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TT.4.: F. NO. V.32/15-21/ADC/Aries/0A-1/2013

311t2T FTtra: Date of Order : 31.01.2014

711 Frttur: Date of Issue : 31.01.2014

acnit ITIfta" / Passed by: Sri Sameer Chitkara, ADDITIONAL COMMISSIONER *******************************************************************

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311T #✓Order-In-Original No.: 05/ADDITIONAL COMMISSIONER/2014 ************4c********************************************** *****

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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.

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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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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/-.

Rt-g/Reference : chliut Tic thTlt. F.NO. V.32/15-21/ADC/Aries/0A-I/2013 dated 20.06.2013 issued to M/s. Aries Dye-Chem Industries, Plot No. C-1/260, Phase-II, GIDC, Vatva, Ahmedabad.

2

1 F.No. V.32/15-21/ADC/Aries/OA-1/2013

BRIEF FACTS OF THE CASE:

M/s. Aries Dye-Chem Industries, Plot No. C-1/260, Phase-II, GIDC, Vatva, Ahmedabad

(hereinafter referred as the "said assessee") is having Central Excise Registration No.

AAMPP5809LXM001. They are engaged in the manufacture of excisable goods falling under

chapter 32 of the Central Excise Tariff Act, 1985.

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

Tax paid on Outward Freight i.e. on transportation of finished goods cleared to their customers

and the Service Tax paid on commission paid to commission agent for sale of finished goods

cleared to their customers during the period from July'2008 to February'2013. The summary of

wrongly availed Cenvat credit of Service Tax is as under [Details of the credit as per "Annexure-

B i.e. Sr. 2 of Annexure-A. " enclosed to the notice]:-.

Sr. No.

Year Month to which credit relates

Credit relates to the service on which Service Tax paid

Amount of Cenvat Credit [In Rs.JJ

1. 2008-09 July, 2008 Foreign Commission 4,06,800

July, 2008 GTA 19,091

January, 2009 GTA 7,065

January, 2009 GTA 6,192

January, 2009 GTA 1,550

March, 2009 Foreign Commission 5,51,182

March, 2009 GTA 3,090

2. 2009-10 July, 2009 Foreign Commission 2,26,742

October, 2009 Foreign Commission 1,34,198

February, 2010 Foreign Commission 62,739

February, 2010 GTA 3,310

3. 2010-11 March, 2011 GTA 15,879

March, 2011 GTA 14,796

March, 2011 GTA 13,102

March, 2011 GTA 16,187

4. 2011-12 - - 0

5. 2012-13 (Upto Feb-13.

- - 0

TOTAL 14,81,923/-

3. Whereas the information regarding availment of Cenvat credit of Service Tax paid on

Outward Freight i.e. on outward transportation of finished goods cleared to their customers and

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

assessee vide their letter dated 12.04.2013 in reference to letter F.No.AR-IV/Cenvat Credit

S.Tax/2012-13 dated 19-02-2013 issued by the Superintendent, Central Excise, Range-IV,

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.14,81,923/-

2 F.No. V.3 /15-21/ADC/Aries/0A-1/2013

4. The definition of the term "input service" as given at Rule 2(0) 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;

5. Whereas as per the above definition of input service, thie services used by the

manufacturer, should have a nexus with the manufacture of the final product 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 and the services which are enumerated in the inclusive clause, which

applies both, in the context of the provider of output services as well a the manufacture, cannot

be read without considering the meaning of input service under Me 2(l)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 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. Also the outward freight specifically

upto the place of removal is included in the above referred definition of 'input service". Hence,

the said assessee appeared to have wrongly availed Cenvat Credit of Service tax of Rs.

1,00,262/- paid on Outward Transportation and of Rs. 13,81,661/- paid on commission paid to

foreign agents contrary to the provisions of Rule 3 of Cenvat Credit Rules, 2004 read with Rule

2(1) (ii) of the Cenvat Credit Rules, 2004, which needs to be recovered from them alongwith

interest.

6. Hon'ble High Court of Gujarat in case of Commissioner of CeOtral Excise, Ahmedabad-

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

07.11.12 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(1) of the Cenvat Credit Rules 2004, Consequently, Cenvat Credit would not be admissible

in respect of the commission paid to foreign agents".

