OFFICE OF THE COMMISSIONER OF CENTRAL EXCISE, …cenexahmedabad.nic.in/docs/jccom/OIO0714.pdffrom the factory under the provisions of Cenvat Credit Rules, 2004 read with Central Excise

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F.NO. V.84/15-24/ADC/Chamunda/0A-1/2013

ail i i21'altar: Date of Order : 04.02.2014

7Ttt W4# FIRT: Date of Issue : 04.02.2014

gall! reF / Passed by: Sri Sameer Chitkara, ADDITIONAL COMMISSIONER *******************************************************************************

AnT 311t4PT #10rder-In-Original No.: 07/ADDITIONAL COMMISSIONER/20I4 *******************************************************************************

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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:

.3ctd cri . 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/-.

T.f0-1/Reference : q,l.tUl eic113it •k-kEieril F.NO. V.84/15-24/ADC/Chamunda/0A-

1/2013 dated 20.06.2013 issued to M/s Chamunda Pharma Machinery Pvt. Ltd., Plot No. 7602, Phase-IV, GIDC, Vatva, Ahmedabad.

3 F.No. V.84/1 5 -24/ADC/Chamunada/0A4/20 1 3

BRIEF FACTS OF THE CASE:

M/s Chamunda Pharma Machinery Pvt. Ltd., situated at 7602, Phase-IV, GIDC,

Vatva, Ahmedabad (hereinafter referred to as the "assessee") are registered with the

Central Excise Department having Central Excise Registration No. AABCC 1690 EXM001

and are engaged in manufacturing activity of manufacturing and exporting activity of

Pharma Machinery etc. falling under Chapter 84 of Central Excise Tariff Act, 1985. They

are also registered with Service Tax Department having Service Tax Registration No.

AABCC 1690 EST001 as they are providing taxable services of Labour contractor, Bank

Charges, Security, Courier etc.

2. Where as it appears that the said assessee is availing the Cenvat Credit on the

inputs received in their factory and input services received by them and utilizing the same

against payment of Central Excise duties as applicable on their clearance of Final products

from the factory under the provisions of Cenvat Credit Rules, 2004 read with Central Excise

Rules, 2002. Further it appears that the said assessee has taken the Cenvat credit of the

Service Tax paid on Commission paid to foreign based commission agent for export sales

of final products cleared to their customers by them during the period from the F.Y. 2008-09

to F.Y. 2012-13. The summery of wrongly availed Cenvat credit of Service Tax is as under:-

CHAMUNDA PHARMA MACHINERY PVT LTD CENVAT CREDIT TAKEN OF SERVICE TAX PAID ON COMMISSION PAID FOR

EXPORT SALES ANNEXURE 'A'

2008-2009

MONTH AMOUNT BASIC EXCISE

EDU CESS

H EDU CESS

TOTAL C Cenvat Register

RG23A Part-II Entry Date

May 212816 25538 511 255 26304 6/30/2008 May 638450 76614 1532 766 78912 6/30/2008 June 130772 15693 314 157 16164 7/31/2008 July 360019 43202 864 432 44498 8/31/2008 August 0 September 253107 30373 607 304 31284 10/31/2008 October 0 November 0 December 412384 49486 990 495 50971 1/31/2009 January 458490 55019 1100 550 56669 2/28/2009 February 111109 13333 267 133 13733 3/31/2009 March 0

TOTAL 2577147 309258 6185 3093 318536

2009-2010

MONTH AMOUNT BASIC EXCISE

EDU CESS

H EDU CESS TOTAL

C Cenvat Register RG23A Part-II Entry Date

April 0 0 0 May 939598 93960 1879 940 96779 6/30/2009 June 55337 5534 111 55 5700 7/31/2009 July 94263 9426 189 94 9709 8/31/2009 August 82701 8270 165 83 8518 9/30/2009 September 0

4 F.No. V.84/15-24/ADC/Chamunada/0A-I/2013

October 254845 25485 510 255 26249 11/30/2009 November 0 0 0 0 December 1466425 146643 2933 1466 151042 1/31/2010 January 0 0 0 0 February 0 0 0 0 March 34417 3442 69 34 3545 31/04/2010

