Subscription   Feedback   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Articles Highlights TMI Notes SMS News Newsletters Calendar Imp. Links Database Experts Contact us More....
Extracts
Home List
← Previous Next →

M/s Essar Steel India Ltd. Versus Commissioner of C. Ex. & Service Tax, Surat-I

2016 (4) TMI 232 - CESTAT AHMEDABAD

CENVAT Credit sale promotion activities - Beneficial amendment to Rule 2(l) vide notification no. 2/2016 CE(NT) dated 3.2.2016 is retrospective or prospective - sales promotion includes services by way of dutiable goods on commission basis - denial of claim as the services were received and utilized by the Appellant for selling of the goods and not in relation to the manufacture of the goods and clearance of the final product from the place of removal, which could not be considered as “input ser .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

promotion 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 identical situation, held that if a legislation confers a benefit on some other person or on the public generally, and where to confer such benefit appears to have been the legislature’s object, then the presumption would be that such a legislation, giving it a purposive construction, would .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lier known as M/s Essar Steeel Ltd), was engaged in the manufacture of Hot Briquetted Iron (H.B.I.), Hot Rolled Coils (H.R.C.) etc, classifiable under Chapter 72 and 73 of the Schedule to the Central Excise Tariff Act, 1985. They were availing CENVAT Credit on inputs/capital goods and input services under CENVAT Credit Rules 2004. During the course of Audit conducted by the officers of CERA, it was noticed that the Appellant had availed input service credit of Service Tax paid on commission to o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d as input service as defined under Rule 2(l) of the Rules, 2004. 2. A Show Cause Notice dt.01.01.2009 was issued, proposing to deny the CENVAT Credit alongwith interest and to impose penalty availed by the Appellant, in respect of Service Tax paid on commission to non-residents or commission agents/consignment agent for domestic service for the period from November 2005 to March 2008. On the same issue, nine Show Cause Notices were issued for the period April 2008 to February 2014. By the impug .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f 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 t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

.2011. It is clarified that CENVAT Credit on the activity of sales promotion is specifically allowed and on many occasions, the remuneration for the same is linked to actual sale. It is further submitted that the definition of input service under Rule 2(l) of Rules, 2004, has been amended by Notification No.2/2016-CX(NT), dt.03.02.2016, by insertion of Explanation that the sales promotion includes the services by way of sale of dutiable goods on commission basis. It is submitted that the said Ex .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

also submitted that it is a case of revenue neutrality and the demand is partly barred by limitation. The learned Advocate submitted written submission alongwith compilation of case laws. 5. The learned Authorised Representative on behalf of the Revenue reiterates the findings of the Adjudicating authority. He submits that the Hon'ble Gujarat High Court in the case of Cadila Healthcare Ltd (supra) categorically stated that the commission paid to various agents concerned with sales would not .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

binding to the Department rather than CBEC Circular. He drew the attention of the Bench to the relevant portions of the various agreements. He submits that except one agreement, 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 Commissione .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 and availed CENVAT Credit as input service under Rule 2(l) of Rules, 2004. 8. According to the Revenue, the services rendered by the ma .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

for providing an output service; or (ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal, and includes services used in relation to modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inp .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ndirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, and includes services used in relation to modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and trai .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

l 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 co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the commission agents for sale of final products. 10. On perusal of the Adjudication order, we find that the Adjudicating authority observed that in the instant case, the services of sales promotion agent/consignment agent services located outside factory premises were availed by the Appellant in respect of clearance of the goods and the services were not directly or indirectly in or in relation to either the manufacturing activities of their final product or clearance of the final product upto .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in the case of Cadila Healthcare Ltd (supra). We find that the Hon'ble Gujarat High Court in the case of Cadila Healthcare Ltd (supra) held that the sales promotion is covered within the definition of input service and CENVAT Credit is admissible. The relevant portions in the case of Cadila Healthcare Ltd (supra) are reproduced below:- (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 se .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

petitions, providing free gifts and samples. These promotions may form part of a wider sales campaign. Sales promotion has also been defined as stimulation of sales achieved through contests, demonstrations, discounts, exhibitions or tradeshows, games, giveaways, point-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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

te 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 agent merely acts as an agent of the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er of taxable service for providing an output service or used by the manufacturer whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal and includes services used in relation to various 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 u .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

romotion. It was in this background that this court has examined whether the services of foreign agent availed by the assessee can be stated to services used as sales promotion. In the absence of any material on record, as noted above to indicate that such commission agents 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 fin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

up and operates at 2.4 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 office has felt the need to outsource the provision of services overseas to support in international marketing efforts and whereas STEMCORSEA is a leading trading house with Global presence through its network of offices and is an active player in the steel trading business. (STEMCORSEA is a subsi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eeting for ESTL personnel, effectively market their products. - Provide assistance in documentation as may be necessary for expedition release of proceeds from the export transaction from the International Banks/Clients. - Providing assistance for filling documents for speedy formalities, transportation, survey, inspection and handling. - Providing assistance for expeditious settlement of claims, Stemcor could be liasing with the buyers for claim settlements and help in appointment of surveyors .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ion at USD 15 per metric ton of all its export sales including export sales to STEMCORSEA as a principal. This percentage may, however, modified for individual shipments by mutual agreement. 12. The learned Authorised Representative on behalf of the Revenue also drew the attention of the Bench to another agreement dt.01.02.2008, which is also under the name and style of International Marketing Service Agreement between the Appellant Company (in short ESTL) and Essar Steel Holding Ltd, Mautitius .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sociates 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