3

F.No. V.32/I5 -2 1 /ADC/Aries/OA-ULU

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 -

(1)

(iii) ............ (iv) .. (v) (vi) . (via) ... (vii) ............ (viia) ............ (viii) ............ (ix) the service tax leviable under section 66 of the Finance Act; and

(xa) ............ (xi) paid on-

N any input or capital goods received in the factory of manufacture offinal 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 appears that services of outward transportation and commission paid to the

foreign agent used by the manufacture 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 paid on outward freight & commission paid to foreign agent

which do not fall within the purview of definition of input service. The said services appear to be

availed by the said assessee after the clearance of finished goods from the factory gate i.e.

beyond the place of removal. Therefore, since the services of outward transportation and

commission paid to foreign agents for sale of finished goods do not have any relation with the

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

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

manufacturer is not eligible to take credit on such inadmissible services as per Rule 3 of Cenvat

Credit Rules,2004.

9. Further, services of the foreign agent also do not appear to fall under the category of

sales promotion. As per the defmition of commission agent defined under clause (a) to the

Explanation under section 65(19) of the Act, 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

appears to be directly responsible for selling or purchasing on behalf of another person and that

4 F.No. V.3t/15-21/ADC/Aries/0A4/2013

such activity cannot be considered as sales promotion. There appears to be a clear distinction

between sales promotion and sale. A commission agent is directly concerned with sales rather

than sales promotion. Therefore, the service provided by commission agent does 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 Rules and said assessee not appears to be eligible for CENVAT credit in respect of

the service tax paid on commission paid to commission agents.

10. A Statement of Shri Dilip Ladva, Excise in-charge and Authorized Signatory of the said

assessee was recorded on 22-04-2013 under Section 14 of Central Exciise Act, 1944 wherein he

interalia stated that he is looking after day to day excise related work since last 04 years. On

being asked he stated that they have availed the Cenvat Credit of Service tax paid on the

commission paid to the foreign agents and on outward transportation for the period from 2008-

09(from July,2008) to 2010-11 [ i.e. during July'2008 to March, 20111; that they are not aware

whether the cenvat credit is admissible or not on the commission paid to the foreign agents and

outward freight.; that they have never informed the central excise department regarding

availment of the cenvat credit on Service Tax paid on the commission paid to the foreign agent

and outward transportation; they have availed the cenvat credit for the period from July, 2008 to

March'2011; that they have provided the details of the cenvat credit availed on the commission

paid to the foreign agent and outward freight for the period from July'2008 to March'2011; that

they have not availed any cenvat credit on the said services except they have provided the details

vide their letter dated 12-04-2013.

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 appears to be inadmissible in as much as the same does 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 appears that the said assessee knew that the services in respect

of which they had taken Cenvat Credit were the services availed beyond the factory gate and

which did not have any relation whatsoever in or in relation to manufacIture of goods and did not

qualify as input services. 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 Gujarat in the

case of CCE, Ahmedabad-II v/s. M/s Cadila Healthcare Limited, 2013, TIOL-12-HC-AHM-

ST dated 18.10.2012 & 07.11.2012. Also Rule 2 (1) of Cenvat Credit Rules, 2004 defining what

constitutes an input service, includes services availed upto the place of removal and does not

include services related with sales or services availed beyond the place of removal, 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 credilt in violation of Cenvat

Credit Rules. It appears that that the said assessee has taken the cenvat credit in violation of

Cenvat Credit Rules, 2004. It appears that the said assessee has taken the cenvat Credit on the

services which did not qualify as 'input service" despite knowing that the same have been

5

1' .NO. V .J.L/ 1 J-Z //11)1.-://iIIChtyt -4/AVA4

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 definition of "input service". It

appears that the said assessee, though, 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

foreign commission agents and outward freight which do not qualify to be included as "input

service" defined under Rule 2(1) of Cenvat Credit Rules,2004. Thus, it appears that the said

assessee have 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 has taken the Cenvat

Credit on the services despite knowing that the same did not qualify as 'input services' (ii) the

services have not been used in or in relation to the manufacture of final products (iii) the

services of foreign commission agents were related to sales and not sales promotion and availed

beyond the place of removal and as such would not fall within the ambit of the definition of

`input service' (iv) the services of GTA for outward transportation were availed beyond the

place of removal and as such would not fall within the ambit of the definition of 'input service'

(v) by failing to discharge the obligation cast on them under Rule 9(6) of the Cenvat Credit

Rules, 2004 and (vi) by not informing the department about the availment of credit of service

tax paid on commission paid to foreign commission agents and outward transportation

.Therefore, the said Cenvat Credit amounting to Rs. 14,81,923/- 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 (from July,2008) to 2010-11 (upto March,2011) and the

same is required to be recovered by invoking provisions of extended period of five years

contained in erstwhile Section 11A(1) of the Central Excise Act,1944

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 and the provisions

of Sections 11A and 11AB of the Central Excise Act, 1944 shall apply mutatis

mutandis for effecting such recoveries. Further, it appears that the assessee has suppressed

the material facts regarding taking of Cenvat Credit of duty paid on services availed beyond the

factory gate by way of not indicating the same in their monthly/quarterly returns or in any other

manner. It, therefore, appears that an amount of Rs.14,81,923/ - taken / availed as

