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Cenvat credit on sales commission under protest

Service Tax - Started By: - vishakha bhagat - Dated:- 15-7-2015 Last Replied Date:- 7-8-2015 - Currently the cenvat credit on sales commission is not allowed as credit being under dispute and hence cenvat credit cannot be availed on the same. Therefore the service tax charged by the commission agents is not availed as credit and is transferred to deposit under protest account. Whether it is mandatory to inform Department regarding the Cenvat credit under question and transferred to protest accou .....

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r Rule 2L of CCR 2004. regards - Reply By vishakha bhagat - The Reply = Mr Pawan kumar and Mr. Malhotra, Thanks for your reply. But i would like to bring to your notice that the said matter is under dispute in case of decision of Gujarat High Court in CCE v. Cadila Healthcare 59 VST 386 (Guj HC DB), 2013 (1) TMI 304 - GUJARAT HIGH COURT where it has been held that service of commission agent is not eligible as input service.for purpose of Cenvat credit. Though the assessee company has filed appe .....

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was rightly rejected by the Tribunal.CESTAT- same bench has decided cases in favour of Assessees, but in the present case, no justification or evidence was placed on record, hence the matter was rejected. Court Decisions are case based and facts presented in the same matter which may be different than others.Secondly, Duty paid under protest needs to be intimated to department and mentioned in Returns too so that if future, if the case goes in your favour, the benefit of refund is admissible. - .....

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ent abroad there is no need to pay service tax, no need to avail credit or question reversal as the definition of intermediary services (for goods) under place of provision of services rules has done away with service receiver being burdened with ST under RCM as person liable to pay ST. If the services were rendered by an agent in India then from 07-11-2012 till the final verdict in Cadila by the Hon. Apex Court take and simultaneously reverse under protest (to avoid inviting one year limitation .....

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cular had been issued specifically in context to the 2011 Budget changes viz. the changes in the Cenvat Credit Rules, 2004 particularly with reference to the changes in the said Rules made vide Notification 3/2011-CE (NT) 01.03.2011 the changes taking effect from 01.04.2011 The Cenvat Credit Rules 2004 Rule 2(l) prior to and post 01.04.2011 read as follows:Prior to 01.04.2011: input service means any service, used by a provider of taxable service for providing an output service; or used by a man .....

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as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry and security, inward transportation of inputs or capital goods and outward transportation up to the place of removal; Post 01.04.2011: input service means any service, used by a provider of taxable service for providing an output service; or used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and .....

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business exhibition, legal services inward transportation of inputs or capital goods and outward transportation up to the place of removal;(Emphasis added) In view of the phrase activity relating to business being part of the inclusive part of the said definition 2(l) a number of activities falling within the definition of services (Section 65 of the FA, 1994) not necessarily used in or in relation to manufacture of and removal of the final goods up to the place of removal were being allowed by .....

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ion to manufacture and removal of final products up to the place of removal including the services enumerated after the phrase and includes viz. the inclusion part of the definition. It was specifically in context to the deletion of the phrase activities relating to business that the Government have after due consideration and conscientiously issued the said Circular dated 29.04.2011 to explain and emphasise that the activity of a commission agent is still a service used in or in relation to man .....

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d even if the remuneration for the service is linked to actual sale. On a harmonious reading of provisions it was clarified that credit is admissible on services of sale of dutiable goods on commission basis. Thus the Government have more than amply clarified that services of a commission agent canvassing order for manufactured dutiable goods fall under the BAS category and is an input service pre or post 01.04.2011 even after deletion of the phrase activities related to business , as sales prom .....

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lar remains unchallenged and still holds good. The Hon. Gujarat High Court decision in the case: Commissioner of C. Ex., Ahmedabad-II Versus Cadila Healthcare Ltd. 2013 (30) S.T.R. 3 (Guj.) = 2013 (1) TMI 304 - GUJARAT HIGH COURT(Annex. 6) has been rendered per incuriam inasmuch as during the course of the arguments from 29-04-2011 till the final hearing and decision on 07.11.2012 the existence and particularly the contents of the said Circular dated 29.04.2011 were not bought to the notice of t .....

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roduced or provided by or belonging to the client; or (ii) promotion or marketing of service provided on behalf of the client; and includes services as a commission agent but does not include any information technology service and any activity that amounts to manufacture within the meaning of clause (f) of Section 2 of Central Excise Act, 1944 Explanation - For the removal of doubts, it is hereby declared that for the purposes of this clause, (a) Commission Agent means any person who acts o .....

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oods or services; (emphasis added) In the Section (Law) itself Business Auxiliary Service has been defined as (means) any service in relation to promotion or marketing or sale of goods and includes service as a commission agent. By law for the purpose of Section 65 (19) FA, 1994 promotion or marketing or sale of goods includes the services of a commission agent. Further for the purpose of Section 65(19) the expression Commission Agent has also been explained as above for removal of doubts. The s .....

