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T.1*.: F. NO. V.32/15-35/ADC/MOL/0A-1/2013

Kali" cif): Date of Order : 31.01.2014

7Tft tf aTtrg: Date of Issue : 31.01.2014

qctiv / Passed by: Sri Sameer Chitkara, ADDITIONAL COMMISSIONER *******************************************************************

31-171- #./Order-In-Original No.: 04/ADDITIONAL COMMISSIONER/2014 ****************************************************************

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Any person deeming himself aggrieved by this Order may appeal against this order in Form E.A.1 to Commissioner (Appeals), Central Excise, Central Excise Bhavan, Near Government Polytechnic, Ambawadi, Ahmedabad -15 within sixty days from date of its communication. The appeal should bear a court fee stamp of Rs.2.00/- only.

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The Appeal should be filed in form No. E.A.-1 in duplicate. It should be filed by the appellants in accordance with provisions of Rule 3 of the Central Excise (Appeals) Rules, 2001. It shall be accompanied with the following:

31tiM Vit. I

Copy of the aforesaid appeal.

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Copies of the Decision (one of which at least shall be certified copy of the order appealed against) or copy of the said Order bearing a court fee stomp of Rs.2.00/-.

1-Oi7Reference : chliul WaT3it F.NO. V.32/15-35/ADC/MOL/0A-I/2013 dated

06.09.2013 issued to M/s. M/s. Meghmani Organics Ltd., Plot No.184, Phase-II, G.I.D.C., Vatva, Ahmedabad-382445.

2

1 F.No.V.32/15-35/ADC/MOL/0A-I/2013

BRIEF FACTS OF THE CASE:

M/s. Meghmani Organics Limited, Plot No.184, Phase-II, G.I.D.C., Vatva,

Ahmedabad (herein after referred to as "the said assessee"), are registered with the

Central Excise under registration No. AABCM0644EXM003 for the manufacture of

S.O. Dyes, falling under Chapter 32 to the First Schedule to the Central Excise Tariff

Act, 1985.

2. Whereas, it appeared that the said assessee had wrongly taken the Cenvat

Credit of the Service Tax paid on Commission paid to commission agent for sale of

finished goods cleared to their customers during the period from February-2009 to

March-2013. Whereas the information regarding availment of Cenvat credit of

Service Tax paid on Commission paid to foreign commission agent was provided by

the said assessee vide their letter dated 21-05-2013 [Sr.No.1 of Annexure- " I "

enclosed to this notice] in response to letter F.No.AR-III/DIV.III/Cenvat Credit

S.Tax/2012-13 dated 13-03-2013 issued by the Superintendent, Central Excise,

Range-III, Division-III, Ahmedabad-I. In the said letter the said assessee has

provided the year wise/entry wise details of the total cenvat credit taken to the tune of

Rs.18,66,194/-. The summary of wrongly availed Cenvat credit of Service Tax is as

under:-

Year SI. NO.

RG 23 A Pt. II Entry No.

Date on which Cenvat Credit was taken

Amt. of Cenvat Credit (In Rs.)

2008-09 1 1076 16/02/2009 2,314/- 2 1472 16/02/2009 82,485/-

2009-10

3 276 30/06/2009 16,809/- 4 1082 31/12/2009 8,344/- 5 1084 31/12/2009 46,816/- 6 1086 31/12/2009 15,007/- 7 1088 31/12/2009 2,03,779/- 8 1090 31/12/2009 58,942/-

2010-11 9 1958 24/02/2011 1,99,950/- 10 1960 24/02/2011 28,572/- 11 1963 24/02/2011 1,16,362/-

2011-12

12 534 28/06/2011 1,71,798/- 13 536 28/06/2011 87,686/- 14 1230 21/10/2011 2,46,944/- 15 1958 9/2/2012 2,88,251/-

2012-13 16 738 26/07/2012 2,92,135/- Total Cenvat Credit Taken (In Rs.) Rs.18,66,194/-

3. The definition of the term "input service" as given at Rule 2(/) of Cenvat Credit Rules, 2004, is reproduced as under:-

