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OFFICE OF THE COMMISSIONER OF CENTRAL EXCISE, AHMEDABAD-I

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CENTRAL EXCISE BUILDING, NEAR eon POLYTECHNIC 3Ikrdra, 31-0:14roK - 380 015.

AMBAWADI, AHMEDABAD - 380 015.

th-T.#.: F. NO. V.32/15-20/ADC/MIL/0A-1/2013

Wall' *I aft': Date of Order : 08.01.2014

Mt W{4 tr aft': Date of Issue : 08.01.2014

cfit/ 177/c " / Passed by: Sri Sameer Chitkara, ADDITIONAL COMMISSIONER *******************************************************************

317 311tfT ,27./Order-In-Original No.: 02/ADDITIONAL COMMISSIONER /2014 ****************************************************************

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This copy is granted free of charge for private use of the person(s) to whom it is sent.

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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.

3 't-cl Sit G1 Crite gt 11W4 *r vrftv t7t- 3c4K PeicHiciA, 2001 i fAid-i 3 3t1 r1'' 31 ri 31-traw-grml-

1.4-)V ‘.711A ftC3- I iris 14,441 :

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:

ctrl 311t7zr 1:1"i I

Copy of the aforesaid appeal.

9 uS 41 r Vi'azef (.34-141 trw 3-41- 3i-rtu wa-fta. vritv

3itria" .#f 31/MT cl-ci 3iTt31- r 37z1- 2.00/-

ci-41411(14-1 lc-ch f 374`4Zi R.-4T eFT Writ-Q. 1

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/-.

4:1-01/Reference : 4—dT34 itT-1 01 I thi..#. V.32/15-20/ADC/MIL/OA- I/20 1 3

dated 19.06.2013 issued to M/s. Meghmani Industries (Unit-II), Plot No.27,

Phase-I, GIDC, Vatva, Ahmedabad -382445

2

3 F.No. V.32/15-20/ADC/MIL/0A4/2013

BRIEF FACTS OF THE CASE:

M/s. Meghmani Industries Limited, Unit — II, Plot No.27, Phase-I, G.I.D.C.,

Vatva, Ahmedabad (herein after referred to as "the said assessee"), is registered with the

Central Excise under registration No. AABCM0535GXM002 for the manufacture of Agro

Chemicals falling under Ch. 38 and Reactive Dyes, Solvent Dyes and Optical Brightening

Agents (OBAs), falling under Chapter 32 of the First Schedule to the Central Excise Tariff

Act, 1985.

2. Whereas it appears that the said assessee has wrongly taken the Cenvat

Credit of the Service Tax paid on Commission paid to commission agent for sale of

finished goods cleared to their customers during the period from June'2008 to April'2013.

The summary of wrongly availed Cenvat credit of Service Tax is as under:-

Year SL NO.

RG 23A PLII Entry No. Date on which Cenvat Credit was taken

Amount of Cenvat Credit

[In Rs.] 2008-09 1 146 30.06.2008 46901/-

2 312 31.08.2008 205856/- 3 370 30.09.2008 129712/- 4 484 30.11.2008 49452/- 5 566 31.12.2008 196461/- 6 569 31.12.2008 15474/- 7 621 31.01.2009 21311/-

2009-10 8 86 16.05.2009 97764/- 9 100 20.05.2009 340541/- 10 603 31.12.2009 240634/-

2010-11 11 16 13.04.2010 131142/- 12 167 10.07.2010 48676/- 13 439 11.12.2010 89659/-

2011-12 14 124 11.07.2011 86170/- 15 147 28.07.2011 179995/-

2012-13 16 17 11.04.2012 336280/- 17 18 11.04.2012 863400/- 18 87 19.05.2012 109342/- 19 206 30.06.2012 108111/- 20 317 17.08.2012 143745/- 21 1047 13.03.2013 4478/-

2013 — 14 (Up to April, 2013)

