Custom, Excise & Service Tax Tribunal
Commissioner Of Central ... vs Nutrine Confectionery Co Ltd on 3 November, 2014
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Final Order No. 21955 / 2014 Appeal(s) Involved: ST/106/2008-SM [Arising out of OIA No.25-2007 -T- ST dated 24/10/2007 passed by CCE(Appeals), Guntur ] Commissioner of Central Excise,Customs & Service Tax TIRUPATI NULL 9/86-A...BEHIND WEST CHURCH COMPOUND, AMARAVATHI NAGAR, M.R.PALLI, - 517502 AP Appellant(s) Versus NUTRINE CONFECTIONERY CO LTD PALAMANER ROAD, CHITTOR (A.P) Respondent(s)
Appearance:
Shri N. Jagdish, Superintendent(AR) For the appellant Shri B. Venugopal, Advocate For the respondent CORAM:
HON'BLE SHRI S.K. MOHANTY, JUDICIAL MEMBER Date of Hearing: 07/07/2014 Date of Decision: 03/11/2014 Order Per : S.K. MOHANTY The Revenue is in appeal against the Order-in-Appeal No.25/2007(T) ST dated 24/10/2007 passed by the Commissioner (Appeals), Customs & Central Excise, Guntur. Vide the said impugned order, the order dated 31/03/2007 passed by the adjudicating authority has been set aside on the ground that service tax paid on C&F agents commission by the respondent herein, is in relation to storage of goods up to the place of removal and such tax is added to the cost of production for the purpose of determination of value for assessment. With regard to the commission paid to M/s. JAS Marketing Pvt. Ltd., Mumbai, the impugned order has held that to promote the sale of goods, the respondent company has availed the services of the said commission agent who helps in procuring orders for sale of goods. Thus, according to the impugned order, service tax paid on the commission amount for the above two category of activities fall under the purview of input service in terms of Rule 2(l) of the CENVAT Credit Rules, 2004(CCR), and as such, the respondent is eligible for Cenvat credit of the service tax amount. The impugned order is the subject matter of present appeal before this Tribunal.
2. In the grounds of appeal annexed to the appeal memorandum, the revenue has stated the activities that the C & F agent perform on behalf of the respondent, which inter alia includes receiving of finished goods in their godowns, dispatch the same to dealers by raising invoices, collection and deposit of the amount in the banks, performing liaison work pertaining to sales tax and other matters of the respondent's company etc. According to the Revenue, the post sales services provided by the C & F agent to the respondent cannot be considered as input service, since the said services are not in relation either to manufacture or clearance of finished product from the place of removal . With regard to the services provided by both the agencies i.e. C & F agent and JAS Marketing Pvt. Ltd., the contention of Revenue is that the premises of such commission agents cannot be considered as place of removal, since the said services have been rendered for the activities undertaken after goods have reached the place of removal and not up to the place of removal. The revenue further submitted that the debit notes basing on which the Cenvat credit has been taken by the respondent were not prescribed documents under the Cenvat statute.
3. The learned A.R. appearing for the Revenue has cited the judgment of Honble Gujarat High Court, delivered in the case of Commissioner of Central Excise, Ahmedabad - II -Vs. - M/s Cadila Health Care Ltd. [2013-TIOL-12-HC-AHM-ST]], to substantiate the stand of Revenue that the commission paid by the respondent company will not be considered as 'input service' for the purpose of taking CENVAT credit.
4. On the other hand, the learned Advocate appearing for the respondent has supported the findings recorded in the impugned order and submitted that the said order has been passed in conformity with the provisions of CCR. To substantiate his argument that service tax paid on the commission amount will be eligible as input service, the learned Advocate has relied on the judgment of Hon'ble Bombay High Court, delivered in the case of Commissioner of Central Excise, Nagpur - Vs. - Ultratech Cement Ltd. [2010 (260) ELT 369 (Bom.)] and Coca Cola India Pvt. Ltd. - Vs. - Commissioner of Central Excise, Pune - III [2009 (242) ELT 168 (Bom.)]. The learned Advocate also cited the final order Nos. 20176-20183/2014 passed by this bench of the Tribunal to support his above stand.