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sale of goods. The Adjudicating Authority and the Appellate Authority have proceeded to deny availment of cenvat credit on the premise that the jurisdictional Hon. Gujarat High Court in the case: CCEX, Ahmedabad-II v/s. Cadila Healthcare Ltd. [2013(30) S.T.R. 3 (Guj.)] = 2013 (1) TMI 304 - GUJARAT HIGH COURT (Annex. 6) is binding on them. However, the Hon. Gujarat High Court decision in the Cadila case is not res judicata but is still res integra as the decision is a precedent sub silentio and .....

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ik Dyestuff Pvt. Ltd. Versus Commissioner of C. Ex. & Customs [2014 (34) S.T.R. 814 (Guj.)] = 2014 (1) TMI 776 - GUJARAT HIGH COURT though the Appellant had drawn the Hon. Court s attention to the said circular and argued that the Department cannot go against the Circular; the Hon. High Court thereafter have passed the judgment revenue-favour by ruling (vide Para 4 and 5) that in the OIO dated 06.01.2010 the Department had relied upon the Cadila judgment (07.11.2012) and that while issuing t .....

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Judgment dated 07-11-2012 to the OIO dated 06-01-2010 and at the same time arraigned and denounced the Government in not having prior considered on 29-04-2011 the Hon. Court s ruling dated 07-11-2012. The OIO dated 06-01-2010 and the Circular dated 29-04-2011 were issued about 34 and 18 months prior to 07-11-2012. By virtue of the said judgment in the Astik case, the OIO dated 06-01-2010 has been undeservedly and undesirably dignified as proper and correct and the Circular dated 29-04-11, justi .....

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(307) E.L.T. 15 (Guj.)] 2014 (8) TMI 713 - GUJARAT HIGH COURT the Hon. Gujarat High Court under para 7.4 admits that vide the Cadila judgement cenvat credit of tax paid on commission was allowed but later under para 11 have ruled that such credit is not allowed. Further vide para 4.5 it has been stated that Assessee-Respondent had taken support of the said Circular dated 29.04.2011 in the course of the arguments but thereafter the Hon. Court has preferred to remain absolutely silent and avoided .....

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s, in the rest of India, except Gujarat, after taking into consideration the Cadila case, are still upholding the Circular and allowing taking of credit more specifically on the basis of the Circular. Thus a glaring objectionable, assailable and unmitigated discrimination is being faced by assesses in Gujarat only at the hands of the Commissionerates subordinate under the very Government which has justifiably issued the benign Circular even when undeniably binding on the very same Commissionerat .....

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Commissionerates indulge in unjust enrichment which the law laid down by the Hon. Apex court does not allow. All the 3 above judgements rendered solely by the Hon. Gujarat High Court, on the identical issue, on which the Commissionerates (only in Gujarat) are piggybacking, do not appeal to a conscientious mind as ratio decidendi for the lack of discussion or appreciation of the circular or even, without reasons or explanations, back-dating of the of the Hon. High Court Judgment dated 07.11.2012 .....

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nd Customs) Subject: Supreme Court s decision in the case of GMMCO [2001 (127) ELT 508] in the context of Related Party Transaction- regarding I am directed to refer to the Tribunal s decision against Revenue in the case of Collector of Customs, Madras Vs. General Marketing and Manufacturing Co. Ltd. (GMMCO), reported in [2001 (127) ELT 508], dated, 25th August, 2000 2000 (8) TMI 509 - CEGAT, NEW DELHI. An appeal no. 2772-73/ 2001] filed in the Hon ble Supreme Court against the Tribunal decision .....

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onsideration of issue cannot be deemed to be a law declared to have a binding effect as is contemplated by Article 141. Uniformity and consistency are core of judicial discipline. But that which escapes in the judgments without any occasion is not ratio decidendi. The Hon ble Apex Court in a matter reported in AIR 1967 SC Shama Rao Vs. State of Pondicherry p. 1680 = 1967 (2) TMI 74 - SUPREME COURT OF INDIA has held: It is trite to say that a decision is binding not because of its conclusions but .....

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hat the order of the Supreme Court is not a speaking one, as such, the same cannot be said to be a reasoned order. So, in view of the ratio of the judgments in M/s. Synthetic s case (Supra) and Shama Rao s case (Supra), no binding effect should be given to it and should not be treated as precedent. In view of the above, it is requested that the Opinion of the Law Ministry may be circulated to all the officers under your jurisdiction for information and necessary action. In the case: Commissioner .....

