By TIOL News Service

AHMEDABAD, AUG 22, 2015: THE issue involved is admissibility of CENVAT credit of service tax paid on commission charges by the distributors.

Citing the Gujarat High Court order in the case of CCE, Ahmedabad-II vs. Cadila Healthcare Limited - 2013-TIOL-12-HC-AHM-ST, the credit availed by the appellant was held to be inadmissible by the Commissioner(A).

Before the CESTAT, the appellant submits that the facts of the present case are different than the facts before the High Court in the case of Cadila Healthcare Limited inasmuch as reading of Para 13 and 17 of the contract entered between the appellant and its distributors conveys that in addition to selling products of the appellant, such distributors were also undertaking the work of sales promotion.

The AR argued that in the entire contract there is no mention that out of the consideration paid to the distributors any monetary consideration on account of sales promotion activities is also paid. Attention of the Bench is invited to Para 7 of one such contract entered between the appellant and M/s. Shree Shyam Industries to argue that entire consideration to the distributors/consignment stockists is for selling the goods and is based on the value of the goods so delivered and sold;that the contract does not whisper anything about sales promotion activity;in Para 13 of the said contract nowhere it is mentioned that distributors/ consignment stockists will undertake any sales promotion activity.

The Bench extracted Clause 7, 13 and 17 of one of the contracts & observedthat the basic agreement between the appellant and the distributors/ consignment stockists is for getting commission on the sales affected; Percentage of sales commission is also dependent on the turnout made by the distributors/ consignment stockists per month; Clause 13 and 17 of the contract also does not convey that distributors/ consignment stockists are required to undertake any sales promotion activity on behalf of the appellant; that the only mention is provision of some samples, display photographs, brochures and sales promotion materials by the appellant but there is no whisper in the entire contract that any consideration is paid by the appellant to its distributors/ consignment stockists for undertaking such activity.

After extracting paragraph 5.2 of the law laid down by the High Court in the case of Cadila Healthcare Limited, the Bench held that activities undertaken by the distributors/ consignment stockists of the appellant are purely distribution/ sales and have no element of sales promotion and, therefore, CENVAT credit taken with respect to commission paid to such distributors/ consignment stockists is not admissible.

The appellant was directed to pay the credit taken along with interest and in the matter of penalty the same was waived on the ground that the issue involved was disputable.

The appeal was partly allowed.

(See 2015-TIOL-1747-CESTAT-AHM)