22 7 13.04.2013 2299/-

23 12 13.04.2013 188415/-

Total Cenvat Credit Taken (In Rs.) 3635818/-

4 F.No. V.32/15-20/ADC/MIL/0A-112013

3. Whereas the information regarding availment of Cenvat credit of Service

Tax paid on Commission paid to foreign commission agent was provided by the said

assessee vide their letter dated 22.05.2013 [Sr. 1 of Annexure- " N " enclosed to the

notice] in reference to letter F.No.AR-III/DIV.III/Cenvat Credit S.Tax/2012-13 dated 13-

03-2013 issued by the Superintendent, Central Excise, Range-III, Division-III,

Ahmedabad-I. In the said letter, the said assessee has provided the year wise/entry wise

details of the total cenvat credit taken to the tune of Rs.36,35,818/-.

4. Hon'ble High Court of Gujarat in the case of Commissioner of Central

Excise, Ahmedabad-II v/s M/s Cadila Health Care Ltd. in order dated 18.10.2012 &

07.11.12, reported at 2013 —TIOL-12-HC-AHM-ST 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(l) of the Cenvat

Credit Rules 2004, Consequently, Cenvat Credit would not be admissible in respect of

Service Tax paid on the commission paid to foreign agents".

5. The definition of the term "input service" as given at Rule 2(/) 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. As per the definition of input service, any service, used by the

manufacturer, should have a nexus with the manufacture and clearance of the final

product up to the place of removal. Place of removal is well defined in Section 4(3)(c)of

the Central Excise Act,1944. Further 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 without keeping in view the definition of input

service under Rule 2(1) 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 and clearance of the final product upto the place of removal alone

would appear to be eligible. After the final products are cleared beyond the place of

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

5 F.No. V.32/15-20/ADC/MIL/0A-1/2013

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 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,

it appeared that Cenvat Credit availed by the assessee in respect of Service tax paid to

commission agent for sale of finished goods cleared to their customers is incorrect and

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

of the Cenvat Credit Rules, 2004. Thus the same appeared to be recoverable 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

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 - (0 (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 commission agent used by the

manufacturer were 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 of a service which did not fall within the purview of

6 F.No. V.32/1 5-20/ADC/MIL/0A-11201 3

definition of input service. Since, the services of commission agent had no relation with

the manufacturing activity and also did not appear to fall within the ambit of definition of

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

manufacturer should not be allowed to take credit on such ineligible service as per Rule

3 of Cenvat Credit Rules, 2004.

9. Further, services of the commission agent also did not appear to fall

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 is directly

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

cannot be considered as sales promotion. There is 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 did not

appear to 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 it appeared that

the said assessee was not eligible for CENVAT credit in respect of the service tax paid

against commission given to commission agents.

10. A Statement of Shri. Manohar Maheshwari, General Manager

(Commercial) and authorized signatory for the assessee was recorded on 06.06.2013

under Section 14 of Central Excise Act, 1944 [enclosed], wherein he interalia stated that

they had availed Cenvat Credit of Service tax paid on the commission paid to the sales

agents for the period from 2008-09 to 2013-14; that they had never informed the

Central Excise Department regarding availment of Cenvat credit on Service tax paid on

commission paid to the Sales Agent; that they had not availed any Cenvat credit on the

said service (i.e. commission paid to the sales agent) except as per the details provided

vide their letter dated 22.05.2013.

11. Further, 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 the instant case, as discussed in

foregoing paras, the credit taken in respect of services availed appeared to be

inadmissible in as much as the same did not fall within the ambit of the definition of

`input services' as specified under Rule 2(1) of the Cenvat Credit Rules, 2004. In the

instant case, it appeared that the said assessee knew that the services in respect of

which they had taken Cenvat Credit were the services related to sales and which did

not have any relation whatsoever in or in relation to manufacture of goods. Further, the

services provided by commission agent had been held to be concerned with sales and

not sales promotion by the Hon'ble High Court of Gujarat in order dated 18.10.2012 &

07.11.2012 in the case of CCE, Ahmedabad-II v/s M/s Cadila Healthcare Limited

reported at 2013, TIOL-12-HC-AHM-ST. Also Rule 2 (I) of Cenvat Credit Rules, 2004

7 F.No. V.32/15-20/ADC/MIL/0A-1/2013

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. The said assessee, although 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 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 commission agents.

