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OFFICE OF THE COMMISSIONER OF CENTRAL EXCISE, AHMEDABAD4 4WeR1 5c4I4 tlITAMvIch

CENTRAL EXCISE BUILDING, NEAR NYE POLYTECHNIC' 3Tiwrarit, xprdwrc - 380 015 AMBAWADI, AHMEDABAD - 380 015.

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Int itjliar Date of Order : 25.09.2014

71# *T tt at : Date of Issue : 25.09.2014

caw initaV Passed by: Dr. Manoj Kumar Rajak, ADDITIONAL COMMISSIONER *****************************************************************0*

311t4PI #./Order-In-Original No. 41/CX-I Ahmd/ADC/IVIKR/2014 ****************************************************************

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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.1 to Commissioner (Appeals), Central Excise, Central Excise Bhavan, Near Government Polytechnic, Ambawadi, Ahmedabad -15 within sixty days from date of its communication. The appeal should bear a court fee stamp of Rs.2.00/- only.

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

arcfra- *r gra- I Copy of the aforesaid appeal.

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

ACA/Reference: uhRuf Cdalt II:1011 1 WT.F11.

Show Cause Notice. F.No. F.No. V.29/15-52/Ascent/ADC/0A-112013 dated 16.01.2014 issued to M/s. Ascent Finechem Private Limited, Plot No. 273/a, 273/b, 272/5/p/I, 272/5/p/2, Phase - II, G.I.D.C., Vatva, Ahmedabad.

of 15 41/CX-I Ahmd/ADC/MK11/2014

BRIEF FACTS OF THE CASE:

M/s. Ascent Finechem Private Limited, Plot No. 273/a, 273/b, 272/5/p/1,

272/5/p/2, Phase - II, G.I.D.C., Vatva, Ahmedabad, (hereinafter referred to as the

"said assessee") are registered with Central Excise Department having Central Excise

Registration No AABCA6349QXM001 for manufacture of excisable goods falling under

chapter 29 of the Central Excise Tariff Act, 1985. The said unit was earlier a 100% EOU

and got debonded in Nov., 2011.

2. Whereas it appeared that the said assessee has taken and utilized the Cenvat

Credit of the Service Tax paid on sales commission paid to local commission agents for

sale of finished goods cleared to their customers during the period from March, 2009 to

April, 2013 which is inadmissible to them as per the definition of the term "input

service" as given at Rule 2(0 of Cenvat Credit Rules, 2004.

3. The definition of the term "input service" as given at Rule 2(1) of ) of Ce

Credit Rules, 2004, is reproduced as under:-

'input service" means any service,-

(i)

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

(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal,

and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal;

4. 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

manufacturer, cannot be read without keeping in view the meaning of input service

under Rule 2(/) 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 and clearance of the final product upto the place of removal alone would

appear to be eligible. After the final product is cleared beyond the place of removal,

there will be no scope for subsequent use of service to be treated as input service.

Therefore, services utilized beyond the stage of manufacturing and clearance of the

goods from the factory gate, which is the place of removal in this case, 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 taken

of 15 41/CX-I Ahmd/ADC/MKR/2014

and utilized by the assessee in respect of Service Tax paid on sales commission to

local commission agents 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(/)(ii) of the Cenvat Credit Rules, 2004. Thus the same appeared to be

recoverable along with interest.

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

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

Credit of various duties/taxes leviable under different provisions of law read as unden-

"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 —

(ift (iii) (iv) (vi) (via) (viia) (viii) (ix) the service tax leviable under section 66 of the Finance Act; and (xa) paid on- 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 10 th day of September, 2004,

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

6. Since, the services on which the Cenvat Credit has been taken by the assessee

are not falling under the category of eligible Input Services, as discussed above, letters

F.No. AR-IV/Cenvat Credit S.Tax/2012-13 dated 19-02-2013 and 29.05.2013 calling for

details of the availment of Cenvat Credit in the matter were issued to the assessee by

the Superintendent, Central Excise, Range-IV, Division-III, Ahmedabad-I. With

reference to the letter dated 19.02.2013 regarding availment of Cenvat Credit of Service

Tax paid on sales commission paid to foreign commission agents, the assessee vide

their letter dated 23.04.2013 informed that they have not availed any cenvat credit on

commission paid to foreign agents during the period from 2008-09 to 2012-13. Further,

the information regarding availment of Cenvat Credit of Service Tax paid on Sales

Commission paid to local agents has been provided by the said assessee vide their

statement dated 19.09.2013 furnishing the year wise / entry wise details of the total

Cenvat Credit taken to the tune of Rs. 47,50,650/-. The summary of Cenvat Credit of

Service Tax wrongly taken and utilized as provided by them is as under:

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41/CX-I Ahmd/ADC/MKR/2014

S. No

Year Date on which credit taken

Service Tax (Rs. )

Edu.Ces s(Rs.)

