CENVAT Credit - No distinction can be made between commission paid to foreign agent and agents operating within India because nature of services provided by both are same - commission agent is concerned with sales rather than sales promotion - such services are not Input Services: CESTAT
By TIOL News ServiceAHMEDABAD, MAY 03, 2013: THIS is a departmental appeal against the order passed by the Commissioner(A).
The Respondents had availed CENVAT Credit on Sales Commission Services obtained by them.
It is the case of the department that sales commission services are not eligible for CENVAT credit as per definition of input service contained in Rule 2(l) of the CENVAT Credit Rules, 2004 and for this contention they rely on the decision of Gujarat High Court in the case of Commissioner of Central Excise, Ahmedabad-II vs. M/s.Cadila Healthcare Ltd. - 2013-TIOL-12-HC-AHM-ST .
The respondent assessee submitted that sales commission paid is an activity relating to their business incurred before the clearance of goods and on the basis of orders procured by the commission agent clearances are made.
The Bench noted that the Gujarat High Court had in the cited case deliberated the issue in detail and had come to the following conclusion -
“…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 assessee's 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.”
The CESTAT then proceeded to observe -
“5. After recording the above decision, the Hon'ble Gujarat High Court has not agreed with the contrary view taken by the Hon'ble Punjab & Haryana High Court in the case of Commissioner of Central Excise vs. Ambika Overseas . No distinction can be made between the commission paid to the foreign agent and the agents operating within the territory of India because nature of services provided by both the categories of the agents are same. Therefore, I hold that the law laid down by Hon'ble High Court of Gujarat in the case of Commissioner of Central Excise vs. Cadila Healthcare (supra) is squarely applicable to the facts of the present case and accordingly the Order in Appeal passed by the Commissioner (A) is required to be set-aside and the Order in Original dated 06/01/2010 is required to be restored….”
In fine, the Revenue appeal was allowed.
(See 2013-TIOL-680-CESTAT-AHM)