TOTAL 2927586 292759 5855 2928 301542 2010-2011

MONTH AMOUNT BASIC EXCISE

EDU CESS

H EDU CESS TOTAL

C Cenvat Register RG23A Part-II

Entry Date April 568680 56868 1137 569 58574 5/31/2010 May 433030 43303 866 433 44602 6/30/2010 June 735730 73573 1471 736 75780 7/31/2010 July 90280 9028 181 90 9299 8/31/2010 August 0 0 0 0 0 September 348120 34812 696 348 35856 11/30/2010 October 0 0 0 0 0 November 0 0 0 0 0 December 0 0 0 0 0 January 344760 34476 690 345 3S511 2/28/2011 February 684000 68400 1368 684 70452 3/31/2011 March 0 0 0 0 0

TOTAL 3204600 320460 6409 3205 330074

2011-2012

MONTH AMOUNT BASIC EXCISE

EDU CESS

H EDU CESS TOTAL

C Cenvat Register RG23A Part-II

Entry Date Apr-11 11214 1121 22 11 1155 5/31/2011

May-11 0 0 0 0 0 Jun-11 1293228 129323 2586 1293 133202 7/31/2011 Jul-11 0 0

Aug-11 37170 3717 74 37 3828 3/31/2012 Sep-11 0 0 0 0 0 Oct-11 826865 82687 1654 827 85167 11/30/2011 Nov-11 169680 16968 339 170 12/31/2011 Dec-11 612044 61204 1224 612

1i477 6 040 1/31/2012

Jan-12 1244791 124479 2490 1245 12 214 2/29/2012 Feb-12 606784 60678 1214 607 62499 3/31/2012 Mar-12 11450 1145 23 11 1179 3/31/2012

TOTAL 4813226 481322 9627 4813 495762

2012-2013

MONTH AMOUNT BASIC EXCISE

EDU CESS

H EDU CESS TOTAL

C Cenvat Register RG23A Part-II

Entry Date Apr-12 6455 775 16 8 799 5/31/2012 May-12 0 0 0 0 0 Jun-12 1012903 121548 2431 1215 125194 7/31/2012 Jul-12 1557949 186954 3739 1865 192558 8/31/2012

Aug-12 697120 83654 1673 837 86164 9/30/2012 Sep-12 95720 11487 230 115 11832 10/31/2012 Oct-12 182877 21945 439 219 22603 11/30/2012 Nov-12 440196 52824 1056 528 54408 12/31/2012 Dec-12 192710 23125 463 231 23819 1/31/2013 Jan-13 235609 28273 565 283 29121 2/28/2013 Feb-13 0 0 Mar-13 0 0

TOTAL 4421539 530585 10612 5301 546498 Grant Total 1934384 38688 19339 19,92,411

5 F.No. V.84/1 5-24/ADC/Chamunada/0A-I/20 1 3

3. Further, the information regarding availment of Cenvat credit of Service Tax paid to

foreign commission agent was provided by the said assessee vide their letter dtd.

04.06.2013 in reference to letter F.No. AR-II/GTA-FA/ST/2012-13 dated 20.02.2013 and the

summons dtd. 31.05.2013 issued by the Superintendent, Central Excise, AR-II, Division-Ill,

Ahmedabad-I in which they have provided the year wise/entry wise details of the total

cenvat credit taken to the tune of Rs. 19,92,411/- (Rs. 19,34,384/- cenvat duty + 38,688/-

Edu. Cess + Rs. 19, 339/- S.H.E. Cess ) as explained above.

4. Hon'ble High Court of Gujrat 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(1) of the Cenvat Credit Rules 2004, Consequently, Cenvat

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

5. The definition of the term "input service" as given at Rule 2(I) of Cenvat 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;

6. The definition of input service fixes the meaning of that expression and the services,

used by the manufacturer, are required to have a nexus with the manufacture of the final

product and clearance of the final product upto the place of removal. Place of removal is

well defined in Section 4(3)(c)of the Central Excise Act,1944 and the services which are

enumerated in the inclusive clause, which applies both, in the context of the provider of

output services as well as the manufacture, cannot be read de hors 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

of final product and clearance of the final product upto the place of removal alone would

appears to be eligible. After the final products are cleared upto the place of removal, there

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

6 F.No. V.84/15-24/ADC/Chamunada/0A-1/2013

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

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

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

should be in consonance with the above parameters. Hence, the said assessee appears to

have wrongly availed Cenvat Credit of Service tax paid on Commission paid to commission

agent for sale of finished goods into foreign country cleared to their customers contrary to

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

Credit Rules, 2004, which needs to be recovered from them alongwith interest.