S.H.E.0 (Rs.)

Total (Rs.)

Remarks

1 2008-09 29.03.09 4421 88 44 4553 Total Cenvat Credit taken 07. 20

07.04.2011 1 is Rs. 20,56,402/ -

2 29.03.09 4419 88 44 4551

3 29.03.09 239460 4789 2395 246644

4 29.03.09 11525 231 115 11871

5 29.03.09 10114 202 101 10417

6 29.03.09 1049 21 10 1080

7 29.03.09 19622 392 196 20210

8 29.03.09 26595 532 266 27393

9 29.03.09 40711 814 407 41932

10 29.03.09 8730 175 87 8992

11 29.03.09 20761 415 208 21384

12 29.03.09 13543 271 135 13949

13 29.03.09 15292 306 153 15751

14 2009-10 12.06.09 10203 204 102 10509

15 27.10.09 755 15 8 778

16 27.10.09 32538 651 325 33514

17 27.10.09 13110 262 131 13503

18 27.10.09 29350 587 294 30231

19 27.10.09 125729 2515 1257 129501

20 27.10.09 253750 5075 2538 261363

21 27.10.09 24616 492 246 25354

22 27.10.09 23603 472 236 24311

23 27.10.09 192 4 2 198

24 27.10.09 192841 3857 1928 198626

25 27.10.09 696484 13930 6965 717397

26 2010-11 23.09.10 375410 7508 3754 386672

27 23.09.10 483300 9666 4833 497799

28 23.09.10 2038 41 20 2099

29 23.09.10 12832 257 128 13217

30 20.07.11 15643 313 156 16112 Total Cenvat Credit taken from, 08.04.2011

.04.2013 01.04.2013

31 20.07.11 19324 386 193 19903

32 20.07.11 16583 332 166 17081

33 20.07.11 21594 432 216 22242

// 3 H

of 15

41/CX-I Ahmd/ADC/MKR/2014

34 20.07.11 11118 222 111 11451 is Rs. 26 94 248/-

35 20.07.11 82950 1659 830 85439

36 20.07.11 189445 3789 1894 195128

37 20.07.11 183600 3672 1836 189108

38 20.07.11 225511 4510 2255 232276

39 20.07.11 16101 322 161 16584

40 20.07.11 14661 293 147 15101

41 20.07.11 137421 275 137 14154

42 20.07.11 141003 282 141 14523

43 20.07.11 270623 541 271 27874

44 2013-14 01.04.13 163426 3269 1635 168330

45 01.04.13 184670 3693 1847 190210

46 01.04.13 584078 11682 5841 601601

47 01.04.13 832166 16643 8322 857131

Total 4612283 92245 46122 4750650

7. Furthe , The Hon'ble High Court of Gu arat in the case of Commissioner of

Central Excise, Ahmedabad-II v/s M/s . Cadila Health Care Ltd., 2013-TIOL-12-FIC-

AHM-ST has held that the "Commission agent is directly concerned with the sales

rather than sales promotion and as such the service provided by such commission

agent would not fall within the purview of the main or inclusive part of the definition of

input service as laid down in Rule 2( I ) of the Cenvat Credit Rules, 2004.

Consequently, Cenvat Credit would not be admissible in respect of Service Tax paid

on the commission paid to the foreign agents".

8. Further, Hon'ble CESTAT, Ahmedabad in the case of Commissioner of

Customs & Central Excise, Surat —II v/s Astik Dyestuff P. Ltd, vide Order

No.A/10339/VVZB/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 foreign agent and the agent operating within the territory of India

because nature of services provided by both the categories of agents are same.

Consequently, Cenvat Credit would not be admissible in respect of Service Tax paid on

the commission paid to the local agents".

9. Whereas it appeared that, services of local commission agents used by the

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

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

taken and utilized Cenvat Credit of Service Tax paid on sales commission paid to local

agent which does not fall within the purview of definition of input service. Since, the

of 15 41/CX-1 Ahmd/ADC/MKR2014

services of local 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.

