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et>lzI +I$IzIW31T cf, i-- '121 3c-414 te-ch, ,HuSei 7 II, argra07 - I WRr

3c414 fee* gr-47r, tiiiaaR-oct,*tirF,

3t4T4Ter, 3r6rgr44 - 380 015. OFFICE OF THE ASSISTANT COMMISSIONER, CENTRAL EXCISE,

DIVISION - II, AHMEDABAD- I, THIRD FLOOR, CENTRAL EXCISE BHAVAN, NEAR POLYTECHNIC,

AMBAWADI, AHMEDABAD - 380 015 .

31tre art a / Date of Order : 17.12.2014

AI cm arThif / Date of Issue : 17.12.2014

ckfikl TR-a/Passed by : Ms. Ruchi Bisht / Assistant Commissioner

3,731Tall't / Order-in-Original No AC /14 /Div-II/ 2014-15

• fT urti*a(zrt) zrr crFA- a-filt t 3+1 /37 Th --t tic/it e d14)c1 CR-ra *1. t I This copy

is granted free of charge for private use of the person(s) to whom it is sent.

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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, Ambawadi, Ahmedabad - 380 015 within

sixty days from the date of its communication. The appeal should bear a court fee stamp of Rs.2/- only.

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, 2001 * f?elm 3 Ardt1T#.1* 3 9-FrR FWEraTT i4w 010 v I Si-141+11c tieldo Thiv We"' : -

The Appeal should be filed in Form No. E.A.1 in duplicate. It should be signed by the appellant in

accordance with the provisions of Rule 3 of Central Excise (Appeals) Rules, 2001. It should be accompanied with the following

ictd aTtriRtTclirA Copy of accompanied Appeal. (ii) Pule; *1 ed-tlf 31"Zraitif 311tr ,rd". "31tRtil"7Tt * # WP"

VW IIe111i 1CrTh. Ft, ZIT alin:1- 3Trat r xf t fez 2/- M-10-44m Jere! tc.r Na-rr alai r fit-e- •

Copies of the decision or, one of which at least shall be certified copy, the order appealed against

or the other order which must bear a court fee stamp of Rs.2.00/-.

3Tr @r rd-FK (3.1zN, *-4tzr 3011C lech 3.74-. 3r6W-C4T-C. - 380 015 al !le-ch 7.5% oioi 311Tdr q.1" viia-11 WI cl I C 3itraT ,t6i el

rd-drt 3-4MaIrdiachi4) HIM tif 71"

An appeal agaisnt this order shall lie before the Commissioner(Appeals), Central Excise, Central Excise

Bhavan, Ambawadi, Ahmedabad - 380 015 on payment of 7.5% of the duty demanded where duty or

duty and penalty are in dispute, or penalty, where penalty alone is in dispute".

Sub: Show Cause Notice No. V. 29/16-03/SCN-Kemit/14-15 dated 20.05.2014 issued to M/s. Kemit Chemicals Pvt. Ltd., Plot No. 78/12, Phase-I, GIDC, Vatva, Ahmedabad - 3824 45

IhT.TI".V/9/16-03/SCN-Kem t/I4-15

2

Brief facts of the case

M/s. Kemit Chemicals Pvt. Ltd., 78/12, Phase.; GIDC, Vatva, Ahmedabad 3824 45 (here-

in-after referred to as the 'said assessee' for the sake, ?brevity) is engaged in the manufacture

of various products falling under Chapter 29 & 32 of the First Schedule to the Central Excise

Tariff Act, 1985 and are availing the facility of CENVAT Credit under CENVAT Credit Rules, 2004 r.

and holding Central Excise Registration No. AACK5879NXM001.

2. The said assessee had availed Cenvat Credit of Service Tax paid on commission paid to

foreign agent to the tune of Rs. 1,86,280/ during the period from September — 2013 to March

2014. The credit of service tax paid on commission paid to foreign agents was not available to

the said assessee as the service provided by commission agents was not covered under the

definition of 'input service' under Rule 2(I) of the Cenvat Credit Rules, 2004.

3. The definition of the term "input service" as given under rule 2(I) of the Cenvat Credit

Rules, 2004 is reproduced as under :-

"(I) "input service" means any service, —

(I) used by a provider of taxable service for providing an output service; or

(ii) used by a 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 up to the

place of removal, procurement of inputs, activities relating to business such as

accounting, auditing, financini, recruitment and quality control, coaching and training,

computer networking, creditAting, share registry and security, inward transportation of

inputs or capital goods and outward transportation up to the place of removal; "

4. As per the definition of input service, any service, used by the manufacturer, should

have a nexus with the manufacture and clearance of the final product upto the place of

removal. Place of removal is well defined in Section 4(3)(c)of the Central Excise Act,1944.