2 F.No.V.32/15-35/ADC/MOU0A-I/201 3

"input service" means any service,-

(i) used by a provider of taxable service 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 upto the place of removal,

and includes services used in relation to setting up, 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, activities relating to business, such 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 upto the place of removal;

4. The definition of input service fixes the meaning of that expression and the

services, used by the manufacturer, are required to have a nexus with the

manufacture of the final product and clearance of the final product up to the place of

removal. Place of removal is well defined in Section 4(3) (c) of the Central Excise Act,

1944 and the services which are enumerated in the inclusive clause, which applies

both, in the context of the provider of output services as well as the manufacturer,

cannot be read de hors the meaning of input service under Rule 2(1) of Cenvat Credit

Rules, 2004. Therefore, all the activities relating to business, which are input services

used by the manufacturer in relation to the manufacture of final product and

clearance of the final product up to the place of removal alone would appear to be

eligible. After the final products are cleared beyond the place of removal, there will be

no scope for subsequent use of service to be treated as input service. Therefore,

services utilized beyond the stage of manufacturing and clearance of the goods from

the factory cannot be treated as input services. Thus, it appears that for the purpose

of ascertaining the admissibility of Cenvat Credit on services, the nature of service

availed should be in consonance with the above parameters. Hence, the said

assessee appears to have wrongly availed Cenvat Credit of Service tax paid on

Commission paid to commission agent for sale of finished goods cleared to their

customers contrary to the provisions of Rule 3 of Cenvat Credit Rules, 2004 read with

Rule 2(1) (ii) of the Cenvat Credit Rules, 2004, which needs to be recovered from

them alongwith interest.

5. Further, the provisions of Rule 3(1) of Cenvat Credit Rules, 2004, allowing a

manufacturer or producer of final product or a provider of taxable service to take

Cenvat Credit of various duties/taxes leviable under different provisions of law read

as under:-

3 F.No.V.32/15-35/ADC/MOL/0A-I/2013

"RULE 3. CENVAT Credit. - (1) A manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of -

(i) (ii) (iii) (iv) (v) (vi) (via) (vii) (viia) (viii) (ix) the service tax leviable under section 66 of the Finance Act; and (x) (xa) (xi) paid on-

(i) any input or capital goods received in the factory of manufacture of final product or premises of the provider of output service on or after the 10th day of September, 2004; and

(ii) any input service received by the manufacturer of final product or by the provider of output services on or after the 10th day of September, 2004,

including the said duties, or tax, or cess paid on any input or input service, as the case may be, used in the manufacture of intermediate products, by a job-worker availing the benefit of exemption specified in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 214/86- Central Excise, dated the 25th March, 1986, published in the Gazette of India vide number G.S.R. 547 (E), dated the 25th March, 1986, and received by the manufacturer for use in, or in relation to, the manufacture of final product, on or after the 10th day of September, 2004."

6. Whereas, it appeared that services of foreign commission agent used by the

manufacturer were neither used directly nor indirectly, in or in relation to the

manufacture of final products. Therefore, the said assessee appeared to have

wrongly availed Cenvat credit of Service Tax paid on commission paid to foreign

agent which does not fall within the purview of definition of input service. The said

service appears to be availed by the said assessee after the clearance of finished

goods from the factory gate i.e. beyond the place of removal. Since, the services of

foreign commission agent do not have any relation with the manufacturing activity

and also do not appear to fall within the ambit of definition of input services as

defined under Rule 2 (I) of Cenvat Credit Rules, 2004, the manufacturer should not

be allowed to take credit on such ineligible service as per Rule 3 of Cenvat Credit

Rules, 2004.

4 F.No.V.32/15-35/ADC/MOL/0A-1/2013

7. Further, services of the foreign commission agent also do not appear to fall

under the category of sales promotion. As per the definition of commission agent

defined under clause (a) to the Explanation under section 65(19) of the Act, a

commission agent is a person who acts on behalf of another person and

causes sale or purchase of goods. In other words, the commission agent is directly

responsible for selling or purchasing on behalf of another person and that such

activity cannot be considered as sales promotion. There is a clear distinction between

sales promotion and sale. A commission agent is directly concerned with sales rather

than sales promotion. Therefore, the 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(1) of the CENVAT Credit Rules, 2004 and the said

assessee does not appear to be eligible for CENVAT credit in respect of the service

tax paid on commission paid to commission agents.