10. Further, statement of Shri Anil Jain, Chief Executive Officer of M/s. Ascent

Finechem Pvt. Ltd., Plot No. 273/a, 273/b, 272/5/p/1, 272/5/p/2, Phase-II, GIDC, Vatva,

Ahmedabad was recorded on 19.09.2013 under Section 14 of Central Excise Act, 1944

(enclosed), wherein he stated that they have not paid any sales commission to the

foreign agents for the period from 2008-09 to 2012-13 ,hence the question of taking

credit on sales commission paid to foreign agents does not arise. Further, he submitted

the details of Service tax credit taken and utilized on the sales commission paid to local

commission agents. He inter-alia stated that they have taken and utilized the Cenvat

Credit of Service tax paid on the sales commission paid to local agents for the period

from 2008-09 to 2013-14 (upto April, 2013); that they have shown the total Service Tax

Credit taken in the ER-1 as there is no separate / category wise column prescribed in

format of ER-1; that he would like to draw the attention towards Board's Circular No.

943/04/2011-CX dated 29.04.2011 (F.No.354/73/2011-TRU) Point No. 5 wherein the

same issue had been clarified; that they have taken the Cenvat Credit on the said

services, as they felt and are of considered opinion and bonafide belief that credit on the

said services to be admissible and that their unit had been audited up to September

2012, and there was no issue in this regard taken up by the Audit team.

11. 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 and utilized by them 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(1 ) of the Cenvat Credit Rules, 2004. In the

instant case, it appeared that the said assessee knew and well aware 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 Ws M/s Cadila Healthcare Limited, 2013, TIOL-2-HC-AHM-ST

and also by Hon'ble CESTAT, Ahmedabad in the case of Commissioner of Customs

& Central Excise, Surat —II vls Astik Dyestuff P. Ltd, vide Order

No.A/10339/WZB/AHD/2013 dated 01.03.2013. Further, it also appeared that as per

Rule 2 (/ ) of Cenvat Credit Rules, 2004 defining what constitutes an input service, does

not include Services related with sales in particular in the definition of Input Services.

12. 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 the

/1 5 //

of 15 41/CX-I Ahmd/ADC/MKR/20I 4

sales commission paid to local agents which does not qualify to be included as "input

service" by defying the terms of the said rule. In other words, it is the responsibility of

the assessee to take Cenvat Credit only if the same is admissible. In the instant case,

the credit taken in respect of services availed beyond the place of removal appeared to

be inadmissible in as much as the same do not fall within the ambit of the definition of

'input services' as specified under Rule 2 (/ ) of the Cenvat Credit Rules, 2004. Thus, it

appeared that the assessee, by suppressing the facts with intent to evade payment of

duty, have contravened the provisions of Rule 2(I) of Cenvat Credit Rules, 2004 in as

much as the assessee has taken the Cenvat Credit on the service despite knowing that

the same did not qualify as 'input services', Rule 3(1) of Cenvat Credit Rules, 2004 in as

much as they have taken ineligible credit on the service i.e, sales commission paid to

local agents, which has not been used in or in relation to the manufacture of final

product, Rule 9 (6) of the Cenvat Credit Rules, 2004 in as much as they have failed to

discharge the obligation cast on them to take eligible Cenvat Credit. Therefore, the said

Cenvat Credit amounting to Rs. 47,50,650/- 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 from March, 2009 to April, 2013 and the same is required

to be recovered by invoking provisions of extended period of five years contained in

Section 11 A (5) of the Central Excise Act, 1944 for the period covered upto 01.04.2013.

13. The erstwhile Rule 14 of the Cenvat Credit of the Cenvat Credit Rules,

2004 provides that where the Cenvat Credit has been taken or utilized wrongly

or erroneously refunded, the same along with interest shall be recovered from

the manufacturer. In the instant case, the assessee appeared to have taken

and utilized Cenvat Credit of Service Tax on sales commission paid to their

local agents amounting to Rs.47,50,650/- during the period from 2008-09 to

2013-14 (for the period from 29.03.2009 to 01.04.2013 as shown in the table

above). It also appeared that the said assessee has contravened the provision

of Rule 2(1) of Cenvat Credit Rules, 2004 read with Rule 3(1) of Cenvat Credit

Rules, 2004 for credit taken of service tax paid on sales commission paid to

local agents.

