Custom, Excise & Service Tax Tribunal
M/S. Birla Corporation Ltd vs Cce, Lucknow on 26 September, 2013
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, NEW DELHI, PRINCIPAL BENCH NEW DELHI
Date of Hearing/decision:26/09/2013
For approval and signature:
Honble Shri Rakesh Kumar, Member (Technical)
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1. Whether Press Reporters may be allowed to see
CESTAT (Procedure) Rules, 1982.
2. Whether it should be released under Rule 27 of the
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy
of the Order?
4. Whether Order is to be circulated to the Departmental
authorities?
Excise Appeal No.E/1270/2011-Ex(SM)
[(Arising out of Order-in-Appeal No.28-CE/LKO/2011 dated 22.02.2011 passed by the Commissioner of Central Excise (Appeals), Lucknow )]
M/s. Birla Corporation Ltd. Appellants
Versus
CCE, Lucknow Respondent
Appearance: Rep. by Shri Mayank Garg, Advocate for the appellant.
Rep. by Shri P.K. Sharma, DR for the respondent.
Coram: Honble Shri Rakesh Kumar, Member (Technical) Final Order No.57950/2013 /Dated:26.09.2013 Per Rakesh Kumar:
The appellant are manufacturers of cement chargeable to central excise duty. During the period of dispute from Feb. 2009 to October, 2009, they availed services of commission agent in connection with the sale of final product in respect of which they availed cenvat credit amounting to Rs.4,99,483/- The commission agent employed by the appellant have procured sales orders for them for which they had received commission and on that commission the service tax has been paid. The department issued show cause notice for recovery of this cenvat credit on the ground that this service is not covered by the definition of input service inasmuch as the same has no nexus with the manufacture of the Appellants final product. The show cause notice was adjudicated by the Asstt. Commissioner vide his order-in-original dated 14.07.2010 by which the demand of cenvat credit of Rs.4,99,483/- was confirmed along with interest and besides this, penalty under Rule 15 (2) of the Cenvat Credit Rules, 2004 was also imposed. The appeal filed to the Commissioner (Appeals) against this order of the Asstt. Commissioners order was upheld vide order-in-appeal dated 22.02.2011 against which this appeal has been filed.
2. Heard both the sides.
3. Shri Mayank Garg, Advocate, ld. Counsel for the appellant pleaded that during the period of dispute, the definition of the inclusive part of the definition of input service as given in Rule 2 (l) of the Cenvat Credit Rules covered the sales promotion and also the activities related to business, that the Tribunal in a series of judgements has held that the activity of procuring of sales orders by the commission agent is an activity of sales promotion or an activity relating to business and would be admissible for cenvat credit, that in this regard, he relies upon the Final Order No.A/827-828/2012-EX (BR) dated 10.07.2012 of the Tribunal in the appellants own case, the judgements of the Tribunal in the case of Lanco Industries Ltd. Vs. CCE, Tirupati reported in 2010 (17) STR 350 (Tribunal-Bang.) and also in the case of Bajaj Hindustan Ltd. Vs. CCE, Lucknow reported in 2013 (30) STR 675 (Tribunal-Delhi) , that the Honble Punjab & Haryana High Court in the case of CCE, Ludhiana Vs. Ambika Overseas reported in 2012 (25) STR 348 (P&H) has upheld the Tribunals order permitting cenvat credit in respect of commission agent services and that in view of this, the impugned order denying cenvat credit is not sustainable.
4. Shri P.K.Sharma, ld. Departmental Representative, defended the impugned order by reiterating the findings of the Commissioner (Appeals) and emphasized that the service of commission agent has no nexus with the manufacture of final product and that contrary view has been taken by the Honble Gujarat High Court in the case of Commissioner of Central Excise, Ahmedabad Vs. Cadila Healthcare Ltd. reported in 2013 (30) STR 3 (Gujarat), in para-5.2 (vii), 5.2 (viii) and 5.2 (ix) of which, it has been held that services of commission agent for procuring export orders is neither covered by the term sales promotion nor by the term activities related to Business, in the definition of input service, that in this judgement, the Honble High Court in para 5.2 (x) also considered the judgement of Honble Punjab & Haryana High Court in the case of Ambika Overseas reported in 2012 (25) STR 348 (P&H) and observed that this court is unable to concur with the view taken by that High Court. He, therefore, pleaded that there is no infirmity in the impugned order.
5. In rejoinder, Shri Mayank Garg, ld. Counsel for Appellant drew my attention to para 28 & 29 of the judgement of Honble High Court in case of Ultratech Cement Ltd. reported in 2010 (260) ELT 369 (Bombay), wherein Honble High Court held that inclusive part of the definition of input service covers various services used in relation to the business of manufacturing the final products, that the definition of input service is very wide and covers not only services which are directly or indirectly used in or in relation to the manufacture of final products but also includes various services used in relation to the business of manufacture of final products, be it prior to the manufacture of final products or after the manufacture of final products. He pointed out that in para-28, Honble High Court has observed that definition of input service is not restricted to the services used in or in relation to the manufacture of final product but extends to all services used in relation to the business of manufacturing the final product. He also pointed out that in para-29 of the judgement of the Honble High Court has observed that expression activities in relation to business in the definition of input service postulates activities which are integrally connected with the business of the assessee and only if the activity is not integrally connected with the business of the manufacture of final product, the service would not quality to be a input service under Rule 2(1) of the 2004 Rules. He emphasized that procurement of sales orders is an integral part of the manufacturing business and hence, this has to be treated as input service.