7 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 -

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

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

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

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

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

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

final products. Therefore, the said assessee appears to have wrongly availed Cenvat

credit of Service Tax paid on commission paid to foreign agent which does not fall within

the purview of definition of input service. The said service appears to be availed by the said

assessee after the clearance of finished goods from the factory gate i.e. beyond the place

of removal. Since, the services of foreign commission agent have not any relation with the

manufacturing activity and also do not appear to be fallen within the ambit of definition of

7 F.No. V.84/15-24/ADC/Chamunada/0A-1/2013

input services as defined under Rule 2(1) of Cenvat Credit Rules, 2004, the manufacturer

shall not be allowed to take credit on such ineligible service as per Rule 3 of Cenvat Credit

Rules, 2004.

9. Further, services of the foreign commission agent also do not appear to be falling

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

under clause (a) to the Explanation under section 65(19) of the Finance Act 1994, a

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

sale or purchase of goods. In other words, the commission agent appears to be directly

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

cannot be considered as sales promotion. There appears to be a clear distinction between

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

sales promotion. Therefore, the services provided by commission agent do not fall within

the purview of the main or inclusive part of the definition of 'input service' as laid down in

rule 2(1) of the Cenvat Credit Rules, 2004 and the said assessee does not appear to be

eligible for CENVAT credit in respect of the service tax paid on commission paid to

commission agents for export sales of final product.

10. A statement of Shri Chirag H. Shah , aged 42 years, Manager (Accounts)

(Authorised Person) for the said assessee was recorded on 04.06.2013 under Section 14 of

Central Excise Act, 1944 [enclosed to the notice], wherein he interalia stated that they have

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

the period from 2008-09 to 2012-13, that they have never informed the Central Excise

Department regarding availment of Cenvat credit on Service tax paid on commission paid to

the Foreign Agent; that there is no provision prevailing to provide the details of the Services

on which Cenvat credit availed, therefore, they have not declared the name of services on

which they have availed the service tax credit for the period from 2008-09 to 2012-13; that

they have not availed any Cenvat Credit on the said service ( i.e. commission paid to the

foreign agent) except they have provided the details vide their letter dated 04.06.2013.

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 this era of self-assessment, the onus of taking

legitimate Cenvat Credit has been passed on the assessee in terms of the said rules. 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

factory gate appears 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(I) of the Cenvat Credit Rules,

2004. Thus, it appears that the said assessee knew that the services in respect of which

they had taken Cenvat Credit were the services availed beyond the factory gate and

related to sales which in turn did not have any relation whatsoever in or in relation to

manufacture of goods. Further, the services provided by commission agent have been held

to be concerned with sales and not sales promotion by the Hon'ble High Court of Gujrat in

the case of CCE, Ahmadad-II vs. M/s Cadila Healthcare Limited, supra. Also Rule 2 (I)

8 F.No. V.84/15-24/ADC/Chamunada/0A-I/2013

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

Services related with sales in the definition of 'Input Services'.

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

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

violation of Cenvat Credit Rules. It appeared that the said assessee had taken the cenvat

credit on the services which did not qualify to be included as "input service" despite of

knowing that the same have been availed beyond the factory gate and have not been used

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

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

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

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

tax paid on commission paid to foreign commission agents which did not qualify to be

included as "input service" defined under Rule 2(1) of Cenvat Credit Rules, 2004. Thus, it

appeared that the said assessee had 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 had taken the Cenvat Credit on the said service despite knowing that the

same did not qualify as 'input services' (ii) the service had 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 did 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. 19,92,411/- 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 2008-09 to 2012-13 and the same was 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)

13. 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 said assessee appeared to have taken and utilized cenvat credit

of service tax paid on commission paid to foreign commission agents during the

period 2008-09 to 2012-13. It also appeared that the said assessee had

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

Rule 3 of the Cenvat Credit Rules, 2004 for credit taken of service tax paid on

commission paid to foreign commission agents. The said assessee had taken and

utilized an amount of RS. 19,92,411/- during the said period. Out of the total

amount of Rs. 19,92,411/-, the said assessee is required to pay the amount of Rs.

