In Beloorbayir Biotech Limited vs. Commissioner of Central Tax, the Bengaluru bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) held that Cenvat Credit is allowable in respect of sales commission paid to promote the sale.
In this case, the appellants are engaged in the manufacture and clearance of herbal extracts glucosamine and other drugs falling under various subheadings of Central Excise Tariff Act, 1985. During an internal audit, it was found that the appellant had availed CENVAT credit on “sales commission‟ paid to the commission Agents during the period of March 2010 to November 2014.
A show-cause notice was issued to the appellant on the ground that service tax paid on commission paid to domestic agents does not fall under the scope and definition of input service and thereafter, following the due process, the adjudicating authority demanded the recovery of CENVAT credit availed on sales commission along with interest and penalty. Appeal filed with the Commissioner (Appeals) was rejected. The Appellant then appealed before the CESTAT.
The Counsel for the appellant argued that the Board Circular No.943/4/2011-cx dated 29.4.2011 clarifies that the definition of “input service‟ allows all services used for clearance of final products up to the place of removal. He further contended that the activity of sales promotion is specifically allowed and, on many occasions, the remuneration for the same is linked to the actual sale. He also submitted that the Notification No.2/2016-CE dated 3.2.2016 inserted Explanation to “input service‟ definition “for the purpose of this clause, sales promotion includes services by way of sale of dutiable goods on the commission basis”. He then stated that the Explanation added to the definition of “input service‟ vide Notification No.2/2016 is declaratory in nature and therefore, applicable retrospectively. Relying on the case of Essar steels India Ltd. vs. CCE he concluded that the appellant was paid commission for doing the sales promotion activity and hence, the CENVAT credit is eligible.
The bench comprising of Judicial Member S.S. Garg relying on the decision in the case of Essar Steels India Pvt. Ltd. observed “I am of the considered opinion that the impugned order is not sustainable in law and the case of the appellant is squarely covered by the various decisions cited supra. Further, I find that the sales commission is directly attributable to sales of the products. Any activity which amounts to the sale of the products is deemed to be sales promotion activity in the normal trade parlance. The commission is paid on sales of the products/services with an intention to boost the sale of the company. In view of the same, the sales commission has a direct nexus with the sales which in turn is related to the manufacture of the products. It is to be understood that there need not be manufactured unless there is the sale of the product. To increase the manufacturing activity encouragement is being given for increased sales. Hence, the commission paid on sales becomes part of sales promotion resulting in increased manufacturing activity.”