TMI Blog2016 (4) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... otion has been specifically included in the definition of input services. As regards the other contention that the documents on which the respondent has taken the credit is not the prescribed document, it is to be noted that the respondent is not a service provider per se. They are basically the service recipients. They are required to pay service tax as a deemed service provider. Revenue was unable to justify that the claim of cenvat credit by the assessee was erroneous in any manner. Hon'ble Supreme Court in the case of CIT Vs Podar Cement (P) Ltd - [1997 (5) TMI 2 - SUPREME Court] observed that the circumstances under which the amendment was brought in existence and the consequences of the amendment will have to be taken care of while deciding the issue as to whether the amendment was clarificatory or substantive in nature and, whether it will have retrospective effect or it was not so. In the present case, the Explanation inserted in Rule 2(l) of Rules 2004, is in conformity with the Board Circular dt.29.04.2011, and extended the benefit to the Assessee The Hon'ble Supreme Court in the case of Vatika Township Pvt. Ltd. [2014 (9) TMI 576 - SUPREME COURT], in the ident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmed the demand of CENVAT Credit alongwith interest and also imposed penalty on the Appellant. 3. The learned Advocate on behalf of the Appellant submits that the Appellant paid the Service Tax on the commission for the services rendered by various marketing agents, in overseas and India for promotion of market of the steel product, manufactured by them. The activity undertaken by the agents are in the nature of sales promotion, which is covered under the inclusive part of the definition of input service as defined under Rule 2(l) of the Rules, 2004. It is submitted that the Adjudicating authority passed the Adjudication order on the basis that they were sales commission agents. The Adjudicating authority misread the decision of the Hon'ble Gujarat High Court in the case of CCE Ahmedabad-III Vs Cadila Healthcare Ltd - 2013 (30) STR 3 (Guj). The learned Advocate drew the attention of the Bench to the relevant portion of the decision in the case of Cadila Healthcare Ltd (supra) and the various agreements with agents, to substantiate that the services rendered by the marketing agents are in the nature of sales promotion and marketing, and not sales commission agents. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement, all other agreements would show that the Appellants paid the sales commission to the foreign agents. He referred to the decision of the Tribunal in the case of Brindco Sales Ltd Vs CST Delhi - 2015 (40) ST 986 (Tri-Del). He also relied upon the decision of Hon'ble Madhya Pradesh High Court in the case of Commissioner of Income Tax Vs Mohd. Ishaque Gulam - 1998 (232) ITR 869 MP. He submits that the Appellants admitted that they have paid the sales commission in their reply to the Show Cause Notice. 6. Heard both sides and perused the records. 7. The Appellants in their replies to the Show Cause Notices stated that they have been granted the status of Premier Trading House by the Directorate General of Foreign Trade. They have engaged various agents in the overseas market and also to have better penetration and realization in the global market for marketing their product in India as well as overseas. They entered into agreement with various marketing agents, mainly for information relating to the market on a regular basis which focus on market and commission segments. The Appellants paid the Service Tax on commission paid to the marketing agents for sales promotion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... place of removal; but excludes services, - 9. On plain reading of the definition of input service , it is clear that CENVAT Credit, is admissible on Service Tax paid on Sales Promotion . CBEC Circular No.934/4/2011-CX(NT), dt.29.04.2011 at Serial No.5, clarified that the definition of input services allows all credit on services used for clearance of final products upto the place of removal. Moreover, activity of sale promotion is specifically allowed and on many occasions, the remuneration for same is linked to actual sale . In the case of Cadila Healthcare Ltd (supra), the issue was raised before the Hon'ble Gujarat High Court whether CENVAT Credit is admissible on commission paid to the foreign agents. In that case, the Assessee contended that the Service Tax paid on commission paid to the commission agents for sale of final products is available as credit according to the inclusive part of the definition of input service , which includes services in relation to sales promotion. The Hon'ble High Court denied the CENVAT Credit on the ground that there is nothing to indicate that such commission agents were actually involved in any sales promotion activities as en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -of-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 v. 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 paid to the agents cannot be termed as expenditure on sales promotion. (viii) From the definition of sales promotion, it is apparent that in case of sales promotion a large population of consumers is targeted. Such activities relate to promotion of sales in general to the consumers at large and are more in the nature of the activities referred to in the preceding paragraph. Commission agent has been defined under the explanation to business auxiliary service and insofar as the same is relevant for 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adila Healthcare Ltd (supra), it has been held that the commission agent is a person, who acts on behalf of another person and causes sale or purchase of goods. In other words, he is directly responsible for selling or purchasing on behalf of another person and that such activity cannot be considered as sales promotion. A commission agent is directly concerned with sales rather than sales promotion. The Hon'ble Gujarat High Court observed that 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. The learned Advocate opposed the finding of the Adjudicating authority and submits that in the present case, the overseas agents were engaged for promotion of market and they are not commission agents for selling the goods. He drew the attention of the Bench to the agreement dt.22.03.2003 under the name and style of International Marketing Service Agreement between the Appellant Company (in short ESTL) and Stemcor (S.E.A.) PTE Ltd (STEMCORSEA). The relevant portion of the said agreement is reproduced below:- ARTICLE-I ESTL has set up and operates at 2.4 million ton per annu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of International Marketing Service Agreement between the Appellant Company (in short ESTL) and Essar Steel Holding Ltd, Mautitius (ESHL). The relevant portion of the said agreement is as under: WHEREAS: 1) ESTL has set up and operates at 4.6 million ton per annum steel plant at Hazira and exports substantial volumes of its production to the International markets and in the absence of its own network of international offices across all major markets in the world has felt the need to outsource the provision of services overseas to support in International marketing efforts. 