8. Further Hon'ble High Court of Gujarat in case of Commissioner of Central

Excise, Ahmedabad-II v/s M/s. Cadila Health Care Ltd., 2013 —TIOL-12-HC-AHM-ST

has held that the "Commission agent is directly concerned with the sales rather than

sales promotion and as such the service 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 Cenvat Credit Rules 2004, Consequently, Cenvat

Credit would not be admissible in respect of the commission paid to foreign agents".

9. A Statement of Shri Pravin M. Variya, Senior Executive (Excise) of M/s.

Meghmani Organics Limited, Plot No.184, Phase-II, G.I.D.C., Vatva, Ahmedabad was

recorded on 02-07-2013 under Section 14 of Central Excise Act, 1944 [Sr. No. 02 of

Annexure- " I " — enclosed to this notice], wherein he interalia stated that they availed

Cenvat Credit of Service tax paid on the commission paid to the foreign agents for

the period from 2008-09 to 2012- 13 i.e.[ February, 2009 to March, 2013); that they

never informed the Central Excise Department regarding availment of Cenvat credit

on Service tax paid on commission paid to the Foreign Agent; that they have

provided the details of the cenvat credit availed on the commission paid to the foreign

agent for the period from February'2009 to March, 2013; that they have not availed

any cenvat credit on the said services except they have provided the details vide their

letter dated 21.05.2013.

10. Rule 9(6) of the Cenvat Credit Rules, 2004 stipulates that the burden of proof

regarding admissibility of Cenvat Credit shall lie upon the manufacturer or provider of

output service taking such credit. In this era of self assessment, the onus of taking

legitimate Cenvat Credit has been passed on to the assessee lin terms of the said

rules. In other words, it is the responsibility of the assessee to take Cenvat Credit

5 F.No.V.32/15-35/ADC/MOU0A-1/2013

only if the same is admissible. In the instant case, the credit taken in respect of

services availed beyond the factory gate appears to be inadmissible in as much as

the same does not fall within the ambit of the definition of 'input services' as specified

under Rule 2(I) of the Cenvat Credit Rules, 2004. Thus, it appears that the assessee

knew that the services in respect of which they had taken Cenvat Credit were the

services availed beyond the factory gate and related to sales which in turn did not

have any relation whatsoever in or in relation to manufacture of goods. Further, the

services provided by commission agent have been held to be concerned with sales

and not sales promotion by the Hon'ble High Court of Gujarat in the case of CCE,

Ahmedabad -II Nils M/s Cadila Healthcare Limited, supra. Also Rule 2 (I) of Cenvat

Credit Rules, 2004 defining what constitutes an input service, does not include

services related with sales in the definition of Input Services.

11. Further, the said assessee, in this era of self assessment when onus of taking

legitimate Cenvat Credit has been passed on to the assessee, took Cenvat Credit in

violation of Cenvat Credit Rules. It appeared that the assessee took the Cenvat

Credit on the services which did not qualify as 'input services' despite knowing that

the same have been availed beyond the factory gate and have not been used in or in

relation to the manufacture of final product and as such would not fall within the ambit

of the definition of 'input service'. The said assessee, though, it has been expressly

provided in Rule 9(6) of Cenvat Credit Rules, 2004 that "... burden of proof regarding

the admissibility of the Cenvat Credit shall lie upon the manufacturer..." took credit of

Service Tax paid on commission paid to foreign commission agents which does not

qualify to be included as "input service" defined under Rule 2(1) of Cenvat Credit

