Custom, Excise & Service Tax Tribunal
Maharashtra Seamless Ltd vs Commissioner Of Central Excise on 21 July, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,WEST ZONAL BENCH AT MUMBAI COURT No. II APPEAL No.E/88903/13 (Arising out of Order-in-Original No.23/MAK(23)/COMMR/ RGD/13-14 dated 28/06/2014 passed by Commissioner of Central Excise, Raigad) For approval and signature: Honble Mr. Anil Choudhary, Member (Judicial) Honble Mr. Raju, Member (Technical) 1. Whether Press Reporters may be allowed to see :No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the :Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether Their Lordships wish to see the fair copy :Seen of the Order? 4. Whether Order is to be circulated to the Departmental :Yes authorities? ========================================
Maharashtra Seamless Ltd., Appellant Vs. Commissioner of Central Excise, Respondent Raigad Appearance:
Shri.M.H. Patil, Advocate for appellant Shri.Ajay Kumar, Jt. Comm. (AR), for respondent CORAM:
Honble Mr.Anil Choudhary, Member (Judicial) Honble Mr. Raju, Member (Technical) Date of Hearing : 21/07/2015 Date of Decision : 21/07/2015 ORDER NO Per: Raju
1. This appeal is directed against Order-in-Original No.23/MAK(23)/COMMR/ RGD/13-14 dated 28/06/2014 passed by Commissioner of Central Excise, Raigad.
2. The appellants are manufacturers of steel products and employed various agents for sales of their products. The agents are registered as commission agents under Business Auxiliary Service and pays service tax on the same. The appellants were availing credit of the said service tax paid. The appellants were issued show-cause notice claiming that the said credit taken during the period 2007-08 to 2011-12 is not admissible under Cenvat Credit Rules. The show-cause notice relies on the decision of this Tribunal in the case of Vikram Ispat Vs. CCE Raigad, vide order No.A/227-230/09/SMB/C-IV dated 01/06/2009 (passed in Appeal Nos.ST/241 to 244/08), wherein it is held that:
Any service to be brought within the ambit of definition of input service should be one which should specify the essential requirement contained in the main part of the definition. This requirement is equally applicable to the various items mentioned in the inclusive part of the definition as well.
Based on the above decision, it was alleged that the services of sales commission agent cannot be considered as a service used by the manufacturers side directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal. Further, it was alleged that no sales agreement or correspondence produced to establish that such sales promotion services have been rendered and used.
3. The demands raised were confirmed by the Commissioner by distinguishing between the activity of Sales Promotion and Sales. The Commissioner relied upon the decision of the Gujarat High Court in the case of CCE, Ahmedabad-II Vs. Cadila Healthcare Ltd., - 2013 (30) STR 3 (Guj) for this purpose. He confirmed interest and penalties as well. The appellants are in appeal against the said order before this Tribunal.
4. The learned Counsel for the appellant brought to our notice the CBEC Circular No943/04/2011-CX dated 29/04/2011 which reads as follows:5
Is the credit of Business Auxiliary Service (BAS) on account of sales commission now disallowed after the deletion of expression activities related to business?
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. Reading the provisions harmoniously it is clarified that credit is admissible on the services of sale of dutiable goods on commission basis.
4.1 The learned Counsel for the appellant submits that CBEC has clarified that credit of service tax paid on services of sales of dutiable goods on commission basis. He further pointed out that the same Commissioner of Central Excise has subsequently taken different stand on the same issued in the case of Bhushan Steel Ltd. (Order-in-original No.85/Adj.(SCN)/15-88/RGD/10-11 dated 23/10/2013). In para 13 he has given the following findings:
In an earlier matter adjudicated by me vide order No.23/MAK/(23)/COMMR/RGD/13-14 dated 28/06/2013 in respect of Maharashtra Seamless Ltd., the issue was that the service tax paid on the services of the sales agent by way of a commission did not appear eligible as an input service. In the said order reliance was placed on the judgement of the Honble High Court of Gujarat in CCE Ahmedabad-II Vs. Cadila Healthcare Ltd., - 2013 (1) ECS (1) Guj HC) to hold that credit is eligible on Sales Commission when it includes sales promotion also and not on pure sale alone. It was also felt that Boards Circular No.943/4/2011-CX dated 29/04/2011 had clarified that input service credit is admissible with reference to the head Sales Promotion and not to mere sale activity. The Chief Commissioner while reviewing the order has vide letter F.No.IV/17-101/CCO II/MCX/2013/10224 dated 10/09/2013 opined that the correct interpretation of Boards order is as under:
As per clarification given at Sr.No.5 of the Boards Circular No.943/4/2011-CX dated 29/04/2011, the assessee is entitled to credit on services of sale of dutiable goods on commission basis. It is felt that the interpretation of the aforesaid Boards Circular to be pertaining to Sale promotion in the OIO is incorrect as while clarifying it is merely mentioned that activity of sale promotion is specifically allowed and nowhere does it restrict the same as sales promotion.
