Essar Steel India Ltd. v. Commissioner of Central Excise & ST, Surat-I

[Order per : P.K. Das, Member (J)]. - The relevant facts of the case, in brief, are that the appellant M/s. Essar Steel India Ltd. (earlier known as M/s. Essar Steel Ltd.), was engaged in the manufacture of Hot Briquetted Iron (H.B.I.), Hot Rolled Coils (H.R.C.), etc., classifiable under Chapters 72 and 73 of the Schedule to the Central Excise Tariff Act, 1985. They were availing Cenvat credit on inputs/capital goods and input services under Cenvat Credit Rules, 2004. During the course of audit conducted by the officers of CERA, it was noticed that the appellant had availed input service credit of Service Tax paid on commission to overseas agents for rendering the services during the period November, 2005 to March, 2008. The appellant entered into agreements known as “International Market Service Agreements” with various companies at overseas for rendering sales promotion service. According to the Revenue, the services were received and utilized by the appellant for selling of the goods and not in relation to the manufacture of the goods and clearance of the final product from the place of removal, which could not be considered as “input service” as defined under Rule 2(l) of the Rules, 2004.

2. A show cause notice dated 1-1-2009 was issued, proposing to deny the Cenvat credit along with interest and to impose penalty availed by the appellant, in respect of Service Tax paid on commission to non-residents or commission agents/consignment agent for domestic service for the period from November, 2005 to March, 2008. On the same issue, nine show cause notices were issued for the period April, 2008 to February, 2014. By the impugned order, the adjudicating authority disposed of all the show cause notices and confirmed the demand of Cenvat credit along with interest and also imposed penalty on the appellant.

3. The learned advocate on behalf of the appellant submits that the appellant paid the Service Tax on the commission for the services rendered by various marketing agents, in overseas and India for promotion of market of the steel product, manufactured by them. The activity undertaken by the agents are in the nature of sales promotion, which is covered under the inclusive part of the definition of “input service” as defined under Rule 2(l) of the Rules, 2004. It is submitted that the adjudicating authority passed the adjudication order on the basis that they were sales commission agents. The adjudicating authority misread the decision of the Hon’ble Gujarat High Court in the case of CCE, Ahmedabad-III v. Cadila Healthcare Ltd. - (Guj.). The learned advocate drew the attention of the Bench to the relevant portion of the decision in the case of Cadila Healthcare Ltd. (supra) and the various agreements with agents, to substantiate that the services rendered by the marketing agents are in the nature of sales promotion and marketing, and not sales commission agents.

4. He further submits that the adjudicating authority proceeded on the basis that the commission is linked with the sales and therefore, it is sales commission, which is contrary to the Board Circular No. 943/4/2011-CX, dated 29-4-2011. It is clarified that Cenvat credit on the activity of sales promotion is specifically allowed and on many occasions, the remuneration for the same is linked to actual sale. It is further submitted that the definition of “input service” under Rule 2(l) of Rules, 2004, has been amended by Notification No. 2/2016-CX (N.T.), dated 3-2-2016, by insertion of explanation that the sales promotion includes the services by way of sale of dutiable goods on commission basis. It is submitted that the said explanation as inserted by Notification No. 2/2016-C.E. (N.T.) (supra) in conformity with the Board Circular, 29-4-2011 would be clarificatory/declaratory nature and effective retrospectively. He relied upon the recent decision of the Hon’ble Supreme Court in the case of Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Pvt. Ltd. - (2015) 1 SCC 1 and in the case of Commissioner of Income Tax-I, Ahmedabad v. Gold Coin Health Food Pvt. Ltd. - (2008) 9 Supreme Court Cases 622. It is also submitted that it is a case of revenue neutrality and the demand is partly barred by limitation. The learned Advocate submitted written submission along with compilation of case laws.

