Set-off available for tax on commission paid to overseas agent

Can service tax paid on commission paid to overseas agent for helping in export of goods be claimed as Cenvat credit?  — Anand Shah
Since you have paid commission to your overseas agent you will be liable to pay service tax under reverse charge mechanism under Section 66A of the Service Tax, as service tax is payable on commission under Business Auxillary Service.

Cenvat credit of service tax paid on inputs and input services is governed by Cenvat credit rules 2004,  under which  ‘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, modernisation, 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.

Based on the above definition, input services include any service used in relation to sales promotion. Activities undertaken by the overseas agent are clearly part of sales promotion activities & hence you are eligible to claim Cenvat credit of service tax paid by you under reverse charge mechanism on commission paid to overseas agent.

Similar facts were observed in Commissioner of Central Excise, Jallandhar Vs. Ambika Overseas, 2010 (20) STR 514 (Tri- Delhi) wherein the assesse was held eligible to claim Cenvat credit of service tax paid.

The writer is with M Sheth & Co a chartered accountancy firm in Mumbai, and can be reached at mshethco@yahoo.co.in