4.2 The learned Counsel also submits that the activity undertaken by them is not merely sales of goods but sales promotion. In support of the same, they produced the following:
i) Letters written by their agents to various consumers offering them the products manufactured by the appellant
ii) The advertisement placed by them in various newspapers advertising their products manufactured by the appellant.
iii) The bills for payment of such advertising expenses and
iv) The copies of calendars printed for advertisement of the appellants products and bills for making the same.
4.3 On these grounds, the appellant asserted that the activity undertaken by them is sales promotion activity and not mere sales activity. The appellant also relies on various judgements which support their views. Following are the decisions relied by them:
a) Ambika Overseas 2010 (20) STR 514 (Tri)
b) Upheld by P&H High Court 2012 (25) STR 348 (P&H)
c) Ultratech Cement Ltd. 2010 (26) ELT 369 (Bom)
d) Bhilai Auxiliary Industries 2009 (14) STR 536 (Tri)
e) Pan Asia Corporation 2009 (16) STR 587 (Tri)
f) Lanco Industies Ltd. 2010 (17) STR 350 (Tri)
g) Rightway Fabrics 2011 (24) STR 505 (Tri)
h)HEG Ltd., - 2010 (18) STR 446 (Tri)
i) Rosa Sugar Works 2014-TIOL-150-CESTAT-DEL
j) Birla Corporation Ltd. 2014 (35) STR 977 (T) 4.4 The appellant distinguish with the decision of Cedila Healthcare Ltd., from their use on facts. Their assertion was the activity undertaken in the case of Cedila Healthcare Ltd., was mere sales activity whereas in their case they are actively engaged in Sales Promotion.
5. The learned AR relied on the following decisions:
a) CCE Vs. Cadila Healthcare Ltd. - 2013 (30) STR 3 (Guj)
b) Astik Dyestuff Pvt. Ltd., 2014 (34) STR 814 (Guj)
c) CCE Vs.Dynamic Industries Ltd.-2014 (35) STR 674 (Guj)
d) CCE Vs. Paras Motors Mfg. Co. 2013 (31) STR 81 (Tri-Ahmd) 5.1 He further submitted that the activity undertaken by them is not a Sales Promotion activity but sales activity. His assertion was that to claim the activity as Sales Promotion activity the appellant needs to produce evidence to the fact that there was indeed an increase in the sales of goods as a result of their activity.
6. We have considered the submissions made by both the sides.
6.1 It is seen that the evidence produced by the appellant clearly shows that they are not only selling the goods but also actively approaching new clients, putting advertisements, giving diaries and calendars. These activities can clearly be termed as Sales Promotion activities and not merely sales activities. To that extent, the decisions relied by the learned AR are distinguishable.
6.2 Further it is seen that department itself has changed its stand on the issue. The same Commissioner has in his later order stated so (para 4.1 of this order refers).
6.3 We find that the decision of this Tribunal in the case of Rosa Sugar Works Vs. CCE, Lucknow 2014-TIOL-150-CESTAT-DEL is clearly applicable to this case. The said decision has been given after considering the decisions of Cadila Healthcare Ltd. The Tribunal in the case of Birla Corporation Ltd., Vs. CCE. Lucknow 2014 (35) STR 977 (Tri-Del) has examined a case under similar circumstances and observed as follows:
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 judgment of Honble Punjab & Harayana High Court in the case of Ambika Overseas (supra), which is in favour of the appellant, there is another judgment 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 judgment, 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 judgment 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 Ultratech Cement reported in 2010 (260) E.L.T. 369 (Bombay) = 2010 (20) S.T.R. 577 (Bom.) 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(l) of the 2004 Rules. 7.2?Thus in paras 28 and 29 of the above judgment, 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 judgment, 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 para 25 of its judgment in case of Coca Cola India Pvt. Ltd. v. CCE, Pune-II reported in 2009 (242) E.L.T. 168 (Bom.) = 2009 (15) S.T.R. 657 (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 judgments of the Honble Bombay High Court have not been considered in the judgment of Honble Gujarat High Court in case of Cadila Health Care Ltd. (supra).
7.3?In any case, when the judgment of two High Courts, on this issue, are in favour of the appellant and besides this, a number of judgments of the Tribunal, as mentioned above, are also in favour of the appellant, it is those judgments 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 sales 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.
7. Following the ratio of the above judgement, the appeal is allowed.
(Pronounced in Court) (Anil Choudhary) Member (Judicial) (Raju) Member (Technical) pj 1 5