Further 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 manufacture, cannot be read de hors

the meaning of input services under Rules, 2(I) of Cenvat Credit Rules, 2004. Therefore, all the

activities relating to business, which are input without keeping in view the definition of input

service under Rule 2(I) of Cenvat Credit services used by the manufacturer in relation to the

manufacture and clearance of the final product upto 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 services. 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

1

3

,a0 above parameters. Hence, it appears that Cenvat Credit availed by the assessee in respect of

Service tax paid to commission agent for sale of finished goods cleared to their customers is

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

2(1) (ii) of the Cenvat Credit Rules, 2004. Thus the same appears to be recoverable 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 are read as under;-

"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 -

(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."

4

d 6. It was noticed that the said assessee had wrongly availed CENVAT Credit of service tax

amounting to Rs. 1,86,280/- (for the period September-2013 to March-2014) paid on the sales

commission paid to the foreign agents for the finished goods. As per details submitted by them

vide letter dated 04.04.14, it appeared in light of legal provisions that the assessee was failed to

comply with the statutory provisions & procedure laid down for availing the CENVAT Credit in

as much as they have availed Cenvat credit of service tax paid on sales commission paid to the

foreign agents. The service provided by sales commission agents is not included /defined as

input service in rule 2(1) of Cenvat Credit Rules, 2004.

7. Further, it appeared that services of commission agent used by the manufacturer are

neither used directly nor indirectly, in or in relation to the manufacture of final products.

Therefore, the said assessee appears to have wrongly availed Cenvat credit of Service Tax on

commission paid to foreign sales agent which does not fall within the purview of definition of

input service Since, the services of foreign sales commission agent have no 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(1) of Cenvat Credit Rules, 2004, the manufacturer shall not be

allowed to take credit on such ineligible service as per Rule 3 of Cenvat Credit Rules, 2004.

8. Further, services of the sales 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 Finance Act 1994, 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 appears to be directly responsible for selling or purchasing on

behalf of another person and that such activity cannot be considered as sales promotion.

There appears to be a clear distinction between sales promotion and sale. A commission agent

is directly concerned with sales rather than sales promotion. Therefore, the services provided

by commission agent do not fall within the purview of the main or inclusive part of the

definition of 'input service' as laid down in rule 2(I) of the Cenvat Credit Rules, 2004 and it

appeared that the said assessee is not eligible for CENVAT credit in respect of the service tax

paid against commission given to commission agents for sale of final product.

9. As per the judgment of Gujarat High Court in case of Commissioner of Central Excise,

Ahmedabad-II Vs. Cadila Health Care Ltd 2013-TIOL-12-HC-AHM-ST dated 18.10.12 & 07.11.12

in which it has been held that "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(I) of the Rules. Consequently, Cenvat credit would not be admissible in respect

of commission paid to foreign agents" and as well as the Hon'ble CESTAT Ahmedabad's Order

in the case of Commissioner of Customs & Central Excise, Surat —II v/s Astik Dyestuff P. Ltd,

vide Order No.A/10339/WZB/AHD/2013 dated 01.03.2013 has held that " the law laid down

by Hon'ble High Court of Gujarat in the case of Cadila Healthcare (Supra) is squarely applicable

r .1

5

to the facts of the present case. No distinction can be made between the commission paid to

foreign agent and the agent operating within the territory of India because nature of services

provided by both the categories of agents is same. Consequently, Cenvat Credit would not be

admissible in respect of Service Tax paid on the commission paid to the foreign agents". It

appears that the ratio of the decision of the Hon'ble High Court of Gujarat as well as Hon'ble

CESTAT Ahmedabad is squarely applicable for services of sales commission for foreign agents.

10. It was noticed that the said assessee had wrongly availed but not utilized Cenvat Credit

of service Tax amounting to Rs. 1,86,280/- (for the period from September — 2013 to march —

2014) paid on the sales commission paid to the foreign agents for the finished goods. It

appeared in light of legal provisions that the said assessee was filed to comply with the

statutory provisions & procedures laid down for availing the Cenvat Credit in as much as they

had availed Cenvat Credit of Service tax paid to the foreign agents. The services provided by

sales commission agents is not included/defined as input service in Rule 2(I) of Cenvat Credit Rules, 2004.

11. Further, 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 the instant case, as discussed in foregoing paras, the credit taken

in respect of services availed 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. In the instant case, it appears that the said assessee knew that the services

in respect of which they had taken Cenvat Credit were the services related to sales and which

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 v/s. M/s

Cadila Healthcare Limited, 2013, TIOL -12-HC-AHM-ST dated 18.10.2012 & 07.11.2012. Also Rule

2 (I) of Cenvat Credit Rules, 2004 defining what constitutes an input services, does not include

Services related with sales in the definition of Input Services.

