Service Tax on Commission Paid to Foreign Agents - Entitled to CENVAT Credit?
IF I pay a Commission to my foreign agent for promoting and procuring orders abroad for goods manufactured by me, I am required to pay Service Tax in India on the reverse charge basis. Now, can I take CENVAT credit of the Service Tax paid?
The general understanding is that I can. And in fact CBEC had in Circular No. , dated April 29, 2011, clarified as follows:
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Is the credit of Business Auxiliary Service (BAS) on account of sales commission now disallowed after the deletion of expression "activities related to business"?
The definition of input services allows all credit on services used for clearance of final products upto the place of removal. Moreover activity of sale promotion is specifically allowed and on many occasions the remuneration for same is linked to actual sale. Reading the provisions harmoniously it is clarified that credit is admissible on the services of sale of dutiable goods on commission basis.
Further by Notification No. 42/2012-ST, dated 29.06.2012, Service provided by a commission agent located outside India and engaged under a contract or agreement or any other document by the exporter in India, to act on behalf of the exporter, to cause sale of goods exported by him is exempted with certain conditions.
However the Gujarat High Court has in Commissioner of Central Excise v. M/s Cadila Healthcare Limited () held, "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."
Earlier the Punjab & Haryana High Court had in CCE, Ludhiana Vs. Ambika Overseas - , upheld the Tribunal's view that, " the definition of the ‘input services' includes services used in relation to ‘sales promotion' and these activities can rightly be described as sales promotion activities. Sales promotion activities undertaken at given point of time also aims at sales of goods, which are to be manufactured and cleared on future. Any advertisement given as a long-term impact cannot be treated as post- clearance activities and, therefore, sales promotion has been specifically included in the definition of input services."
However the Gujarat High Court did not concur with the views of the Punjab & Haryana High Court.
This creates a strange situation - while in Punjab and Haryana, credit is to be allowed, it has to be denied in Gujarat. As for other States, the Tribunal and other authorities are free to follow either Gujarat or P&H High Courts.
The Gujarat High Court order is under appeal to the Supreme Court, while there seems to be no appeal against the Punjab & Haryana High Court. It has to be noted that against the Punjab & Haryana High Court, the Government had to go in appeal, while against the Gujarat High Court, it is the party.
Now, can it be assumed that the Government has accepted the order of the Punjab & Haryana High Court? The Supreme Court had just two days ago commented on the litigation policy of the Government - that a little later in this edition of DDT.
If so, is the credit available?
Maybe, CBEC should give another clear clarification.