9,50,152/- (i.e. Rs. 9,22,477/- Cenvat duty + Rs. 18,449/- Edu. Cess + Rs. 9,226/-

S.H.E. Cess) under Rule 14 of Cenvat Credit Rules, 2004 read with provisions of

9 F.No. V.84/1 5-24/ADC/Chamunada/0A-I/201 3

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

provision of the law for the period upto 07.04.2011. The remaining amount of Rs.

10,42,259/- (i.e. Rs. 10,11,907/- Cenvat duty + Rs. 20,239/- Edu. Cess + Rs.

10,113/- S.H.E. Cess) is required to be recovered under Rule 14 of the Cenvat

Credit Rules, 2004 read with erstwhile Sections 11A(5) of the Central Excise Act,

1944 being the relevant provision of the law for the period from 08.04.2011, Rule

14 of the Cenvat Credit Rules, 2004 read with provision under Sections 11AA of

the Central Excise Act, 1944 [erstwhile SectionllAB of the Central Excise Act,

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

effecting recovery of interest.

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

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

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

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

discharge the burden of proof regarding admissibility of Cenvat Credit. Further, it appeared

that the assessee had suppressed the material facts regarding taking of Cenvat Credit of

duty paid on services not covered under the definition of input services by not indicating

the same in their monthly/quarterly returns or in any other manner. Therefore, the said

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

Credit Rules, 2004 [Applicable during the relevant period i.e. upto 26.02.2010) and Rule

15(2) of the Cenvat Credit Rules, 2004 [Applicable during the relevant period .i.e.

27.04.2010 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 for the

above said contraventions.

15. Therefore, M/s Chamunda Pharma Machinery Pvt. Ltd., situated at 7602, Phase-IV,

GIDC, Vatva, Ahmedabad were called upon to show cause as to why :-

(i)

The Cenvat credit wrongly availed by them on Service Tax paid amounting to

Rs.9,50,152/- (i.e. Rs.922477/- + Rs.18449/- + Rs.9226/- ) for the period from

April-2008 to 7 th April-2011 (Inclusive of Education Cess and Higher Education

Cess) should not be disallowed and recovered under Rule 14 of Cenvat Credit

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

The Cenvat credit wrongly availed by them on Service Tax amounting to

Rs.10,42,259/- (i.e. Rs.1011907/- + Rs.20239/- + Rs.10113/-) for the period

from 08.04.2011 to March-13 (Inclusive of Education Cess and Higher Education

Cess) should not be disallowed and recovered under Rule 14 of Cenvat Credit

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

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

10 F.No. V.84/15-24/ADC/Chamunada/0A-I/201•3

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

Section 11AB for the relevant period] of Central Excise Act, 1944.

(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 relevant period .i.e.

27.04.2010 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.

DEFENCE REPLY

16. The assessee submitted its defence reply dated 27.08.2013 received on 30-

08-2013 wherein they have stated that the charges and allegations purported to have been

made in the Show Cause Notice are not in accordance with the legal position as stated

under the prevalent law and self-contradictory.

17. 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.

18. 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.

19. In various order, the Hon'ble Tribunal has consistently taken a view that

cenvat is available on commission agent's services.

20. They further submitted in their defence reply that they have filed various ER-1

returns with the department regularly and they have maintained RG-23A Part-II register in

which they have mentioned that the availment of credit is for "service tax paid on foreign

sales commission". Further, in the statement also, their manager has specifically stated that

there is no column in ER-1 where one can mention the details of cenvat and they had a

bona fide belief regarding admissibility of credit on the aforesaid services on the basis of

11 F.No. V .84/15-24/ADUChamunada/0A-1/2013

various rules and circulars.

PERSONAL HEARING:

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

Nirav P. Shah, Advocate appeared on behalf of the assessee and reiterated the stand

taken by them in their written submission dtd. 27.08.2013 and requested to decide the

case on its basis.