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 appeared to have

availed and utilized Cenvat credit of service tax paid on

commission paid to foreign sales commission agents during the period September-2013

to March 2014. It also appeared that the said assessee has 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 sales commission

agents, which do not qualify as the input service under 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.

6

d 13. Therefore, a Show Cause Notice issued from F.No. V.29/16-03/SCN-Kemit/14-15 dated

20.05.2014 was issued to the assessee asking them that as to why :-

(I) Cenvat credit of Rs. 1,86,280/- for the period from September 2013 to March

2014 (Inclusive of Education Cess and Higher Education Cess) wrongly availed by

them as Cenvat Credit of Service Tax should not be disallowed and recovered

under Rule 14 of Cenvat Credit Rules, 2004 read with Sections 11A(1) of

Central Excise Act, 1944.

Penalty should not be imposed under Rule 15(1) of the Cenvat Credit Rules,

2004.

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

Credit under Rule 14 of Cenvat Credit Rules, 2004 read with Section 11AA of

Central Excise Act, 1944.

They are also directed in the said show cause notice to produce at the time of showing

cause all the evidence upon which they intend to rely in support of their defense and also

directed to indicate in their written explanations to whether they desire to be heard in

person before the case is adjudicated.

/Written submissions :-

14. The proposals leveled in the show cause notice are unsustainable in facts as well as in

law, and- therefore these proposals deserve to be vacated in the interest of justice. Subsequent

to the judgment of the Hon'ble High Court of Gujarat in the aforesaid case, M/s. Cadila

healthcare have filed an appeal before the Hon'ble Supreme Court which is still pending.

Therefore, in view of the fact that the issue is still at large before the Hon'ble Supreme Court

and also because on the same issue favourable orders/judgments have been passed by other

High Courts, we decided to take Cenvat Credit of service tax paid on the services of sales

commission agents, but the same was separately ear-marked and not utilized till the pendency

of the issue before the Hon'ble Supreme Court. This fact has also been communicated to the

concerned office in-charge of our unit vide letter dated 25.10.2013.

15. In view of the matter, the present proceeding initiated for recovery of such ear-marked

and unutilized credit is clearly uncalled for and without any justification. When we have

already informed the Department that such amount of reason for which the present

proceeding was required to be initiated. it must be appreciated that if the issue is finally

decided in favour of the trade and if such credit is not availed by the assessee at the regular

point of time i.e during the pendency of issue before the Hon'ble Supreme Court, then

objections may be raised that the same was not taken within reasonable period. To avoid this

complication, we have continued availing Cenvat credit of service tax on such services

7

j separately and without pulling it to use. The availment of such Cenvat credit and its specific

non-utilisation clearly shows that the same is only a paper entry and that there is no revenue

implication in this procedure adopted by us. Therefore, the present proceeding initiated for

reversal of this more paper entry made by us to safeguard our future interest is clearly

arbitrary and without any application of mind. When it is not even the case of the Department

that such amount of Cenvat credit is utilized by use; the present proceeding ought not to have

been initiated. We may once again clearly state in this case, the issue is decided against the

trade by the Supreme Court, the amount of Cenvat credit separately ear-marked by us shall be

reversed. The action of the department in initiating the present proceeding to defeat the

bonafide and genuine steps taken by us to safeguard our interest without there being any

revenue implication clearly shows the high handed and unjust approach of the department in

the present case. We therefore, request you that the proposals raised in the present

proceedings may be vacated in the interest of justice and fairness. The present proceedings is

even otherwise unsustainable because the distinction between "sales promotion" and "sale"

based on which the present Show Cause Notice is issued in unreal and fallacious; and equally

fallacious is the action of invoking extended period on commission agent's services has been

legally valid, and therefore the proposal to deny such Cenvat credit for the period from

September, 2013 is unjustified and illegal. We therefore, request you to withdraw this Show

Cause Notice alongwith all the proposals leveled thereunder and oblige.

