Principal Commissioner of Central Excise Vs Himadri Speciality Chemical Limited (Calcutta High Court)

A vexed issue, being eligibility of CENVAT credit on Sales Commission Agent’s Services, post the judgment of the Hon’ble Gujarat High Court in Cadila Healthcare Limited, came up before the Division Bench of Hon’ble Calcutta High Court. The period in dispute in this case was from 2011 to 2016.

The Bench carefully analyzed the facts in the case of Cadila as it was vehemently relied upon by the Revenue and took note of observation therein to the effect that there was nothing to indicate that commission agents were involved in the activities of sales promotion and therefore the High court rejected the claim of the assessee.

The Hon’ble Bench then noted the factual contents of the order passed by the Ld. CESTAT, Kolkata Bench, which was in favour of the Respondent Assessee and the observations of the Ld. Commissioner with respect to the activities carried on by the Commission Agents and came to the conclusion that on facts in the judgment relied by Revenue is not applicable to the present facts of the Respondent Assessee.

The Hon’ble Bench further held that the Explanation inserted vide Notification dated 3rd February, 2016, to the definition of “input service” under Rule 2(l) of the CENVAT Credit Rules, 2004, would have to be given Retrospective effect so as to give the benefit of Cenvat Credit to the manufacturers for services provided by Commission Agents for sale of excisable goods on commission basis.

After taking note of the circumstances in which the aforesaid Explanation was introduced, including the adverse views taken by the Departmental authorities subsequent to decision of Gujarat High Court in Cadila Healthcare Limited, the Calcutta High Court held that the amendment was to be given retrospective effect and accordingly, upheld the views taken by the Tribunal to reject the Departmental Appeal in favour of the Assessee Respondent.

This is the first judgement on this very litigative issue post the judgment of Gujarat High Court in Cadila Healthcare Limited. It may be also taken note that the assessee has challenged the Cadila judgment which is pending for consideration before Supreme Court as on date. The Tribunal’s decision in Essar Steel, which held that the above amendment to be retrospective, is also pending for consideration in the appeal filed by Department before Gujarat High Court as on date.

This detailed judgement would certainly help the assessees in pursuing their pending litigations, if any, before other High Courts, as the ratio culled out in this judgment would have a persuasive value.

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February 2024