Gujarat High Court
Gujarat State Fertilizers And ... vs The Commissioner Of Central Excise on 6 January, 2016
Author: Akil Kureshi
Bench: Akil Kureshi, Mohinder Pal
O/TAXAP/994/2015 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 994 of 2015
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GUJARAT STATE FERTILIZERS AND CHEMICALS LTD.(FIBER
UNIT)....Appellant(s)
Versus
THE COMMISSIONER OF CENTRAL EXCISE,CUSTOMS AND SERVICE
TAX,SURAT-II....Opponent(s)
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Appearance:
MR HARDIK P MODH, ADVOCATE for the Appellant(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE MOHINDER PAL
Date : 06/01/2016
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. The appeal is filed challenging the judgement of CESTAT raising the following questions for our consideration :
"1) Whether the Tribunal was correct in relying upon the decision passed by the Hon'ble Gujarat High Court in the case of Commissioner of Central Excise vs. Cadilla Healthcare Ltd. reported in 2013(30) S.T.R. 3 (Guj) even though the appellant paid commission to the Stockiest/distributors on sales promotion activity?
2) Whether the Hon'ble Tribunal was correct in holding that Credit of Service Tax paid on commission amount paid to dealers/stockist is inadmissible to the appellant by Page 1 of 8 HC-NIC Page 1 of 8 Created On Fri Jan 08 01:11:15 IST 2016 O/TAXAP/994/2015 ORDER overlooking the statutory provision of Rule 2(l) of the Cenvat Credit Rules, 2004?
3) Whether the Tribunal was correct in discarding the agreement entered between the appellant and Distributors wherein it was specifically mentioned the nature of activities to be undertaken by the Stockiest/distributors and denied CENVAT credit on input services?
4) Whether the activities undertaken by the service provider were in nature of sales promotion activity?"
2. The adjudicating authority by order dated 30.5.2014 held that the payment to the agents appointed by the appellant would not be eligible for cenvat credit. The adjudicating authority relying on the decision of this Court in case of Commissioner of C.Ex. AhmedabadII v. Cadila Healthcare ltd. reported in 2013 (30) STR 3 (Guj), rejected the contention making the following further observations :
"10. In the instant case there is no material fact on record which could prove that commission agents of M/s GSFCL has incurred expenses or involved by any means in sales promotion. Thus these commission agents are concerned with sales rather than sales promotion. In view of this fact the assessee's case is squarely covered under the above stated High Court's judgement and 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 th Rules and, therefore, the assessee is not eligible for Cenvat credit in respect of the service tax paid on commission paid to the commission agents."
3. The appeal of the assessee was dismissed by the Commissioner (Appeals) upon which a further appeal to Page 2 of 8 HC-NIC Page 2 of 8 Created On Fri Jan 08 01:11:15 IST 2016 O/TAXAP/994/2015 ORDER the Tribunal was filed. The Tribunal also placed heavy reliance on the decision of this Court in case of Cadila Healthcare ltd. (supra) and dismissed observing as under :
"7. In light of the interpretation made by the jurisdictional High Court, it is held that activities undertaken by the distributors/consignment stockists of the appellant are purely distribution/sales and has no element of sales promotion and, therefore, CENVAT credit taken with respect to commission paid to such distributors/ consignment stockists is not admissible. The credit so taken is required to be paid by the appellant with interest and appeal with respect to CENVAT credit on services of Sales Commission, availed by the appellant is rejected."
4. Learned counsel Shri Modh for the appellant drawing our attention to the agreement executed between the parties and its agents contended that the agents were also involved in the sales promotion. If that be the case, the decision of this Court in case of Cadila Healthcare ltd. (supra), would not apply.