Cenvat credit of Service Tax paid on Commission paid to Foreign Agent & on outward

transportation which they were not entitled for, is recoverable from the said assessee

under Rule 14 of the Cenvat Credit Rules, 2004 read with the provisions of

erstwhile Section 11A(1) of the Central Excise Act, 1944 as applicable during relevant

period, by invoking the extended period of five years. They are also required to pay

interest in terms of provisions of Rule 14 ibid read with erstwhile SectionllAB of the

Central Excise Act, 1944 in force during material period

14. In view of the above, it appears 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

6 F.No. V.3/15-21/ADC/Aries/OA-I/2013

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. 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] & Rule 15(2) of the Cenvat Credit Rules, 2004 [Applicable during

the relevant period i.e. from 27.02.2010 to 07.04.2011] read with erstwhile Section 11 AC

applicable during relevant period for the above said contraventions

15. The said assessee have voluntary reversed Rs.14,81,923/- under protest vide RG-23A- Pt.

II Entry No. 77 dated 30-4-2013 (Sr. No. 4 of Annexure-A), which they have taken/availed

wrongly as Cenvat credit of Service Tax paid on Commission paid to Foreign Agent & on

outward transportation.

16. Therefore, the said M/s. Aries Dye-Chem Industries, Plot No. 1-1/260, Phase-II, GIDC,

Vatva, Ahmedabad were called upon vide the impugned show cause notice to show cause as to

why:-

(i) Cenvat credit of Rs.14,81,923/ - for the year from July'2008 to March, 2011

[covering period from 2008-09 (from July, 2008) to 2010 -11 (Upto March -2011)J

(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. Since the said amount has been already paid by them 'under protest', the

same should be appropriated against the said demand.

(ii) 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 from

27.02.2010 to 07.04.2011] read with erstwhile Sectionl 1 AC ibid in force during

relevant period.

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

under the provisions of Rule 14 of Cenvat Credit Rules, 2004 read with erstwhile

Section 11AB of Central Excise Act, 1944 applicable for the relevant period

DEFENCE REPLY

17. The assessee has submitted its defence reply dated 17.12.2013 received on 17-12-2013

wherein they have stated that allegations purported to have been made in the Show Cause Notice

are due to misinterpretation of the definition of input services.

18. They have submitted that they have availed credit on service tax paid only in respect of the

r".1.11J. V 1J-LT11 -11:"....71-11 lloaf VI 1 — a,

consignments cleared for export and the prices charged by them from customers were inclusive of

freight and insurance charges as the delivery of goods is "FOR" destination and the place of

removal as defined under central excise law is the post of export and not the factory gate. in

support of their contention, they have cited the case of Commissioner of Central Excise,

Madurai Vs. Stangal Pickles & Preesrves- 2011 (22) S.T.R. 396 (Tri.-Chennai)

19. They have further submitted that as regards allegations of wrong availment of credit of

Service Tax paid on commission paid to foreign based agents, the agents procure the order from

customer and thereafter goods were manufactured as per the specification of the customer.

Samples of the goods which were manufactured as per the specification of the customer was sent

for approval and after getting approval, the goods were cleared. The assessee submitted that they

are entitled to the credit in view of the clarification given by the CBEC vide Circular No

943/04/2011-CX dated 29.04.2011.

20. The assessee further submitted that the allegation of suppression of facts is also not

sustainable as it has been made without proper justification and their unit has been audited in

which all the records of cenvat credit on input and input services have been examined. They

sought to rely on various case laws in support of their contentions.

PERSONAL HEARING:

21. The personal hearing in the matter was held on 16.01.2014 wherein Shri Dilip Ladva,

Excise Executive and authorized signatory of the assessee appeared for the same and reiterated

the stand taken by them in their written submission dtd. 17.12.2013 and requested to decide the

case on its basis.

DISCUSSIONS AND FINDINGS:

22. 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 there are

two basic issues to be dealt with in the impugned show cause notice; one pertains to admissibility

of Cenvat credit taken and utilized by the said assessee on service tax paid on commission paid

to their agents for sale of their finished goods and the other about admissibility of Cenvat credit

of service tax taken and utilized on the outward freight.

