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M/s. Gujarat State Fertilizers & Chemicals Limited Versus Commissioner of Central Excise & S.T., Surat-II

2015 (8) TMI 21 - CESTAT AHMEDABAD

Denial of CENVAT Credit - input services - whether distributors/ consignment stockists of the appellant are doing any sales promotion activities in addition to selling of goods of the appellant or not - Held that:- Sales promotion activities are carried out as per Clause 13 and 17 of the contract entered between the appellant and the distributors/ consignment stockists. That their case is squarely covered by the judgment in the case CCE, Ahmedabad vs. Cadila Healthcare Limited (2013 (1) TMI 304 .....

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erefore, CENVAT credit taken with respect to commission paid to such distributors/ consignment stockists is not admissible. The credit so taken is required to be paid by the appellant with interest and appeal with respect to CENVAT credit on services of Sales Commission, availed by the appellant, is rejected.

So far as imposition of penalties upon the appellant is concerned, it is observed that the period involved in the present proceedings is from July 2012 to March 2013. The judgmen .....

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quired to be allowed. - Decided partly in favour of assessee. - Appeal No. : E/13399/2014 - ORDER No. A/10794 / 2015 - Dated:- 12-6-2015 - Mr. H.K. Thakur, J. For Appellant : Shri Willingdon Christian, Advocate For Respondent : Shri G.P. Thomas, Authorised Representative Per : Mr. H.K. Thakur; This appeal has been filed by the appellant with respect to OIA No. OIA-SUR-EXCUS-002-APP-096-14-15 dated 05.09.2014. 2. Shri Willingdon Christian, (Advocate) appearing on behalf of the appellant argued th .....

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L-12-HC-AHM-ST], the credit availed by the appellant is not admissible. It was the case of the learned Advocate on behalf of the appellant that the facts of the present care are different than the facts before the High Court in the case of Cadila Healthcare Limited vs. CCE, Ahmedabad (supra). He made the Bench go through Para 13 and 17 of the contract entered between the appellant and its distributors which convey that in addition to selling products of the appellant such distributors were also .....

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stockists is for selling the goods and is based on the value of the goods so delivered and sold. It was his case that this Clause-7 of the contract does not whisper anything about sales promotion activity. He further relies upon Para 13 of the said contract to argue that in this Clause also nowhere mentions that distributors/ consignment stockists will undertake any sales promotion activity. 4. Heard both sides and perused the case records. In this appeal, the issue involved is whether distribu .....

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ales promotion activities are undertaken by the distributors/ consignment stockists of the appellant and therefore, no CENVAT credit is admissible as per law laid down by the Hon'ble Gujarat High Court in the case of CCE, Ahmedabad-II vs. Cadila Healthcare Limited. 5. Before giving observation on the arguments raised by either side, it will be relevant to reproduce Clause 7,13 and 17 of the one contracts dated 13.02.2012 entered between the appellant and M/s. Shree Shyam Industries:- 7.0. Co .....

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form of quantity discount will be applicable for total quantity of the sales achieved during the month by way of credit note on completion of the month, after submitting the F form and the proof of Local S.T. paid. For the sales of flat yarn on returnable cops, an additional Ser. Charges of 0.50% will be applicable. 13.0. The Consignment Stockist shall exert their best endeavors to sell NFY and shall advise the Company whenever required with regard to the development and extension of the market .....

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and sales promotional materials of every type and description etc. in its possession or custody relating to the products and settle all outstanding dues from the customers and complete all other formalities for the recovery of dues, including the value of cops if any before claiming its Ser. charges and or refund deposit under this agreement. 6. It is observed from the above paragraphs of the contracts that basic agreement between the appellant and the distributors/ consignment stockists is for .....