6. I have considered the submissions from both the sides and perused the records.
7. The only point of dispute in this case is as to whether the service of procuring sales orders of cement through commission agents i.e. business auxiliary services being received by them is covered by definition of input service or not. On this issue, while there is a direct judgement of Honble Punjab & Harayana High Court in the case of Ambika Overseas (supra), which is in favour of the appellant, there is another judgement of the Honble Gujarat High Court in the case of Cadila Health Care Ltd. (supra), wherein in para 5.2, a contrary view has been taken and in that judgement, Honble Gujarat High Court after discussing in detail, has held that the service of commission agent for procuring sales orders is neither covered by the expression sales promotion nor by the expression activities relating to business. Honble High Court in this judgement has observed that the term, activities relating to business in the definition of input service has to be interpreted on the basis of the activities mentioned after the words such as following this expression and that the activities covered by this expression must be similar to the activities which are mentioned as illustrative activities and on this basis, Honble High Court has given a finding that procuring sales orders through commission agents is not an activity, which is similar to the activities mentioned as illustration of the activities relating to business.
7.1 However, I find that the Honble Bombay High Court in the case of Ultra Tech Cement reported in 2010 (260) ELT 369 (Bombay) in para 28 and 29 has given the following interpretation of the expression activities relating to business:-
28. In the present case, the question is, whether outdoor catering services are covered under the inclusive part of the definition of input service. The services covered under the inclusive part of the definition of input service are services which are rendered prior to the commencement of manufacturing activity (such as services for setting up, modernization, renovation or repairs of a factory) as well as services rendered after the manufacture of final products (such as advertisement, sales promotion, market research, etc.) and includes services rendered in relation to business such as auditing, financing.etc. Thus, the substantive part of the definition input service covers services used directly or indirectly in or in relation to the manufacture of final products, whereas the inclusive part of the definition of input service covers various services used in relation to the business of manufacturing the final products. In other words, the definition of input service is very wide and covers not only services, which are directly or indirectly used in or in relation to the manufacture of final products but also includes various services used in relation to the business of manufacture of final products, be it prior to the manufacture of final products or after the manufacture of final products. To put it differently, the definition of input service is not restricted to services used in or in relation to manufacture of final products, but extends to all services used in relation to the business of manufacturing the final product.
28. The expression activities in relation to business in the definition of input service postulates activities which are integrally connected with the business of the assessee. If the activity is not integrally connected with the business of the manufacture of final product, the service would not qualify to be a input service under Rule 2 (1) of the 2004 Rules. 7.2 Thus in para 28 and 29 of the above judgement, Honble Bombay High Court has in clear terms held that the expression activities relating to business in the definition of input service in Rule 2 (l) covers all the activities which are integrally connected with the business of the manufacture of final product and only an activity which is not connected with the business of manufacture of final products would not qualify as the input service under Rule 2 (l). In para-28 of this judgement, Honble Bombay High Court has emphasized that the definition of input service is very wide and covers not only services, which are directly or indirectly used in or in relation to the manufacture of final products, but also includes various services used in relation to the business of manufacture of final products, be it prior to the manufacture of final products or after the manufacture of final products and that the definition of input service is not restricted to the services used in or in relation to manufacture of final products. Same view has been taken by Honble Bombay High Court in paa 25 of its judgement in case of Coca Cola India Pvt. Ltd. Vs. CCE, Pune-II reported in 2009 (242) ELT 168 (Bom.). The business of manufacture of final product, without any doubt, would include the sales of final product and hence, procuring of sales through commission agents would be covered by the expression activities related to business. These judgements of the Honble Bombay High Court have not been considered in the judgement of Honble Gujarat High Court in case of Cadila Health Care Ltd. (supra).
7.3 In any case, when the judgement of two High Courts, on this issue, are in favour of the appellant and besides this, a number of judgements of the Tribunal, as mentioned above, are also in favour of the appellant, it is those judgements which have to be followed.
8. Rule 2 (l) of Cenvat Credit Rules, 2004 was amended w.e.f. 1.4.2011 and by this amendment, the expression activities related to business in the inclusive portion of the definition of input service was excluded. However, the expression advertisement or sales promotion was retained. The Board vide Circular No.943/4/2011-CX dated 29.4.2011 (S.No.5 of the Table) in respect of the question Is the credit of Business Auxiliary Service (BAS) on account of sales commission now disallowed after the deletion of expression activities related to business clarified as under The definition of input service allows all credit on services used for clearance of final products upto the place of removal. Moreover, activity of sale promotion is specifically allowed and on many occasions, the remuneration for the same is linked to actual sale. Reading the provision harmoniously, it is clarified that credit is admissible on the services of sale of dutiable goods on commission basis. Thus according to this circular, the service of commission agents (Business Auxiliary Service) is covered by the term advertisement or sales promotion. In my view, there is nothing in this circular which is contrary to the provisions of law and hence the same would be binding on the Departmental officers. Thus, in view of this circular also, though it is in respect of definition of input service during period w.e.f. 1.4.2011, commission agents service would be cenvatable as the term advertisement and sale promotion was there in the definition of input service even during period prior to 1.4.2011.
9. In view of this above discussion, the impugned order is not sustainable. The same is set aside. The appeal is allowed.
( Rakesh Kumar ) Member (Technical) Ckp.
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