16. In the Show Cause Notice, Rule 2(1) of the Cenvat Credit Rules is referred to for

suggesting that those services were input service which had a nexus with the manufacture and

clearance of the final product upto the place of removal, and on this basis it is suggested that

commission agents service was an activity beyond the place of removal and hence was not in

the nature of an input service. A reference to the statement of our director Shri Keyur Y. Desai

is also made in the Show Cause Notice, and while referring to the general functions and

services of our commission agents as explained by Shri Bhaysar, it is suggested that

commission agents were selling or purchasing on behalf of another person and such activity

could not be considered as sales promotion; and then a distinction is sought to be drawn

between "sales promotion" and "sale", for suggesting that a commission agent was directly

concerned with sales rather than sales promotion. On the basis, it is suggested that services of

commission agents did not fall within the purview of the main or inclusive part of the definition

of "input service" under Rule 2(1) of the Cenvat Credit Rules, 2004. However, all the above

references and basis are really not germane to the controversy raised in the Show Cause

Notice inasmuch as the sole reason for now suggesting that commission agents services were

not covered under Rule 2(l) of the Cenvat Credit Rules, 2004 is the judgment of the Hon'ble

Gujarat High Court in case of Cadila Healthcare Ltd. which is since reported at 2013 (30) STR 3

(Guj.). This judgment is specifically referred to at Para 9 of the Show Cause Notice and it is

thereupon suggested that the ratio of the judgment was squarely applicable for services of

local sales commission agents. We therefore emphasize that the only and sole basis for

8

suggesting that commission agents services were not covered under the Cenvat scheme for

allowing credit thereof is the said judgment of the Hon'ble Gujarat High Court. However, this

case law cannot be applied for past period but the principle laid down by the Hon'ble Gujarat

High Court could be applied only prospectively in the peculiar facts of this case. The judgment

of the Hon'ble Gujarat High Court in case of Cadila Healthcare Ltd. (Supra) is appealed against

by the said assessee before the Hon'ble Supreme Court and the Special Civil Appeal of M/s.

Cadila Healthcare Ltd. against the judgment of the Hon'ble Gujarat High Court is also admitted

by the Hon'ble Supreme Court, and thus whether sales commission agent's services were in

the nature of input service under the Cenvat scheme or not is subjudice before the Hon'ble

Appex Court. In this view of the matter, we request you to consider the following factual and

legal position in support of our submission that the proposed denial of Cenvat credit for the

period from September, 2013 onwards is unsustainable and unjustified.

17. Whether factory gate/factory premises was the place of removal, and therefore, any

service received in the factory premises or any activity performed within the factory premises

were to be considered as input service or the scope of Rule 2(I) of the Cenvat Credit Rules,

2004 is wider may be considered and examined first.

18. The goods are manufactured by any manufacturer for their sale and it is held by the

Hon'ble Supreme Court in a case of Bombay Tyre International and Ors. Reported in 1983 (14)

ELT 1896 (SC) that selling and marketing expenses of excisable goods were also a part of

manufacturing cost and hence manufacturing activity even though they may have been

incurred at a place other than the factory. Though this judgment is rendered in the context of

arriving at the value of excisable goods, the principle settled thereunder is that marketing and

selling expenses of any excisable goods were also a part of manufacturing cost of the goods,

and hence these expenses were also deemed to have been incurred as regards manufacture of

excisable goods. If selling and marketing expenses had been unrelated to manufacture of

goods, then the Hon'ble Supreme Court would never have held that such expenses would also

be considered to be a part of manufacturing cost for assessing excise duties on the goods. In

the said judgment, the Hon'ble Supreme Court has held that elements like transportation cost,

transit insurance etc. were not to be considered to be a part of the manufacturing cost of the

goods for assessing duties, and thus, the Hon'ble Supreme Court has clearly drawn a

distinction between these type of expenses which were not relatable to manufacturing cost of

goods, and marketing and selling expenses which were directly relatable to manufacturing cost

of excisable goods.

19. In view of the above legal position, it was held by the Appellate Tribunal in cases like

Bhilai Auxiliary Industries reported in 2009 (92) RLT 97 that Cenvat credit of service tax paid by

commission agents was also available because sales of the goods was a natural corollary of

manufacture of goods though sale of goods actually occurred beyond the factory premises.

There are various expenses like sales promotion, market research, advertisement, marketing

9

expenses, etc. which are also incurred by a manufacturer beyond the factory premises.

However, these expenses not only form part of the value of the excisable goods for assessing

excise duties thereon, but the service tax paid by the agencies rendering services for

marketing, advertisement sales promotion, etc. is also held to be admissible as Cenvat credit

in case of Coco Cola India Pvt. Ltd. reported in 2009 (15) STR 657 (Born.) by the Hon'ble

Bombay High Court. All these expenses are for the activities performed after the clearance of final products or beyond

factory premises, and still however, they are considered to be not

only a part of the value of the excisable goods but also in the nature of business expenses with

reference to Rule 2(1) of the Cenvat Credit Rules. Therefore, the basis adopted in the present

Show Cause Notice that commission agents' services having been performed after clearance of

final products and this service having been received by us after the goods left the factory

premises, this service was not in the nature of input service is illegal and untenable. Cenvat credit of service tax paid on commission

agents' services cannot be disallowed on this basis.

