TMI Blog2022 (8) TMI 773X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned Commissioner has correctly held that the impugned service does not qualify as Input Service as the same was not used in or in relation to manufacture of goods by the appellants and therefore, the credit availed is illegal. Gujarat High Court has gone into this issue in an elaborate manner and had made a final distinction between Sales Promotion and Sales Commission Services in the case of COMMISSIONER OF CENTRAL EXCISE, AHMEDABAD II VERSUS M/S CADILA HEALTH CARE LTD. [ 2013 (1) TMI 304 - GUJARAT HIGH COURT] has held that though the business activities mentioned in the definition are not exhaustive, the service rendered by the commission agents not being analogous to the activities mentioned in the definition, would not fall within the ambit of the expression activities relating to business . The appellants are not eligible to avail CENVAT credit on the Sales Commission paid to M/s L T Ltd. We find that the appellants have also submitted that in case the bench takes a contrary view to the judgments of tribunal in M/S ESSAR STEEL INDIA LTD. VERSUS COMMISSIONER OF C. EX. SERVICE TAX, SURAT-I [ 2016 (4) TMI 232 - CESTAT AHMEDABAD] and Federal Mogul [ 2019 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited) are engaged in the manufacture of hydraulic excavators; During the course of an investigation conducted by the Department it was observed that the appellants were availing credit of service Tax on the sales commission paid by them to M/s L T Ltd, who were marketing their products in India, as per Sole selling Agreement entered in to with them; It appeared that the activity of sales agency carried out by M/s L T is not an input service and that the appellants have contravened the provisions of Rule 3 of CENVAT credit Rules, 2004 read with Rule 2(l) ibid; A show Cause Notice dated 04.03.2009, covering the period 2006-07 and 2007-08, was issued invoking the extended period, seeking to demand back the credit taken along with interest while proposing to levy penalty. The allegations in the Show Cause Notice were confirmed by Order-in-Original dated 26-02-2010. Thereafter periodic Show Cause Notices were issued and confirmed by the respective Orders-in- Original/Orders-in-Appeal as follows. Sl. No Appeal No SCN date OIO/ OIA Date Demand Confirmed Period 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Targets in consultation with Appellant; Maintaining offices and staff to support sales activities; Procuring customers and facilitating sale of products by the Appellant and Continuous Review and Monitoring of Sales of Products by the Appellant to evolve sales plans. He submits that The phrase directly or indirectly, in or in relation to manufacture is of wide import to cover services such as Sales Promotion; the phrase Input Service has been defined under Rule 2(l) of the Credit Rules to mean the services used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal, 2.1. He submits that the aforesaid phrase is of wide import and will cover not only services which are directly used in the manufacture of the goods but will also include all such services which are indirectly used by the manufacture in relation to the manufacture of the final products; services of sales promotion would also get covered in the main part of the definition; further, the commission paid to L T has been included / factored by the Appellant while arriving at the assessable value of its man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry in nature and accordingly, is applicable retrospectively; though, the Departmental Representative states that appeal against this decision is admitted by the Hon ble Gujarat High Court, no stay however, has been granted, this decision still holds the field and will be squarely applicable to the facts of the present case; further, the aforesaid decision has been followed in a number of decisions including Federal Mogul (TRP) India Ltd 2020-VIL-521-CESTAT BLR-CE; the entire issue is no longer Res Integra and is settled in favour of the assessee. He submits that the decision of the Hon ble Gujarat High Court in the case of Commissioner Vs Cadila Healthcare Ltd 2013 (30) STR 3] is not applicable to the facts of the present case for the reasons as below. the assessee therein was only engaged in causing sale of goods in a foreign territory and was not engaged in any promotional activity; in the facts of the present case, it is clearly evident that M/s L T was engaged in the complete activity of sales promotion right from the stage of preparing sales targets/ plans, advertisement, procuring customers, after sales support and review monitoring of sales program to boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various decisions of this Hon ble Tribunal including the case of Essar Steel (supra) and the recent decision of Bangalore Tribunal itself in the case of Federal Mogul (supra); dispute involves interpretation of legal provisions and accordingly, invoking the extended period of limitation in Appeal No. E-639/2010 is completely unwarranted. He further submits that penalty can be imposed only when there is mens rea on the part of the Appellant to evade payment of Duty as has held by in Tamil Nadu Housing Board CCE 1994 (74) ELT 9] Hindustan Steel Ltd 1978 (2) ELT J159; accordingly, no penalty under Section 11AC can be imposed when the issue involved is bona fide dispute about the interpretation of law; he relies Fibre Foils Ltd 2005 (190) E.L.T. 352 (Tri.