CREDIT OF SERVICE TAX PAID ON COMMISSION PAID TO COMMISSION AGENT

[Mr. M. GOVINDARAJAN]

                        Sec. 65 (19) of the Finance Act, 1994 defines the term 'business auxiliary service' which includes the services of a commission agent. Sec. 65 (19)(a) defines the term 'commission agent' as 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, and includes any person who, while acting on behalf of another person-

deals with goods or services or documents of title to such goods or services; or

collects payment of sale price of such goods or services; or

guarantees for collection or payment for such goods or services; or

undertakes any activities relating to such sale or purchase of such goods or services.

Cenvat credit may be availed on the service tax paid to commission agents by the manufacturer or output service provider. In some cases, interpreting the provisions of Rules 2 (l) of CENVAT Credit Rules, 2004 which defines the term 'input service', the credit on service tax paid to commission agents is denied. The Tribunals allowed credit in such cases. In this article two case laws are being referred to.

In 'Commissioner of Central Excise, Raipur V. Bhilai Auxiliary Industries' - 2009 (14) STR 536 (Tri. Del) the assessee, who manufactures excisable goods, utilized the credit taken on service tax paid to commission agents. The Department disallowed the credit and confirmed the demand of tax for the same. The Commissioner (Appeals) set aside the order of the Adjudicating Authority. The Department filed appeal before the Tribunal. The Department submitted that it is clear from the definition of the term 'input service' that input service includes only those services which are used by a manufacturer directly or indirectly in or in relation to manufacture of final products or clearance of the final products from the place of removal and services with regard to post-removal activities are not covered by the definition of 'input service'. The assessee submitted the following:

the definition of 'input service' is in two parts - the first part is the services used by a manufacturer whether directly or indirectly in or in relation to the manufacture of final products and clearance of the final products from the place of removal and the second part of the definition is the inclusive part, which covers a number of services like services used in relation to setting up, modernization, renovation or repairs of factory, advertisement or sales promotion, market research etc.,;

the services provided  by the commission agent, which are nothing but the services of sales promotion, are covered by definition of 'input service' and therefore the service tax paid on the commission received by the commission agents as Cenvat credit.

The tribunal held that the definition of 'input service' covers in addition to the services used by a manufacturer whether directly or indirectly in or in relation to manufacture of final products and clearance of final products from the place of removal, other services also, including the services used in relation to advertisement or sales promotion and therefore the services provided by the commission agents have to be treated as 'input services'. 

'Pan Asia Corporation V. Commissioner of Central Excise, Mumbai - II' - 2009 (16) STR 587 (Tri. Mumbai) the question arised for consideration by the tribunal is whether CENVAT credit of the service tax on commission paid to a commission agent is admissible to the appellant. According to the lower authorities, the benefit is liable to be restricted to procurement of purchase orders by commission agents and is not admissible insofar as the collection of sale price of the goods is concerned. In other words, the lower authorities have bifurcated the commission agents' function into pre-clearance and post-clearance of goods and have denied the benefit to the assessee in respect of the later. The Tribunal held that this is not clearly permissible inasmuch as the commission agents' service is one integrated service which cannot be split up in the manner done by the lower authorities.  Neither of the authorities has a case that the commission agent service is not covered by Rule 2(l) of CENVAT Credit Rules, 2004. In the circumstances the appellant is entitled to the benefit of CENVAT credit on the entire amount of commission paid by them to the commission agent for the service received from the latter during the disputed period.