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entire contract that any consideration is paid by the appellant to its distributors/ consignment stockists for undertaking such activity. In this regard, law laid down by the Hon'ble High Court in the case of Cadila Healthcare Limited vs. CCE, Ahmedabad (supra), as per Para 5.2 is relevant and is reproduced below:- 5.2?Commission paid to the foreign agents : The assessee availed of CENVAT credit of ₹ 39,45,791/- towards commission paid to foreign agents. According to the assessee, out .....

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ade to the definition of business auxiliary service as defined under Section 65(19) of the Finance Act, 1994 which lays down that business auxiliary service means any service in relation to (i) promotion or marketing or sale of goods produced 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. (i) The Adjudicating Authority held that on a perusal of the definition of commission agent as .....

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ather than sales promotion. He, accordingly, held that service provided by commission agent does 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 and, therefore, the assessee was not eligible for CENVAT credit in respect of the service tax paid on commission paid to foreign agents. (ii)?The Tribunal has held that foreign commission agent service is in the nature of sales promotion and without any elaborate discuss .....

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commission paid to foreign agent is being availed in the category of Business Auxiliary Service. However, this service is not used for manufacture of final product and is not used for clearance of final product from the place of removal. The commission agent is directly concerned with the sales and not with production, therefore, it is also not related to any activity specified in the inclusive part of the definition of input service. Besides, the activities carried out by the commission agent .....

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romote the sales of the assessees goods. The includes portion of the definition specifically mentions services used in relation to sales promotion. The service of commission agents is, therefore, covered by the definition of input service. Moreover, such service is received in relation to the assessee s business only and not for any other purpose. The same is, therefore, a service in relation to the activity relating to business which is also covered by the includes portion of the definition. I .....

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within the purview of input service. (v) In the backdrop of aforesaid facts and contentions, reference may be made to the definition of business auxiliary service as defined under Section 65(19) of the Finance Act, 1994, which to the extent the same is relevant for the present purpose reads thus : Business Auxiliary Service means any service in relation to, (i)?promotion or marketing or sale of goods produced or provided by or belonging to the client; or promotion or marketing of service provid .....

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for a consideration, and includes any person who, while acting on behalf of another person (i)?deals with goods or services or documents of title to such goods or services; or (ii)?collects payment of sale price of such goods or services; or (iii)?guarantees for collection or payment for such goods; or (iv)?undertakes any activities relating to such sale or purchase of such goods or services; (vi)?As noted hereinabove, according to the assessee the services of a commission agent would fall with .....

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necessary to understand the meaning of the expression sales promotion. (vii) The expression sales promotion has been defined in the Oxford Dictionary of Business to mean an activity designed to boost the sales of a product or service. It may include an advertising campaign, increased PR activity, a free-sample campaign, offering free gifts or trading stamps, arranging demonstrations or exhibitions, setting up competitions with attractive prizes, temporary price reductions, door-to-door calling, .....

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-sale displays and merchandising, special offers, and similar activities. The Advanced Law Lexicon by P. Ramanatha Aiyar, third edition, describes the term sales promotion as use of incentives to get people to buy a product or a sales drive. In the case of Commissioner of Income-tax vs. Mohd. Ishaque Gulam, 232 ITR 869, a Division Bench of the Madhya Pradesh High Court drew a distinction between the expenditure made for sales promotion and commission paid to agents. It was held that commission p .....

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r the present purpose 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. Thus, the commission agent merely acts as an agent of the principal for sale of goods and such sales are directly made by the commission agent to the consumer. In the present case, it is the case of the assessee that service tax had been paid on commission paid to the commission agent for sale of final product. However, there .....

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rious activities of the description provided therein including advertisement or sales promotion. Thus, the portion of the definition of input service insofar as the same is relevant for the present purpose refers to any service used by the manufacturer directly or indirectly in relation to the manufacture of final products and clearance of final products from the place of removal. Obviously, commission paid to the various agents would not be covered in this expression since it cannot be stated t .....

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nts 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 d .....

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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. vs. 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 defin .....

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cing, 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, audit .....

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