Part II-A

Para 1: Inadmissible input service cenvat credit on commission paid

Rs.66.86 lakh

As per Rule 2 (l) of Cenvat credit Rules 2004 “input service” means any
service (i) used by provider of taxable service for providing out put service or (ii)
used by manufacturer, whether directly or indirectly , in or in relation to the
manufacture of final product and clearance of final product up to the place of
removal and include service used in relation to setting up, modernization,
renovation or repair of a factory advertisement or sales promotion, market
research, storage upto place of removal, procurement of input, 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 up to the place of removal.

During scrutiny of records of input service cenvat credit of MS Jindal Saw Ltd
A-1, UPSIDC Industrial Area, Nand Gaon Road, Koshikala, Mathura pertaining to the
year 2008-09 and 2009-10, it was revealed that assessee has taken cenvat credit of
input service amounting to Rs.6686432 on sales commission paid in foreign
exchange to foreign service providers as given below:-

Entry No Date Value of cenvat credit

availed
590 6.3.09 1961300
591 6.3.09 2529197
592 6.3.09 2195935
Total 6686432

Since commission paid is not covered under the definition of input service,
the cenvat credit of Rs.6686432 was not admissible and required to be reversed
along with interest payable under Rule 14 of Cenvat Credit Rules 2004.

On being pointed out the assessee replied that service tax paid in relation to
advertisement or sales promotion, market research, activities relating to business
are covered under the definition of input services and therefore credit of cenvat of
Rs.6686432 paid on commission to foreign agent has rightly being claimed. The
reply is not tenable as in case of Chemplar Sanmer Ltd Vs Commissioner of Central
Excise Selam{2010(250)ELT 46 (Tri Chennai) it was held that the definition of input
service as including activities relating to business can not be interpreted to include
post manufacturing activities and commission paid on sales is post manufacturing
activities and hence not eligible for input service credit.

The matter is brought to the notice of department.