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OFFICE OF THE COMMISSIONER OF CENTRAL EXCISE, AHMEDABAN
Acirzr 3Frr-4 QAM WS, tingavicn t tire CENTRAL EXCISE BUILDING, NEAR eon POLYTECHNIC
mignmer, 3itnin - 380 0118 AMBAWADI, AHRIEDADAD 380 015.
Th-T.g.: F.No: V.38/15-33/Microchem/ADC/ 0A-1 /2014
ffn Date of Order : 16.09.2014
Wt. TT* *r altar: Date of Issue : 16.09.2014
dI7T 'nPd / Passed by: Sri ANIL MISRA, ADDITIONAL COMMISSIONER * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
ffi" 31722I QT./Ord****
er-In-Original No.: 37/ADDITIONAL COMMISSIONER/201 4
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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.I 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:
3-T 3TTFM
Copy of the aforesaid appeal.
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3R2ZT 7-4r 06r a I 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 stamp of Rs.2.00/-.
+kg/Reference :on< f vaT31-1 *kcior 77.11. F.No: V.38/15-33/Microchem/
ADC/OA-1/2014 dated 10.06.2014 issued to M/s. Micro chem., Ashok Rice Mills Compound, Naaz Pirana Road, Jetalpur, Ahmedabad - 382426.
F.No. V.38/15-33/Microchem/ADC/0A -I/2014
BRIEF FACTS OF THE CASE:
1. Micro Chem, Ashok Rice Mills Compound, Naaz Pirana Road, Jetalpur,
Ahmedabad-382426 (here-in-after referred to as the 'said assessee' for the sake of
brevity) is engaged in the manufacture of various products falling under Chapter 38 of
the First Schedule to the Central Excise Tariff Act, 1985 and are availing the facility of
CENVAT Credit under CENVAT Credit Rules, 2004 and holding Central Excise
Registration No. AAUPJ0387RXM001
2. The said assessee is availing Cenvat Credit facility under the provisions of
Cenvat Credit Rules, 2004. During the course of Internal Audit, in the month of October-
2013 by the officers of Audit Wing of Central Excise, Ahmedabad –1 Commissionerate
for the period January-2009 to September-2013 it was noticed that the said assessee
had availed CENVAT credit of service tax paid on commission to local sales
commission agents for the period from June,2009 to March, 2010.
3. 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 dated
18.10.2012 & 07.11.12 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". Further, Hon'ble CESTAT, Ahmedabad, in the case of
Commissioner of Customs & Central Excise, Surat-II Vs. Astik Dyestuff P. Ltd,
vide Order No. A/10339/WZB/AH1312013 dated 01.03.2013 has held that "the law laid
down by Hon'ble High Court of Gujrat 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 agent and the agent operating within the
territory of India because nature of services provided by both the categories of the
agents are same. Consequently, Cenvat credit would not be admissible in respect of
commission paid to Local Sales (Commission) Agents".
4. the definition of the term "input service" as given under rule 2(1) of the Cenvat
Credit Rules, 2004 is reproduced as under :-
"(I) "input service" means any service, —
(0 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,
2 F.No. V.38/ I 5-33/Microchem/ADC/0A-1/2014
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 up to the place of removal:"
5. 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. Therefore, in view of the definition of input service under Rule 2(/) of
Cenvat Credit Rules, 2004, 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 appeared 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, it
appeared 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(0 (ii)
of the Cenvat Credit Rules, 2004. Thus the same appeared to be recoverable along
with interest.
6. 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 - (0 (i) (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
F.No. V.38/I 5-33/Microchem/ADC/0A-1/20 19
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."
7. The auditors noticed that the said assessee had wrongly availed CENVAT Credit
of service tax amounting to Rs.680782/- (for the period June,2009 to March 2010) paid
on the sales commission paid to the local agents for the finished goods. Whereas, it
appeared in light of legal provisions that the assessee has 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
local agents. The service provided by sales commission agents is not included/defined
as input service in rule 2(0 of Cenvat Credit Rules, 2004.
8. Whereas, 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 appeared to have wrongly availed
Cenvat credit of Service Tax on commission paid to local sales agent which does not
fall within the purview of definition of input service Since, the services of local 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(0 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.
9. 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 appeared to be
directly responsible for selling or purchasing on behalf of another person and that such
activity cannot be considered as sales promotion. There appeared 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(0 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.