5. The learned authorised representative on behalf of the Revenue reiterates the findings of the adjudicating authority. He submits that the Hon’ble Gujarat High Court in the case of Cadila Healthcare Ltd. (supra) categorically stated that the commission paid to various agents concerned with sales would not come within the definition of “input service” under Rule 2(l) of Rules, 2004. He submits that the Board Circular would not be applicable in this case and the decision of Hon’ble Gujarat High Court is binding on the Revenue. He submits that the Hon’ble Gujarat High Court in the case of Astik Dyestuff Pvt. Ltd. v. CCE & C - (Guj.), observed that if there is a conflict between the jurisdictional High Court and C.B.E. & C. Circular, the decision of jurisdictional High Court is binding to the Department rather than C.B.E. & C. Circular. He drew the attention of the Bench to the relevant portions of the various agreements. He submits that except one agreement, all other agreements would show that the appellants paid the sales commission to the foreign agents. He referred to the decision of the Tribunal in the case of Brindco Sales Ltd. v. CST, Delhi - (Tri.-Del). He also relied upon the decision of Hon’ble Madhya Pradesh High Court in the case of Commissioner Of Income-Tax v. Mohd. Ishaque Gulam - 1998 (232) ITR 869 MP. He submits that the appellants admitted that they have paid the sales commission in their reply to the show cause notice.

6. Heard both sides and perused the records.

7. The appellants in their replies to the show cause notices stated that they have been granted the status of Premier Trading House by the Directorate General of Foreign Trade. They have engaged various agents in the overseas market and also to have better penetration and realization in the global market for marketing their product in India as well as overseas. They entered into agreement with various marketing agents, mainly for information relating to the market on a regular basis which focus on market and commission segments. The appellants paid the Service Tax on commission paid to the marketing agents for sales promotion and availed Cenvat credit as “input service” under Rule 2(l) of Rules, 2004.

8. According to the Revenue, the services rendered by the marketing agents are for sales of the goods and therefore, it will be treated as sales commission and not sales promotion. We find that “sales promotion” is covered within the inclusive part of the definition of “input service” of Rule 2(l) of Cenvat Credit Rules, 2004. The relevant portions of the definition of “input service” under Rule 2(l) of the Cenvat Credit Rules, 2004 are reproduced below :-

“(A) Prior to 1-3-2008 :

(l) “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 from the place of removal,

and includes services used in relation to 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, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal;

(B) With effect from 1-3-2008 :

(l) ”input service” means any service, -

(iii)    used by a provider of taxable service for providing an output service; or

(iv)    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 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, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal; but excludes services.”

9. On plain reading of the definition of “input service”, it is clear that Cenvat credit is admissible on Service Tax paid on “Sales Promotion”. C.B.E. & C. Circular No. 934/4/2011-CX (N.T.), dated 29-4-2011 at Serial No. 5, clarified that “the definition of input services allows all credit on services used for clearance of final products upto the place of removal. Moreover, activity of sale promotion is specifically allowed and on many occasions, the remuneration for same is linked to actual sale”. In the case of Cadila Healthcare Ltd. (supra), the issue was raised before the Hon’ble Gujarat High Court whether Cenvat credit is admissible on commission paid to the foreign agents. In that case, the assessee contended that the Service Tax paid on commission paid to the commission agents for sale of final products is available as credit according to the inclusive part of the definition of “input service”, which includes services in relation to sales promotion. The Hon’ble High Court denied the Cenvat credit on the ground that there is nothing to indicate that such commission agents were actually involved in any sales promotion activities as envisaged under the said expression. It is the case of the assessee that Service Tax had been paid on commission paid to the commission agents for sale of final products.

10. On perusal of the adjudication order, we find that the adjudicating authority observed that in the instant case, the services of sales promotion agent/consignment agent services located outside factory premises were availed by the appellant in respect of clearance of the goods and the services were not directly or indirectly in or in relation to either the manufacturing activities of their final product or clearance of the final product up to the place of removal. It is also observed that the services rendered by the sales commission agents are not related to sales promotion, which connotes with promotion that supplements or co-ordinates advertising, promotional material, publicity, packing, a message issued on behalf of the assessee’s final products intended to increase the sales or to augment the sales by providing various incentives. The adjudicating authority strongly relied upon the decision of the Hon’ble Gujarat High Court in the case of Cadila Healthcare Ltd. (supra). We find that the Hon’ble Gujarat High Court in the case of Cadila Healthcare Ltd. (supra) held that the sales promotion is covered within the definition of “input service” and Cenvat credit is admissible. The relevant portions in the case of Cadila Healthcare Ltd. (supra) are reproduced below :-

“(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 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 judgment, 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.”

