2007 (4) TMI 39 - AT - Service Tax

Appellate Tribunal rules on service tax credit for advertisement charges

The Appellate Tribunal CESTAT, Mumbai held that the appellant was not entitled to take credit of service tax paid on advertisement charges as input ... Input service - in or in relation to the manufacture of final products - credit of service tax - advertisement and sales promotion as input service - nexus between input and final product - inclusion in assessable valueInput service - in or in relation to the manufacture of final products - advertisement and sales promotion as input service - nexus between input and final product - Whether service tax credit for advertisement expenses incurred by the manufacturer of concentrates is available where the advertisement promotes the final aerated beverages produced by independent bottlers and not the concentrates manufactured by the appellant. - HELD THAT: - The Tribunal examined the definition of input service which, inter alia, covers services 'used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal' and an inclusive list that mentions 'advertisement or sale promotion.' The appellant conceded that it manufactures and clears concentrates while independent bottlers manufacture the aerated waters. The Tribunal found as an admitted fact that the advertisements were undertaken to promote aerated waters (the final product made by bottlers) and not the concentrates manufactured by the appellant. Consequently the advertisements lack the requisite nexus between input and final product to fall under the second limb of the definition (in or in relation to the manufacture of final products) because the advertised product is not the appellant's manufactured good. The Tribunal further held that, although the inclusive part of the definition covers certain business services (including advertisement), such coverage is confined to advertisements relating to the manufacturer's final products; advertisement of products not manufactured by the claimant does not qualify. The reasoning was supported by precedent holding that advertisement costs promoting aerated waters did not form part of the value of the base essence/concentrate and thus were not includible as input for credit. On these grounds the claim for service tax credit on such advertisement expenses was rejected.Claim for credit of service tax paid on advertisement expenses was not allowable because the advertisements promoted aerated waters made by bottlers and therefore did not qualify as input service in or in relation to the manufacture of the appellant's concentrates.Final Conclusion: The Commissioner's disallowance of service tax credit on advertisement expenses was upheld; the appeal is rejected. Issues:1. Whether the appellant is entitled to take credit of service tax paid on advertisement charges as input service used in or in relation to the manufacture of concentrates.2. Whether the advertisement expenses incurred by the appellant can be considered as input services under the Cenvat Credit Rules.Issue 1:The appellant claimed credit of service tax paid on advertisement charges as input service used in or in relation to the manufacture of concentrates. The Commissioner denied the claim, stating that the advertisement was for the final product, aerated waters, and not for the concentrates. The appellant argued that all advertisements undertaken by them should qualify as input services, eligible for credit. The appellant contended that the definition of 'input services' under the Credit Rules includes services used in or in relation to the manufacture of final products. The appellant emphasized that services like advertisement or sales promotion, even if seemingly unrelated to manufacturing activities, have been considered as input services for the purpose of taking credit. However, the Tribunal found that the advertisement was for promoting the sales of aerated waters, not concentrates, and therefore did not qualify as an input service directly or indirectly used in or in relation to the manufacture of final products. The Tribunal upheld the Commissioner's decision, citing previous judgments supporting the view that advertisement costs for products not manufactured by the appellant are not covered under the definition of 'input service.'Issue 2:The appellant argued that since the advertisement expenses were included in the value of concentrates, they should be considered as input services eligible for credit. They distinguished their case from a previous Supreme Court decision where advertisement expenses were incurred by a third party and not included in the assessable value. The Tribunal noted that in the present case, the advertisement was undertaken by the appellant for promoting the sale of concentrates, not aerated waters. The Tribunal found that the advertisement for aerated waters, which were manufactured by bottlers and not the appellant, could not be considered as an advertisement for concentrates. The Tribunal emphasized that services relating to advertisement or sales promotion must be for the final products only, not for products not manufactured by the appellant. Citing previous decisions, the Tribunal upheld the Commissioner's order, rejecting the appeal and affirming that the advertisement expenses for aerated waters did not qualify as input services for the concentrates manufactured by the appellant.In conclusion, the Appellate Tribunal CESTAT, Mumbai held that the appellant was not entitled to take credit of service tax paid on advertisement charges as input service used in or in relation to the manufacture of concentrates. The Tribunal found that the advertisement expenses were for promoting the sales of aerated waters, not concentrates, and therefore did not qualify as an input service directly or indirectly used in or in relation to the manufacture of final products. The Tribunal upheld the Commissioner's decision, emphasizing that services relating to advertisement or sales promotion must be for the final products only, not for products not manufactured by the appellant.