Pr Commissioner of Central Excise, Kolkata- IV Vs Himadri Speciality Chemicals Limited

Date- 27th September,2022

Sub- Whether input credit of service tax against the commission paid to various service providers who are acting as commission agents can be availed under the Cenvat Credit Rules.

The issue in this appeal was the eligibility of the respondent assessee to claim input credit against the services received from the consignment stockists with whom the respondent entered into agreement for warehousing, distribution and sale of their products and the remuneration paid to the consignment stockist was not only on account of commission on sales as the consignment stockist undertook much wider responsibilities including promotion and marketing activities for the respondent’s products. The department contended that these stockists had no role in promotion of sales and thus the input was denied. The show cause notice was issued apparently on the basis of a decision of Gujarat high court in the case of Cadila Healthcare where it was held that the services provided by selling agents are not input services.

The respondent assessee besides citing the agreement , interalia relied on an amendment which was made to CENVAT Credit Rules whereby an explanation under Rule 2(l) vide notification dated 03.02.2016 was added which states that for the purpose of Clause 2(l) sales promotion includes services by way of sale of dutiable goods on commission basis and it was argued that the said explanation had to be applied retrospectively.

The Hon’ble Judges relying on the decision of the Supreme Court in the case of Vatika township, Archean Granite Pvt ltd and Calcutta Export company , agreed that the explanation was to be given retrospective effect, and referred to the decision in the case of Coca Cola India Pvt ltd which dealt with the allowability of input credit on expenditure incurred on advertisement, sales promotion etc if the forms part and parcel of the price of final goods on which excise is paid and the departments’ appeal was dismissed.

This judgement even though in relation to the service tax period will be useful in similar litigations which are pending at various level.

Ramesh Patodia
29-09-2022