India: Admissibility Of Cenvat Credit On Service Tax Paid On Sales Agency Commission Service

B.30 – Meerut Zone – Cenvat Credit – Admissibility of Cenvat Credit on Service Tax Paid on Sales Agency Commission Service:

Issue: CBEC vide its Circular No. 943/4/2011-CX dated 29.04.2011 at point No.5 has clarified that credit of service tax paid on sales commission services (Business auxiliary services) used in 28 relation to manufacture/sale of finished goods is admissible under Cenvat Credit Rules, 2004. However, there are conflicting judgments of Hon'ble High Courts in this regard. Hon'ble High Court of Gujarat in case of Cadila Health care [2013(030) STR 0003] has disallowed the said Cenvat credit whereas Hon'ble Tribunal in case of Birla Corporation Ltd – [2014(35) STR977] followed the judgment of Hon'ble High Court of Bombay and allowed the credit. Board may be requested by the conference to issue necessary clarification on the subject to avoid further litigation and to achieve uniformity in the practice of assessment.

Discussion & Decision The conference discussed the issue in detail and the facts of both the cases where apparently conflicting judgments have been delivered. It was noted that the judgment of Hon'ble High Court of Gujarat was in a very specific set of circumstances where the sales commission agent seemed to be only trading in the goods i.e. buying and selling the goods without undertaking any sales promotion or advertising. In the said judgment, Hon'ble Court noted that "there is nothing to indicate that such commission agents were actually involved in any sales promotion activities as envisaged under the said expression. 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". Board Circular No. 943/4/2011-CX., dated 29.4.2011 at point no 5 on the other hand has explained the situation where the commission agent renders the service of sales promotion in following words – "....... Moreover the activity of sale promotion is specifically allowed and on many occasions the remuneration for same is linked to actual sale....... " . Board circular directs that input service credit would be available when there is a element of sales promotion as sales promotion is a service. Thus, the conflict between the judgment and the circular is not as large as is perceived. Both the Board circular and case laws on the subject allow credit of input services, when the activity of the sales commission agent involves an element of sales promotion.