14. As per the foregoing paras, it appeared that, out of the total Cenvat

Credit of Rs.47,50,650/- wrongly taken by the assessee, an amount of Rs.

20,56,402/- being the Cenvat Credit wrongly taken and utilized by them is

required to be recovered under erstwhile Rule 14 of the Cenvat Credit Rules,

2004 read with provision of erstwhile Section 11A(1) of the Central Excise Act,

1944 being the relevant provision of the law for the period upto 07.04.2011 ;

an amount of Rs 26,94,248/- being the Cenvat Credit wrongly taken and

utilized by them is required to be recovered under erstwhile and amended Rule

14 of Cenvat Credit Rules, 2004 read with provisions of Section 11A(5) of

Central Excise Act, 1944 being the relevant provision of the law for the period

from 08.04.2011 to 01.04.2013. Further, provision under Section 11AA of the

Central Excise Act, 1944 (erstwhile Section 11AB of the Central Excise Act,

II 6 H


1944 for the relevant period upto 07.04.2011) shall apply mutatis mutandis for

effecting the recovery of interest for the relevant periods from 29.03.2009 to

07.04.2011 and from 08.04.2011 to 01.04.2013 respectively covered in this

Show Cause Notice for the amount of Cenvat Credit wrongly taken and utilized

for the relevant periods as mentioned above.

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

provisions of Rule 2(0 read with Rule 3(1) of the Cenvat Credit Rules, 2004 in as much

as they had taken and utilized credit of Service Tax paid on sales commission paid to

local agents, 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 Cenvat Credit taken and utilized by them on the services

availed beyond the place of removal by way of not indicating the same in their

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

themselves liable to penalty under the provisions of Rule 15(3) of the Cenvat Credit

Rules, 2004 (Applicable during the period up to 26.02.2010) and Rule 15(2) of the

Cenvat Credit Rules, 2004 (applicable during the relevant period i.e. 27.02.2010 to

07.04.2011) read with erstwhile Section 11AC and Rule 15(2) of the Cenvat Credit

Rules, 2004 (Applicable during the relevant period from 08.04.2011 to 01.04.2013) read

with Section 11AC (1)(b) of Central Excise Act, 1944 for the above said

contraventions.

16. Therefore, M/s. Ascent Finechem Pvt. Ltd., Plot No. 273/a, 273/b, 272/5/p/1,

272/5/p/2, Phase-II, GIDC, Vatva, Ahmedabad were required to show cause as to why:

(i) the Cenvat Credit amounting to Rs.20,56,402/- for the period from March,

2009 to 07.04.2011 (Inclusive of Education Cess and Higher Education Cess)

wrongly taken and utilized by them (Service tax paid on the sales commission to

local agents as shown in the Annexure A to this SCN) should not be disallowed and

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

with provision of erstwhile Section 11A(1) of the Central Excise Act, 1944

being the relevant provision of the law for the period upto 07.04.2011.

(ii) the Cenvat Credit of Rs 26,94,248/-for the period from 08.04.2011 to April,

2013 (Inclusive of Education Cess and Higher Education Cess) wrongly taken and

utilized by them as Cenvat Credit of Service tax paid on the sales commission to

local agents ( as shown in the Annexure A to this SCN) should not be disallowed

and recovered under erstwhile and amended Rule 14 of the Cenvat Credit

Rules, 2004 read with provision of Section 11A(5) of the Central Excise

Act, 1944 being the relevant provision of the law for the period from

08.04.2011 to 01.04.2013.

(iii) Interest should not be charged & recovered on the Cenvat Credit wrongly taken

and also utilized by them under both erstwhile and amended Rule 14 of Cenvat

Credit Rules, 2004 read with erstwhile Section 11AB and Section 11AA of the

Central Excise Act, 1944 as applicable during the relevant periods covered in this


Show Cause Notice.

(iv) 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 period from 27.02.2010 to

07.04.2011) read with erstwhile Section 11AC, Rule 15(2) of the Cenvat Credit

Rules, 2004 ( Applicable during the relevant period from 08.04.2011 upto

01.04.2013) read with Section 11AC (1)(b) of Central Excise Act , 1944.

DEFENCE REPLY:

17. The assessee submitted their defence reply dated 21.08.2014 received on 27.08.2014 wherein they have denied all the charges and allegations made in the notice.