20. We may once again draw your kind attention to the judgment of the Hon'ble Bombay

High Court in case of Coco Cola India Pvt. Ltd. (Supra) wherein the definition of input service under Rule 2(1) is

interpreted by exhaustively considering various terms like "relating",

"means", "includes", "such as", "business", "relating to", "activities relating to business', "main

activities", "essential activities", etc. occurring under Rule 200 of the Cenvat Rules read with

Rule 3 and 14 of the said Rules and it is held by the Hon'ble High Court that expression

"business" was an integrated and continuous activity and not confined or restricted to mere

manufacture of goods and therefore, all the activities in relation to business were covered

under Rule 2(I) which was of wider import in the context of the Cenvat scheme. In view of this

principle laid down by the Hon'ble Bombay High Court as regards the Cenvat scheme with

reference to Rule 2(I) of the Cenvat Rules, the basis adopted by the Revenue in the present case is

not at all sustainable. Commission Agents' services availed by us are undoubtedly in the nature of activities relating to

business and therefore, this service is covered under Rule 2(1) of

the Cenvat Rues. Our action of taking Cenvat credit of service tax paid on the commission

agents' services was therefore, perfectly legal and valid.

21. The proposal for imposition of penalty under Rule 15(3) of the Cenvat Credit Rules,

2004 readwith Section 11AC of the Central Excise Act, 1944 also deserves to be vacated as

there is no justification in demand of duty leveled against us in this case. There is no cogent

and reliable evidence in support of the charges leveled in the Show Cause Notice and

therefore, no penalty would be justified on the basis of charges so leveled merely on

assumptions and presumptions. Penalty is quasi-criminal in nature and therefore it cannot be

imposed on mere assumptions and presumptions or hearsay. Neither the facts of the case

justify or warrant imposition of any penalty, nor a specific allegation is made in the Show

Cause Notice for imposing penalty on us. We have not acted dishonestly or contumaciously and

therefore, not even a token penalty would be justified. The present one is not a case where we

had committed contravention of any of the Rules with intent to evade payment of duty. There

10

0 is no violation of any nature committed by us. We have also not committed breach of any

Rules with intent to evade payment of duty. On the other hand, we have ourselves informed

the department about the availment of such credit and that such credit is separately ear-marked, in case the issue is finally decided in the favour of the trade. Thus, in such circumstances, the availment of Cenvat Credit of Service Tax on such services was merely a

paper entry and there was no revenue implication. In this view of the matter, no penalty or interest could be justifiably imposed on us in the law.

22. The proposal to charge interest under Rule 14 of the Cenvat Credit Rules,

2004

readwith Section 11AB (now Section 11AA) of the Central Excise Act is also without any

authority in law inasmuch as the provision of Section 11AB is not attracted in the instant case.

Section 11AB provides for interest in addition to duty where any duty of excise has not been

levied or paid or has been short levied or short paid or erroneously refunded with an intent to

evade payment duty. In the instant case, there is no short levy or short payment or non-levy or

non-payment of any excise duty. Therefore, the proposal to charge interest under Section

11AB of the Act is also not maintainable in the present case.

23. In the above premises, we state that there is no justification in the Show Cause Notice

and the proposals leveled therein, and therefore, we request you to withdraw this Show Cause

Notice in the interest of justice. However, we also request you to give us an opportunity of

personal hearing before passing any final order on this Show Cause Notice, in the interest of

justice.

PERSONAL HEARING :-

24. Accordingly, this case is taken up for adjudication. Personal hearing was fixed on

10.11.2014 & 02.12.2014 which was adjourned on the request made by the assessee vide their

letters dated 12.11.2014 & 02.12.2014. Therefore another date for personal hearing was awarded to the assessee to present their case on 12.12.2014. Shri Kuntal Parikh, Authorised representative, duly authorized by the assessee appeared for the personal hearing and he reiterated the written submissions made by the assessee vide their letter dated 29.05.2014.

DISUSSION AND FINDINGS :-

25. I have carefully gone through the case records as well as the written submissions made by the assessee in their defense. From the case records, I find that the issue in hand is to decide the admissibility of Cenvat Credit taken by the said assessee on Service Tax paid on commission

paid to their foreign commission agent.

26. I find that the Cenvat Credit is denied mainly on the ground that the service provided by

their commission agent and paid to 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.

27. I further find that as per the definition of commission agent defined under clause (a) to

the Explanation under Section 65(19) of the Finance Act, 1994 a commission agent is a person

11

who acts on behalf of another person and causes sale or purchase of goods. In other words, the

commission agent appears to be directly responsible for selling or purchasing on behalf of

another person and that such activity cannot be considered as sales promotion. There has to be

a clear distinction between sales promotion and sale. A commission agent is directly concerned

with sales rather than sales promotion. Therefore, the services 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 is not eligible for

CENVAT credit in respect of the service tax paid on commission given to commission agents.