4 F.No. V.38/15-33/Microchem/ADC/0A-1/2014
10. Therefore further inquiry was caused and a statement of Shri Mahendra B. Dave,
Accountant, of Micro Chem, was recorded, on 13.05.2014, under Section 14 of Central
Excise Act, 1944, wherein he interalia stated that the CENVAT Credit was taken by
Micro Chem; that they at Micro Chem availed and utilized CENVAT credit on sales
commission paid to the local agents for finished goods. On being asked about the
service rendered by the commission agents for which they are taking input service
credit, Shri Mahendra answered that as per the agreement with the commission agents
duties of agent includes service of procurement of sales order and liability of payment
for the goods supplied. He further furnished the details of CENVAT Credit availed by
them during last five years on sales commission paid to the local agents. The details of
wrongly availed cenvat credit of service tax are under:
Period Sr . N o.
RG-23 A Pt. II Entry No/Cenv at Credit Register Entry No.
Date on which credit availed
Period / Month
Service Tax
Edu. Cess
H.Edu . Cess
Total Service Tax
2009- 10
1 55 04.06.2009 June'09 115240 2305 1152 118697 223 08.01.2010 Jan-2010 201803 4036 2018 207857 224 08.01.2010 Jan-2010 160484 3210 1605 165299 298 23 012010 March-2010 117245 2345 1172 120762
3 299 31.012010 March-2010 66182 1323 662 68167
Total for the year 2009-10 660954 13219 6609 680782
11. Further, Shri Mahendra B. Dave also stated that they at Micro Chem have
stopped taking Cenvat credit on sales commission paid to local agents after March,
2010 to avoid further litigation.
12. 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 appeared 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(0 of the Cenvat Credit Rules, 2004. In the instant case, it appeared 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.
Further, Hon'ble CESTAT, Ahmedabad, in the case of Commissioner of Customs & Central Excise, Surat-II Vs. 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 to
5 F.No. V.38/15-33/Microchem/ADC/0A -1/2014
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 same. Consequently,
Cenvat Credit would not be admissible in respect of commission paid to local sales
(Commission) Agents". Also Rule 2 (0 of Cenvat Credit Rules, 2004 defining what
constitutes an input services, does not include Services related with sales in the
definition of Input Services.
13. 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. 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(I) of Cenvat Credit
Rules,2004. Thus, it appeared 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 service despite knowing that the same did not qualify as 'input services' (ii) the
service has not been used in or in relation to the manufacture of final products and
services were related to sales and not 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 services tax paid on
commission paid to foreign commission agents. Therefore, the said Cenvat Credit
amounting to Rs. 6,80,782/- appeared 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 2009-10 (from June,2009 to March 2010) 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 upto 07.04.2011 )
14. 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 taken and
utilised cenvat credit of service tax paid on commission paid to locals sales
commission agents during the period 2009 -10 ( from June,2009 to March
2010.) 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 locals sales
6 F.No. V.38/15-33/Microchem/ADC/0A-1/2014
commission agents. The said assessee had taken and utilised an amount of Rs. 6,80,782/- during the said period. Therefore, the assessee is required to pay the amount of Rs. 6,80,782/ under Rule 14 of Cenvat Credit Rules,2004 read
with provisions of erstwhile Sections 11A(1) of the Central Excise Act,1944
being the relevant provision of the law for the period upto 07.04.2011.
15. In view of the above, it appeared that the said assessee has contravened the
provisions of Rule 2(0 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 assessee has suppressed the material facts regarding taking of
Cenvat Credit of duty 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 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. upto 26.02.2010) and Rule 15(2) of the Cenvat Credit Rules, 2004
[Applicable during the relevant period .i.e. 27.02.2010 to March-2010] read with Section
11AC of Central Excise Act, 1944
16. Therefore, Micro Chem, Ashok Rice Mills Compound, Naaz Pirana Road,
Jetalpur, Ahmedabad-382426 were called upon to Show Cause as to why:-
(i) Cenvat credit of Rs. 6,80,782/- for the period from 2009-10 (from June,2009 to
March 2010 (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.
(ii) 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. 27.02.2010 to
08.04.2011] read with Section 11AC of Central Excise Act, 1944 & Rule 15(2) of the
Cenvat Credit Rules, 2004 [Applicable during the relevant period .i.e. 08.04.2011 to
31.03.2013] read with Section 11AC (b) of Central Excise Act, 1944.
(iii) Interest should not be charged & recovered for wrong availment of Cenvat Credit
under Rule 14 of Cenvat Credit Rules, 2004 read with erstwhile Section 11AB for the
relevant period of Central Excise Act, 1944 as applicable during the relevant period.
DEFENCE REPLY
17. The assessee submitted its defence reply dated 07.07.2014 wherein they have
7 F.No. V.38715-33/Microchem/ADO 0A-12014
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.
17.1 They further submitted in their defence reply that they have filed various monthly
returns as well as half yearly returns with the department regularly in which they have
mentioned that the availment of credit on various services. At times their records were
audited by the departmental auditors who have checked availment of credit thoroughly.