17.1. They submitted that the input service definition was amended w.e.f. 01.04.2011 under notification No. 3/2011-CENT dated 01.03.2011. The definition has been substituted by above referred notification. They added that there are also subsequent amendments to the said definition. However, for their purpose, the substituted definition would be applicable since the subsequent amendments are post June, 2012 and are also not relevant for their purpose.

17.2. They submitted that the inclusive part of definition covers services used by the place of removal. It is further submitted that the services have to be used in or in relation to manufacture or clearance of final product up to the place of removal.

17.3. They also submitted that the agents are engaged under contract / agreement to act on their behalf to cause sale of goods. It is stated that the burden as to the proof of admissibility is on us and the information was not given to the department. The decision of Gujarat High Court in the case of Cadila Healthcare is also relied upon.

17.4. They further submitted that the definition of input service clearly provides for certain services to be specifically included in addition to those services which are used directly or indirectly, in or in relation to manufacture. In respect of the inclusive part of definition, the condition of use in relation to manufacture is not applicable. Furthermore, the use of the credit could also be in relation to clearance of final product upto the place of removal. It is also submitted that the services are of agents. Their services are for sale and market promotion. Their services have ultimately resulted into sale orders and the removal of goods is pursuant to such sale orders. Thus, the services are used and availed at the factory to sell the goods and obviously is before in time of the removal.

17.5. The performance of activities of the agent, while rendering the services may be outside the factory but the place of performance is not relevant since it is the place of receipt and the actual availing of service viz: utilizing the service which is relevant.

17.6 They further submitted that it is the performance of the agent in sales promotion and marketing which has borne the fruit in terms of sale orders and such orders are received and acted upon by removing the goods from the factory. The services are clearly, therefore, the services directly or indirectly, in or in relation to clearance of final product. If orders were not received, no clearances would have been taken place. In fact, out factory had not the object of only manufacturing, as manufacturing without sale is meaningless exercise. Unless and until the sales materialize, the manufacturing is pointless. No business entity would survive without sales. Thus, the sale is closely integrated and connected with activity of manufacturing. In fact, the whole of manufacturing activity is with the sole object of selling the manufactured goods. The sale is other side of the coin where one side is manufacturing.

of 15 41/CX-1 Ahmd/ADC/MKR/2014

17.7. They also submitted that it is now established and recognized principle that the input services can be availed even beyond the factory. The place of availing of service is not, per se, fatal to its availment. It is the nature of service and its nexus to manufacture which is relevant as per the definition. The service of the agents has directly resulted into clearance of the goods and is, therefore, in or in relation to clearance of the goods from the factory. The credit is, therefore, clearly admissible in the main part of the definition. The observation that the services are availed beyond the place of removal is incorrect, both considering the nature of service as well as place of

removal. 17.8. They submitted that inclusive part of the definition clearly envisages advertisement or sales promotion as the service which is eligible and covered within the definition. The agents have clearly undertaken the activity of sales or market promotion of their products. They have enclosed representative samples of agreement with the agents wherein the scope of services to be provided by such agent is not confined to order booking. It is further submitted that the considerations payable to such agents is calculated based on their performance and the performance is covered in terms of actual converting the sales promotion activities into order and is, therefore based on the actual sales order. However, the measure of calculating the consideration does not define or restrict the nature of service. 17.9. They further submitted that the services are also in the nature of advertisement or market promotion and therefore, are covered within the definition. 17.10. It is submitted that the fact of earlier show cause notice was issued, clearly shows that the department is aware about their availing of the credits. Furthermore, there is no specific requirement, from or documents, under which the information is to be communicated. When the law framed by the department does not require him to disclose information, there cannot be allegation of suppression of information. This is more particularly so when they are holding belief about the eligibility of credit. Their belief is also supported by following decision wherein credits in similar circumstances have been permitted.

1. M.K. Industries — 2013 (31 STR 59 (Tri.- Ahmd.) 2. DSCL Sugar — 2012 (25) STR 599 (Tri. Del.) 3. Circular No.943/4/2011-Cx dated 29.04.2011 issued by the Board.

17.11. They further submitted that the demand is barred by limitation and the notice is entirely based on decision of Gujarat High Court. The earlier clarification issued by the Department permitted the credit. Obviously there cannot be any mala fide intention in availing / using such credit. This is particularly so when the credit is shown admissible by Department circular. Therefore, the noticee requested that they may be heard in person in this matter. PERSONAL HEARING:

18. The personal hearing in the matter was held on 28.08.2014, wherein Shri

Sridev J. Vyas, Advocate appeared on behalf of the assessee and reiterated the

stand taken by them in their written submission dtd. 21.08.2014 and requested to

decide the case on its 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 commission paid to their agents for sale of their finished goods.