Rules, 2004. Thus, it appears that the said assessee have contravened the

provisions of the Cenvat Credit Rules, 2004 by suppressing the facts with intent to

evade payment of duty in as much as (i) the assessee has taken the Cenvat Credit

on the services despite knowing that the same do not qualify as 'input services' (ii)

the services have not been used in or in relation to the manufacture of final products

and related to sales and not for sales promotion and as such would not fall within the

ambit of the definition of 'input service' (iii) by failing to discharge the obligation cast

on them under Rule 9(6) of the Cenvat Credit Rules, 2004 and (iv) by not informing

the department about the availment of credit of Service Tax paid on the commission

paid to the foreign commission agents. Therefore, the said Cenvat Credit amounting

to Rs.18,66,194/- appears to have been wrongly taken and utilized for the payment

of duties of excise which resulted in revenue loss to the Government during the

period from 2008-09 to 2012-13 (i.e. from February, 2009 to March, 2013) and the

same is required to be recovered by invoking provisions of extended period of five

years contained in Section 11A(5) of the Central Excise Act, 1944 [erstwhile Section

11A(1) of the Central Excise Act, 1944 for the period covered up to 07.04.2011].

6 F.No.V.32/15-35/ADC/MOU0A1/2013

12. Rule 14 of the Cenvat Credit Rules, 2004 provides that where the CENVAT

credit has been taken or utilized wrongly or has been erroneously refunded, the

same along with interest shall be recovered from the manufacturer. In the instant

case, the assessee appears to have taken and utilized Cenvat Credit of Service Tax

paid on commission paid to foreign commission agents for sale of finished goods

cleared to their customers during the period from 2008-09 to 2012-13 (i.e. from

February, 2009 to March, 2013). It also appeared that the said assessee

contravened the provisions of Rule 2 of Cenvat Credit Rules, 2004 read with Rule 3

of Cenvat Credit Rules, 2004 for credit taken of Service Tax paid on commission paid

to foreign commission agents. The said assessee had taken and utilized an amount

of Rs.18,66,194/- during the said period, the details of which are as per Annexure — A

[Sr. No. 02 of Annexure — I enclosed to this notice]. Out of the total amount of

Rs.18,66,194/-, the said assessee is required to pay the amount of Rs.7,79,380/-

under Rule 14 of the Cenvat Credit Rules, 2004 read with provisions of erstwhile

Section 11(A)(1) of the Central Excise Act, 1944 being the relevant provision of the

law for the period up to 07.04.2011. The remaining amount of Rs.10,86,814/- is

required to be recovered under Rule 14 of Cenvat Credit Rules, 2004 read with

Section 11A(5) of the Central Excise Act being the relevant provision of the law for

the period from 08.04.2011, Rule 14 of the Cenvat Credit Rules, 2004 read with

provision under Section 11AA of the Central Excise Act, 1944 (erstwhile Section

11AB of the Central Excise Act, 1944 for the relevant period up to 07.04.2011) shall

apply mutatis mutandis for effecting recovery of interest.

13. In view of the above, it appeared that the said assessee had contravened the

provisions of Rule 2(1) read with Rule 3 of the Cenvat Credit Rules, 2004 in as much

as they had taken credit of Service Tax paid on services which did not qualify as

`input services'; Rule 9(6) of the Cenvat Credit Rules, 2004 in as much as they had

failed to discharge the burden of proof regarding admissibility of Cenvat Credit.

Further, it appeared that the said assessee suppressed the material facts regarding

taking of Cenvat Credit of Service Tax paid on services not covered under the

definition of input services, by way of not indicating the same in their

monthly/quarterly returns or in any other manner. Therefore, the said assessee had

rendered themselves liable for penalty in terms of Rule 15(3) of the Cenvat Credit

Rules, 2004 [Applicable during the relevant period i.e. up to 26.02.2010] & Rule 15(2)

of the Cenvat Credit Rules, 2004 [Applicable during the relevant period i.e. from

27.02.2010 to 07.04.2011] read with Section 11AC of the Central Excise Act, 1944

and Rule 15(2) of the Cenvat Credit Rules, 2004 [Applicable during the relevant

period i.e. from 08.04.2011 to 31.03.2013] read with Section 11AC(1)(b) of the

Central Excise Act, 1944 for the above said contraventions

7 F.No.V.32/15-35/ADC/MOU0A-I/2013

14. Therefore, M/s. Meghmani Organics Limited, Plot No.184, Phase-II, G.I.D.C.,

Vatva, Ahmedabad were called upon, vide the impugned show cause notice, to show

cause as to why:-

(i) wrongly availed Cenvat credit of Rs.7,79,380/- (inclusive of Education Cess

and Higher Education Cess) for the period from April, 2008(actual credit taken

in February-2009) to 7th April, 2011, should not be disallowed and recovered

from them under Rule 14 of Cenvat Credit Rules,2004 read with erstwhile Section

11A(1) of Central Excise Act,1944.

