By Puloma Dalal, Jayesh Gogri, Chartered Accountants
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Whether technical testing, commission paid to foreign agent, courier service, clearing & forwarding service etc. are “input services” as per CENVAT Credit Rules?
Facts:
The Respondent was engaged in the manufacture of P. & P. Medicines and availing CENVAT credit under CENVAT Credit Rules, 2004 (CCR). During the audit, it was noticed that the assessee availed CENVAT credit in respect of various input services. The department contended that the said services were not eligible as input services under Rule 2(l) of the said Rules and disallowed the credit and the demand was confirmed. However, the Tribunal held in favour of Respondent. The Revenue filed appeal before the High Court contending that various services used by the company were not input services for Rule 2(l) of CCR. The Respondent Company submitted that the manufactured drugs were subjected to the technical testing before entering commercial production and even on this, excise duty was paid. Similarly, CENVAT credit of Rs. 39,45,791/- was availed on commission paid to foreign agents and this was available according to the inclusive part of the definition of input service, which includes services in relation to sales promotion. They also availed credit of Rs. 36,54,709/- paid on courier service provided by M/s. Fedex Ltd. for export of goods and service tax paid on various other services, viz. repair and maintenance of copier machine, air conditioner, water cooler, management consultancy, interior decorator, commercial or industrial construction service were covered under the Rule 6(5) of the Rules and thus were allowable fully. CENVAT Credit on technical inspection and certification service with regards to inspection and checking of instruments was also contended as input service.
Held:
Since production of medicaments was subject to approval by the regulatory authorities of various countries, the assessee company was required to undergo technical testing and analysis. Therefore, the activity of testing and analysis for the trial batches was held in relation to the manufacture. Similarly, courier services whereby the courier agency collected the parcel from the factory gate for further transportation was considered eligible input service in terms of Rule 2(l) of CCR. Also, the services rendered by C & F agents were held as input services. Further, Rule 6(5) of the Rules specifically provided for allowance of credit in respect of the services mentioned therein unless such service was used in the manufacture of exempted goods. All the above mentioned miscellaneous services availed by the Respondent were specifically covered under Rule 6(5) of the Rules and therefore the service tax paid thereon is available. Lastly, technical inspection and certification services availed in respect of inspection and checking of instruments was used for the purpose of measuring size, weight etc. to ensure quality of the instruments and equipments. Therefore, this service was also clearly an input service. The Court however held that, none of the illustrative activities in the definition of input services viz. accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry and security is in any manner similar to the services rendered by commission agents nor is 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 agent not being analogous to the activities mentioned in the definition, would not fall within the expression “activities relating to business.” Consequently, CENVAT credit will not be admissible in respect of the commission paid to the foreign agents.
Note: In the context of credit of service tax paid on commission to foreign agents, the Hon. High Court departed from decision in CCE Ludhiana vs. Ambika Overseas 2012 (25) STR 348 (P&H). The court in this regard appears to have taken a narrow view as compared to the decision of CCE, Bangalore vs. ECOF industries P. Ltd. 2011 (23) STR 337 (Kar.) allowing credit in respect of advertisement expenses and also the benchmark decision in the case of Coca-Cola India P. Ltd. vs. CCE 2009 (242) ELT 168 (Bom.)
