MARCH 18, 2014

By P G James

"QUOD approbao non reprobo" is a well accepted legal maxim. Law does not permit a person to both approbate and reprobate.

Supreme Court in the case of R.N. Gosain vs. Yashpal Dhir, (AIR 1993 SC 352), observed that a person cannot say at one time that a transaction is valid and thereby obtain some advantage to which he could only be entitled to on the footing that it is valid and later turn around and say it is void for the purpose of securing some other advantage.

To iron out the ambiguities centering on Cenvat Credit Rules, CBEC had issued Circular No 943/04/2011-CX, on April 29, 2011 clarifying various objections raised by field formulations with regard to credit availment of inputs, input services and capital goods, which had been whole heartedly welcomed by the assessees.

The following clarification was given with regard to the input service credit availment of sales commission:

"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 upto 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".

Where a particular activity is expressly mentioned in the inclusive part of the definition of input service, hair splitting analysis need not be done to examine whether it has satisfied the ingredients of the main part of the definition. This is the view expressed by the Hon'ble Bombay High Court inUltratech Cement Ltd.case and later acknowledged and accepted by the Board in the aforesaid Circular (2010-TIOL-745-HC-MUM-ST).

Hon High Court of Mumbai in the case of ONGC Ltd Vs CCE, Raigad (2013-TIOL-202-HC-MUM-ST) relying upon the decision of Apex Court in Solaris Chemtek Ltd (2007-TIOL-135-SC-CX) held that the definition of "input service"comprehends within its sweep a service which is used by the manufacturer even indirectly and in or in relation to the manufacture of a final product.Where the legislature or its delegate uses the expression "in or in relation to", its object and purpose is to widen the scope and purview of the entitlement. When the words "directly or indirectly"and "in or in relation to the manufacture of final products"are used in conjunction, that is indicative of the comprehensive sweep and ambit of the statutory provision.

Disregarding all the above, hapless assessees who had availed such credit on sales commission are being issued demand notices and driven to Tribunals and Courts. Recently Hon High Court of Gujarat in the case ofAstik Dyestuff Pvt Ltd Vs CCE (2014-TIOL-237-HC-AHM-ST) held that Sales Commission Services are not Input Services and Cenvat Credit on Sales Commission Services obtained is now not res integra in view of the decision of this Court in the case of Cadila Health Care Limited (2013-TIOL-12-HC-AHM-ST).

Hon'ble Court further observed thatif there is any conflict between the jurisdictional High Court and the CBEC circular, the decision of the jurisdictional High Court is binding on the Department rather than CBEC Circular.

Circulars are always binding on the field formationsas is held by Hon High Court of Sikkim in M/s.Future Gaming Solutions India Pvt Ltd Vs UOI (2013-TIOL-904-HC-SIKKIM-ST) by relying upon the various decisions of the Hon'ble Supreme Court including Commissioner of Central Excise, Mumbai vs. Rajpurohit GMP India Limited (2008-TIOL-200-SC-CX) and State of Kerala and Others vs. Kurian Abraham (P) Ltd & Others (2008-TIOL-20-SC-CT).

If the rules are silent on any particular point, Government can always fill up the gaps and supplement the rules and issue instructions as long as it is not inconsistent with the rules already framed. This is the principle laid down by Hon SC in Ram Sharma v. State of Rajasthan & Ors., (AIR 1967 SC 1910)

Hon Bombay High Court in Ultratech Cement Ltd case held that the argument of the Revenue which runs counter to the stand taken by the CBEC cannot be accepted (2010-TIOL-745-HC-MUM-ST).

It is well settled law as laid down by Hon Supreme Court in the case of Paper Products vs. CCE (2002-TIOL-83-SC-CX-CB) and CCE. Vadodara vs. Dhiren Chemicals Industries (2002-TIOL-84-SC-CX) that the Revenue cannot challenge the position taken in the Circular even though it is open to challenge in the hands of the assessee.

In Ranadey Micronutrients vs. Collector of Central Excise (2002-TIOL-184-SC-CX), it was upheld that an officer of the Ministry of Finance would have greater respect for Circulars issued by CBEC. It does not lie in the mouth of the Revenue to repudiate a circular issued by the Board on the basis that it is inconsistent with a statutory provision. Consistency and discipline are of far greater importance than the winning or losing of court proceedings.

CBEC, constituted under the Central Boards of Revenue Act, 1963, has been accorded the power to issue orders, instructions and directions by the provisions of the Central Excise Act, 1944. Section 37-B, as made applicable to Finance Act, 1994 confers this power on the CBEC to issue such orders, instructions and directions to Central Excise Officers as it may deem fit and such Officers employed in the execution of the Act are mandatorily required to follow such orders and directions. But it is a paradox that such instructions and Circulars are not always followed in true spirit despite various judicial pronouncements and adopt the easiest and risk free "let the court decide"policy.