11. In the case of Cadila Healthcare Ltd. (supra), it has been held that the commission agent is a person, who acts on behalf of another person and causes sale or purchase of goods. In other words, he is directly responsible for selling or purchasing on behalf of another person and that such activity cannot be considered as sales promotion. A commission agent is directly concerned with sales rather than sales promotion. The Hon’ble Gujarat High Court observed that 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. The learned advocate opposed the finding of the adjudicating authority and submits that in the present case, the overseas agents were engaged for promotion of market and they are not commission agents for selling the goods. He drew the attention of the Bench to the agreement dated 22-3-2003 under the name and style of “International Marketing Service Agreement” between the appellant-company (in short ESTL) and Stemcor (S.E.A.) PTE Ltd. (STEMCORSEA). The relevant portion of the said agreement is reproduced below :-

“ARTICLE-I

ESTL has set up and operates at 2.4 million ton per annum steel plant at Hazira and exports substantial volumes of its production to the International markets and in the absence of its own network of international office has felt the need to outsource the provision of services overseas to support in international marketing efforts and whereas STEMCORSEA is a leading trading house with Global presence through its network of offices and is an active player in the steel trading business. (STEMCORSEA is a subsidiary company of Stemcor Limited, a company incorporated under the laws of England) have indicated in providing the necessary overseas services to ESTL.

Accordingly, the parties hitherto mutually agree as hereunder.”

ARTICLE-III

2. STEMCORSEA shall be responsible for providing the following services :

-     Providing market information on a quarterly basis for the various markets and segment of ESTL focus.

-     Co-ordinate visits of ESTL technical/commercial to the various markets and arrange necessary meeting for ESTL personnel, effectively market their products.

-     Provide assistance in documentation as may be necessary for expedition release of proceeds from the export transaction from the International Banks/Clients.

-     Providing assistance for filling documents for speedy formalities, transportation, survey, inspection and handling.

-     Providing assistance for expeditious settlement of claims, Stemcor could be liasing with the buyers for claim settlements and help in appointment of surveyors and insurance agencies.

-     Provide assistance for recovery of dues, if any, help in exploring other export markets, providing market feedback and developing clientele for enhancing the market share.

-     Provide assistance in identifying and appointing agencies for providing legal services in the event of disputes if any with clients in the clause of ESTL’s international marketing.

ARTICLE-V AGENCY COMMISSION

In consideration of the service provided by STEMCORSEA, ESTL agrees to pay STEMCOR commission at USD 15 per metric ton of all its export sales including export sales to STEMCORSEA as a principal. This percentage may, however, modified for individual shipments by mutual agreement.”

12. The learned authorised representative on behalf of the Revenue also drew the attention of the Bench to another agreement dated 1-2-2008, which is also under the name and style of “International Marketing Service Agreement” between the appellant-company (in short ESTL) and Essar Steel Holding Ltd., Mautitius (ESHL). The relevant portion of the said agreement is as under :

“WHEREAS :

(1)     ESTL has set up and operates at 4.6 million ton per annum steel plant at Hazira and exports substantial volumes of its production to the International markets and in the absence of its own network of international offices across all major markets in the world has felt the need to outsource the provision of services overseas to support in International marketing efforts.

(2)     ESHL, a company with a network of its offices/associates worldwide have indicated in providing the necessary overseas services to ESTL including inter alia, study the steel markets in different continents and provide inputs to ESTL to export steel products, render assistance in identifying new customers, render assistance in travel of ESTL marketing team, and assist ESTL in documentation for export shipments and recovery of such sale proceeds from the customers.