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perversity or illegality in the order of Tribunal - In that view, availment of credit upheld. In the case: JPP Mills Pvt. Ltd. and 2 others v/s. CCEX, Salem 2013 (12) TMI 1122 - CESTAT CHENNAI the Hon. Tribunal vide para 12 therein, after viewing both the Ambika and the Cadila conflicting judgments of the Hon. High Courts, have ruled that the issue stands accepted by the Government vide the said Circular dated 29-04-2011. In the case: Wadpack Pvt. Ltd Vs CCE, Bangalore [2013 (293) ELT 400 (Tri- .....

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ents/brokers are as in the nature of sales promotion, an activity specifically covered in the inclusion portion in the definition of input service. - Reply By GOKARNESAN.S SUBRAMANIAN - The Reply = Mr. Subhash Modi has given an elaborate reply to the query like a reply to the show cause notice and grounds of appeal before appellate authorities. I fully agree with his views. Congratulations to Mr. Modi.I also wish to add some more points:-The sales commission agent service would fall under the ca .....

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uct and also make the customer to accept the product and to go for such product. Thus, this activity is to be considered as an 'advertisement' in the form of personal contacts with the customer.c) Normally, the company make advertisement in Television, Media, Newspaper, wall painting and pamphlets with a view to reach the customers or consumer in mass. The result may be 0 to 100%. Even assume there is no sale improvement or new orders consequent to the above advertisement, still the Rule .....

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duty revenue.e) Thus, the credit is entitled.RegardsS. GOKARNESANAdvocate - Chennai098400 87349mail: s.gokarnesan@gmail.com Subhash Modi- Reply By Mahir S - The Reply = Sir,regarding your query, there is no any provision to inform the department regarding cenvat credit availed on sales commission nor any practice to transfer to protest account in the books.Agreed that it is being disallowed in the Cadila case and department audit is issuing show cause notices for the same, so it is advisable not .....

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mp; Haryana. There are other favourable decision by various Tribunals. For the benefit of the viewers, the list below showing some of the decisions: Decided Case Laws Decision favourable to Department:- CCE Ahemedabad II Vs Cadila Health Care Ltd - 2013 (1) TMI 304 - GUJARAT HIGH COURT in Order dated 18.10.2012 and 7.11.2012 Decision favourable to Assessee:- CCE Ludhiana Vs Ambika Overseas (reported in 2012-25 STR 348 (Punjab & Haryana High Court)= 2011 (7) TMI 980 - PUNJAB & HARYANA HIG .....

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EDABAD Century Rayon Vs CCE Thane I (reportedin 2014-33-STR 427 - Tribunal Mumbai) = 2011 (12) TMI 120 - CESTAT, MUMBAI Seksaria Biswan Sugar Factory Ltd Vs CCE Lucknow (reported in 2014-33-STR 292 - Tribunal Delhi)= 2014 (6) TMI 548 - CESTAT NEW DELHI Bharuka Gases Ltd Vs CCE (reported in 2015-37-STR 818 - Tribunal Bangalore)= 2014 (1) TMI 1662 - CESTAT BANGALORE Novozymes South Asia P Ltd Vs CCE (reported 2015-38-STR 204 Tri Bangalore) CBEC Circular No.943/4/2011 CX.dated 29.4.2011 - para 5 Fu .....

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e reason stated with a liberty to take back the credit once the issue is resolved by the higher Court (i.e. Apex Court) Request the Department to issue a Speaking Order to enable to keep the issue alive under litigation. The above action is justified on the following reasons:- If no credit is taken now and after two years the decision of Apex Court is in favourable to assesses, at that time the assesse cannot take credit because of the ONE YEAR limitation for taking credit is provided in the Cen .....

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no provision in Cenvat Credit Rules to take the credit for the past period beyond ONE YEAR when there is a favourable decision rendered subsequently. Hence, it is better advise the assesse to take credit and litigate the issue as suggested above. Regards S. GOKARNESAN Advocate 98400 87349 s.gokarnesan@gmail.com - Reply By CS SANJAY MALHOTRA - The Reply = Dear Friends, My submission is one should follow what is written in the CENVAT Credit Rules 2004 and forget about the litigation and case laws .....

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s the country accepts CBEC circular as referred above and has not issued notices at all. Litigation has arisen in majority of the cases where neither the concerned person nor the departmental officers were aware of the Circular No. 943 dated 29.04.2011, and wherever the facts of circular were brought to notice of officers, majority of the case have not been subjected to litigation. Follow the Rules first and if the same clearly substantiates the fact, opt for it and forget about litigation. Even .....

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partment post Cadila started issuing SCNs up to 5 years back period and also started disallowing credits, demanding interest and imposing CCR, 2004 penalties. It is fortunate that the Appellate Authorities dropped the demand for the extended period as time-barred and also dropped penalties under the grounds of interpretation. However for the period one year prior to Cadila judgment date demands with interest (sans penalty) have been confirmed; similarly notices issued post Cadila are also being .....

