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F.No: V.32/15-11/MDIUADC/0A-I/2014

3i1taLtLia: Date of Order : 22.09.2014

gritgstAt atm Date of Issue : 22.09.2014

4777 EIS / Passed by: Dr.Manoj Kumar Rajak, ADDITIONAL COMMISSIONER ************************•************************•**********************

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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:

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Copy of the aforesaid appeal.

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STRUT Furrtar brItv 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/-.

Tf0/Referenee A-61311 itticIf tFT.F. F.No: V.32/15-11/MDIUADC/0A-

1/2014 dated 10.03.2014 issued to M/s. Meghmani Dyes & Intermediates Ltd., Unit-II, 100% EOU, Plot No.99, 100/A & 102, Phase-II, GIDC, Vatva, Ahmedabad-382445.

Page 1 of 12 010 No.39/Additional CommissionerT2U14

BRIEF FACTS OF THE CASE:

M/s. Meghmani Dyes & Intermediates Ltd. Unit-II 100% EOU, Plot No. 99,100/A & 102

Phade-II, GIDC, Vatva, Ahmedabad -382 445 (hereinafter referred to as 'the said assessee') are

registered with the Central Excise Department having Central Excise Registration No. AABCM 6639

DXM002 for manufacture of S.O.Dyes. They have also been granted license No.2/2003-04 (F. No.

V/4-04/ REGI/ 100% EOU/2003-04 ) under Section 58 of the Customs Act, 1962 as private

warehouse for storage of imported items without payment of duty on the importation or re-

warehousing thereof and permission to manufacture under Bond under Section 65 of the Customs

Act, 1962 (F. No. V/4-041 REGI/ 100% EOU/2003-04)

2. The said assessee is availing Cenvat Credit facility under the provisions of Cenvat Credit

Rules, 2004 (hereinafter referred to as the CCR, 2004). Whereas it appeared that the said

assessee had wrongly taken and utilised the Cenvat Credit of the Service Tax paid on Commission

paid to Sales Commission Agent, Local as well as Foreign, for sale of finished goods cleared to

their customers to the tune of Rs. 25,58,047/- for the period from April, 2013 to September, 2013.

The summary of wrongly taken and utilised Cenvat credit of Service Tax towards Commission paid

to Sales Commission Agent is as under

Period

Sr. No

RG-23 A Pt. II Entry No

Date on which credit availed

Amount Ser. Tax Edu. Cess

H.Edu . Cess

Total Service Tax

APRIL, 2013 TO

SEPTEMBER, 2013

1 294 19.04.13 1935 232 5 2 239

2 298 19.04.13 4060550 487264 9746 4872 501882

3 444 21.05.13 9267320 1112078 22242 11120 1145440

4 446 21.05.13 326600 39192 784 392 40368

5 678 15.06.13 26575 3189 64 32 3285

6 681 15.06.13 358214 42986 859 430 44275

7 769 09.07.13 43361 5203 104 52 5359

8 895 09.08.13 2497041 299645 5993 2996 308634

9 902 09.08.13 3627428 435293 8705 4355 448353

10 1003 20.09.13 487150 58458 1169 585 60212

TOTAL 2483540 49671 24836 2558047

3. Out of total Cenvat credit of Rs. 25,58,0471-, the assessee had paid under protest the

Cenvat Credit of Rs. 8,17,199/- for the period from April, 2013 to September, 2013, details of

which is as under

Sr. No. RG-23 A Pt. II Entry No

Date on which Debited (Under Protest) Ser. Tax

Edu. Cess H.Edu .Cess

Total Service Tax

1 896 09.08.13 294619 5892 2946 303457

2 897 09.08.13 5026 101 50 5177

3 903 09.08.13 435293 8705 4355 448353

4 1004 20.09.13 58458 1169 585 60212

793396 . 15867

. 7936 817199

4. Hon'ble High Court of Gujarat in case o f C ommissioner

V/s. Mrs. Cadila Health Care Ltd., 2013 —TIOL-12-HC-AHM-ST dated 18.10.2012 & 07.11.12 had

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

Customs & Central Excise, Surat-II Vs. Astik Dyestuff P. Ltd, vide Order No.

A/10339/VVZB/AHD/2013 dated 01.03.2013 had 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

Page 2 of 12 010 No.39/Additional Commissioner/2014

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".