- Mumbai) Aqua mall Water Solutions Ltd 2003 (153) ELT 428 Adishiv Forge P. Ltd 2008 (9) STR 534 (Tri Ahmd). 4. Learned counsel submits that, in light of the foregoing, the impugned orders be set aside or alternatively, refer the issue to the Larger Bench of this Hon ble Tribunal in view of the conflicting decisions of the Tribunal. 5. Shri Rama Holla, authorised Representative, appearing for the department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otification No.2/2016-C.E (NT) dated 3.2.2016, holding that sales promotion includes services by way of sale of dutiable goods on commission basis, was declaratory in nature hence, effective retrospectively; however, this decision has been challenged by the Department before the Hon ble High Court of Gujarat. 6. Heard both sides and perused the records of the case. Brief issue involved in the case is to see whether the appellants are eligible to avail credit on the services of Commission Agent received from Larsen Toubro Ltd. and whether the same constitutes Input Service in terms of Rule 2(l) of CENVAT Credit Rules, 2004 and whether extended period can be invoked in the Appeal No.639/2010. We find that the appellants have availed the services of M/s L T Ltd. as a Sales Agent under a sole selling agent. In order to appreciate the nature of services, it is worthwhile to go through the relevant clauses of the Agreement entered into by the appellants with M/s L T Ltd. An agreement dated 15th March, 1999, titled Marketing Agreement between L T-Komatsu Ltd. and Larsen Toubro Ltd. is placed on record. The important Articles of the Agreement are as follows: Article 2.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CCE, Mumbai-V Vs GTC Industries Ltd. [2008 (12) STR 468 (Tri. LB)] CCE, Ludhiana Vs Ambika Overseas [2012 (25) STR 348 (P H)] 9. It is the case of the appellant that the activity of Advertisement and Sales Promotion is specifically covered in the inclusive part of the definition. It is the contention of the Department that the activities undertaken by M/s L T for the appellants is a post-production and post-removal activity and as such has no nexus with the manufacturing activity; the Rule itself defines Input Service rendered in or in relation to the manufacture of final products up to the place of removal. Now, we should find out whether the services rendered were up to the place of removal or beyond and whether any sales promotion is involved. To understand the same, it is required to see the Agreement in a holistic manner and to identify the general tenor of the Agreement. We find that the appellant s contention is correct and it has been held in Rashtriya Ispat Ltd. Vs Commercial Tax Officer- 77-STC-182 (AP), Hon ble High Court of Andhra Pradesh held that: In our view whether the transaction amounts to transfer of right or not cannot be determined with ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant s submission on sales promotion is not valid as far as the Agreement between them and M/s L T is concerned. We find that learned Commissioner has correctly held that the impugned service does not qualify as Input Service as the same was not used in or in relation to manufacture of goods by the appellants and therefore, the credit availed is illegal. 11. We find that Gujarat High Court has gone into this issue in an elaborate manner and had made a final distinction between Sales Promotion and Sales Commission Services in the case of Cadila Healthcare Ltd. 2013 (30) STR 3 (Gujarat) has held as under: 5.2 Commission paid to the foreign agents: The assessee availed of CENVAT credit of Rs. 39,45,791/- towards commission paid to foreign agents. According to the assessee, out of the total amount paid as service tax, they had availed of CENVAT credit only on that part which was attributable to dutiable products manufactured in their plant only and that no CENVAT credit has been availed on exempted goods. It was contended that service tax paid on commission paid to commission agents for sale of final products is available as credit according to the inclusive part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th 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 do not fall within the ambit of sales promotion and, therefore, also the commission paid to the foreign agents would not fall within the ambit of the expression input service as envisaged under Rule 2(l) of the Rules. (iv) On the other hand, the learned counsel for the assessee supported the impugned order of the Tribunal by submitting that the assessee avails of services of commission agents for sale of its final products. The commission agents find buyers for the