Cenvat credit on sales commission
ON the subject matter, it seems the Board had realized that its Circular No. dated 29.04.2011 which was intended to give relief to assessees all over India was losing its Midas touch in the State of Gujarat owing to the Gujarat High Court decision in Cadila Healthcare Ltd. -
This is what the Circular clarified -
S.No. | Issue | Clarification |
|---|---|---|
5 | 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. |
The High Court had in paragraph 5.2 of its order held -
"…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… 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."
So, the ground reality is that after pronouncement of the judgement of Gujarat High Court in Cadila Healthcare, the position is that Cenvat credit on sales commission agent's service is being denied in Gujarat; whereas in other parts of country it is being allowed based on the P&H High Court's Judgement in Ambica Overseas and Board's Circular dated 29.04.2011.
To alleviate the sufferings of the assessees who were wrongly given the short shrift, the Board has used its magic wand and extended its largesse to assessees all over India by amending the CCR, 2004 itself.
Notification released yesterday does the following -
In the CENVAT Credit Rules, 2004, in rule 2, in clause (l), after sub-clause (C), the following Explanation is inserted:-
Explanation.- For the purpose of this clause, sales promotion includes services by way of sale of dutiable goods on commission basis."
As the amendment introduces an Explanation, assessees, in particular those in Gujarat, may have every right to say that the same is clarificatory and hence retrospective in operation.
Please also see Cenvat credit on sales commission - Assessees in Gujarat given the short shrift.
After all, 'tis the season of good times!
Nonetheless, there is another amendment in rule 3 of CCR, 2004 by way of a proviso &which makes it amply clear that the CENVAT credit of any duty shall not be used for payment of the Swachh Bharat Cess. Perhaps this was a safety valve which was missing and now backs the FAQ, Question no. 14 which reads -
Q.14 Whether Cenvat Credit of the SBC is available?
Ans. SBC is not integrated in the Cenvat Credit Chain. Therefore, credit of SBC cannot be availed. Further, SBC cannot be paid by utilizing credit of any other duty or tax
Notification dated 3rd February 2016.