The Calcutta High Court in Principal Commissioner Of Central Excise Versus M/s Himadri Speciality Chemical Ltd. allowed the pharma company to avail CENVAT credit on sales promotion services.
The case, in brief, is that the respondent/assessee is in the business of manufacturing coal pitch, naphthalene, HC Oil, carbon black and similar preparations falling under TSH 2708 1010, 2707 4040, 2707 9100, and 2803 0000 of the First Schedule to the Central Excise Tariff Act, 1985. The audit was conducted for the period from April 2014 to March 2015, and the appellant/department noticed that the respondent has availed and utilised input credit of service tax against the commission paid to various service providers who are acting as commission agents.
It was alleged by the Department that the respondent deliberately suppressed material facts from the department to evade payment of tax. The allegations led to the issuance of a show-cause notice, calling upon the respondent to show cause as to why the CENVAT duty shall not be confirmed and recovered from the respondent with interest and penalty as per Rule 14 of the CENVAT Credit Rules, 2004 read with Sections 11A(4), 11AA, and 11AC of the Central Excise Act, 1944.
Hence, in light of the observations in the case of Cadila Health Care Limited, a show cause notice was issued by the Department. In the said case, the position stood clarified that sales promotion would include services by way of sale of goods on a commission basis.
The Court however observed that “Firstly, the decisions of one other High Court in all cases will not bind another High Court and such decisions were held to be of persuasive value. In any event on facts in Cadila Health Care Limited, the Court found no material on record to indicate that commission agents were involved in the activities of sales promotion…”
It was also observed that it is seen and also been noted by the adjudicatig authority that the commission paid by the respondent to the commission stockist is included in the assessable value of the goods on which excise duty has been paid by the respondent on the final products namely carbon black. Reliance was placed on Coca Cola India Private Limited wherein it was held that “....the burden of service tax must be borne by the ultimate consumer and not by any intermediary i.e. manufacturer or service provider. In order to avoid the cascading effect, the benefit of Cenvat credit on input stage goods and services must be ordinarily allowed as long as connection between the input stage goods and service is established. Conceptually as well as a matter of policy, any input service that forms a part of the value of the final product should be eligible for the benefit of Cenvat credit….”
“.....The manufacture thereby can avail the credit of the service tax paid by him. Once the cost incurred by the service has to be added to the cost, and is so assessed, it is a recognition by Revenue of the advertisement services having a connection with the manufacture of the final product. This test will also apply in the case of sales promotion…”