The decisions of Hon High Court of Gujarat in Cadila and Astik Dyestuff are binding the adjudicating authorities and Tribunals in its territorial jurisdictional of Gujarat. Therefore, an asseessee in Gujarat who pays Service Tax on commission is deprived of availing Cenvat credit. But an assesse falling within the jurisdiction of Punjab & Haryana High Court are legally quarantined in such credit availment in view of the judgement in Ambika Overseas (2011-TIOL-951-HC-P&H-ST). So also, several Tribunals across the country havedecided that credit on sales commission is eligible input service for Cenvat, few of which are mentioned below:

1. CCE, Ludhiana Vs M/s Swati Industries(2014-TIOL-159-CESTAT-Del)

2. Rosa Sugar Works Vs CCE, Lucknow(2014-TIOL-150-CESTAT-Del)

3. Interplex Electronics India Pvt Ltd Vs. CCE, (2013-TIOL-683-CESTAT-Bang)

4. CCE, Nagpur Vs Central Cables Ltd (2013-TIOL-99-CESTAT-Mum)

5. CCE, Mumbai Vs Indorama Synthetics(2012-TIOL-1244-CESTAT-Mum)

The Law Commission of Government of India in its 136 th Report addressed the issue of conflicting judgements of High Courts and the anomaly and incongruity arising out of identical provisions of Central Laws being construed as having one meaning in some parts of India and the same having different meaning in other parts of India. For the sake of achieving uniformity in the interpretation and application of Central Laws throughout India, it proposed "The Conflict of Decisions (Restoration of Uniformity) Bill, 1990 ", but it is still having the so called"call book"status.

Exporters in the State of Gujarat who contribute almost one-fourth of country's total export volume are severely hampered by the judgements in the cases of Astik Dyestuff and Cadila by denial of Cenvat credit on sales commission. Total export of the country for 2013-14 is estimated at USD 325 billion. Assuming a notional one percent sales commission, Service Tax credit being denied/ disputed will be around Rs. 2500 crores!!

Economic growth isdirectly linked to export growth. While announcing the Foreign Trade Policy -2009-14, ShriAnand Sharma, Minister of Commerce & Industry said:

"We cannot remain oblivious to declining demand in the developed world and we need to set in motion strategies and policy measures which will catalyse the growth of exports.By 2014, we expect to double India's exports of goods and services. The long term policy objective for the Government is to double India's share in global trade by 2020."

It is the avowed policy of Govt to promote exports and thereby economic growth and the legislative intent is explicit from the FTP and various Notifications issued and schemes announced so as to boost exports and not to burden export with taxes. It has been observed by Hon SC in the case of Bajaj Tempo Ltd(2002-TIOL-763-SC-IT) that aprovision in a taxing statute granting incentives for promoting growth and development and the restrictions on it should be construed liberally so as to advance the objective of the provisionand not to frustrate it.

As per the principle laid down by the Constitution Bench of the Supreme Court in Dattatraya Govind Mahajan & Ors.vs. State of Maharashtra & Anr. (1977) 2 SCC 548), it is the intention of the legislature which is paramount and a mere use of a label cannot control or deflect such a function. This has been upheld by Hon High Court of Delhi in Delhi Chit Fund Association Vs UOI &Anr (2013-TIOL-331-HC-DEL-ST) - the SLP filed by Revenue in this case is dismissed by Hon SC (2014-TIOL-23-SC-ST).

In thepublication of Ministry of Commerce & Industry, GOI, titled- "Strategy for Doubling Exports in next three years(2011-12 to 2013-14)" it has outlined essential policy support needed to achieve ambitious export targets of 2013-14 and beyond, which included among other things, stable policy environment and reduction in transaction costs. As per the Report of World Bank on" Doing Business-2014 ", transaction cost for exporting a container in India is as high as USD 1170 whereas it is USD 620 in China and lowest of USD 450 in Malaysia.

Burdening exports with indirect taxes like reverse charge payment of Service Tax on sales commission and disallowing CENVAT credit thereof will only pave the way for pushing up the transaction cost of exports and pulling down global competitiveness of our exports.

The only way left out is to wait for the appellate remedy by the Apex Court in Cadila case or till such time CBEC respects and sticks on to its own Circular.

Concluded with the poetic laments from the 'Book of Lamentations' -

"You have seen the wrong done to me, O Lord judge my cause;
You have seen all their malice, all their plots against me;
Give them anguish of heart; your curse be on them"