5. The definition of the term "input service" as given at Rule 2(0 of CCR, 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(0 of CCR, 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 appear to be eligible. After the final products are cleared from the place of

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

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

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

the admissibility of Cenvat Credit on services, the nature of service availed should be in

consonance with the above parameters. Hence, the said assessee appeared to have wrongly

availed Cenvat Credit of Service tax paid on Commission paid to Sales Commission Agent for sale

of finished goods cleared to their customers contrary to the provisions of Rule 3 of CCR, 2004 read

with Rule 2(0 (li) of the CCR, 2004, which needs to be recovered from them alongwith interest.

7. Further, the provisions of Rule 3(1) of CCR, 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)

(iii) (iv) (v) NO (via) (vii) (vita) (viii) (ix) the service tax leviable under section 66 of the Finance Act; and (x) (xa) (xi) paid on-

CO any input or capital goods received in the factory of manufacture of final product or premises of thp nmuirlor nf nirtnnt 4 ALI-

Page 3 of 12 010 No.39/Additional Commissiuntr/2014

(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 sales commission agent used by the manufacturer

are neither used directly nor indirectly, in or in relation to the manufacture of final products.

Therefore, the said assessee appeared to have wrongly availed Cenvat credit of Service Tax paid

on commission paid to Sales Commission Agent which does not fall within the purview of definition

of input service. The said service appeared 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

Sales Commission Agent have not any relation with the manufacturing activity and also do not

appear to be fallen within the ambit of definition of input services as defined under Rule 2(0 of

CCR, 2004, the manufacturer shall not be allowed to take credit on such ineligible service as per

Rule 3 of CCR, 2004.

9. Further, services of the Sales 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 purchade of goods. In other

words, the commission agent appeared to be directly responsible for selling or purchading on

behalf of another person and that such activity cannot be considered as sales promotion. There

appeared to be a clear distinction between sales promotion and sale. A commission agent is

directly concerned with sales rather than sales promotion. Therefore, the services provided by

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

'input service' as laid down in rule 2(0 of the CCR, 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 Sales

Commission Agents.

10. Further, Rule 9(6) of the CCR, 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 had been

passed on to 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

and utilised in respect of services availed beyond the factory gate 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(0 of the CCR, 2004. Thus, it appeared that the said assessee knew that the services

in respect of which they had taken and utilised Cenvat Credit were the services availed beyond the

factory gate and related to sales and 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, 2013, TIOL-12-HC-AHM-ST dated

18.10.2012 & 07.11.2012. Further Hon'ble CESTAT, Ahmedabad, in the case of Commissioner of

Customs & Central Excise, Surat-II Vs. Astik Dyestuff P. Ltd, vide Order No.

A/10339NVZB/AHD/2013 dated 01.03.2013 had 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

Page 4 of 12 010 No.39/Additional Commissioner/2014

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). Also Rule 2 (0 of CCR, 2004

defining what constitutes an input service, does not include Services related with sales in the definition of Input Services.

11. Further, the said assesee, in this era of self assessment when onus of taking legitimate

Cenvat Credit had been passed on to the assessee, took Cenvat Credit in violation of Cenvat

Credit Rules. It appeared that the assessee had taken the Cenvat Credit on the services which did

not qualify as 'input services' 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 the definition of 'input service'. The said assessee, though, it

had been expressly proved in rule 9(6) of CCR, 2004 that "... burden of proof regarding the

admissibility of the Cenvat credit shall lie upon the manufacture..." took credit of service tax paid on

commission paid to Sales Commission Agent which does not qualify to be included as "input

service' defined under rule 2(0 of CCR, 2004. Thus, it appeared that the said assessee have

contravened the provisions of the CCR, 2004 with intent to evade payment of duty in as much as (i)

the assessee had taken and utilised the cenvat credit on the service despite knowing that the same

did not qualify as 'input services' (ii) the service had not been used in or in relation to manufacture

of final products and services were related to sales and not sales promotion and as such would not

fall within the ambit of the definition of 'input service' (Hi) by failing to discharge the obligation cast

on them under Rule 9(6) of the CCR, 2004 and (iv) by not informing the department about the

availment of credit of service tax paid on commission paid to Sales Commission Agents. Therefore,

the said Cenvat Credit amounting to Rs. 25,58,0471- appeared to have been wrongly taken and

utilised for the payment of duties of excise which resulted in revenue loss to the Government during

the period April, 2013 to September, 2013 and the same is required to be recovered under section

11A(5) of the Central Excise Act, 1944.