ARTICLE-II SCOPE OF SERVICES

The Services to be provided by ESHL :

(a)     to provide :

(i)      Market information on a quarterly basis for the various markets and segment of ESTL focus.

(ii)     Assistance in preparing contract documentation with clients in accordance with International practices.

(iii)    Assistance in documentation as may be necessary for expeditious release of proceeds from the export transaction from the International Banks/Clients.

(iv)    Assistance for filling documents for speedy release of goods, co-ordinating with the port authorities for completion of shipping formalities, transportation, survey, inspection and handling.

(v)     Assistance for expeditious settlement of claims, ESHL will be liaising with the buyers for claim settlements and help in appointment of surveyors and insurance agencies.

(vi)    Assistance for recovery of dues, if any, in exploring other markets, providing market feedback and developing clientele for enhancing the market share.

(vii)   Assistance in identifying and appointing for providing legal services in the event of disputes if any with clients in the case of ESTL’s international marketing.

ARTICLE-III AGENCY COMMISSION, BILLING & PAYMENT

In consideration of the Services provided by ESHL, ESTL agrees to pay ESHL a commission at such rate as may be mutually agreed in both ESHL and ESTL on all the exports made to the foreign buyers. The said commission may however be modified by individual shipments as per the mutual agreement of the Parties.

ESTL shall provide full details such as name of vessel, details and quantity shipped, invoice value, etc., to ESHL on completion of each shipment. On receipt of the said details ESHL will raise necessary debit notes/invoices on ESTL at the agreed commission rate. ESTL will remit the commission against above debit notes immediately upon realization of sale proceeds of the relevant exports to ESHL’s bank account as per the details to be provided by ESHL.”

13. The learned authorised representative also drew the attention of the Bench to the similar agreements with other companies. It is contended that the Hon’ble Gujarat High Court in the case of Cadila Healthcare Ltd. observed that in the case of sales promotion, larger population of consumers is targeted. Such activities relate to sales in general to the consumer at large. It is contended that none of the agreements would show that it is targeted for sales promotion of a large population of consumers. Rather, the services provided for recovery of dues, expeditious settlement of claim as shown in the scope of services and would clearly show that the overseas agents were engaged for sale of goods and not for sales promotion.

14. On perusal of the various agreements between the appellants and the marketing agents, we are unable to accept the submissions of the learned Authorised Representative for the Revenue. All the agreements are under the name and style of “International Marketing Service Agreement”, which cannot be termed as Commission Agent agreement for sale of goods. Further, the scope of the services to be provided to the appellant is for market information on a quarterly basis for the various markets and segment of the party. The recital of the agreement dated 1-2-2008 as referred by the learned Authorised Representative for the Revenue indicates that the appellant needs to outsource the provisions of services overseas to support in international marketing efforts. The appellant engaged them to study the steel market in different continents and provide inputs to export steel products, render assistance in identifying new customers, etc. Article-I of the agreement provides purpose of agreement. It is clear from the said Article that the appellant appointed ESHL as its agent for providing international marketing services. Thus, it is clearly evident that the appellant appointed marketing agents in overseas, for market information. Further, Article-II provides scope of service. Clause (a) of Article-II refers to provide market information for the various makes. Clause (b) of Article-II provides co-ordinate visits of the appellant technical/commercial and marketing teams to the various markets. On overall reading of the agreement, we find that the appellants engaged agents to help in exploring market feedback and developing clients for enhancing the market share. So, it would be construed as sales promotion agreement.

15. The learned Authorised Representative on behalf of the Revenue strongly relied upon the decision of the Tribunal in the case of Brindco Sales Ltd. (supra). In that case, the assessee was engaged in sale and retail redistribution of IMFL/beer/other drinks for its clients and various liquor companies. The assessee was maintaining depot/warehouse on behalf of its clients. The adjudicating authority held that the appellant was providing Business Auxiliary Service and was not eligible for the benefit of Notification No. 13/2003-S.T., dated 20-6-2013, which exempted Service Tax on the Business Auxiliary Service provided by the commission agents. As per explanation to the said notification, “Commission Agent” means a person who causes sale or purchase of the goods on behalf of another person and commission is based on the quantum of such sale or purchase. The Tribunal, after going through the agreement, held that the assessee was a commission agent and entitled to the benefit of exemption notification. The relevant portion of the agreement in the case of M/s. Brindco Sales Ltd. (supra) is reproduced below :-

“(a)   To procure all orders independently and arrange for completion of necessary excise formalities/payment of excise duties prior to dispatch from KAM distillery, where necessary.