Therefore, the said Cenvat Credit amounting to Rs.36,35,818/- 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 2013-14 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 assessee appears to have taken and utilised Cenvat credit of service tax paid

on commission paid to Commission Agents during the period 2008-09 (from May,

2008) to 2013-14. It also appears that the said assessee has contravened the

provisions of Rule 2 of Cenvat Credit Rules, 2004 read with Rule 3 of Cenvat Credit

Rules, 2004 for credit taken of service tax paid on commission paid to sales agents. The

assessee had taken and utilised an amount of Rs.36,35,818/- during the said period.

Out of the total amount of Rs. 36,35,818/-, the assessee is required to pay the amount

of Rs.16,13,583/- under Rule 14 of Cenvat Credit Rules,2004 read with provisions of

erstwhile Sections 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.20,22,235/- is

required to be recovered under Rule 14 of Cenvat Credit Rules,2004 read with

Section11A(5) of the Central Excise Act,1944 being the relevant provision of the law for

the period from 08.04.2011. Provision under Section 11AA of the Central Excise Act,

8 F.No. V.32/1 5-20/ADC/MIL/0A-112013

1944 [erstwhile SectionliAB of the Central Excise Act, 1944 for the relevant period

upto 07.04.2011] shall apply mutatis mutandis for effecting for 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 way of not indicating the same in their monthly/quarterly returns or in any

other manner. Therefore, the 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. 27.02.2010 to 07.04.2011] read with Section

11AC of Central Excise Act, 1944 and & 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 (1)(b) of Central Excise Act, 1944 for the above said contraventions.

15. Therefore, M/s Meghmani Dyes & Intermediates Ltd. Unit-II 100% EOU,

Plot No.99,100/A, & 102, Phase-II, GIDC, Vatva, Ahmedabad -382 445 were called

upon vide the impugned show cause notice to show cause as to why:-

(i) the Cenvat credit of Rs.16,13,583/- for the period from April-2008 to 07 th April,

2011) (Inclusive of Education Cess and Higher Education Cess) wrongly availed by them

as Cenvat Credit of Service Tax 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.

(ii) the Cenvat credit of Rs.20,22,2351- for the period from 08.04.2011 to April,

2013 (Inclusive of Education Cess and Higher Education Cess) wrongly availed by them

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) Penalty should not be imposed under Rule 15(3) of the Cenvat Credit Rules.

2004 [Applicable during the relevant period i.e. up to 26.02.2010) & Rule 15(2) of the

Cenvat Credit Rules, 2004 [Applicable during the relevant period .i.e. 27.02.2010 to

07.04.2011] 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 (1) (b) of Central Excise Act, 1944.

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

under Rule 14 of Cenvat Credit Rules, 2004 read with erstwhile Section 11AB and now

9 F.No. V.3 2/1 5-20/ADC/MIL/OA-UM 13

Section 11AA of Central Excise Act, 1944 as applicable during the relevant period.

DEFENCE REPLY

16. The assessee has submitted its defence reply dated 15.07.2013 received

on 16-07-2013 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 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.

18. 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.

354/73/2011-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.

19 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 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.

20. 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

10 F.No. V.32/15-20/ADC/MIL/0A-1/2013

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.

20.1 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.

21 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.

21.1 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 —

(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

11 F.No. V.32/ 1 5 -20/ADC/M IL/OA - 1/20 13

(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

22 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.

23 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'.

They also relied on various judgements to further their cause.

PERSONAL HEARING:

24. The personal hearing in the matter was held on 31.12.2013, 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.

15.07.2013 and requested to decide the case on its basis.

