Custom, Excise & Service Tax Tribunal
M/S. Gujarat State Fertilizers & ... vs Commissioner Of Central Excise & S.T., ... on 12 June, 2015
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL, West Zonal Bench, Ahmedabad Appeal No. : E/13399/2014 (Arising out of OIA-SUR-EXCUS-002-APP-096-14-15 dated 05.09.2014, passed by Commissioner (Appeals) Central Excise, & S.T., Commissioner of Central Excise & S.T., Surat) M/s. Gujarat State Fertilizers & Chemicals Limited : Appellant (s) VERSUS Commissioner of Central Excise & S.T., Surat-II : Respondent (s)
Represented by :
For Appellant (s) : Shri Willingdon Christian, Advocate For Respondent (s) : Shri G.P. Thomas, Authorised Representative For approval and signature :
Mr. H.K. Thakur, Honble Member (Technical) 1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
No 2 Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
No 3 Whether their Lordships wish to see the fair copy of the Order?
Seen 4 Whether Order is to be circulated to the Departmental authorities?
Yes CORAM :
Mr. H.K. Thakur, Honble Member (Technical) Date of Hearing / Decision : 12.06.2015 ORDER No. A/10794 / 2015 Dated 12.06.2015 Per : Mr. H.K. Thakur;
This appeal has been filed by the appellant with respect to OIA No. OIA-SUR-EXCUS-002-APP-096-14-15 dated 05.09.2014.
2. Shri Willingdon Christian, (Advocate) appearing on behalf of the appellant argued that issue involved in the present proceedings is admissibility of CENVAT credit of service tax paid on commission charges by their distributors. Learned Advocate argued that first appellate authority under Para 5.5 of Order-in-Appeal dated 05.09.2014 has agreed that service provided also include sales promotion activities but has taken a view against the appellant that in light of the Hon'ble Gujarat High Courts order in the case of CCE, Ahmedabad-II vs. Cadila Healthcare Limited [2013-TIOL-12-HC-AHM-ST], the credit availed by the appellant is not admissible. It was the case of the learned Advocate on behalf of the appellant that the facts of the present care are different than the facts before the High Court in the case of Cadila Healthcare Limited vs. CCE, Ahmedabad (supra). He made the Bench go through Para 13 and 17 of the contract entered between the appellant and its distributors which convey that in addition to selling products of the appellant such distributors were also undertaking the work of sales promotion of the appellant.
3. Shri G.P. Thomas (AR) appearing on behalf of the Revenue argued that in the entire contract there is no mention that out of consideration paid to the distributors any monetary consideration on account of sales promotion activities is also paid. Learned AR made the Bench go through Para 7 of one such contract entered between the appellant and M/s. Shree Shyam Industries to argue that entire consideration to the distributors/ consignment stockists is for selling the goods and is based on the value of the goods so delivered and sold. It was his case that this Clause-7 of the contract does not whisper anything about sales promotion activity. He further relies upon Para 13 of the said contract to argue that in this Clause also nowhere mentions that distributors/ consignment stockists will undertake any sales promotion activity.
4. Heard both sides and perused the case records. In this appeal, the issue involved is whether distributors/ consignment stockists of the appellant are doing any sales promotion activities in addition to selling of goods of the appellant or not. Appellant is of the view that sales promotion activities are carried out as per Clause 13 and 17 of the contract entered between the appellant and the distributors/ consignment stockists. That their case is squarely covered by the judgment in the case CCE, Ahmedabad vs. Cadila Healthcare Limited (supra). On the other hand, Revenue is of the view that no sales promotion activities are undertaken by the distributors/ consignment stockists of the appellant and therefore, no CENVAT credit is admissible as per law laid down by the Hon'ble Gujarat High Court in the case of CCE, Ahmedabad-II vs. Cadila Healthcare Limited.
5. Before giving observation on the arguments raised by either side, it will be relevant to reproduce Clause 7,13 and 17 of the one contracts dated 13.02.2012 entered between the appellant and M/s. Shree Shyam Industries:-
7.0. Company shall pay Consignment Stockist the service charges at the following rates or as may be decided by Company from time to time on the Exfactory sales value of goods delivered, by way of issuing separate credit note provided that Consignment Stockist have fulfilled all other obligations under the agreement to Companys satisfaction:-
-Sales up to 15MTs per month - 2% -Sales above 15 MTs and up to 40MTs per month - 2.25% -Sales above 40 MTs per month - 2.50%
The higher rate of Ser. Charges in the form of quantity discount will be applicable for total quantity of the sales achieved during the month by way of credit note on completion of the month, after submitting the F form and the proof of Local S.T. paid. For the sales of flat yarn on returnable cops, an additional Ser. Charges of 0.50% will be applicable.
13.0. The Consignment Stockist shall exert their best endeavors to sell NFY and shall advise the Company whenever required with regard to the development and extension of the market for the sale of NFY and the advertisement thereof. The Company shall from time to time supply to the Consignment Stockist such samples, display photographs, brochures and other printed sales promotion material and literature in respect of the products to the extent the Company may consider necessary.
17.0. Upon termination of appointment the Consignment Stockist shall promptly return to the Company or its nominee all the property of the Company such as all cops, records, books, diaries, samples and sales promotional materials of every type and description etc. in its possession or custody relating to the products and settle all outstanding dues from the customers and complete all other formalities for the recovery of dues, including the value of cops if any before claiming its Ser. charges and or refund deposit under this agreement.