(b)     To make all arrangements for distributing the products in the Territory as instructed by KAM.

(c)     To raise the invoices on behalf of KAM for all sales effected.

(d)     To collect payment from customers on due dates of invoices.

(e)     To obtain Delhi Excise Licence on behalf of KAM as may be required and to renew the same from time-to-time for operating a depot in the Territory for stocking, trading and distribution of its products.”

16. We find that the above decision of Brindco Sales Ltd. (supra) would not be applicable in the present case. It is evident from the agreement in the present case as quoted above that the foreign agents were not engaged to procure order and to make all arrangements for distributing the goods and raising invoices and collecting payments et. On the other hand, the agreement, in the present case, clearly speaks to provide marketing information for the various markets. The other activities are incidental thereto.

17. The learned Authorised Representative submits that the agent’s commission is linked with the sale of goods, which is similar to a commission agent’s consideration based on the quantum of such sale or purchase as defined in Explanation to Notification No. 13/2003. It is well settled that an agreement should be read on its tone and tanor and not isolately on the basis of single clause of agent’s commission. It is between the parties to decide the consideration of the service by various modes and one of which is commission on the basis of export sale. In our considered view, merely the agent’s commission paid on the basis of export sales cannot be changed the entire gamut of the agreement as commission agent for sale of goods. The Board also clarified that the remuneration for sales promotion is linked to actual sale would be read harmoniously.

18. The learned Advocate submits that by Notification No. 2/2016-S.T. (N.T.), dated 3-2-2016, the Cenvat Credit Rules, 2004 was amended. In the Cenvat Credit Rules, 2004, in Rule 2, in Clause (l), after sub-clause (C), the following Explanation shall be inserted, namely :-

“Explanation. - For the purpose of this clause, sales promotion includes services by way of dutiable goods on commission basis.”

19. It is submitted that by inserting Explanation in Rule 2(l) of Rules, 2004, by Notification No. 2/2016-C.E. (supra), sales promotion includes services by way of sale for dutiable goods on commission basis. After reading to the Board Circular, dated 29-4-2011 and the Explanation by Notification No. 2/2016-S.T. (supra) harmoniously, it is clear that the agent’s remuneration linked with sale of goods would cover sales promotion. The learned Authorised Representative submits that the Notification No. 2/2016-C.E. (supra) would be effective prospectively. We find that the Hon’ble Supreme Court in the case of CIT v. Podar Cement (P) Ltd. - (1997) 5 SCC 482, observed that the circumstances under which the amendment was brought in existence and the consequences of the amendment will have to be taken care of while deciding the issue as to whether the amendment was clarificatory or substantive in nature and, whether it will have retrospective effect or it was not so. In the present case, the Explanation inserted in Rule 2(l) of Rules, 2004, is in conformity with the Board Circular, dated 29-4-2011, and extended the benefit to the assessee. It may be noted that after Board Circular, dated 29-4-2011, the Hon’ble Punjab & Haryana High Court in the case of Commissioner of Central Excise, Ludhiana v. Ambika Overseas - (P&H), on the identical issue dismissed the appeal filed by the Revenue. In that case, the issue was raised before the Hon’ble High Court as to whether the CESTAT was correct in holding that the Respondent is entitled to avail Cenvat credit on the services provided by Overseas Commission Agents (provided in relation to canvassing and procuring of orders) as input services despite the fact that the services of “overseas commission agents” are post removal services and do not fall under the ambit of the definition of “input service” given under Rule 2(l) of Cenvat Credit Rules, 2004, which defines “input service” as the service used in or in relation to the manufacture or clearance of final products from the place of removal. The Hon’ble Punjab & Haryana High Court in the case of Commissioner of Central Excise, Ludhiana v. Ambika Overseas (supra) upheld the order of the Tribunal and observed as under :-