Since the availment of credit has been duly intimated to the department and verified so
it cannot be alleged that they have suppressed any information.
17.2 The assessee has submitted that on the merits of the case, the present show
cause notice is not sustainable and liable to 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 payment of duty.
17.3 The input services as defined in Rule 2 (I) of the Cenvat Credit Rules mean any
service used by the manufacturer, whether directly or indirectly, in or in relation to
manufacture of final products and clearance of final products up to the place of removal.
Commission agents bring sales order and unless the agents get sales order, the entire
manufacturing operations cannot be conducted as the machineries are of kinds that are
'made to order. The finished goods are required to be manufactured as per the
requirements and specifications of the customers. For bringing orders, the commission
agents charge fixed commission on lump sum basis and therefore, the commission
agent's activity is directly related with the manufacture of final product.
17.4 Various Tribunals have consistently taken a view that cenvat is available on
commission of agent's services and they would rely on such decisions at the time of
personal hearing. Further there are various other decisions of the Hon'ble Apex court in
which consistent view taken is that once there is any dispute regarding admissibility of
any exemption or dutiability and the issue has reached up to the higher forum, the
bonafide belief of assessee cannot be faulted with.
17.5 They further submitted that the department has issued circulars in the past
clarifying admissibility of credit on disputed service.
PERSONAL HEARING:
18. The personal hearing in the matter was held on 28.08.2014, wherein Shri Nirav P
Shah, Advocate appeared on behalf of the assessee for the same and reiterated the
stand taken by them in their written submission dtd. 07.07.2014. He also relied upon the
8 F.No. V.38/15-33/Microchem/ADC/OA-1/2014
010 No. 07/Additional Commissioner/2014 dtd. 04.02.2014 and requested to decide the
case on their basis.
DISCUSSIONS AND FINDINGS:
19. 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 on commission paid to their agents for sale of their finished goods.
20. I further find that as per the show cause notice, the said assessee has availed
Cenvat credit of service tax paid on commission paid to their sales commission agent to
the tune of Rs. 6,80,782/- during the period from June, 2009 to March, 2010. 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(0 of the CCR, 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.
21. I note that 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.
22. I also find that the above view is confirmed by the 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, which, while dealing with the issue of
admissibility of service tax paid on commission paid to overseas agents as Cenvat
credit, has observed as under:
"(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
9 F.No. V.38/15-33/Microchem/ADC/ 0A-1 /2014
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.
(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 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 included 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
10 F.No. V.38/15-33/Microchem/ADC/0A-1/2014
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(0 of the Rules.
23. 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. Now I take up the allegation made in the show cause notice that the noticee had
availed and utilised the cenvat credit wrongly by suppressing the facts or willful
misstatement or ill-intention on part of the assessee and as such the ingredients of
section 11A of CEA'1944 enabling invocation of extended period were present in this
case. In the instant case, as discussed in foregoing paras, the credit taken in respect of
services availed appeared 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(0 of the
Cenvat Credit Rules, 2004. In the instant case, 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. Further, Hon'ble CESTAT, Ahmedabad, in
the case of Commissioner of Customs & Central Excise, Surat-II Vs. Astik Dyestuff P.
Ltd., vide order No. A/10339NVZB/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 to the facts of the present case. No distinction can be made
between the commission paid to local agents and the agents operating within the
territory of India because natures of services provided by both the categories of the
agents are same. Consequently, Cenvat Credit would not be admissible in respect of
commission paid to local sales (Commission) Agents". Also Rule 2 (0 of Cenvat Credit
Rules, 2004 defining what constitutes input services, does not include Services related
with sales in the definition of Input Services.
25. 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. 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 local commission agents which does not qualify
to be included as "input service" defined under Rule 2(0 of Cenvat Credit Rules, 2004.
Thus, I find 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 service despite knowing
that the same did not qualify as 'input services' (ii) the service has not been used in or
11 F.No. V.38/15-33/Microchem/AuurvA-izu iq
in relation to the manufacture of final products and services were related to sales and
not sales promotion and as such would not fall within the ambit of the definition of 'input
service' (HI) 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 services tax paid on commission paid to foreign commission
agents. Therefore, the said Cenvat Credit amounting to Rs. 6,80,782/-(Rupees Six
Lakhs Eighty Thousand Seven hundred Eighty two Only) has been wrongly taken and
utilized for the payment of duties of excise which resulted in revenue loss to the
Government during the period from June, 2009 to March, 2010 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. Accordingly, I hold that
extended period has been rightly invoked in this case.
26. I further find that provisions of Rule 14 of the CCR, 2004 (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 Cenvat credit 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.