12. Rule 14 of the CCR, 2004 provides that where the CENVAT credit had been taken

and utilised wrongly or had been erroneously refunded, the same along with interest

shall be recovered from the manufacturer. In the instant case, the assesee appeared

to have taken and utilised cenvat credit of service tax paid on commission paid to Sales

Commission Agents during the period April, 2013 to September, 2013. It appeared that

the said assessee had contravened the provisions of Rule 2 of CCR, 2004 read with Rule

3 of CCR, 2004 for credit taken and utilised of service tax paid on commission paid to

Sales Commission Agents. The assessee had taken and utilised an amount of Rs.

25,58,047/- which is required to be recovered under Rule 14 of CCR, 2004 read with

Section 11A(5) of the Central Excise Act, 1944. Provision under Section 11AA of the

Central Excise Act, 1944 shall apply mutatis mutandis for effecting recovery of interest. 13. In view of the above, it appeared that the said assessee had contravened the provisions of

Rule 2(0 read with Rule 3 of the CCR, 2004 in as much as they had taken and utilised credit of

Service Tax paid on services which did not qualify as Input services'; Rule 9(6) of the CCR, 2004

in as much as they had failed to discharge the burden of proof regarding admissibility of Cenvat

Credit. Therefore, the assessee had rendered themselves liable for penalty in terms of Rule 15(2)

of the CCR, 2004 read with Section 11AC (1)(b) of Central Excise Act, 1944 for the above said contraventions.

14. Therefore, M/s. Meghmani Dyes & Intermediates Ltd. Unit-II 100% EOU, Plot No. 99,100/A &

102 Phade-II, GIDC, Vatva, Ahmedabad -382 445 were required to show cause as to why:-

Page 5 of 12 010 No.39/Additional Commissioner/2014

Cess) for the period from April, 2013 to September, 2013 wrongly availed by them should not be

disallowed and recovered from them under Rule 14 of Cenvat Credit Rules,2004 read with

Sections 11A(5) of Central Excise Act,1944. Since an amount of Rs. 8,17,199/- had been paid

under protest by the said assessee (as detailed in para 3 supra), why the same should not be

appropriate against the above demand by vacating under claim of protest.

(ii) Penalty should not be imposed under Rule 15(2) of the CCR, 2004 read with Section

11AC(1)(b) of Central Excise Act, 1944.

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

14 of CCR, 2004 read with Section 11AA of Central Excise Act, 1944.

DEFENCE REPLY

15. The assessee submitted its defence reply dated 08.04.2014 received on 09-01-2014

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.

16. The assessee has submitted that before they proceed on the merits of the

case, the present show cause notice is arbitrary, illegal 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 an intent to evade payment of duty.

17. The assessee has submitted that before they proceed on the merits of the case, the

present show cause notice is arbitrary, illegal 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 an intent to evade payment of duty as they had

made required and proper disclosure of the facts of the case in all the statutory records and

periodical returns and they have been audited till December, 2009 wherein all the records

regarding cenvat credit taken and utilized have been verified and audited and have been

issued final Audit Report No. 297/2009-2010 dtd. 14.02.2010.

17.1 This entire controversy had arisen because of one of the judgements of the

Hon'ble High Court of Gujarat in the matter of Cadila Healthcare Limited. With due respect

to the Hon'ble High Court of Gujarat, it appears that the said judgement is delivered without

understanding the business process and function and attempts had been made to

differentiate between the various means of sales promotion. The said judgment also

ignored the Board circular No. 943/04/2011 dated 29.04.2011 (F. No. 354113/2011-TRU),

which was issued even after the amended definition of 'input services' and makes it

abundantly clear that not only before the amendment but even after this amendment,

commission paid to agent on sales is eligible for Cenvat credit. Therefore, they beg to differ

from the said judgement of Hon'ble Gujarat High Court, which had been appealed against

the Hon'ble Supreme Court and the appeal has been admitted for hearing.

17.2 Availing the services of commission agents for 'sales promotion and sale' is

quite common in the manufacturing sector. The services of foreign commission agent are

used for penetrating markets overseas where customer are located in far flung area. No

one can sale the goods without its promotion in the known or unknown territory, which may

be in form of advertisement or display or presentation or personal visits, contact. There are

Page 6 of 12 010 No.39/Additional Commissioner/2014

different mode of sales promotion like electronic and print media, outdoor advertising or one

to one interaction, appointing agent etc to promote the product and consequently the sale.