28. I find that Hon'ble High Court of Gujarat in case of Commissioner of Central Excise,

Ahmedabad-II Vs. 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:-

"(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 to fall within the ambit of expression 'sales promotion'. It would, therefore, be

necessary to understand the meaning of the expression sales promotion.

(4) 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 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.

12

(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 in so far 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 as 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 agent 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 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

p[oducts 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 inclusive 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 judgment, 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(I) 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 assessee activity relating to business, it may

I

13

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. Vs. State of A.P. 1994(Supp(1)SCC 429, the Supreme Court held that the words such as

indicate that what are mentioned thereafter are only illustrative and not exhaustive.

Thus, the activities that follow the words such as are illustrative of the activities relating

to business which are included in the 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 word 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 Qt17

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. 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 Vs. Ambika Overseas (supra). In so far as this issue is concerned, the

question is answered in favour of the revenue and against the assessee".

29. Further, I find that the similar issue has been decided by the Hon'ble Gujarat High Court

in case of Commissioner of Central Excise, Ahmedabad-I Vs. Dynamic Industries Ltd , 2014-TIOL-16

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

commission paid to overseas agents as Cenvat credit has observed that :-

"11. With regard to the commission paid to the overseas agents and service tax paid on

the value of commission paid to the overseas agents under the business auxiliary

category, under the definition of "business auxiliary service" which is a taxable service,

14

the services are provided by the Commission Agent. The assessee took CENVAT credit of

service tax paid on commission paid to the overseas agents for the goods exported. The

eligible category of service for availing the credit is that the service should be used

directly or indirectly in the manufacture or clearance of final product, as neither for the

purpose of sales promotion, the service of overseas commission agent has been used.

The denial in the case of Cadila Healthcare (supra) to the commission paid to the

overseas agents shall apply to this category of service, where the service is rendered for

overseas commission. This is required to be answered in favour of the Revenue and

against the assessee.

"5.2 xxx xxx xxx

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

commission agent is a service received in relation to the assessee's 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 follows 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". Consequently, CENVAT credit would not

be admissible in respect of the commission paid to foreign agents.

12. Accordingly, the substantial question of law raised in respect of the following three

categories of services i.e. (i) Customs House Agents Services, (ii) Shipping Agents and

Container Services and (iii) Services of Overseas Commission, is answered partly in favour

of the assessee so far as aforesaid category Nos.(i) and (ii) are concerned. Insofar as

category No.(iii) i.e. Services of Overseas Commission, is concerned, the same is

answered in favour of the Revenue and against the assessee. "

15

30. The Hon'ble CESTAT, Ahmedabad, in the case of Commissioner of Customs & Central

Excise, Surat-II Vs. Astik Dyestuff Pvt. Ltd vide order No. A/ 10339/WZB/AHD/2013 dated

01.03.2013 has held that "the law laid down by the Hon'ble High Court of Gujarat in the case of

Cadila Healthcare (supra) is squarely applicable to the facts of the present case. No distinction

can be made between the commission paid to foreign agents and the agents operating within

the territory of India because natures of services provided by both the categories of the agents

are the same. Consequently, Cenvat Credit would not be admissible in respect of commission

paid to overseas sales (Commission) Agents".

31. I find that the ratio of above decisions of Hon'ble High Court and Hon'ble CESTAT, which

are squarely applicable in the instant case and accordingly, I tend to hold that the said assessee

is not eligible for Cenvat Credit of Service Tax paid on commission paid to the sales commission

agents.

32. I also find that Rule 2(I)(ii) of Cenvat Credit Rules, 2004, defines the eligible category of

Services for availing credit. The said 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 upto 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 dehors 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 products upto the place of removal alone would 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 services. Therefore, services utilized

beyond the stage of manufacturing and clearance of the goods from the factory cannot be

treated as input service. Thus, for purpose of ascertaining the admissibility of Cenvat Credit on

services, the nature of service availed should be in consonance with the above parameters. It is

evident that the above services in question does not have any nexus with the manufacturing

activities and as such does not fall within the ambit of definition of 'input service'.

33. Further, I find that the said assessee could not establish nexus between the service

availed by them and the manufacture of the finished excisable goods as per the ruling in the

case of Vikram Ispat Vs CCE, Raigad — 2009 (16)STR 195. It was also held in the said case that

any service to be brought within the ambit of definition of 'input service' should be done which

should satisfy the essential requirement contained in the main part of the definition. This

requirement is equally applicable to the various items mentioned in the inclusive part of the

definition as well. The Tribunal also held that no credit can be allowed unless the assessee

provides evidence to establish the nexus between the services and the manufacture of the final

16

products. Based on the above decision also, I find that the services in the subject issue are not

falling within the definition of 'input service'.