5. I have heard the learned counsel for the parties and perused the records.
6. It is an admitted fact on record that the C & F agent had maintained the depot operations, wherein the chocolates manufactured by the respondents had been stored for onward delivery to the dealers upon raising the invoices. The question as to whether such services will qualify as 'input service' in terms of the definition contained in Rule 2(l) of the CCR, the answer is in affirmative. Because, the definition of 'input service' takes within its ambit "clearance of final products from the place of removal" for availing Cenvat credit. Though the phrase 'place of removal' has been used in the definition clause of input service in the CCR, but the meaning of the said expression has not been specified therein. As such, in terms of Rule 2(t) of the CCR, the definition assigned in the Central Excise Act, 1944 for the said expression has to be adopted for correct appreciation of the legislative intent behind the definition in the said rule.
7. Sub-section 3(c)(iii) of Section 4 of the said Act defines 'place of removal' to mean "a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory; from where such goods are removed." From the above definition read with the definition of ' input service' as contained in the CCR, it transpires that the services in relation to the activities of removing goods from factory, storing at the depot or C & F agents premises and delivering the same to the customer are falling within the scope and ambit of the said definition clause. Therefore, under the facts and in the circumstances of the case, I am of the considered view that the activities of the C & F agent are confirming to the definition of 'input service', and as such, the respondent is eligible to take Cenvat credit of service tax amount paid on the C & F commission.
8. The judgment of Hon'ble Gujarat High Court in the case of M/s Cadila Healthcare Ltd. (supra) cited by the learned A.R. for the Revenue-appellant support the case of the respondent, wherein it has been held that services rendered by the C & F agent of clearing the goods from the factory premises, storing and delivering the same to the customer would fall within the ambit of Rule 2(l) of the rules, as it stood prior to its amendment with effect from 01.04.2008. The relevant portion of the said judgment as appearing at paragraph 5.4 is extracted herein below :-
(iv)?Ordinarily, a C & F agent receives goods from the factory or premises of the manufacturer (the Principal) or his agents and stores these goods, dispatches these goods as per orders received from the Principal, arranges transport, etc. for the purpose and prepares invoices on behalf of the Principal. In respect of such service, the C & F agent receives commission on the basis of agreed terms. Therefore, an essential characteristic of any service, to fall in the category of C & F agent, is that the relationship between the service provider and receiver should be in the nature of principal (owner) and agent. The C & F Agent carries out all activities in respect of goods right from the stage of their clearances from the premises of the principal to its storage and delivery to the customers.
(v)?At this stage reference may be made to the definition of the expression place of removal as defined under clause (c) of sub-section (3) of Section 4 of the Act which reads thus :
(c)?place of removal means -
(i) a factory or any other place or premises of production or manufacture of excisable goods;
(ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty;
(iii) a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory;
from where such goods are removed.
(vi)?Thus, the clearing and forwarding agent is an agent of the principal. The goods stored by him after clearance from the factory would therefore, be stored on behalf of the principal, and as such the place where such goods are stored by the C & F agent would fall within the purview of sub-clause (iii) of clause (c) of Section 4(3) of the Act and as such would be the place of removal. Viewed from that light the services rendered by the C & F agent of clearing the goods from the factory premises, storing the same and delivering the same to the customer would fall within the ambit of Rule 2(l) of the Rules as it stood prior to its amendment with effect from 1-4-2008, namely clearance of final products from the place of removal. .
9. With regard to the submission of the Revenue that the post sale activities such as liaison work pertaining to sales tax and other matters of the company cannot be considered as 'input services', it is difficult to concur with the view, because such activities are incidental and ancillary to the depot operations, where the main function is to dispatch the goods to the customers. Further, there is no bifurcation of commission amount in the agreement, indicating the amount towards each service. Hence, in absence of any price break-up for different services, it will not be prudent to disallow the Cenvat benefit on a hypothetical ground. Therefore, in my opinion, the respondent is entitled for the benefit of Cenvat credit on the entire amount of service tax paid on the C & F commission.