27. Now I take up the issue of proposal of imposition of penalty in the impugned
show cause notice under Rule 15 (2) of CCR, 2004 read with Section 11 AC (b) ibid as
applicable during the period from 2011-12 (from August, 2011) to March, 2013. I find
that the said assessee took Cenvat credit in violation of Cenvat Credit Rules. 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 local
commission agents which does not qualify to be included as "input service" defined
under Rule 2(/) of Cenvat Credit Rules, 2004. Thus, 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 service despite knowing that the same did not qualify as 'input
services' 00 the service has not been used in or in relation to the manufacture of final
products and services were related to sales and not 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 services tax
paid on commission paid to local commission agents. I find that once the charges of
suppression of facts have been proved, the penal provisions under said Rule 15(2)
read with Section 11AC ibid have to be invoked in this case.
12 F.No. V.38/15-33/Microchem/ADC/0A-1/2014
28. Thus, in light of the above, I hold that the CENVAT credit totally amounting to
Rs. 6,80,782/- was wrongly availed by the assessee on the above mentioned Service
during the period from June, 2009 to March, 2010 and the same is required to be
disallowed and recovered from them in terms of the provisions of Rule 14 of the CCR,
2004 read with Section 11 A of the Central Excise Act, 1944. Further interest is also
required to be charged on the Credit wrongly availed and recovered from them in terms
of the provisions of Rule 14 of the CCR, 2004 read with Section 11AA of the Central
Excise Act, 1944. The said assessee is also liable to penalty under Rule 15(2) of the
CCR, 2004 for their contraventions as discussed above.
29. I find that the said assessee has relied upon the 010 No. 07/Additional
Commissioner/2014 dtd. 04.02.2014 but in view of the findings given above in para 27, I
do not accept the arguments submitted by the said assessee.
30. In view of my above findings, I pass the following order in the matter:
ORDER
(i) I disallow the CENVAT Credit amounting to Rs. 6,80,782/- (Rupees Rupees Six
Lakhs Eighty Thousand Seven hundred Eighty two Only) for the period from
June, 2009 to March, 2010 and order to be recovered from M/s. Micro Chem,
Ashok Rice Mills Compound, Naaz Pirana Road, Jetalpur, Ahmedabad-382426
in terms of the provisions of Rule 14 of CCR, 2004 read with Section 11A of
Central Excise Act, 1944.
(ii) I order to recover interest at the prescribed rates from M/s. Micro Chem, Ashok
Rice Mills Compound, Naaz Pirana Road, Jetalpur, Ahmedabad-382426 on the
said wrongly availed Cenvat credit in terms of the provisions of Rule 14 of CCR,
2004 read with Section 11AA of the Central Excise Act, 1944.
(iii) I impose penalty of Rs. 3,40,391/- (Rupees Three Lakh Forty Thousand Three
Hundred and Ninety One only) upon M/s. Micro Chem, Ashok Rice Mills
Compound, Naaz Pirana Road, Jetalpur, Ahmedabad-382426 under the
provision of Rule 15(2) of the CENVAT Rules, 2004 read with provisions of
Section 11AC of the Central Excise Act, 1944. The amount of penalty will be
25% of the penalty imposed in case the amount of penalty is paid within thirty
days from the date of communication of this order along with disallowed cenvat
credit and interest payable thereon under Section 11 AA of the Central Excise
Act, 1944.
The Show Cause Notice issued to M/s. Micro Chem, Ashok Rice Mills
Compound, Naaz Pirana Road, Jetalpur, Ahmedabad-382426 vide F.No. V.38/15-
13 F.No. V.38/15-33/MicrocnenvAvuivn-v Lo
33/Microchem/ADC/0A-1/2014 dated 10/06/2014 stands disposed of in above manner.
k(PlUh (Anil Misra)
Additional Commissioner Central Excise, Ahmedabad-1
End.: Annexure-A and document listed at sr. no. 2 of the Annexure-A
F.No. V.38/15-33/Microchem/ADC/0A-1/2014
By Req. Post AD/Hand Delivery
To,
M/s Micro Chem, Ashok Rice Mills Compound, Naaz Pirana Road, Jetalpur, Ahmedabad-382426
Date:16.09.2014
Copy to:-
1. The Commissioner, Central Excise, Ahmedabad-1
2. The Ass./Dy. Commissioner, Central Excise, Division-1V, A'bad-1 3. The Superintendent Central Excise, AR-IV, Division-IV, Ahmedabad-1.
‘..4< The Superintendent (Systems), Central Excise, Ahmedabad-1 5. The Ass./Dy. Commissioner (Tar), Central Excise, A'bad-I 6. The Ass./ Dy. Commissioner (RRA), Central Excise, A'bad-I
7. Guard File.