34. I also tend to rely upon the decision in the case of Commissioner of C.Ex., Chennai Vs

Sundaram Brake Linings — 2010 (19) STR 172(Tri-Chennai) which is applicable in the present

case. In the said case of Commissioner of C.Ex., Chennai Vs Sundaram Brake Linings, Hon'ble

CESTAT, Chennai, relying on a decision of the Hon'ble Supreme Court in case of Maruti Suzuki

Ltd V. CCE, Delhi 2009(240)ELT 641 (SC), held that use of the input service must be integrally

connected with the manufacture of the final product. The input service must have nexus with

the process of manufacture. It has to be necessarily established that the input service is used in

or in relation to the manufacture of the final product. One of the relevant test would be

whether final product emerge without the use of the input service in question. In the present

case the services of the sales agent were utilized beyond the factory gate, hence the nexus

theory and relevance test as broadly discussed by the Hon'ble Supreme Court in case of Maruti

Suzuki (supra) is not established

35. The Hon'ble Tribunal in the case of CCE, Nagpur Vs Manikgarh Cement Works — 2010

(18) STR 275 has also held that to fall within the scope of definition of input service, a service

must have been used in or in relation to the manufacture or clearance of final product, directly

or indirectly. Moreover it is further held that by Tribunal that the Hon'ble Supreme Court in the

case of Maruti Suzuki Ltd, Vs CCE, Delhi — 2009 (240) ELT 641 (SC) has overruled the decision of

the Bombay High Court in the case of Coca Cola India Pvt. Ltd Vs CCE, Pune — 2009(15)STR 657

(Bom) =-2009 (242) ELT 168(Bom). The Tribunal has also held that in view of the main part of

definition that the decision of the Hon'ble Supreme Court in Maruti Suzuki (supra) though

rendered in a case relating to 'inputs' is also applicable to a case of 'input service'.

36. I also note that in the case of Maruti Suzuki Vs Commissioner (2009 (240) ELT 641 (SC),

the Hon'ble Supreme Court has laid down that the nexus has to be established between the

inputs or input service on one hand and finished goods on the other hand.

37. Even the larger Bench of Tribunal in the case of Vandana Global Ltd Vs CCE, Raigad —

2010 (253) ELT 440 (Tri-LB) has applied the decision of the Hon'ble Supreme Court in the case of

Maruti Suzuki (supra) according to which credit in respect of input or input service is admissible

only if it is integrally connected to the manufacture of the finished excisable goods.

38. Now coming to the submissions made by the said assessee in support of their defense, I

find that the said assessee has mainly given their defense on case laws upon which they relying

on various decisions of Tribunals/Courts and has argued that the service of sales commission

agents in question is covered under the definition of "input service" and the Cenvat Credit of

service tax paid on commission paid to such sales agents is admissible to them.

39. In light of my in-depth findings supported by judicial pronouncement as discussed in

foregoing paras, I am convinced to hold that the service of sales commission agents does not

falls under the ambit of definition of 'input service' under Rule 2(I) and the said assessee was as

17

such not entitle to Cenvat Credit of Service Tax paid on commission paid to such sales agents. In

view of the said facts, I find that the said assessee had contravened the provision of 2(I) read

with Rule 3 of the Cenvat Credit Rules, 2004 in as much as they had taken credit of Service Tax

which did not qualify as 'input service'.

40. I find that the said assessee has argued on admissibility of the Cenvat Credit in question. I

would like to deal with the arguments put forth by them with regard to the admissibility aspect.

In this regard, I find that as already discussed above, the issue as to whether the service of

commission agents falls under the ambit of definition of 'input service' under Rule 2(I) ibid is no

more 'res Integra' and as it has been categorically held by Hon'ble Gujarat High Court to be out

of ambit of definition of input service in case of M/s. Cadila Healthcare Ltd (supra). Thus, when

the service in question is not covered under the category of 'input service' as defined under the

statute, the question of compliance of other provisions of Cenvat Credit Rules, 2004 does not arise.

41. Regarding assessees's argument on the admissibility of Cenvat Credit on commission

agent's service, I find that as per the decision of Apex Court in the case of Kamalakshi Finance

Corporations Ltd (supra), I am bound to pay the utmost regards to the judicial discipline and as

such decision of Hon'ble Gujarat High Court relied upon by me is more binding than the

decisions of Tribunals relied upon by the assessee.