17.3. The sales promotion through agent is much needed and required where

products are for industrial application or where the consumer is industrial enterprise/

undertaking. (They are the manufacturer of SO Dyes and other chemicals that have

multiple applications and usages, which differ customer to customer). In case of industrial

consumer, they cannot be targeted en masse or in large population, simply by way of

advertisement, exhibition or price reduction or gift etc, which may be more applicable to

FMCG products. Each consumer has different kind of requirement for the product and his

own different application, which can only be explained in person by the agents, though

acting on behalf of the principal.

17.4 Further, this is also a predominant mode of sales promotion and sale in case

of export market as the local agents are more aware about their local market, customer

requirement, changing trends of the products, demonstration and technical information

about the products. There is no universal method to promote the products and sales.

Therefore, adoption of methods of promotion depends upon the requirement of the

products and business, which may differ on case-to-case basis. There cannot be any

distinction between different mode of sales promotion and its means.

17.5 The reference to the term 'commission agent' can be derived from the

definition of 'Business Auxiliary services' as prevalent in pre-negative list regime. The term

"business auxiliary service" has been defined under section 65(19) to mean any

service in relation to —

(i) promotion or marketing or sale of goods produced or provided by or belonging

to the client; or

(ii) promotion or marketing of service provided by the client; or

(iii) any customer care services provided on behalf of the client; or

(iv) procurement of goods or services which are inputs for the client; or

(v) production or processing of the goods for or on behalf of the client; or

(vi) provision of service on behalf of the client; or

(vii) a service incidental or auxiliary to any activity specified in the clauses (i) to (vi)

above such as billing, issue or collection or recovery of cheques, payments,

maintenance of accounts and remittance, inventory management, evaluation or

development of prospective customer or vendor, public relation services,

management or supervision.

It includes services as a commission agent but does not includes any information

technology service and any activity that amounts to "manufacture" within the

meaning of clause (f) of section 2 of the Central Excise Act, 1944.

17.6 As per the explanation to section 65(19) "Commission agent" 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, and includes any person who, while

acting on behalf of another person —

Page 7 of 12 010 No.39/Additional Commissioner/2U14

(i) deals with goods or services or documents of title to such goods or services . or

(ii) collects payment of sale price of such goods or services; or

(iii) guarantees for collection or payment for such goods or services; or

(iv) undertakes any activity relating to such sale or purchase of such goods or services

17.7 The word 'causes' is of significant importance here, as it requires some

efforts. The dictionary meaning of the word 'causes' (Synonyms: cause, reason, occasion,

antecedent) mean 'The producer of an effect, result, or consequence'; 'The one, such as a

person, event, or condition, that is responsible for an action or result'. Therefore, a cause is

an agent or condition that permits the occurrence of an effect or leads to a result. Thus, the

activities defined as 'business auxiliary services in clause (i) above, is caused by the agent.

Therefore, commission agent not only sells but 'causes' to sales and these causes are

normally termed as 'sales promotion' in business parlance. Therefore, the process

undertaken by the agent is of sales promotion, which 'causes' the sale (the occurrence of

the event). The commission agent, without this process cannot make the sales and hence

sales are consequential to sales promotion by agent, one of the means of sales promotion.

Therefore, this is covered under the inclusive part of the 'input definition' under the category

of 'sales promotion'.

17.8 that they are recording all the transactions in their statutory books as mandated by

law and are filing monthly returns i.e. ER-2 on regular basis wherein they have shown the

figures of credit taken on inputs, service tax, capital goods etc. Their returns are being

regularly assessed by the Jurisdictional Superintendent and AC/DC.

They also relied on various judgements to further their cause.

17.9 The definition of 'Input Service' used in SCN was existed prior to 01.04.2011. After

that the definition of 'input service' had gone under substantial change. Therefore, it

appears that the same is been applied without going thru the correct legal position in this

matter.

w.e.f. 01.04.2011, the definition of 'input service' as provided in rule 2(I) of Cenvat

Credit Rules, 2004 is asunder:-

"Input Service", as contained in Rule 2(I) reads as follows :

(I) "input service" means any service, -

(i)

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

(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the

manufacture of final products and clearance of final products up to the place

of removal,

and includes services used in relation to 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, 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;

Page 8 of 12 010 No.39/Additional Commissioner/2014

17.10 Further that they have not committed contravention of any of the rules with intent to

evade payment of duty. In a similar case for a different period, the charges of suppression

of facts with intention to evade payment of duty have been dropped in an 010 dtd.

27.12.2013. In this view, penalty under Rule 15(2) of the CCR, 2004 read with Section

11AC (1) (b) of the Central Excise Act, 1944 cannot be imposed.

