CREDIT OF SERVICE TAX PAID ON COMMISSION PAID TO COMMISSION AGENT

Cenvat credit may be availed on the service tax paid to commission agents by the manufacturer or output service provider. In some cases, interpreting the provisions of Rules 2 (l) of CENVAT Credit Rules, 2004 which defines the term 'input service', the credit on service tax paid to commission agents is denied. The Tribunals allowed credit in such cases. In this article two case laws are being referred to.

In 'Commissioner of Central Excise, Raipur V. Bhilai Auxiliary Industries' - 2009 (14) STR 536 (Tri. Del) the assessee, who manufactures excisable goods, utilized the credit taken on service tax paid to commission agents. The Department disallowed the credit and confirmed the demand of tax for the same. The Commissioner (Appeals) set aside the order of the Adjudicating Authority. The Department filed appeal before the Tribunal. The Department submitted that it is clear from the definition of the term 'input service' that input service includes only those services which are used by a manufacturer directly or indirectly in or in relation to manufacture of final products or clearance of the final products from the place of removal and services with regard to post-removal activities are not covered by the definition of 'input service'. The assessee submitted the following:

The tribunal held that the definition of 'input service' covers in addition to the services used by a manufacturer whether directly or indirectly in or in relation to manufacture of final products and clearance of final products from the place of removal, other services also, including the services used in relation to advertisement or sales promotion and therefore the services provided by the commission agents have to be treated as 'input services'. 

'Pan Asia Corporation V. Commissioner of Central Excise, Mumbai - II' - 2009 (16) STR 587 (Tri. Mumbai) the question arised for consideration by the tribunal is whether CENVAT credit of the service tax on commission paid to a commission agent is admissible to the appellant. According to the lower authorities, the benefit is liable to be restricted to procurement of purchase orders by commission agents and is not admissible insofar as the collection of sale price of the goods is concerned. In other words, the lower authorities have bifurcated the commission agents' function into pre-clearance and post-clearance of goods and have denied the benefit to the assessee in respect of the later. The Tribunal held that this is not clearly permissible inasmuch as the commission agents' service is one integrated servicewhich cannot be split up in the manner done by the lower authorities.  Neither of the authorities has a case that the commission agent service is not covered by Rule 2(l) of CENVAT Credit Rules, 2004. In the circumstances the appellant is entitled to the benefit of CENVAT credit on the entire amount of commission paid by them to the commission agent for the service received from the latter during the disputed period.