(ii) wrongly availed Cenvat credit of Rs.10,86,814/- (Inclusive of Education Cess

and Higher Education Cess) for the period from 8th April'2011 to March, 2013,

should not be disallowed and recovered from them under Rule 14 of Cenvat

Credit Rules, 2004 read with Section 11A(5) of Central Excise Act,1944.

(iii) Penalty should not be imposed under Rule 15(3) of the Cenvat Credit Rules

2004 [Applicable during the relevant period i.e. upto 26.02.2010] & Rule 15(2) of

the Cenvat Credit Rules, 2004 [Applicable during the relevant period i.e. from

27.02.2010 to 07.04.2011] read with Section 11AC of the Central Excise Act,

1944 and Rule 15(2) of the Cenvat Credit Rules, 2004 [Applicable during the

relevant period i.e. from 08.04.2011 to 31.03.2013] read with Section 11AC(1)(b)

of Central Excise Act, 1944.

(iv) Interest should not be charged & recovered for wrong availment of Cenvat

Credit under Rule 14 of the Cenvat Credit Rules, 2004 read with the provisions of

Section 11AA [erstwhile Section 11AB for the relevant period] of the Central

Excise Act, 1944.

DEFENCE REPLY

15. The assessee has submitted their defence reply dated 04.10.2013

received on 09-10-2013 wherein they have stated that the charges and allegations

purported to have been made in the Show Cause Notice are not in accordance with

the legal position as stated under the prevalent law and self-contradictory.

16. The assessee has submitted that before they proceed on the merits of

the case, the present show cause notice is arbitrary, illegal and liable to be dropped

on the ground of limitation itself. As per assessee, the department had erred in

invoking the extended period of limitation despite knowing the facts that there is no

fraud, suppression of facts or misstatement or misrepresentation with intent to evade

8 F.No.V.32/15-35/ADC/MOU0A-I/2013

payment of duty.

17. They submitted that they have taken the credit of input service based

on the definition as provided under the provisions of Rule 2 (I) of the CER, 2004 as

they have engaged the commission agent in relation to sale activities of their finished

goods. Therefore procurement of order for sale of finished goods and collection are

considered as part of business activities and the commission on sale is clearly

related to sales promotion. Further the definition of the 'input services' includes

services used in relation to 'sales promotion' and these activities can rightly be

described as sales promotion activities.

18. This objection has been raised in view of the one of the judgements of

the Hon'ble High Court of Gujarat in the matter of Cadila Healthcare Limited. They

beg to differ from the said judgement of Hon'ble Gujarat High Court, which had been

appealed against in the Hon'ble Supreme Court and the appeal has been admitted

and thus the issue of admissibility or otherwise of cenvat credit of service tax on

sales commission is sub-judice. Further they relied on many judgments to prove their

point that even before the said judgment of Hon'ble Gujarat High Court in the matter

of Cadila Healthcare Limited, various benches of the Appellate Tribunal including

the CESTAT, Ahmedabad held that sales commission was an input service and

service tax paid on such sales commission was admissible as cenvat credit.

19. They submitted that even before the judgement of the Hon'ble High

Court of Gujarat in the matter of Cadila Healthcare Limited, Board circular No.

943/04/2011 dated 29.04.2011 (F. No. 354/73/2011-TRU), was issued to clarify that

sales commission was an input service.

They also relied on various judgements to further their cause.

PERSONAL HEARING:

20. The personal hearing in the matter was held on 27.01.2014, wherein

Shri Manukumar V. Mori, General Manager (Comm./Admn.) of the assessee

appeared for the same and reiterated the stand taken by them in their written

submission dtd. 04.10.2013 and also submitted written submission dtd.