20. I further find that as per the information called for by the Range Superintendent,

the said assessee has availed Cenvat credit of service tax paid on commission paid to

their sales commission agent to the tune of Rs. 47,50,650/- during the financial year

from 2008-09 to 2012-13. The said Cenvat credit is alleged to have been wrongly

availed by the said assessee mainly on the ground that the service provided by their

commission agent does not fall within the ambit of definition of "input service" as

provided under Rule 2(1) of the Cenvat Credit Rules, 2004 ( here-in-after referred to as

CCR, 2004). As such, the said assessee is not entitled to the Cenvat credit of service

tax paid on such service provided by the commission agent for sale of their finished

goods.

21. 1 also find that Hon'ble High Court of Gujarat in case of Commissioner of

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

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

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

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

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

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

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

promotion thereof. Under the circumstances, the question that arises for consideration is as to

whether services rendered by a commission agent can be said fall within the ambit of

expression 'sales promotion'. It would, therefore, be necessary to understand the meaning of

the expression sales promotion.

(vii) The expression 'sales promotion' has been defined in the Oxford Dictionary of Business to

mean an activity designed to boost the sales of a product or service. It may include an

advertising campaign, increased PR activity, a free-sample campaign, offering free gifts or

trading stamps, arranging demonstrations or exhibitions, setting up competitions with attractive

prizes, temporary price reductions, door-to-door calling, telephone selling, personal letters etc.

In the Oxford Dictionary of Business English, sales promotion has been defined as a group of

activities that are intended to improve sales, sometimes including advertising, organizing

competitions, providing free gifts and samples. These promotions may form part of a wider sales

campaign. Sales promotion has also been defined as stimulation of sales achieved through

contests, demonstrations, discounts, exhibitions or tradeshows, games, giveaways, point-of-

sale displays and merchandising, special offers, and similar activities. The Advanced Law

Lexicon by P. Ramanatha Aiyar, third edition, describes the term sales promotion as use of

incentives to get people to buy a product or a sales drive. In the case of Commissioner of

Income-tax v. Mohd. ishaque Gulam, 232 1TR 869, a Division Bench of the Madhya Pradesh

High Court drew a distinction between the expenditure made for sales promotion and

commission paid to agents. It was held that commission paid to the agents cannot be termed as

expenditure on sales promotion.

(viii) From the definition of sales promotion, it is apparent that in case of sales promotion a large

population of consumers is targeted. Such activities relate to promotion of sales in general to

the consumers at large and are more in the nature of the activities referred to in the preceding

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of 15 41/CX-I Alnd/ADC/MKR/2014

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

includes portion of the definition refers to advertisement or sales promotion. It was in this

background that this court has examined whether the services of foreign agent availed by the

assessee can be stated to services used as sales promotion. In the absence of any material on

record, as noted above to indicate that such commission agents were involved in the activity of

sales promotion as explained in the earlier portion of the judgement, in the opinion of this court,

the claim of the assessee was rightly rejected by the Tribunal. Under the circumstances, the

adjudicating authority was justified in holding that the commission agent is directly concerned

with the sales rather than sales promotion and as such the services provided by such

commission agent would not fall within the purview of the main or inclusive part of the definition

of input service as laid down in rule 2(l) of the Rules.

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

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

the includes part of the definition of input service includes activities relating to the business,

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

computer networking, credit rating, share registry, and security. The words activities relating to

business are followed by the words such as. Therefore, the words such as must be given some

meaning. In Royal Hatcheries (P) Ltd. v. State of A.1 3., 1994 Supp (1) SCC 429, the Supreme

Court held that the words such as indicate that what are mentioned thereafter are only

illustrative and not exhaustive. Thus, the activities that follow the words such as are illustrative

of the activities relating to business which are included in the definition of input service and are

not exhaustive. Therefore, activities relating to business could also be other than the activities

mentioned in the sub-rule. However, that does not mean that every activity related to the

business of the assessee would fall within the inclusive part of the definition. For an activity

related to the business, it has to be an activity, which is analogous to the activities mentioned

after the words such as. What follow the words such as is accounting, auditing, financing,

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

of 15 4I/CX-I Ahmd/ADC/MKR/2011 4

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".

(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 it

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

of the revenue and against the assessee."

