Calcutta High Court Allows Pharma Company To Avail CENVAT Credit On Sales Promotion Services

The Calcutta High Court has allowed the pharma company to avail CENVAT credit on sales promotion services.

The division bench of Justice T.S. Sivagnanam and Justice Supratim Bhattacharya has observed that the commission paid by the pharma company 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.

The court has noted that sales promotion would include services by way of the sale of goods on a commission basis.

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.

The department noticed that the respondent had entered into an agreement with those agents for selling their goods who had raised bills merely for commission for sales, and it was so mentioned in the bills under the head "Description". Thus, the Department was of the prima facie view that the role of the commission agent cannot be treated as an input service and credit cannot be availed by the respondent.

The department alleged 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.

The assessee submitted that it had entered into an agreement with consignment stockists for the warehousing, distribution and sale of their products and the remuneration paid to the consignment stockist was not only on account of commission on sales as the consignment stockist undertook much wider responsibilities, including promotion and marketing activities for the respondent's products. Therefore, the assessee is eligible for the CENVAT Credit. The adjudicating authority rejected the explanation offered and by order confirmed the proposal in the show-cause notice and imposed a penalty.

The assessee preferred an appeal before the Tribunal, which was allowed.

The assessee/respondent referred to the definition of input services as defined in Rule 2(l) of the CENVAT Credit Rules and submitted that warehousing, market research, and sales promotion are specifically included as input services, and that other associated services provided by the consignment stockist do not fall within the specific exclusion category as mentioned in Rule 2(l), and thus they are eligible for CENVAT Credit.

The court held that on plain reading of the show cause notice, it is clear that except for the use of the word "suppression of material facts," there is nothing on record to indicate as to on what basis the adjudicating authority invoked the extended period of limitation.

"When the assessee had disclosed all the materials in their returns, the assessee was also subjected to an audit earlier and there was no objection raised by the audit department," the court noted.

Case Title: Principal Commissioner Of Central Excise Versus M/s Himadri Speciality Chemical Ltd.

Case No: CEXA NO. 04 of 2022

Date: 27.09.2022

Counsel For Appellant: Advocates Uday Sankar Bhattacharyya, Banani Bhattacharyya, Ekta Sinha

Counsel For Respondent: Advocate Rajeev Kumar Agarwal

Citation: 2022 LiveLaw (Cal) 310 

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