DISCUSSIONS AND FINDINGS:

22. 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.

23. 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. 19,92,411/- during the

financial year from April, 2008 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.

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

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

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

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

"(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

12 F.No. V.84/15-24/ADC/ChamunadaJOA-I/20r3

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. lshaque Gulam, 232 1TR 869, a

Division Bench of the Madhya Pradesh High Court drew a distinction between the expenditure

made for sales promotion and commission paid to agents. It was held that commission paid to the

agents cannot be termed as expenditure on sales promotion.

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

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

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

paragraph. Commission agent has been defined under the explanation to business auxiliary service

and insofar as the same is relevant for the present purpose means any person who acts on behalf

of another person and causes sale or purchase of goods, or provision or receipt of services, for a

consideration. Thus, the commission agent merely acts as an agent of the principal for sale of

goods and such sales are directly made by the commission agent to the consumer. In the present

case, it is the case of the assessee that service tax had been paid on commission paid to the

commission agent for sale of final product. However, there is nothing to indicate that such

commission agents were actually involved in any sales promotion activities as envisaged under the

said expression. The term input service as defined in the rules means any service used by a

provider of taxable service for providing an output service or used by the manufacturer whether

directly or indirectly, in or in relation to the manufacture of final products and clearance of final

products from the place of removal and includes services used in relation to various activities of the

description provided therein including advertisement or sales promotion. Thus, the portion of the

definition of input service insofar as the same is relevant for the present purpose refers to any

service used by the manufacturer directly or indirectly in relation to the manufacture of final products

and clearance of final products from the place of removal. Obviously, commission paid to the

various agents would not be covered in this expression since it cannot be stated to be a service

used directly or indirectly in or in relation to the manufacture of final products or clearance of final

products from the place of removal. The includes portion of the definition refers to advertisement or

sales promotion. It was in this background that this court has examined whether the services of

foreign agent availed by the assessee can be stated to services used as sales promotion. In the

absence of any material on record, as noted above to indicate that such commission agents were

involved in the activity of sales promotion as explained in the earlier portion of the judgement, in the

opinion of this court, the claim of the assessee was rightly rejected by the Tribunal. Under the

circumstances, the adjudicating authority was justified in holding that the commission agent is

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

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

definition of input service as laid down in rule 2(1) of the Rules.

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

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

13 F.No. V.84/15-24/ADC/Chamunadal0A-I/2013

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

accounting, auditing, financing, recruitment and quality control, coaching and training, computer

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

followed by the words such as. Therefore, the words such as must be given some meaning. In

Royal Hatcheries (P) Ltd. v. State of A.P., 1994 Supp (1) SCC 429, the Supreme Court held that

the words such as indicate that what are mentioned thereafter are only illustrative and not

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

to business which are included in the definition of input service and are not exhaustive. Therefore,

activities relating to business could also be other than the activities mentioned in the sub-rule.

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

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

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

words such as is accounting, auditing, financing, recruitment and quality control, coaching and

training, computer networking, credit rating, share registry, and security. Thus, what is required to

be examined is as to whether the service rendered by commission agents can be said to be an

activity which is analogous to any of the said activities. The activity of commission agent, therefore,

should bear some similarity to the illustrative activities. In the opinion of this court, none of the

illustrative activities, viz., accounting, auditing, financing, recruitment and quality control, coaching

and training, computer networking, credit rating, share registry, and security is in any manner similar

to the services rendered by commission agents nor are the same in any manner related to such

services. Under the circumstances, though the business activities mentioned in the definition are not

exhaustive, the service rendered by the commission agents not being analogous to the activities

mentioned in the definition, would not fall within the ambit of the expression activities relating to

business. Consequently, CENVAT credit would not be admissible in respect of the commission paid

to foreign agents",

(x) For the reasons stated hereinabove, this court is unable to concur with the contrary view taken

by the Punjab and Haryana High Court in Commissioner of Central Excise, Ludhiana v. Ambika Overseas (supra). Insofar as this issue is concerned, the question is answered in favour of the

revenue and against the assessee.

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

that the said assessee is not eligible for Cenvat credit of service tax paid on commission

paid to the sales agents.