5. In case of Cadila Healthcare ltd. (supra), Division Bench considered several issues including the question whether the revenue authorities were justified in holding that the commission paid to foreign agents would not be covered in term 'input service' as envisaged in section 2(l) of the Cenvat Credit Rules, 2004. The Court held that the commission paid to foreign agents would not be covered within the expression 'sales promotion'. The Court held and observed as under :
"(viii) From the definition of sales promotion, it is apparent that in case of sales promotion a large population of Page 3 of 8 HC-NIC Page 3 of 8 Created On Fri Jan 08 01:11:15 IST 2016 O/TAXAP/994/2015 ORDER 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 product.
However, there is nothing to indicate that such commission agents were actually involved in any sales promotion activities as envisaged under the said expression. The term input service as defined in the rules means any service used by a provider of taxable service for providing an output service or used by the manufacturer whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal and includes services used in relation to various activities of the description provided therein including advertisement or sales promotion. Thus, the portion of the definition of input service insofar as the same is relevant for the present purpose refers to any service used by the manufacturer directly or indirectly in relation to the manufacture of final products and clearance of final products from the place of removal. Obviously, commission paid to the various agents would not be covered in this expression since it cannot be stated to be a service used directly or indirectly in or in relation to the manufacture of final products or clearance of final products from the place of removal. The includes portion of the definition refers to advertisement or sales promotion. It was in this background that this court has examined whether the services of foreign agent availed by the Page 4 of 8 HC-NIC Page 4 of 8 Created On Fri Jan 08 01:11:15 IST 2016 O/TAXAP/994/2015 ORDER assessee can be stated to services used as sales promotion. 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 judgement, in the opinion of this court, the claim of the assessee was rightly rejected by the Tribunal. Under the circumstances, the adjudicating authority was justified in holding that the commission agent is directly concerned with the sales rather than sales promotion and as such the services provided by such commission agent would 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.
(ix) As regards the contention that in any event the service rendered by a commission agent is a service received in relation to the assessees activity relating to business, it may be noted that the includes part of the definition of input service includes activities relating to the business, such as accounting, 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 subrule. 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, Page 5 of 8 HC-NIC Page 5 of 8 Created On Fri Jan 08 01:11:15 IST 2016 O/TAXAP/994/2015 ORDER recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security. Thus, what is required to be examined is as to whether the service rendered by commission agents can be said to be an activity which is analogous to any of the said activities. The activity of commission agent, therefore, should bear some similarity to the illustrative activities. In the opinion of this court, none of the illustrative activities, viz., accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security is in any manner similar to the services rendered by commission agents nor are the same in any manner related to such services. Under the circumstances, 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. Consequently, CENVAT credit would not be admissible in respect of the commission paid to foreign agents.
(x) For the reasons stated hereinabove, this court is unable to concur with the contrary view taken by the Punjab and Haryana High Court in Commissioner of Central Excise, Ludhiana v. Ambika Overseas (supra). Insofar as this issue is concerned, the question is answered in favour of the revenue and against the assessee."
6. As noted above, the assessing authority as well as the Tribunal came to factual finding that there was no material on record to establish that the commission agents of the appellant GSFC had incurred any expenses or involved in any means for sales promotion. Even otherwise if we peruse the agreement in question, the same is predominantly in the nature of appointing partnership firm Page 6 of 8 HC-NIC Page 6 of 8 Created On Fri Jan 08 01:11:15 IST 2016 O/TAXAP/994/2015 ORDER by the name Yarn Trading as a stockist for the sales of the appellant company. Very preamble to the agreement shows that the appellant company was desirous of appointing consignment stockist for the sales of its product and the partnership firm had approached the appellant with a request to be so appointed. As per clause (2) of the agreement, company would transfer its stock of yarn to the consignment stockist at 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 turn over.
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.
Page 7 of 8 HC-NIC Page 7 of 8 Created On Fri Jan 08 01:11:15 IST 2016 O/TAXAP/994/2015 ORDER (AKIL KURESHI, J.) (MOHINDER PAL, J.) raghu Page 8 of 8 HC-NIC Page 8 of 8 Created On Fri Jan 08 01:11:15 IST 2016