10. As regards the commission paid to JAS Marketing Pvt. Ltd. by the respondent, the learned Commissioner (Appeals) in the impugned order has held that the services have been availed by the present respondent in order to promote the sale of goods and thus, the services are in the nature of sale promotion activities, falling under the inclusive part of the definition. In this context, I have perused paragraph 5 in the Show Cause Notice dated 01.11.2006, wherein the activities of JAS Marketing have been explained, which are as under:-
M/s. Nutrine Confectionery Co. (P) Ltd. are selling their manufactured goods to Defence Canteen Stores Department on obtaining orders from M/s. JAS Marketing. The Company supplies the stock directly to the Canteen Stores Department through M/s. JAS Marketing. M/s. JAS Marketing monitors the collection of sale proceeds and credits the same to the company and for these activities, M/s. NCCPL is paying the commission to them. The said service tax paid on such commission is taken as CENVAT credit by the company in their registers and utilizing the same for payment of Central Excise duty on finished goods.
11. The activities of the commission agent as indicated above clearly demonstrate that such agent is concerned with the sale of respondent' goods to the defence canteen only, which cannot be considered as sales promotion, for the reason that in case of sales promotion, strategy is required to be adopted to motivate a large number of customers to expand the business base, which is absent in the present case. Thus, in my opinion, service tax paid on the commission amount of M/s JAS Marketing, which is in relation to selling of goods to the individual customer, will not fall within the purview of definition of 'input service' for taking Cenvat credit by the respondent. The activity which constitutes 'sales promotion' in commercial parlance has been elaborately dealt with by the Hon'ble Gujarat High court in the case of Cadila Healthcare Ltd. (supra), relied on by the appellant. The relevant paragraphs 5.2(vii) to (ix) of the said judgment are reproduced as under :-
(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 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 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. 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 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.
12. The judgment of Hon'ble Bombay High Court in the case of Ultratech Cement Ltd. and Coca Cola India Pvt Ltd. cited by the respondent have no application to the facts of the present case, in as much as, the issue decided therein was not with regard to eligibility of Cenvat credit of service tax on commission paid to the agent for selling the goods. Whereas, the Honble Gujarat High Court in the case of Cadila Healthcare Ltd. has specifically dealt with the role and functions of a commission agent and has also distinguished the services provided towards sales promotion from the services of mere selling the goods. Further, while interpreting the expression activities relating to business used in the definition clause of input service, the Honble Gujarat High Court in the above referred case has held that the service rendered by the commission agent being not analogous to the activities mentioned in the definition, the said service would not fall within its ambit. Therefore, having regard to the settled position that subsequent judgment of the cases shall prevail over the earlier judgment (cited by the respondent), I find that the interpretation placed in the case of Cadila Healthcare Ltd. by the Honble Gujarat High Court is applicable to the present case that mere selling agent of goods cannot be equated with the agent providing sales promotion activities.
13. The facts involved in the order dated 31.01.2014 of this bench of the Tribunal in the case of Bhuruka Gases Ltd., relied upon by the learned Advocate for the respondent is different from the facts of the present case, in as much as, in the said order vide paragraph 7, the bench has elaborately discussed the activities of the appellant and thereafter, arrived at the conclusion that the services rendered are nothing but sales promotion, and accordingly, allowed the appeal in favour of the appellant. Whereas, in the case in hand, the activities of M/s JAS Marketing as indicated in the show cause notice, clearly exhibit that it is the selling agent acting on behalf of the respondent.
14. With regard to the submission of the appellant that Cenvat credit is not permissible on the basis of ineligible documents, I find that the revenue has not raised the said ground before the first appellate authority. The adjudicating authority has also not recorded any findings in his order with regard to the alleged discrepancy. Further, the disputed documents have not been produced by the appellant either at the time of filing or hearing of appeal before this Tribunal. However, considering the fact that the Cenvat statute provides only the prescribed documents for taking credit by the assessee, I am of the opinion that the matter should be remanded to the original authority for verification of documents.
15. In view of the above factual and legal analysis, the appeal is partly allowed in favour of the Revenue, so far as Cenvat credit on the commission of JAS Marketing Pvt. Ltd. is concerned. With regard to the issue of Cenvat credit on C & F agents service, I do not find merits in the appeal filed by the Revenue, and as such, the same is dismissed. However, for the purpose of Cenvat credit, the respondent shall produce the valid documents before the original authority, who upon verification of the documents, if found valid and proper as per the statutory mandates, shall allow the Cenvat credit.
(Pronounced on ) S.K. MOHANTY JUDICIAL MEMBER Raja.
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