CREDIT OF SERVICE TAX ON SALES COMMISSION

[nandankumar roy]

WE ARE IN MANUFACTURING OF PHARMACEUTICAL PRODUCTS. WE ARE PROCURING ORDER THROUGH TENDER ON ALL INDIA BASIS AND THROUGH SEP UP OF  AGENT ALSO. WE ARE PAYING SALES COMMISSION HUGE AMT WHICH IS APPLICABLE TO WITH SERVICE TAX . WE HAVE TAKEN CREDIT THE SAME SERVICE TAX AMT BUT IN LAST AUDIT EXCISE DEPT REVESED ALL THE  AMT WITH PANELTY AND INTEREST WHICH HAVE PAID BY CASH ONLY. PLEASE HELP WHETHER WE CAN TAKE THIS SERVICE TAX CREDIT OR NOT.

[Mahir S]

Recent Circular issued by the  Board has clarified that even after the deletion of expression 'activities related to business' from the definition of input services, the credit of Service Tax  paid on the sales promotion  activities and on the services of sales of dutiable goods on  commission basis would be  admissible as credit (A copy of the same can be provided if required).

The terms and conditions of the contract agreement for sale of goods are required to be seen before commenting on the reasons for disallowance by the department.

Please refer to the Audit Para raised by the officers specifying therein the exact reason for such disallowance.

Penalty and Interest are always to be paid in cash, hence there has to be no dispute for it.

.

[YAGAY and SUN]

The very purpose of manufacturing is selling.  Without selling there would not be any manufacturing.  Thus selling becomes integrual part of manufacturing.  Commission of selling activities has nexus with manufacturing directly or indirectly.  Thus, service tax paid on commission is input service and you may avail the CENVAT credit.

[Mahir S]

Sir, with due respect, I also agree to your comments.And the person raising the query is also aware of it.

But the main point raised here is - WHY it is disallowed by the department. After all, the department must also have had some points in their favour, whch are required to be studied herein.

[YAGAY and SUN]

Dear Nandan,

I do agree with the comments of Mr. Naveed that we should study the relevant documents in this regard.

If you could please provide me the copy of the SCN and Copy of the order, so that I can study and revert you with my comments.

Please send the docs on [email protected]

I would also request you to please send the one set of docs to Mr. Naveed for his perusal.

In this way both of us will share our point of views with you.

God bless you!

regards,

Pradeep Khatri

[ALOK GUPTA]

	The query has incomplete facts. The period of Audit is not known.Provisions are applied accordingly.Grounds of denial of Credit by Auditors is also not available.  At present the definition of input service in Rule 2 (i) of cenvat credit rule 2004 is as under- "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 upto the place of removal,
	and includes services used in relation to setting up, 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, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and  training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal;

As per above, a manufacturer has to establish the relation of input service to the manufacture of final product. Prima facie activity of Sales promotion of the finished product falls under the ambit of input service. It has been termed in this definition also. Hence, CENVAT Credit in this regard appears admissible.  [Views expressed are personal]

AI Summary

CENVAT credit on sales commission admissible when nexus to manufacture is established; review contracts and audit grounds.
Manufacturer claimed CENVAT credit for service tax paid on sales commissions; audit reversed credits and imposed penalty and interest paid in cash. Board guidance treats sales promotion and commission services as creditable where conditions are met. The definition of input service includes advertisement and sales promotion used directly or indirectly in relation to manufacture and clearance. Credit thus appears prima facie admissible, subject to establishing nexus to manufacture and producing contractual and audit-related documentary evidence.