DISCUSSIONS AND FINDINGS:

25. 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.

26. I find that the assessee has contended that the SCN mentions wrong

periods in 2 nd para and the SCN mentions Secondary and Higher Education Cess as

Higher Education Cess etc. I find that the period of wrong availment of Cenvat credit

has been specifically explained in detail in the SCN itself in the table and about wrong

mentioning of Secondary and Higher Education Cess as Higher Education Cess, I do

12 F.No. V.32/15-20/ADC/MIL/0A-I/2013

not agree with the contention of the assessee as the complete amount of Cenvat credit

wrongly availed by them has been sought to be denied and demanded from them.

27. 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. 36,35,818/- during

the financial year from April, 2008 to April, 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 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.

28. 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 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. 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

13 F.No. V.32/15-20/ADC/MIL/OA-1/2013

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 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

14 F.No. V.32/15-20/ADC/MIL/0A-I/2013

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.

29 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. They also argued

that they can't be blamed for the change of mind of department because of one

judgment, which is beneficial to the revenue and ignoring the other rulings and Board

Circular. They have also argued that since they have declared relevant details in their

ER-2 and ER4, there was no suppression on their part. They also argued that since

they have complied with the requirement of self assessment and duty cast upon them

by law, it was the statutory responsibility of the officers to call for the required

15 F.No. V.32/15-20/ADC/MIL/0A-112013

information wherever necessary and that assessment and confirmation of assessment

should remain the primary responsibility of C.Ex. Officer.

30 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 03/06/2013, the demand can be restricted only for the period

from July, '2012 till April' 2013 instead of period from May'2008 to April, '13, as

proposed in the show cause notice.

31. The assessee has further argued that as the demand is not legal and

sustainable, 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.

32. 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

16 F.No. V.32/15-20/ADC/MIL/0A-1/2013

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 does 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 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)."

33. Thus, in light of the above, I hold that the CENVAT credit totally amounting

to Rs. 3,38,937/- was wrongly availed by the assessee on the above mentioned Service

during the period from 01-07-2012 to 13-04-2013 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.

17 F.No. V.32/15-20/ADC/MIL/0A-1/2013

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

ORDER

(i) I disallow the CENVAT Credit amounting to Rs. 3,38,9371- ( Rupees Three

Lakhs Thirty-eight Thousand Nine Hundred Thirty Seven only) for the period

from 01/07/2012 to 13/04/2013 and order to be recovered from M/s Meghmani

Industries Ltd (Unit-II). Plot No. 27, Phase-I, 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.

(ii) I drop the demand of remaining amount of Rs. 32,96,881/- for the period from

April, '08 to June, '2012 as per findings in para 30 above.

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

Ltd. Unit-II, 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. 1,00,000/- (Rupees One lakh only) upon M/s. Meghmani

Industries Ltd. Unit-II, Ahmedabad 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, Ahmedabad vide F. No. V.32/15-20/ADC/MIL/0A-I/2013 dated 19/06/2013

stands disposed of in above manner.

rib (Sameer Chitkara )

Additional Commissioner, Central Excise, Ahmedabad-I.

F.No. V.32/15-20/ADC/MIL/0A-I/2013

By RPAD/Hand Delivery

To,

M/s. Meghmani Industries (Unit-II) Plot No.27. Phase-I, GIDC, Vatva, Ahmedabad -382445 Copy To:

(i) The Commissioner C.Ex., Ahmedabad-I (ii) The Deputy Commissioner C.Ex., Div-III A'bad-I (iii) The Superintendent C.Ex., AR-Ill, Division-III A'bad-I

\(.1v)' The Superintendent (Systems) C.Ex., A'bad-I (v) The Assistant Commissioner, C.Ex. (TAR), A'bad-I (vi) The Deputy Commissioner C.Ex. (RRA), A'bad-1 (vii) The guard file

Date: 08/01/2014