PERSONAL HEARING:

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

Maheshwari, General Manager (Commercial) of the assessee appeared for the same and

reiterated the stand taken by them in their written submission dtd. 08.04.2014 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. 25,58,047/- during the financial year from

01.04.2013 to September, 2013. 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(I) of the CCR, 2004 (here-in-after referred to as CCR, 2004). As such, the

said assessee is not entitled to the Cenvat credit of service tax paid on such service

provided by the commission agent for sale of their finished goods.

21. I 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

Page 9 of 12 010 No.39/Additional Commissioner cote

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 it Mond. Ishaque Gulam, 232 ITR 869,

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

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

agents cannot be termed as expenditure on sales promotion.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

products from the place of removal. The 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

Page 10 of 12 010 No.39/Additional Commissioner/2014

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. 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.

22. 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. In this regard, I find that the duty has

been demanded for the period from April, 2013 to September, 2013 in the show cause

notice which is within the normal period.

23. The assessee has further argued that as the demand is not !Anal and ci ictninahIa

Page 11 of 12 010 No.39/Additional Commissioner/2014

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.

24. 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 under Rule 15 (2) of CCR, 2004

read with Section 11 AC (b) ibid for the period 01.04.2013 to September, 2013. 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 CCR, 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)."

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

25,58,047/- was wrongly availed by the assessee on the above mentioned Service during

the period from 01.04.2013 September, 2013 and the same is required to be disallowed

Page 12 of 12 MO No.39/Additional Commissioner/2014

and recovered from them in terms of the provisions of Rule 14 of the CCR, 2004 read with

Section 11 A of the Central Excise Act, 1944. Further interest is also required to be charged

on the Credit wrongly availed and recovered from them in terms of the provisions of Rule

14 of the CCR, 2004 read with Section 11AA of the Central Excise Act, 1944. The said

assessee is also liable to penalty under Rule 15(1) of the CCR, 2004 for their

contraventions as discussed above.

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

ORDER

(i) I disallow the CENVAT Credit amounting to Rs. 25,58,047/- ( Rupees Twenty

Five Lakh Fifty eight Thousand Forty Seven only) for the period from 01.04.2013

to September, 2013 and order to be recovered from M/s. Meghmani Dyes &

Intermediates Ltd. Unit-II 100% EOU, Plot No. 99,100/A & 102 Phade-II, GIDC, Vatva,

Ahmedabad -382 445 in terms of the provisions of Rule 14 of CCR, 2004 read with

Section 11A of Central Excise Act, 1944. Since an amount of Rs. 8,17,199/- out

of the total demand of Rs. 25,58,047/- has already been paid under protest, I

vacate their protest and order the amount to be appropriated against the said

confirmed demand.

(ii) I order to recover interest at the prescribed rates from M/s. Meghmani Dyes &

Intermediates Ltd. Unit-II 100% EOU, Vatva, Ahmedabad -382 445 on the said

wrongly availed Cenvat credit in terms of the provisions of Rule 14 of CCR, 2004

read with Section 11M of the Central Excise Act, 1944.

(iii) I impose penalty of Rs.5,00,000/- (Rupees Five Lakh only) upon M/s. Meghmani

Dyes & Intermediates Ltd. Unit-II 100% EOU, Vatva, Ahmedabad -382 445 under the

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

The Show cause Notice issued to M/s. Meghmani Dyes & Intermediates Ltd. Unit-II

100% EOU, Vatva, Ahmedabad -382 445 vide F.No. V.32/15-11/MDIL/ADC/0A-1/2014 dated

10/03/2014 stands disposed of in above manner.

(Dr. Mano?RAiu 'Tr aja k) Additional Commissioner,

Central Excise, Ahmedabad-I.

F. No:-V.32/15-11/MDIL/ADC/OA-l/2014

By Registered Post A.D.

Date: 22/09/2014.

To,

M/s. Meghmani Dyes & Intermediates Ltd. Unit-II 100% EOU, Plot No. 99,100/A & 102 Phade-II, GIDC, Vatva, Ahmedabad -382 445

Copy to:

1. The Commissioner, Central Excise, Ahmedabad-I 2. The Ass./Dy. Commissioner, Central Excise, Division-Ill, A'bad-I 3. The Superintendent, Central Excise, AR-V, Division-Ill, Ahmedabad-I. 4. The Superintendent (Systems), Central Excise, Ahmedabad-I

Ass./Dy. Commissioner (Tar), Central Excise, A'bad-I 6. The Ass./ Dy. Commissioner (RRA), Central Excise, A'bad-I 7. Guard File.