“8. The Tribunal while affirming the order of Commissioner (Appeals) and adjudicating the issue in favour of the respondent had come to the conclusion that the activities in respect of which Cenvat had been filed, were pre-removal activities and the same could not be held to be post-removal. It was further observed that canvassing and procuring orders were in relation to ‘sales promotion’ and would fall under sales promotion activities. These activities were, thus, included in the definition of input services and the assessee was entitled to benefit of Cenvat credit of service tax. It would be advantageous to notice here the findings recorded by the Tribunal in para 6 of its order which are to the following effect :

“I have carefully considered the submissions from both sides. The canvassing and procuring orders are activities preceding removal of the goods by the manufacturers. Without the firm order, the respondents were not expected to remove the goods to a foreign destination. Therefore, the submission of the learned DR that these activities are post-removal activities cannot be accepted. Further, the definition of the ‘input services’ includes services used in relation to ‘sales promotion’ and these activities can rightly be described as sales promotion activities. Sales promotion activities undertaken at given point of time also aims at sales of goods which are to be manufactured and cleared on future. Any advertisement given as a long term impact cannot be treated as post-clearance activities and, therefore, sales promotion has been specifically included in the definition of input services. As regards the other contention that the documents on which the respondent has taken the credit is not the prescribed document, it is to be noted that the respondent is not a service provider per se. They are basically the service recipients. They are required to pay service tax as a deemed service provider. Under these circumstances, the respondents have paid service tax using TR-6 challans and taken credit treating the said documents as documents covered by Rule 9(1) of the Cenvat Credit Rules, 2004. There is nothing irregular about it.”

9. In the light of the aforesaid finding, learned counsel for the revenue was unable to justify that the claim of Cenvat credit by the assessee was erroneous in any manner. No perversity or illegality could be shown by the learned counsel in the order passed by the Tribunal which may call for any interference by this Court.”

20. But, the Hon’ble Gujarat High Court in the case of Cadila Healthcare Ltd. (supra) was unable to concur with the contrary view taken by the Hon’ble Punjab & Haryana High Court in the case of Commissioner of Central Excise, Ludhiana v. Ambika Overseas (supra). The Hon’ble Gujarat High Court held that this issue is concerned, the question is answered in favour of the Revenue and against the assessee. In this background, legislature explained the meaning of the sales promotion by inserting Explanation in Rule 2(l) of Rules, 2004 and declared that sales promotion includes services by way of sale of dutiable goods on commission basis. In other way, Explanation to Rule 2(l) of Rules says in clear terms that there is no bar on availment of the Cenvat credit on sales promotion service by way of sale of dutiable goods on commission basis. Further, by inserting the Explanation in the Rule 2(l), it has confirmed the Board Circular and resolved the different views of the High Courts. Taking into circumstances under which the Explanation was inserted in Rule 2(l) of Rules, 2004 and consequence of the Explanation to extend the benefit to the assessee as per Board Circular, we hold that the Explanation inserted in Rule 2(l) of Rules, 2004 by Notification No. 2/2016-CX (N.T.) (supra) should be declaratory in nature and effective retrospectively.

21. In the case of Brij Mohan Das Laxman Das v. Commissioner of Income Tax, Allahabad - (1997) 1 SCC 352, the Hon’ble Supreme Court in the identical situation held that explanation added by the Taxation Laws (Amendment) Act, 1984 with effect from 1-4-1985, is declaratory in nature and effective retrospectively. The relevant portion in the case of Brij Mohan Das Laxman Das (supra) is reproduced below :-