23. I first take up the issue of admissibility of Cenvat credit taken and utilized by the said

assessee on service tax paid on commission paid to their agents for sale of their finished goods. I

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. 13,81,661/- during the period from July, 2008 to February, 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(1) of the Cenvat Credit Rules, 2004 ( here-in-after referred to

8 F.No. V.32/15-21/ADC/Aries/0A-I/2013

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.

24. 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

1TR 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

9

F.No. V.32/15-21/ADC/Aries/0A-I/2013

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(1) 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 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

10 F.No. VA2/1 5-2 1 /ADC/Aries/OA-I/2013

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 foreign sales agents.

25. I further find that relying on the fact that their unit has also been audited from time to

time, 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 have also

argued that they have declared relevant details in their ER-1. They also argued that they have

shown this credit amount in RG-23A Pt-II as "Service Tax paid on Foreign Sales Commission".

26. 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 in the point of the admissibility of Cenvat credit taken and

utilized by the said assessee on service tax paid on commission paid to their agents for sale of

their finished goods 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 20/06/2013, the demand can be

restricted only for the period from May, 2012 instead of period from July, 2008 to February,

2013, as proposed in the show cause notice.

27. I find that the said assessee has not availed any cenvat credit oti the Service Tax paid on

11 F.N o. V.32/15-21/ADC/Aries/0A- 1/201 .5

commission paid to commission agents in the years 2011-12 and 2012-13 (upto February, 2013)

and therefore I find no need to confirm any amount towards Cenvat credit taken and utilized by

the said assessee on service tax paid on commission paid to their agents for sale of their finished

goods.

28. I now take up the issue of admissibility of Cenvat credit of service tax paid on the

outward freight i.e. on transportation of finished goods cleared to their customers. Vide

Notification No. 10/2008 CE (NT) dated 01/03/2008, with effect from 01/04/2008, the above

definition was amended as under:

(1) "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 offinal products and clearance offinal products up to 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;

29. Though the term "Place of removal" is not defined in the Cenvat Credit Rules, 2004, in

Section 4 (3 } (c) of the Central Excise Act, 1944, it is defined as follows:

(c) "place of removal" — means

(i) factory or any other place or premises of production or manufacture of the excisable goods;

(ii) warehouse or any other place or premises wherein the excisable goods have been permitted to be

deposited without [payment of duty;]

(iii) depot, premises of a consignment agent or any other place or premises from where the excisable

goods are to be sold after their clearance from the factory;

from where such goods are removed;

30. In the instant case on hand, it is beyond dispute that outward freight services were

utilized by the assessee for removal of the goods from their factory. Thus, it cannot be said that

these services have been used by the assessee, directly or indirectly, in or in relation to the

manufacture of final products or clearance of final products upto the place of removal, in as

much as the place of removal was factory gate in this case, as defined under Section 4(3)(c) of

the Central Excise Act,1944. Since the credit of input services i.e. outward transportation availed

in or in relation to the clearance upto the place of removal is only admissible, the said service

12 F.No. V. 2/15-21/ADC/Aries/0A-I/201 3

availed by the assessee do not qualify to be input service and credit of service tax paid on such

services is not admissible.

31. Further, The word 'from' was substituted by the word 'upto' made effective from 1.4.2008

by notification No. 10/2008- CE(NT) dated 1.3.2008 and Hon'ble High Court of Karnataka in the

case of Commissioner of Central Excise & S. T., LTU, Bangalore vs. ABB Ltd. has also

confirmed the view that the legislature's intention is manifest and transportation beyond place of

removal cannot be included within the meaning of activities eligible fo cenvat credit.

32. Furthermore I find that the said assessee has, in their defence 'reply, contended that they

have availed cenvat credit on service tax paid only in respect of thel consignments cleared for

export and their delivery of the goods is "FOR DESTINATION" and accordingly, their place of

removal is the port of export and not the factory gate. On this contention, I find that they have

never submitted any documents in support of their contention even when they were asked to

produce relevant documentary evidences in their support during personal hearing. Merely stating

something in their defence does not serve any purpose as it has to be substantiated with

documentary evidence also.

33. Thus in light of the above findings, I have no hesitation to hold that the said assessee is

not eligible for Cenvat credit of service tax on outward transportation charges beyond place of

removal.