22. 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. Further I find that 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 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 Sales Commission

Agents" (Local & Foreign). Therefore both these cases are applicable to the said

assessee.

23. I further find that relying on various judicial pronouncements including the

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

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

argued that there is no suppression of the facts or contravention of any provisions of

the act or rules made there under with intent to evade payment of duty on their part and

hence there is no justification to invoke extended period in this case. They also argued

that they can't be blamed for the change of mind of department because of one

judgment, which is beneficial to the revenue and ignoring the other rulings and Board

Circular. They have also argued that since they have declared relevant details in their

ER-2 and ER4, there was no suppression on their part. They also argued that since

they have complied with the requirement of self assessment and duty cast upon them

by law, it was the statutory responsibility of the officers to call for the required

information wherever necessary and that assessment and confirmation of assessment

should remain the primary responsibility of C.Ex. Officer.

24. In this regard, I agree to the argument of the assessee to the effect that there

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of 15 41/CX-I Ahmd/ADOMKR/2014

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

was taken by Gujarat High Court in case of M/s. Cadila Healthcare Ltd. (supra) the

admissibility of Cenvat credit on service tax paid on commission paid to such

commission agents was ruled in favour of the trade by various Tribunals and also

Hon'ble Punjab and Haryana High Court. It is also evident that CBEC in their aforesaid

Circular has also clarified that the Cenvat credit was admissible on services of

commission agents. Their action of availing Cenvat credit in question at the relevant

time was thus in accordance with such circular and case laws. Thus, in light of these

facts, I tend to hold that there was no suppression of facts or willful misstatement or ill-

intention on part of the assessee and as such none of the ingredients of section 11A of

CEA'1944 enabling invocation of extended period were present in this case.

Accordingly, I hold that extended period cannot be invoked in this case and the

demand is to be limited to normal period only. Considering the date of issue of present

show cause notice on 16/01/2014, the demand can be restricted only for the normal

period from December, 2012 to 1 st April, 2013 instead of period from 2008-09 to 2012-

13, as proposed in the show cause notice. I further observe that on the same very

issue, following orders have been passed, wherein the demand for extended period

was not found sustainable and the same have been accepted by the department in

review:

(i) 010 No. AHM-EXCUS-001-COM-015-13-14 of 19.02.2014 in the case of M/s

Rohan Dyes & Intermediates Ltd., Vavta, Ahmedabad;

(ii) 010 No. AHM-EXCUS-001-COM-014-13-14 of 14.02.2014 in the case of M/s

Jagson Colorchem Ltd., Vavta, Ahmedabad;

(iii) 010 No. AHM-EXCUS-001-COM-013-13-14 of 12.02.2014 in the case of M/s

Ferromatik Milacron India Pvt. Ltd., Vavta, Ahmedabad;

All the above mentioned 010s have been passed by the Commissioner of

Central Excise, Ahmedabad-I and accepted by the Committee of Chief Commissioners.

25.. The assessee has further argued that as the demand is not legal and

sustainable, no interest under the provision of Rule 14 of CCR, 2004 read with Section

11AB or 11AA, as the case may be, of Central Excise Act, 1944 can be charged and

recovered from them. In this regards, I 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.

26. The assessee relying on the judicial pronouncements argued that in view of the

legal positions and judicial interpretation thereof in various judgments, they have rightly

availed the Cenvat credit of service tax paid on sales commission and acted under

bona-fide belief. In this case they had not committed contravention of any of the rules

I/ 13 //


with intent to evade payment of duty. Therefore, no penalty could be justifiably imposed

on them in law and therefore, no penalty can be imposed on them under Rule 15 (2) of

CCR, 2004 read with Section 11 AC (b) ibid for the relevant period. As regards

proposal for imposition of penalty under Rule 15(2) of the Cenvat Credit Rules, 2004

read with Section 11 AC of the Central Excise Act, I find that once the charges of

suppression of facts does not prove, the penal provisions under said Rule 15(2) read

with Section 11AC ibid cannot be invoked in this case. However, the said assessee has

contravened the provisions of CCR, 2004 as discussed above and thereby they are

liable to penal action under Rule 15(1) of CCR, 2004. In this connection, I find that the

case of Goodyear India Ltd. Vs Commissioner Of Central Excise, New Delhi -

2002 (149) E.L.T. 618 (Tri. - Del.), Hon'ble CEGAT, Northern Bench, New Delhi, is

applicable to the current case wherein it was held that penalty is indeed imposable on

assessee, if they have not acted in a bona fide manner. In the instant case the

assessee has availed the Cenvat Credit in contravention to the provisions of Cenvat