25. I further find that 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 have argued that since they have declared relevant details in their ER-1,

there was no suppression on their part and they have maintained RG-23A Part-II register in

which they have mentioned that the availment of credit is for "service tax paid on foreign

sales commission". Further, in the statement also, their manager has specifically stated

that there is no column in ER-1 where one can mention the details of cenvat and they had

a bona fide belief regarding admissibility of credit on the aforesaid services on the basis of

various rules and circulars.

14 F.No. V.84/15-24/ADC/Chamunada/0A-I/201 3

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

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

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

of Cenvat credit on service tax paid on commission paid to such commission agents was

ruled in favour of the trade by various Tribunals and also Hon'ble Punjab and Haryana

High Court. It is also evident that CBEC in their aforesaid Circular has also clarified that the

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

Cenvat credit in question at the relevant time was thus in accordance with such circular

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

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

ingredients of section 11A of CEA'1944 enabling invocation of extended period were

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

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

of present show cause notice on 20/06/2013, the demand can be restricted only for the

period from June, '12 till March, 2013 instead of period from May, 2008 to March, 2013, as

proposed in the show cause notice.

27. The assessee has not offered any arguments against the proposal of recovering

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. However, I find that provisions of Rule 14 of

the CCR, 2004 (as applicable during the period in question) clearly provide 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.

28. 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 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 (a) under erstwhile Rule 15(3) of

Cenvat Credit Rules, 2004 for the period up to 26.02.2010, (b) under Rule 15 (2) of CCR,

2004 read with Section 11AC of Central Excise Act, 1944 from 27.02.2010 to 08.04.2011

and (c) under Rule 15 (2) of CCR, 2004 read with Section 11 AC (b) ibid for the period

08.04.2011 to 31.03.2013. 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 do 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

1 )

1' .1N o. V.84/15-24/ADC/Chamunada/OA-I/2013

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)."

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

5,45,699/- was wrongly availed by the assessee on the above mentioned Service during the

period from June, 2012 to March, 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.

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. 5,45,699/- ( Rupees Five Lakhs

Forty-Five Thousand Six Hundred Ninety Nine only) for the period from June, 2012

to March, 2013 and order to be recovered from M/s Chamunda Pharma Machinery

Pvt. Ltd., Plot No. 7602, Phase-IV, GIDC, Vatva, Ahmedabad -382445 in terms of

the provisions of Rule 14 of CENVAT Credit Rules, 2004 read with Section 11A of

Central Excise Act, 1944.

16 F.No. V.84/15-24/ADC/Chamunada/0A-I/20I3

(ii) I drop the demand of remaining amount of Rs. 13,96,712/- for the period from April,

'08 to May, '2012 as per findings in para 26 above.

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

Machinery Pvt. Ltd., 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. 1,50,000/- (Rupees One Lakh Fifty Thousand only) upon

M/s. Chamunda Pharma Machinery Pvt. Ltd., Ahmedabad under the provision of

Rule 15(1) of the CENVAT Rules, 2004.

The Show cause Notice issued to M/s. Chamunda Pharma Machinery Pvt. Ltd.,

Ahmedabad vide F.No. V.84/15-24/ADC/Chamunda/0A - 1/2013 dated 20/06/2013 stands

disposed of in above manner. / 7)

77 <-1 /1 (Sameer Chitkara )

Additional Commissioner,

Central Excise, Ahmedabad-I.

F. No.:- V.84/15-24/ADC/Chamunda/0A -1/2013

By Registered Post A.D.

To,

M/s Chamunda Pharma Machinery Pvt. Ltd., Plot no. 7602, Phase-IV, GIDC, Vatva, Ahmedabad.

Date: 04/02/2014.

Copy to:

1. The Commissioner C.Ex., Ahmedabad-1

2. The Deputy Commissioner, Central Excise, Division-Ill, Ahmedabad-I.

3. The Superintendent, Central Excise, AR-II, Division-Ill, Ahmedabad-I.

The Superintendent (Systems) C.Ex., A'bad-I

5. The Assistant Commissioner, C.Ex. (TAR), A'bad-I

6. The Deputy Commissioner C.Ex. (RRA), A'bad-I

7. Guard File.