Credit of service tax on sales commission

[A RAVINDRA]

Ours is a manufacturing unit registered under both central excise and service tax. We have paid sales commission to a company (As per written agreement). We have taken input credit of service tax charged in the sales commission bill raised by company. Departmetnt has written a letter to reverse the credit. Please clarify whther department is right in asking us to reverse the input credit taken by us on sales commission bill charged by our selling agent company.

[Mukesh Kumar]

The action of the department is not correct. Business promotion activities are eligible input services.

[GANAPATHY RAJENDRAN]

COMMISSION IS PAID FOR HAVING CANVASSED THE ORDER . PURSUANT TO THE ORDER THE CLEARENCE WAS EFFECTED, HENCE IT IS AN INPUT SERVICE ELIGIBLE FOR SERVICE TAX CREDIT. THERE IS NO NEED TO REVERSE THE CREDIT

[Himanshu Negi]

If your contract with commission agent is limited to order only then you can take credit as it will qualify as input service but if your contract covers order and as well as collection of money than this service will not qualify as input service as collection of money is post manufacturing activity.

AI Summary

Input service credit on sales commission valid where commission limited to canvassing orders; exclusion if collection services included.
Eligibility for service tax credit on sales commission depends on the agency scope: commissions paid for canvassing or procuring orders are input services and qualify for input tax credit, whereas services that include collection of sale proceeds are treated as post-manufacturing activity and are not eligible for credit.