right to use the machinery in favour of the contractor." 9.1. We also find that it was also held by the Apex Court in the case of M/s Panipat Woolen and General Mills Co. Ltd. 1975-SCR-186 that: "It is well settled that the court in order to construe and agreement has to look into the substance or the essential of it rather than to its form. A party cannot escape the consequence of law merely by describing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys down that 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. (i) The Adjudicating Authority held that on a perusal of the definition of commission agent as defined under clause (a) to the Explanation under Section 65(19) of the Act, a commission agent is a person who acts on behalf of another person and causes sale or purchase of goods. In other words, he is directly responsible for selling or purchasing on behalf of another person and that such activity cannot be considered as sales promotion. According to the Adjudicating Authority there is a clear distinction between sales promotion and sale. A commission agent is directly concerned with sales rather than sales promotion. He, accordingly, held that service provided by commission agent does not fall within the purview of the main or inclusive part of the definition of input service as laid down in Rule 2(l) of the Rules and, therefore, the assessee was not eligible for CENVAT credit in respect of the serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of final products, completely ignoring the includes portion of the definition. It was also submitted that the service tax paid to a commission agent for sale of final product would fall within the ambit of sales promotion which is a business auxiliary service and would, therefore, also fall within the purview of input service. (v) In the backdrop of aforesaid facts and contentions, reference may be made to the definition of business auxiliary service as defined under Section 65(19) of the Finance Act, 1994, which to the extent the same is relevant for the present purpose reads thus : 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 promotion or marketing of service provided on behalf of the client; or 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 act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax v. Mohd. Ishaque Gulam, 232 ITR 869, a Division Bench of the Madhya Pradesh High Court drew a distinction between the expenditure made for sales promotion and commission paid to agents. It was held that commission paid to the agents cannot be termed as expenditure on sales promotion. (viii) From the definition of sales promotion, it is apparent that in case of sales promotion a large population of consumers is targeted. Such activities relate to promotion of sales in general to the consumers at large and are more in the nature of the activities referred to in the preceding paragraph. Commission agent has been defined under the explanation to business auxiliary service and insofar as the same is relevant for the present purpose 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. Thus, the commission agent merely acts as an agent of the principal for sale of goods and such sales are directly made by the commission agent to the consumer. In the present case, it is the case of the assessee that service tax had been paid on commission paid to the commission agent for sale of final prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security. The words activities relating to business are followed by the words such as. Therefore, the words such as must be given some meaning. In Royal Hatcheries (P) Ltd. v. State of A.P., 1994 Supp (1) SCC 429, the Supreme Court held that the words such as indicate that what are mentioned thereafter are only illustrative and not exhaustive. Thus, the activities that follow the words such as are illustrative of the activities relating to business which are included in the definition of input service and are not exhaustive. Therefore, activities relating to business could also be other than the activities mentioned in the sub-rule. However, that does not mean that every activity related to the business of the assessee would fall within the inclusive part of the definition. For an activity related to the business, it has to be an activity which is analogous to the activities mentioned after the words such as. What follows the words such as is accounting, auditing, financing, recruitment and quality control, coaching and training, computer network ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the price fixed by company from time to time on advance payment basis along with deposits. Clause (3) provided that consignment stockist would bear the insurance coverage for materials stored at its godown. As per Clause (4), all expenses incurred in selling or storing the products would be borne by consignment stockist. Clause (7) pertains to the commission to be paid to the consignment stockist which was graded depending on the sales turnover. 7. Thus predominantly the entire agreement was one in the nature of appointing a partnership firm as stockist of the appellant-company who would upon being supplied the goods in question would store the same and dispose of in the market at agreed rates upon which would receive certain commission. 8. A fleeting reference to attempt to sales promotion would not change the very basic nature of agreement and the relations between the appellant and the stockist converting the stockist as sales promotion agent. No question of law arises. Tax appeal is therefore, dismissed. 12. The appellants rely on Punjab and Haryana High Court Judgment in the case of M/s Ambika Overseas 2012 (25) S.T.R. 348 (P & H) and the judgment of this Tribunal in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought to the knowledge of the Department vide their letter dated 05.10.2005 and therefore, the issue was very much in the knowledge of the Department; therefore, it is not open for the Department to invoke extended period of limitation. We find that the appellant's contention is acceptable. The appellants have also submitted that penalty under Rule 25 of the CENVAT Credit Rules has been wrongly imposed; it is a settled position that in the absence of evidence showing clandestine removal, Rule 25 of Cenvat Credit Rules, 2004, cannot be invoked as held in GAL Aluminium Extrusions Pvt. Ltd. 2011 (247) ELT 582; the issue involved pertains to eligibility of CENVAT credit on input services and there is no dispute regarding production, manufacture and removal of the goods clandestinely; therefore, none of the provisions of Rule 25 are attracted. The appellants also submit that penalty under Section 11AC of the Central Excise Act, 1944 cannot be invoked in the periodical show cause notices as held in Nizam Sugar Factory 2008 (9) STR 314 (SC). The appellants also submit that as the issue involved is availment of CENVAT credit for reasons other than fraud, collusion, suppression etc; the app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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