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l had been issuing assessee-favour orders including in the Cadila case against which the Commissioner filed a Tax Appeal notwithstanding that the Section 65(19) FA, 1994 definitions and explanations left no doubt on the issue. While the Tax Appeal was pending in the High Court, on 29-04-2011 came the Circular adding absolute clarity of binding nature on the issue. Up to 07-11-2012 (18 months) the Appealing Commissioner still pursued the Appeal instead of withdrawing it on the basis of the Circul .....

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uring the course of arguments but then in the entire Order the High Court never ruled against or in favour of the Circular; it only stuck steadfast with the Cadila case. The Appealing Commissioner was not magnanimous in all the 3 cases Viz. Cadila, Astik and Dynamic to plead no contest in view of the binding Circular and withdraw the Appeals and at the same time the High Court did not condescend from it stand in Cadila in the Astik and the Dynamic case fully aware that in the face of the Circula .....

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Apex Court. - Reply By MUKUND THAKKAR - The Reply = Dear Bhagat,Agree with S V Modi sir view, as a Gujrarati we are not eligalbe to take credit, But you can mention in Balance sheet that cenvat credit is receivable(Right to availment of credit) and write to letter to chief commissioner/ commissioner as well as division office regarding to your right is stand for availment of cenvat credit,till matter is finalized. do not write under protest any where in letter to avoid any complication in future .....

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of the Hon. High Court and the decision was thus rendered without taking into consideration the said Circular. The decision of the Hon. High Court is not a ratio decidendi but a precedent sub silentio and cannot have a binding effect. However, when we take the above plea before the Excise Authorities, they take shelter of the decision of the Constitution Bench of Hon ble Supreme Court in CCE, Bolpur Vs Ratan Melting & Wire Industries reported in 2008 (10) TMI 5 - SUPREME COURT OF INDIA = 200 .....

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ssion agent and for removal of doubts and for the purpose of the said clause commission agent has been elaborately defined. The Act itself defines BAS, defines sales promotion and defines commission agent without leaving any room for doubt. It was, therefore not at all justified and proper for the Commissioner after losing before the Tribunal in the Cadila case to file a tax appeal in view of the abundant clarity provided in the FA. In the tax Appeal before the High Court the Commissioner has no .....

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he statutory definition despite mentioning it and instead wandered around as per Para 5.2 (vi) and thereafter into dictionary etc. to find out the meaning of sales promotion when it has already been statutorily defined for the purpose of 65(19). The Commissioner thus did not approach the High Court with clean hands and the High Court only tended to help him. The Circular is not against the statutory provision; in fact it is for the statutory definition and issued as a precaution to remove doubts .....

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by saying that 34 months before 07-11-2012 in 2010 the Adjudicating Authority had issued the Order based on 07-11-2012 judgment and the Government was wrong about 18 months earlier on 29-04-2011 in issuing the Circular without taking into consideration the future 07-11-2012 judgment. In the Dynamic case also only mention is made of the Circular but no ruling has been given for or against the Circular. Cadila which by itself is delivered against the assessee despite the clear statutory definitio .....

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me Circulars, the Commissionerates, Appellate Commissioners, Tribunals and High Courts are allowing taking of credits at every place other than Gujarat. The Government itself as a respondent should now rise to the occasion and ask the SC for early hearing in the Cadila appeal and admit before the Hon. SC that there was never any provision or even intention to deny the credit and that the credit is being allowed everywhere in India except Gujarat. The Government ought to see that there cannot be .....

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any activity that amounts to manufacture within the meaning of clause (f) of Section 2 of Central Excise Act, 1944 Explanation - For the removal of doubts, it is hereby declared that for the purposes of this clause, (a) Commission Agent 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, and includes any person who, while acting on behalf of another person (i) deals with goods or services .....

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law for the purpose of Section 65(19) FA, 1994 promotion or marketing or sale of goods includes the services of a commission agent. Further for the purpose of Section 65(19) the expression Commission Agent has also been explained as above for removal of doubts. The sub-clause (iv) in the Explanation (a) encompasses any activity relating to such sale or purchase of goods. Any activity will include sales promotion also as it has not been excluded and the said Circular issued by the Government in .....

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Superintendent/ AC about the protest on record. This action will protect them from any departmental action and at the same time their right to take credit once the issue is settled by the Apex court. - Reply By Subhash Modi - The Reply = Further to the discussions, so far, on this issue I would like to draw attention of all the colleagues and friends that the expression 'sales promotion' in the inclusive part of the definition of input services under Rule 2(l) of the CCR, 2004 has not be .....

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