42. Thus, in light of my findings supported by judicial pronouncements as discussed in

foregoing paras, I hold that the service of sales commission agent does not fall within the ambit

of definition of "input service" as defined under the statute as discussed above and the said

assessee was as such not entitled to Cenvat Credit of service tax paid on commission paid to

sales agents. In view of the fact facts, I find that the assessee had contravened the provisions of

Rule 2(1) read with Rule 3 of Cenvat Credit Rules, 2004 in as much as they had taken credit of

service tax paid on service which did not qualify as 'input service'.

43. I find that there was no malafide intention on the part of the assessee 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 on commission paid to

such commission agents were ruled in favour of the trade by various Tribunals and also Hon'ble

Punjab and Haryana High Court. Their action of availing Cenvat Credit in question at the

relevant time was thus in accordance with circular and case laws. It is also well settled principle

that once some benefit was allowed to an assessee, change in view for denying such benefit

can be enforced prospectively only. Thus, in the 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(1) of the Central Excise act, 1944 enabling

normal period of one year were present in this case. In this case, the show cause notice was

issued for the period from September - 2013 to March - 2014.

Therefore, the amount of Cenvat Credit wrongly availed

by the assessee on Service Tax paid on commission agents during this

18

period of September - 2013 to March — 2014 comes to Rs.1,86,280/- as per the calculation

sheet submitted by the Range Superintendent.

44. I find that provisions of Rule 14 of the Cenvat Credit Rules (as applicable during the

period in question) clearly provides that where the Cenvat Credit has been taken and utilized

wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer or the provider of output service and the provisions of Section 11A and 11AA of the CEA, 1944 shall apply mutatis mutandis for effecting such recoveries. Thus, the

wrongly availed and utilized Cenvat Credit in question is required to be recovered from said

assessee along with interest in terms of provisions of Rule 14 of CCR, read with Section 11A and

Section 11AA ibid.

45. Thus, In light of the above, I hold that the Cenvat Credit amounting to Rs 1,86,280/ - was

wrongly availed by the said assessee on commission paid to the commission agent Service

during the period from September - 2013 to March - 2014 and the same is required to be

disallowed and recovered from them in terms of the provisions of Rule 14 of the Cenvat Credit

Rules, 2004 read with Section 11A of the Central Excise Act, 1944. Further, interest is also

required to be charged on the Cenvat Credit wrongly availed and recovered from them in terms

of the provisions of the Rule, 14 of the Cenvat Credit Rules, 2004 read with Section 11AA of the Central Excise Act, 1944. The said assessee is also liable to penalty under Rule 15(1) of the Cenvat Credit Rules, 2004 considering the normal period of one year for their contravention as discussed above.

46. In view of the above findings, I pass the following orders in the matter.

ORDER

I disallow the Cenvat Credit amounting to Rs. 1,86,280/- (Rupees One Lakh Eighty Six Thousand Two Hundred and Eighty only) for the period from September

-2013 to

March - 2014 and order to be recovered from M/s. Kemit Chemicals Pvt. Ltd., Vatva,

Ahmedabad - 382 445 in terms of the provisions of Rule 14 of Cenvat Credit Rules,

2004 read with Section 11A (1) of the Central Excise Act, 1944.

I order to recover interest at the prescribed rates from M/s. Kemit Chemicals Pvt.

Ltd., Vatva, Ahmedabad - 382 445 on the said wrongly availed Cenvat Credit in

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

11AA of the Central Excise Act, 1944.

I impose penalty of Rs. 50,000/- (Rupees Fifty Thousand Only ) upon M/s. Kemit

Chemicals Pvt. Ltd., Vatva, Ahmedabad - 382 445 under the provision of Rule 15(1)

of the Cenvat Credit Rules, 2004.

19

47. The Show Cause Notice issued M/s. Kemit Chemicals Pvt. Ltd., Vatva, Ahmedabad - 382

445 vide F. No. V. 29/ 16-03/SCN-Kemit/14-15 dated 20.05.2014 by the Assistant Commissioner,

Central Excise, Division — II, Ahmedabad — I stands disposed of in the above manner.

(Ruchi Bisht)

Assistant Commissioner,

Central Excise, Division-II,

Ahmedabad —1.

F.No. V.29/16-03/SCN-Kemit/14-15. By R P.A.D. HAND DELIVERY To,

M/s. Kemit Chemicals Pvt. Ltd.,

Plot No. 78/12, Phase-I, GIDC, Vatva, Ahmedabad - 3824 45

Copy to:

Date : 17.12.2014

\71-The Assistant Commissioner(RRA), Central Excise, Ahmedabad —1.

2)The Superintendent of Central Excise, AR- Ill, Div-II, Ahmedabad-I.

3)The Dy./Asstt. Commissioner(Systems), Central Excise, Ahmedabad — I.

4) Guard file.