34. I further find that the assessee did not inform the department that they were taking Cenvat

Credit of Service Tax paid on the outward transportation services availed beyond the factory

gate. The said facts were neither mentioned in their periodical returns as the assessee had just

mentioned in their periodical return the gross Cenvat Credit of the said Service Tax they have

availed and subsequently utilized for the payment of the Central Excise Duty. The assessee never

specified the nature of input services for which they have availed the Cenvat Credit. Thus it was

not possible for the scrutinizing officer to detect the nature of the input services. The assessee

has thus, suppressed from the department, the nature of input services availed by them and took

Cenvat Credit of Service Tax in respect of the said services which had been actually availed

beyond the factory gate. Even during personal hearing also, they have not submitted any

documents to support their contentions. Thus, it is obvious that the assessee has suppressed the

vital facts regarding availment of Cenvat Credit on outward freight ,'Which does not qualify as

input service. It goes without saying that had the assessee not been summoned and their

statement recorded, department could have never known about the wrong availment of such huge

amount of Cenvat Credit on the ineligible service utilized by the said assessee beyond their

factory gate.

35. 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 11 AA, as the

case may be, of Central Excise Act, 1944 can be charged and recotvered from them. In this

regards, I find that provisions of Rule 14 of the CCR, 2004 (as applicable during the period in

13

F.No. V.32/15 -21/ADL/Anesitk - itzvi.)

question) clearly provide 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 11 A and 11 AA 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 11 AA ibid.

36. 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 transportation of finished goods cleared to their customers

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 (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 11 AC of Central Excise Act,

1944 from 27.02.2010 to 08.04.2011. As regards proposal for 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 have been proved as discussed in forgoing paras, the

penal provisions under said Rule 15(2) read with Section 11 AC ibid have to be invoked in this

case and penalty is imposable. Hon'ble Supreme Court Larger Bench has held that penalty under

Section 11 AC is held as imposable and mandatory in the case of Union of India vs.

Dharamendra Textile Processors — [2008 (231) E.L.T.3 (S.C.)]

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

1,00,262/- was wrongly availed by the assessee on the above mentioned Service during the

period from July, 2008 March, 2011 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 11AB of the Central Excise Act, 1944. The said

assessee is also liable to penalty under Rule 15(2) of the Cenvat Credit Rules, 2004 read with

Section 11AC of the Central Excise Act, 1944 for the relevant period for their contraventions as

discussed above.

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

ORDER

(i) I disallow the CENVAT Credit amounting to Rs. 1,00,262/- ( Rupees One Lakh

Two Hundred Sixty Two only) for the period from July, 2008 March, 2011 in

terms of the provisions of Rule 14 of CENVAT Credit Rules, 2004 read with

Section 11 A of Central Excise Act, 1944 and since the amount has already been

paid under protest, I vacate the protest for this amount and appropriate it.

14 F.No. V42/15-21/ADC/Aries/0A-I/2013

(ii) I drop the demand of remaining amount of Rs. 13,81,661/- availed on Service Tax

paid on commission paid to Foreign agents as per findilgs in para 30 above.

(iii) I order to recover interest at the prescribed rates frdm M/s. Aries Dye-Chem

Industries Ltd., Ahmedabad on the said wrongly availe4l Cenvat credit in terms of

the provisions of Rule 14 of CENVAT Credit Rule* 2004 read with Section

1 lAB of the Central Excise Act, 1944.

(iv) I impose penalty of Rs. 1,00,262/- Rupees One Lakh Two hundred Sixty-two

only) upon M/s Aries Dye-Chem Industries Ltd., Ahmedabad under the provision

of Rule 15(2) of the Cenvat Credit Rules, 2004 (Applicable during the relevant

period) read with erstwhile Sectionl 1 AC ibid in force during relevant period. The

amount of penalty will be 25% of the penalty imposed in case the amount of

penalty is within thirty days from the date of communication of this order along

with disallowed cenvat credit and interest payable thereon under Section 11 AB of

the Central Excise Act, 1944.

The Show cause Notice issued to M/s. Aries Dye-Chem Industries, Plot No. C-1/260,

Phase-II, GIDC, Vatva, Ahmedabad vide F.No. V.32/15-21/AD(/Aries/0A-1/2013 dated

20/06/2013 stands disposed of in above manner.

(Sameer Chitkara )

Additional Commissioner,

Central Excise, Ahmedabad-I.

F.No. V.32/15-21/ADC/Aries/OA-I/2013 Date: 31/ 01 /2014.

By Registered Post A.D./Hand Delivery

To, M/s. Aries Dye-Chem Industries, Plot No. C-1/260, Phase-II, GIDC, Vatva, Ahmedabad

Copy to:

1. The Assistant Commissioner, Central Excise, Division-III, Ahmedabad-I.

2. The Superintendent, Central Excise, AR-IV, Division-III, Ahmedabad-I.

The Superintendent (Systems) C.Ex., A'bad-I

4. The Assistant Commissioner, C.Ex. (TAR), A'bad-I

5. The Deputy Commissioner C.Ex. (RRA), A'bad-I

6. Guard File.