27.01.2014. In the written submission dtd. 27.01.2014, they have argued that the

Circular No. 943/04/2011-CX dated 29.04.2011, clarifying at Sr. No. 5 that credit

was admissible on services of sales of goods on commission basis, has not been

withdrawn by the Govt. and is binding on the Revenue authorities; that the view

taken by the judgement of the Hon'ble High Court of Gujarat in the matter of Cadila

Healthcare Limited cannot be applied for re-opening concluded transactions

9 F.No.V.32/15-35/ADC/MOL/0A-1/2013

because a change in view necessitated because of judgement of a court of law is

applicable only prospectively and therefore the cenvat credit for the period prior to

November, 2014 (when the Hon'ble High Court of Gujarat gave judgement in the

matter of Cadila Healthcare Limited) cannot be denied now; that it has been held

by Hon'ble Supreme Court in the case of Bombay Tyre International and Ors.

that selling and marketing expenses of excisable goods were also a part of

manufacturing cost and hence manufacturing activity; that equal amount of penalty

cannot be imposed when there was a clear doubt about duty liability on part of the

appellant and that they have not utilized the credit of Rs. 18,66,194/- in the present

case and therefore, relying on various decisions of various courts, interest liability

cannot be fastened under Rule 14 of the Cenvat Credit Rules and this liability

arises only when the cenvat credit was wrongly taken and utilized. He requested to

decide the case on its basis.

DISCUSSIONS AND FINDINGS:

21. I have carefully gone through the case records and both written and

oral submissions made by the assessee in their defense. From the facts of the case

on records, I find that the basic issue to be dealt with in the impugned show cause

notice pertains to admissibility of Cenvat credit taken and utilized by the said

assessee on service tax paid commission paid to their agents for sale of their finished

goods.

22. I further find that as per the information called for by the Range

Superintendent, the said assessee has availed Cenvat credit of service tax paid on

commission paid to their sales commission agent to the tune of Rs. 18,66,194/-

during the financial year from 2008-09 to 2012-13. The said Cenvat credit is alleged

to have been wrongly availed by the said assessee mainly on the ground that the

service provided by their commission agent does not fall within the ambit of definition

of "input service" as provided under Rule 2(1) of the Cenvat Credit Rules, 2004 ( here-

in-after referred to as CCR, 2004). As such, the said assessee is not entitled to the

Cenvat credit of service tax paid on such service provided by the commission agent

for sale of their finished goods.

23. I also find that Hon'ble High Court of Gujarat in case of Commissioner

of Central Excise, Ahmedabad-II V/s. M/s. Cadila Health Care Ltd., 2013 —TIOL-12-

HC-AHM-ST, while dealing with the issue of admissibility of service tax paid on

commission paid to overseas agents as Cenvat credit has observed as under:

1 0 F.No.V.32/15 -35/ADC/MOU0A -1/2013

"(vi) As noted hereinabove, according to the assessee the services of a commission agent

would fall within the ambit of sales promotion as envisaged in clause (i) of section 65(19) of

the Finance Act, 1994, whereas according to the appellant a commission agent is a person

who is directly concerned with the sale or purchase of goods and is not connected with the

sales promotion thereof. Under the circumstances, the question that 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 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 1TR 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 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 is nothing to indicate that such commission agents were actually

involved in any sales promotion activities as envisaged under the said expression. The term

input service as defined in the rules means any service used by a provider 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

11 F.No.V.32/15-35/ADC/M0110A-I/2013

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 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(1) of the Rules.

(ix) As regards the contention that in any event the service rendered by a commission agent

is a service received in relation to the assessees activity relating to business, it may be noted

that the includes part of the definition of input service includes activities relating to the

business, such as accounting, auditing, financing, recruitment and quality control, coaching

and training, computer networking, credit rating, share 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. v. 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 definition of input service and are not exhaustive. Therefore, activities relating to

business could also be other than the activities mentioned in the sub-rule. However, that

does not mean that every activity related to the business of the assessee would fall within the

inclusive part of the definition. For an activity related to the business, it has to be an activity,

which is analogous to the activities mentioned after the words such as. What follow the

words such as is accounting, auditing, financing, 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, auditing, financing,

recruitment and quality control, coaching and training, computer networking, credit rating,

share registry, and security is in any manner similar to the services rendered by commission

agents nor are the same in any manner related to such services. Under the circumstances,

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.