alities, transportation, survey, inspection and handling. (v) Assistance for expeditious settlement of claims, ESHL will be liasing with the buyers for claim settlements and help in appointment of surveyors and insurance agencies. (vi) Assistance for recovery of dues, if any, in exploring other markets, providing market feed back and developing clientele for enhancing the market share. (vii) Assistance in identifying and appointing for providing legal services in the event of disputes if any wit .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed, invoice value, etc, to ESHL on completion of each shipment. On receipt of the said details ESHL will raise necessary debit notes/invoices on ESTL at the agreed commission rate. ESTL will remit the commission against above debit notes immediately upon realization of sale proceeds of the relevant exports to ESHL s bank account as per the details to be provided by ESHL. 13. The learned Authorised Representative also drew the attention of the Bench to the similar agreements with other Companies. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s 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 t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

assistance in identifying new customers etc. Article I of the agreement provides purpose of agreement. It is clear from the said Article that the Appellant appointed ESHL as its agent for providing international marketing services. Thus, it is clearly evident that the Appellant appointed marketing agents in overseas, for market information. Further, Article II provides scope of service. Clause (a) of Article-II refers to provide market information for the various makes. Clause (b) of Article-II .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

that case, the Assessee was engaged in sale and retail redistribution of IMFL/beer/other drinks for its clients and various liquor companies. The Assessee was maintaining depot/warehouse on behalf of its clients. The Adjudicating authority held that the Appellant was providing Business Auxiliary Service and was not eligible for the benefit of Notification No.13/2003-ST, dt.20.06.2013, which exempted Service Tax on the Business Auxiliary Service provided by the commission agents. As per Explanati .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

for completion of necessary excise formalities/payment of excise duties prior to dispatch from KAM distillery, where necessary. b) To make all arrangements for distributing the products in the Territory as instructed by KAM. c) To raise the invoices on behalf of KAM for all sales effected. d) To collect payment from customers on due dates of invoices. e) To obtain Delhi Excise Licence on behalf of KAM as may be required and to renew the same from time to time for operating a depot in the Territ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tion 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

T), dt.03.02.2016, the CENVAT Credit Rules, 2004 was amended. In the CENVAT Credit Rules 2004, in Rule 2, in Clause (l), after sub-clause (C), the following Explanation shall be inserted, namely:- Explanation. - For the purpose of this clause, sales promotion includes services by way of dutiable goods on commission basis. 19. It is submitted that by inserting Explanation in Rule 2(l) of Rules 2004, by Notification No.2/2016-CE (supra), sales promotion includes services by way of sale for dutiabl .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tances 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. It may be noted that after Board Circular .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and procuring 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 notice here the findings recorded by the Tribunal in para 6 of its order which are to the following effect: I have carefully considered the submissions from both sides. The canvassing and procuring orders are activities preceding removal of the goods by the manufacturers. Without the firm order, the r .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on future. Any advertisement given as a long term impact cannot be treated as post- clearance activities and, therefore, sales promotion 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 ser .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r passed by the Tribunal which may call for any interference by this Court. 20. But, the Hon'ble Gujarat High Court in the case of Cadila Healthcare Ltd (supra) was unable to concur with the contrary view taken by the Hon'ble Punjab & Haryana High Court in the case of Commissioner of Central Excise, Ludhiana Vs Ambika Overseas (supra). The Hon'ble Gujarat High Court held that this issue is concerned, the question is answered in favour of the Revenue and against the Assessee. In t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nfirmed 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

985. Explanation 2 expressly provides that where an individual is a partner in a firm on behalf of or for the benefit of any other person, any interest paid by the firm to such individual otherwise than as partner in representative capacity, shall not be taken into account for the purpose of clause (b). It is, therefore, clear that with effect from 01.04.1985, the question of the nature involved herein would not arise. Where a person is a partner in a representative capacity, i.e., as representi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on Laws (Amendment) Act which introduced the said Explanation does not say that the said Explanation shall have the effect retrospectively. The question is whether the said Explanation is merely declaratory and clarificatory in nature, in which case it will govern the previous assessment years as well or whether it is a substantial provision having effect only prospectively. The provisions in Chapter III and IV of the Partnership Act, 1932 amply define and delineate duties, obligations and right .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the theory of different capacities an individual may hold - no doubt confined to clause (b) of Section 40. Once this is so, we see no reason to hold that this theory 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 S .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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), make it clear that it is for explaining the meaning of clause sales promotion in the context of Rule 2(l) of the Rules, 2004. It is to provi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

such benefit appears to have been the legislature s object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. The relevant portion of the decision in the case of Vatika Township Pvt. Ltd. (supra) is reproduced below:- We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

what is new what is new
  ↓     bird's eye view     ↓  


|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version