“5. It may be mentioned that Explanations 1, 2 and 3 to the above clause were added by the Taxation Laws (Amendment) Act, 1984 with effect from 1-4-1985. Explanation 2 expressly provides that where an individual is a partner in a firm on behalf of or for the benefit of any other person, any interest paid by the firm to such individual otherwise than as partner in representative capacity, shall not be taken into account for the purpose of clause (b). It is, therefore, clear that with effect from 1-4-1985, the question of the nature involved herein would not arise. Where a person is a partner in a representative capacity, i.e., as representing HUF, any interest paid to him in his individual capacity will not be hit by clause (b). The only question is what is the position earlier to 1-4-1985 - which is the case here. Prior to the introduction of the said Explanation, there was a conflict of opinion among the several High Courts in the country, the majority of High Courts, taking the view in favour of the assessee and a few High Courts taking the contrary view. There was no decision of the Supreme Court on this question. The Taxation Laws (Amendment) Act which introduced the said Explanation does not say that the said Explanation shall have the effect retrospectively. The question is whether the said Explanation is merely declaratory and clarificatory in nature, in which case it will govern the previous assessment years as well or whether it is a substantial provision having effect only prospectively.”

“The provisions in Chapters III and IV of the Partnership Act, 1932 amply define and delineate duties, obligations and rights of the partners vis-à-vis the firm. The question yet remains where an individual is a partner in one capacity, e.g. as a representative of another person, can he have no other capacity vis-à-vis the firm. To be more precise, does the above position of law preclude an individual, who is a partner representing a HUF, from depositing his personal funds with the partnership and receiving interest thereon? Explanation 2 says in clear terms that there is no such bar. This is the legislative recognition of the theory of different capacities an individual may hold - no doubt confined to clause (b) of Section 40. Once this is so, we see no reason to hold that this theory of different capacities is not valid or available for the period anterior to 1-4-1985. Accordingly, we hold that even for the period anterior to 1-4-1985, any interest paid to a partner, who is a partner representing his HUF, on the deposit of his personal/individual funds, does not fall within the mischief of clause (b) of Section 40. In this view of the matter, we agree with the view taken by the Rajasthan High Court in Gajanand Poonam Chand that Explanation 2, in the context of clause (b) of Section 40, is declaratory in nature. Accordingly, we allow this appeal, set aside the judgment of High Court and answer the question referred under Section 256 in the affirmative, i.e., in favour of the assessee and against the Revenue.”

22. An explanation inserted in a Section/Rule, is generally to explain the meaning of the words contained in the Section/Rules. The purpose of explanation is to explain the meaning and intendenments of the Section/Rule. Sometimes, the explanation may be inserted to clarify a doubtful point of law, which would be effectively retrospectively. In the present case, the expressions in the explanation as inserted by Notification No. 2/2016-C.E. (supra), make it clear that it is for explaining the meaning of clause “sales promotion” in the context of Rule 2(l) of the Rules, 2004. It is to provide an additional support to the dominant object of the word “sales promotion” in Rule 2(l) in order to make it meaningful and purposeful. The language of the explanation is consistent with Board Circular to the benefit of the assessee and it would be effective retrospectively. The Hon’ble Supreme Court in the case of Vatika Township Pvt. Ltd. (supra), in the identical situation, held that if a legislation confers a benefit on some other person or on the public generally, and where to confer such benefit appears to have been the legislature’s object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. The relevant portion of the decision in the case of Vatika Township Pvt. Ltd. (supra) is reproduced below :-

“We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India & Ors. v. Indian Tobacco Assn, the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in Vijay v. State of Maharashtra. It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are (sic not) confronted with any such situation here.”

23. The learned Advocate also argued the revenue neutrality and the demand is barred by limitation. It is contended that the Revenue collected the Service Tax on such remittance through foreign agents by treating them as other than sales commission agents. But, while availing Cenvat credit, it has been held that the services would be sales commission agents and if so, the appellant would not pay the Service Tax which is exempted by Notification No. 18/2009-S.T., dated 7-7-2009, Notification No. 41/2007-S.T., dated 6-10-2007, Notification No. 18/2009-S.T., dated 7-7-2009. As we are deciding the case on merit, there is no need to look into other issues.

24. In view of the above discussion, we set aside the impugned order. Accordingly, the appeal filed by the appellant is allowed with consequential relief.

(Dictated and pronounced in Court)