2) ESHL, a company with a network of its offices/associates world wide have indicated in providing the necessary overseas services to ESTL including inter alia, study the steel markets in different continents and provide inputs to ESTL to export steel products, render assistance in identifying new customers, render assistance in travel of ESTL marketing team, and assist ESTL in documentation for export shipments and recovery of such sale proceeds from the customers. ARTICLE-II SCOPE OF SERVICES The Services to be provided by ESHL: (a) to provide: (i) Market inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge population of consumers. Rather, the services provided for recovery of dues, expeditious settlement of claim as shown in the scope of services and would clearly show that the overseas agents were engaged for sale of goods and not for sales promotion. 14. On perusal of the various agreements between the Appellants and the marketing agents, we are unable to accept the submissions of the learned Authorised Representative for the Revenue. All the agreements are under the name and style of International Marketing Service Agrement , which cannot be termed as Commission Agent agreement for sale of goods. Further, the scope of the services to be provided to the Appellant is for market information on a quarterly basis for the various markets and segment of the party. The recital of the agreement dt.01.02.2008 as referred by the learned Authorised Representative for the Revenue indicates that the Appellant needs to outsource the provisions of services overseas to support in international marketing efforts. The Appellant engaged them to study the steel market in different continents and provide inputs to export steel products, render assistance in identifying new customers etc. Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and to renew the same from time to time for operating a depot in the Territory for stocking, trading and distribution of its products. 16. We find that the above decision of Brindco Sales Ltd (supra) would not be applicable in the present case. It is evident from the agreement in the present case as quoted above that the foreign agents were not engaged to procure order and to make all arrangements for distributing the goods and raising invoices and collecting payments et. On the other hand, the agreement, in the present case, clearly speaks to provide marketing information for the various markets. The other activities are incidental thereto. 17. The learned Authorised Representative submits that the agent s commission is linked with the sale of goods, which is similar to a commission agent s consideration based on the quantum of such sale or purchase as defined in Explanation to Notification No.13/2003. It is well settled that an agreement should be read on its tone and tanor and not isolately on the basis of single clause of agents commission. It is between the parties to decide the consideration of the service by various modes and one of which is commission on the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring of orders) as input services despite the fact that the services of overseas commission agents are post removal services and do not fall under the ambit of the definition of input service given under Rule 2(l) of CENVAT Credit Rules, 2004, which defines input service as the service used in or in relation to the manufacture or clearance of final products from the place of removal. The Hon'ble Punjab Haryana High Court in the case of Commissioner of Central Excise, Ludhiana Vs Ambika Overseas (supra) upheld the order of the Tribunal and observed as under:- 8. The Tribunal while affirming the order of Commissioner (Appeals) and adjudicating the issue in favour of the respondent had come to the conclusion that the activities in respect of which cenvat had been filed, were pre-removal activities and the same could not be held to be post-removal. It was further observed that canvassing and procuring orders were in relation to sales promotion and would fall under sales promotion activities. These activities were, thus, included in the definition of input services and the assessee was entitled to benefit of cenvat credit of service tax. It would be advantageous to n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation in Rule 2(l) of Rules 2004 and declared that sales promotion includes services by way of sale of dutiable goods on commission basis. In other way, Explanation to Rule 2(l) of Rules says in clear terms that there is no bar on availment of the CENVAT Credit on sales promotion service by way of sale of dutiable goods on commission basis. Further, by inserting the Explanation in the Rule 2(l), it has confirmed the Board Circular and resolved the different views of the High Courts. Taking into circumstances under which the Explanation was inserted in Rule 2(l) of Rules 2004 and consequence of the Explanation to extend the benefit to the Assessee as per Board Circular, we hold that the Explanation inserted in Rule 2(l) of Rules 2004 by Notification No.2/2016-CX(NT) (supra) should be declaratory in nature and effective retrospectively. 21. In the case of Brij Mohan Das Laxman Das Vs Commissioner of Income Tax, Allahabad - (1997) 1 SCC 352, the Hon'ble Supreme Court in the identical situation held that Explanation added by the Taxation Laws (Amendment) Act, 1984 with effect from 01.04.1985, is declaratory in nature and effective retrospectively. The relevant portion in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of different capacities is not valid or available for the period anterior to 01.04.1985. Accordingly, we hold that even for the period anterior to 01.04.1985, any interest paid to a partner, who is a partner representing his HUF, on the deposit of his personal/individual funds, does not fall within the mischief of clause (b) of Section 40. In this view of the matter, we agree with the view taken by the Rajasthan High Court in Gajanand Poonam Chand that Explanation 2, in the context of clause (b) of Section 40, is declaratory in nature. Accordingly, we allow this appeal, set aside the judgment of High Court and answer the question referred under Section 256 in the affirmative, i.e., in favour of the Assessee and against the Revenue. 22. An Explanation inserted in a Section/Rule, is generally to explain the meaning of the words contained in the Section/Rules. The purpose of Explanation is to explain the meaning and intendenments of the Section/Rule. Sometimes, the Explanation may be inserted to clarify a doubtful point of law, which would be effectively retrospectively. In the present case, the expressions in the Explanation as inserted by Notification No.2/2016-CE (supra), m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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