assessees s goods and thereby promote the sales of the assessees s 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 assessees 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 port ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at arises for consideration is as to whether services rendered by a commission agent can be said fall within the ambit of expression sales promotion . It would, therefore, be 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, telephone selling, personal letters etc. In the Oxford Dictionary of Business English, sales promotion has been defined as a group of activities that are intended to improve sales, sometimes including advertising, organizing competitions, 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the various agents would not be covered in this expression since it cannot be stated to be a service used directly or indirectly in or in relation to the manufacture of final products or clearance of final products from the place of removal. The includes portion of the definition refers to advertisement or sales promotion. 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 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 definition of input service as laid down in Rule 2(l) of the Rules. (ix) As regards the contention that in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ambit of the expression activities relating to business. Consequently, CENVAT credit would not be admissible in respect of the commission paid to foreign agents. (x) For the reasons stated hereinabove, this court is unable to concur with the contrary view taken by the Punjab and Haryana High Court in Commissioner of Central Excise, Ludhiana v. Ambika Overseas [2012 (25) S.T.R. 348 (P H)]. Insofar as this issue is concerned, the question is answered in favour of the revenue and against the assessee. 11.1. We also find that Hon ble Gujarat High Court, in the case of Gujarat State Fertilizers Chemicals Ltd. 2016 (41) S.T.R. 794 (Guj.) has held that: 6. As noted above, the assessing authority as well as the Tribunal came to factual finding that there was no material on record to establish that the commission agents of the appellant GSFC had incurred any expenses or involved in any means for sales promotion. Even otherwise if we peruse the agreement in question, the same is predominantly in the nature of appointing partnership firm by the name Yarn Trading as a stockist for the sales of the appellant-company. Very preamble to the agreement shows that the appellant- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Cadila Healthcare (supra) have discussed the issue at length. Compare to this judgment, the judgment in Ambika Overseas did not consider all the relevant issues. Moreover, it is much more pertinent to note that Hon ble High Court of Gujarat have given similar findings in the case of GSFC (supra). For these reasons, we are of the considered opinion that the judgment in Cadila Healthcare Ltd. holds good, more so, being the latest. For this reason, we are not inclined to accept the reliance of the appellants on the judgments of the Tribunal in Essar Steel Ltd. and Federal Moghul (supra). We find that the appellants are not eligible to avail CENVAT credit on the Sales Commission paid to M/s L T Ltd. We find that the appellants have also submitted that in case the bench takes a contrary view to the judgments of tribunal in Essar India Ltd and Federal Mogul, the may refer the issue to a larger Bench. We find that in view of the elaborate discussion and categorical finding of the Gujarat High Court in the case of Cadila (supra) and in view of our discussion as above, no such reference to larger bench is warranted. 13. Coming to the issue of limitation, the appellants submit th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Excise Rules do not arise. Therefore, we are of the considered opinion that penalty imposed under Section 11AC of Central Excise Act and Rule 25 of Central Excise Rules are not sustainable. However, we find that in some of the appeals, penalty under Rule 15 of CENVAT Credit Rules, 2004 has been imposed. As per our discussion above, we hold that the appellants are not eligible to avail the impugned credit and therefore, availment of credit, before the amendment carried out with effect from 03.02.2016, does constitute a contravention of Central Excise Rules and therefore, penalty under Rule 15 of CENVAT Credit Rules, 2004 is rightly imposed. 15. In view of the above, we pass the following order: 15.1. Appeal Nos. E/639/2010; E/288/2011; E/247/2012 and E/675/2012 are partly allowed as follows: (i). Appeal No. E/639/2010: duty demand confirmed within normal period; extended period not invokable; However, penalty under Section 11AC is set aside; (ii). Appeal No. E/288/2011: Duty demand of Rs.10, 96, 33,738 is confirmed; however, penalty under Rule 25 of Central Excise Rules is set aside. (iii) Appeal No. E/247/2012: duty demand of Rs.20, 85, 94,049 is confirmed; however ..... X X X X Extracts X X X X X X X X Extracts X X X X
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