12 F.No.V.32/15-35/ADC/MOL/0A-I/2013

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 (supra). Insofar as this issue is concerned, the question is answered in

favour of the revenue and against the assessee.

Thus in light of the above decision of Hon'ble High Court, I have no

hesitation to hold that the said assessee is not eligible for Cenvat credit of service tax

paid on commission paid to the sales agents.

24. I further find that relying on various judicial pronouncements including

the decision of Hon'ble Supreme Court in the case of Continental Foundation Jt.

Venture V/s CCE, Chandigarh reported in 2007 (216) ELT 177 (SC), the

assessee has argued that there is no suppression of the facts or contravention of

any provisions of the act or rules made there under with intent to evade payment of

duty on their part and hence there is no justification to invoke extended period in this

case. They also argued that they can't be blamed for the change of mind of

department because of one judgment, which is beneficial to the revenue and

ignoring the other rulings and Board Circular. They have also argued that since they

have declared relevant details in their ER-2 and ER4, there was no suppression on

their part. They also argued that since they have complied with the requirement of

self assessment and duty cast upon them by law, it was the statutory responsibility

of the officers to call for the required information wherever necessary and that

assessment and confirmation of assessment should remain the primary

responsibility of C.Ex. Officer.

25. In this regard, I agree to the argument of the assessee to the effect

that there was no malafide intention on their part in light of the fact that till the

contradictory view was taken by Gujarat High Court in case of M/s. Cadila

Healthcare Ltd. (supra) the admissibility of Cenvat credit on service tax paid on

commission paid to such commission agents was ruled in favour of the trade by

various Tribunals and also Hon'ble Punjab and Haryana High Court. It is also evident

that CBEC in their aforesaid Circular has also clarified that the Cenvat credit was

admissible on services of commission agents. Their action of availing Cenvat credit

in question at the relevant time was thus in accordance with such circular and case

laws. Thus, in light of these facts, I tend to hold that there was no suppression of

facts or willful misstatement or ill-intention on part of the assessee and as such none

of the ingredients of section 11A of CEA'1944 enabling invocation of extended

period were present in this case. Accordingly, I hold that extended period cannot be

invoked in this case and the demand is to be limited to normal period only.

13 F.No.V.32/15-35/ADC/MOU0A-1/2013

Considering the date of issue of present show cause notice on 06/09/2013, the

demand can be restricted only for the period from August, 2012 till September, 2013

instead of period from February, 2009 to March, 2013 as proposed in the show

cause notice.

26. Having held that the cenvat credit for the period from August, 2012 till

March, 2013 is not admissible to them and is liable to be recovered, I find from the

show cause notice that they have not availed and utilized any cenvat credit on

Service Tax paid on commission paid to commission agent for sale for this period.

Therefore no amount of wrongly availed cenvat credit during the period from August,

2012 till March, 2013 remains to be demanded.

27. Since there is no demand of wrongly availed cenvat credit during the

period from August, 2012 till March, 2013, there arises no question of interest liability

and penalty.

28. In view of my above findings, I pass the following order in the matter:

ORDER

I drop the proceedings initiated with show cause notice F.No. V.32/15-

35/ADC/MOL/0A-I/2013 dated 06/09/2013 in above manner. zl

.i/l, (Sameer Chitkara)

Additional Commissioner, Central Excise

Ahmedabad — I

F.No.V.32/15-35/ADC/MOU0A-I/2013

By Registered Post A.D.

To,

M/s. Meghmani Organics Ltd., Plot No.184, Phase-II, G.I.D.C., Vatva, Ahmedabad

Copy to: (i) The Commissioner C.Ex., Ahmedabad-I (ii) The Asstt./Deputy Commissioner C.Ex., Div-III A'bad-I (iii) ^ The Superintendent C.Ex., AR-Ill, Division-III A'bad-I

The Superintendent (Systems) C.Ex., A'bad-I (v) The Assistant Commissioner, C.Ex. (TAR), A'bad-I (vi) The Deputy Commissioner C.Ex. (RRA), A'bad-I (vii) The guard file

Date: 31-01-2014

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