Credit Rules, 2004 as discussed above. Hence this act on the part of assessee

certainly warrants imposition of penalty on them. I further tend to rely on the decision of

Hon'ble Tribunal in case of CCE, Salem Vs Sri Krishna Smelters Ltd ( 2013 (295)

ELT 714 ( Tri Chennai), wherein it was held that " 5. Secondly, for such a wrong

utilization of credit the penalty provisions under Rule 15(2) of CCR, 2004 cannot be

invoked unless a case of suppression, fraud etc. is established. A mere wrong

utilization of credit cannot attract provisions of Rule 15(2). Such a case, however,

comes under the provisions of Rule 15(1) which deals with wrong utilization of the

credit in other cases i.e. cases other than those involving suppression, fraud etc." I also

rely upon the decision of Hon'ble Tribunal in case of CCE, Trichy Vs M.M. Forgings

Ltd. ( 2013 (294) ELT 145 ( Tri Chennai), wherein it has been held that " The case

record do not show any case of suppression, fraud etc. involved in taking the excess

credit. Hence, the imposition of penalty under Rule 15(2) is not warranted in this case.

However, the respondents are liable to penalty under Rule 15(1) in view of the fact that

the provisions of Rule 15(1) are similar to wordings of Rule 14 which has been

interpreted by the Hon'ble S.C. in the case of Ind-Swift Laboratories (supra) to mean

that taking ineligible credit even if the same is not utilized brings as assessee under the

provisions of Rule 15(1)."

27. Thus, in light of the above, I hold that the CENVAT credit totally amounting to Rs.

18,17,272/- was wrongly availed by the assessee on the above mentioned Service

during the period from December, 2012 to 01 st April, 2013 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 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 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 for their

contraventions as discussed above.

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of 15 41/CX-1Ahmd/ADC/MKR/2014

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

ORDER

(i) I disallow the CENVAT Credit amounting to Rs. 18,17,272/- ( Rupees Eighteen

Lakhs Seventeen Thousand Two Hundred Seventy two only) for the period from

December, 2012 to 01/04/2013 and order to be recovered from M/s Ascent

Finechem Pvt. Ltd., Plot No. 273/a, 273/b, 272/5/p/1, 272/5/p/2, Phase-II, GIDC,

Vatva, Ahmedabad in terms of the provisions of Rule 14 of CENVAT Credit

Rules, 2004 read with Section 11A of Central Excise Act, 1944.

(H) I drop the demand of remaining amount of Rs. 29,33,378/- for the period from

2008-09 to November, 2012 as per findings in para 30 above.

(iii) I order to recover interest at the prescribed rates from M/s. Ascent Finechem

Pvt. Ltd., Vatva, Ahmedabad 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 ) I impose penalty of Rs. 5,00,000/- (Rupees Five Lakh only) upon M/s. Ascent

Finechem Pvt. Ltd., Vatva, Ahmedabad under the provision of Rule 15(1) of the

CENVAT Rules, 2004.

29. The Show cause Notice issued to M/s. Ascent Finechem Pvt. Ltd., Vatva,

Ahmedabad vide F.No. V.29/15-52/Ascent/ADC/0A-1/2013 dated 16/01/2014 stands

disposed of in above manner.

oto" eg r\1

S (Dr. Manoj Kumar ajak) Additional Commissioner,

Central Excise Ahmedabad —1.

F.No:V.29/15-52/Ascent/ADC/0A-1/2013

By Registered Post A.D./Hand delivery

To,

M/s. Ascent Finechem Pvt. Ltd., Plot No. 273/a, 273/b, 272/5/p/1, 272/5/p/2, Phase-II, GIDC, Vatva, Ahmedabad.

Copy to:

Date: 25/09/2014.

1. The Commissioner, Central Excise, Ahmedabad-I 2. The Ass./Dy. Commissioner, Central Excise, Division-III, Aibad-I 3. The Superintendent, Central Excise, AR-IV, Division-III, Ahmedabad-I. _

The Superintendent (Systems), Central Excise, Ahmedabad-I 5. The Ass./Dy. Commissioner (Tar), Central Excise, Abad-I 6. The Ass./ Dy. Commissioner (RRA), Central Excise Abad-I 7. Guard File.

// 15 //

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