6. It is observed from the above paragraphs of the contracts that basic agreement between the appellant and the distributors/ consignment stockists is for getting commission on the sales affected. Percentage of sales commission is also dependent on the turnout made by the distributors/ consignment stockists per month. Clause 13 and 17 of the contract also does not convey that distributors/ consignment stockists are required to undertake any sales promotion activity on behalf of the appellant. The only mention is provision of some samples, display photographs, brochures and sales promotion materials by the appellant but there is no whisper in the entire contract that any consideration is paid by the appellant to its distributors/ consignment stockists for undertaking such activity. In this regard, law laid down by the Hon'ble High Court in the case of Cadila Healthcare Limited vs. CCE, Ahmedabad (supra), as per Para 5.2 is relevant and is reproduced below:-
5.2?Commission paid to the foreign agents : The assessee availed of CENVAT credit of Rs. 39,45,791/- towards commission paid to foreign agents. According to the assessee, out of the total amount paid as service tax, they had availed of CENVAT credit only on that part which was attributable to dutiable products manufactured in their plant only and that no CENVAT credit has been availed on exempted goods. It was contended that service tax paid on commission paid to commission agents for sale of final products is available as credit according to the inclusive part of the definition of input service, which includes services in relation to sales promotion. Reference was made to the definition of business auxiliary service as defined under Section 65(19) of the Finance Act, 1994 which lays 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 service tax paid on commission paid to foreign agents.
(ii)?The Tribunal has held that foreign commission agent service is in the nature of sales promotion and without any elaborate discussion in respect thereof has held that CENVAT credit was admissible on service tax paid in respect of such service. The Tribunal while reversing the findings recorded by the Adjudicating Authority has not given any reasons in support thereof and has merely placed reliance upon its findings in relation to the services rendered by the Clearing and Forwarding agents.
(iii)?The learned counsel for the appellant placed reliance upon the findings recorded by the Adjudicating Authority to submit that the commission paid to foreign agent is being availed in the category of Business Auxiliary Service. However, this service is not used for manufacture of final product and is not used for clearance of final product from the place of removal. The commission agent is directly concerned with the sales and not with production, therefore, it is also not related to any activity specified in the inclusive part of the definition of input service. Besides, the activities carried out by the commission agent do not fall within the ambit of sales promotion and, therefore, also the commission paid to the foreign agents would not fall within the ambit of the expression input service as envisaged under Rule 2(l) of the Rules.
(iv)?On the other hand, the learned counsel for the assessee supported the impugned order of the Tribunal by submitting that the assessee avails of services of commission agents for sale of its final products. The commission agents find buyers for the assessees goods and thereby promote the sales of the assessees goods. The includes portion of the definition specifically mentions services used in relation to sales promotion. The service of commission agents is, therefore, covered by the definition of input service. Moreover, such service is received in relation to the assessees business only and not for any other purpose. The same is, therefore, a service in relation to the activity relating to business which is also covered by the includes portion of the definition. It was argued that the show cause notice had proposed to deny CENVAT credit merely on the ground that the said service is a post-manufacturing activity and is not used directly or indirectly in the manufacture 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 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;
(vi)?As noted hereinabove, according to the assessee the services of a commission agent would fall within the ambit of sales promotion as envisaged in clause (i) of Section 65(19) of the Finance Act, 1994, whereas according to the appellant a commission agent is a person who is directly concerned with the sale or purchase of goods and is not connected with the sales promotion thereof. Under the circumstances, the question that arises for consideration is as to whether services rendered by a commission agent can be said fall within the ambit of expression sales promotion. It would, therefore, be necessary to understand the meaning of the expression sales promotion.
(vii)?The expression sales promotion has been defined in the Oxford Dictionary of Business to mean an activity designed to boost the sales of a product or service. It may include an advertising campaign, increased PR activity, a free-sample campaign, offering free gifts or trading stamps, arranging demonstrations or exhibitions, setting up competitions with attractive prizes, temporary price reductions, door-to-door calling, telephone selling, personal letters etc. In the Oxford Dictionary of Business English, sales promotion has been defined as a group of activities that are intended to improve sales, sometimes including advertising, organizing competitions, providing free gifts and samples. These promotions may form part of a wider sales campaign. Sales promotion has also been defined as stimulation of sales achieved through contests, demonstrations, discounts, exhibitions or tradeshows, games, giveaways, point-of-sale displays and merchandising, special offers, and similar activities. The Advanced Law Lexicon by P. Ramanatha Aiyar, third edition, describes the term sales promotion as use of incentives to get people to buy a product or a sales drive. In the case of Commissioner of Income-tax vs. 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 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 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. vs. 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 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 vs. Ambika Overseas [2012 (25) S.T.R. 348 (P & H)]. Insofar as this issue is concerned, the question is answered in favour of the revenue and against the assessee.
7. In the 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.
8. So far as imposition of penalties upon the appellant is concerned, it is observed that the period involved in the present proceedings is from July 2012 to March 2013. The judgment delivered by Hon'ble Gujarat High Court in the case of Cadila Healthcare Limited vs. CCE Ahmedabad (supra) is dated 07.11.2012 which settled the dispute of interpretation of admissibility of CENVAT credit, inter-alia, with respect to sales commission paid by the assessees. As the issue involved was disputable, therefore, no penalty under Rule 15(1) of the Cenvat Credit Rules, 2004 is imposable. The appeal filed by the appellant with respect to penalty is thus required to be allowed.
9. In view of the above, appeal filed by the appellant is allowed only to the extent indicated in Para 8 above.
(Order dictated and pronounced in the Court) (H.K. Thakur) Member (Technical) .KL 10