Eligibility of Input Service Credit – Sales Commission
The
cenvat credit scheme is a beneficent legislation and allows for credits
used for manufacture or service. Sales commission is paid for the
following reasons: market creation/development, advertisement, sales
promotion activities, identifying potential customers, negotiating with
them, sourcing / funneling of orders, increasing sales etc.
Cenvat Credit Rules prior to 1.4.11
specifically allowed for marketing and sale promotion as eligible. In
addition the activities relating to business was also allowed. Post
April 2011 the activities relating to business was dropped however the
specific activity of sales promotion was continued to be included in the
definition. Several decisions including Ambika Overseas [ 2012(25) STR
348 (P&H) affirmed this position. Further the CBEC Circular
943/4/2011 dt 29.4.11 issued in Sl.No 5 clarifies that inspite of the
“activities relating to business” being omitted as far as dutiable goods
are concerned as the same is specifically set out and provisions to be
read harmoniously, the eligibility remains clear. Notification 18/09 of
7.7.09 followed by Not. 42/12 of 29.6.12 allow commission upto 10% of
FOB value of exports to be paid and not subjected to service tax under
reverse charge and the balance eligible for refund.
The dispute got some support in the
decision of Cadilla health Care [ 2013(30)STR 3 (Guj) wherein this
position was questioned. It unsettled to some extent the settled
position of law that the sales commission was clearly eligible as an
activity preceding sales. However now a days at times the audit officers
seek to deny the same alleging that it is a post removal expense
relying on this judgment. However it is important to note that in this
decision no evidence was led that any sales promotion activity was
involved. It appears now that the commission on selling goods is in a
slightly better position than that for services as far as eligibility is
concerned.
Therefore to avoid disputes in this
regard the scope of the activities for which sales commission is paid is
to be made clear in the agreements focusing on the fact that many
activities are for long term – advertisement, road shows, business
exhibitions, sponsorships … as well as shorter term measures of
identifying customers, negotiating with them, increasing sales by
collecting orders etc. The nexus and pre removal activities now require
to be explicit instead of implicit to avoid demands in this regard.
By Madhukar N Hiregange
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