Brief Facts of the case
The appellant is engaged in the manufacture of motorcycle and procures the service of advertising agency for the purpose of advertising their final product. They pay the value of the services to the advertising agency along with the amount of Service Tax leviable thereon. Consequently, they are entitled to the Cenvat credit of Service Tax so paid by them on the advertising cost. As the appellant is a 100% subsidiary of their parent company located in Japan, the part of the advertising expenditure incurred by them are being received by them from their parent company. The Revenue’s only objection for denial of Cenvat credit of Service Tax paid by the appellant is that their parent company has reimbursed the part of the cost of advertisement expenses and as such, they have not incurred the entire advertisement expenses from their pocket.
Contentions of the Assessee
The appellants contended that admittedly the entire advertisement expenses are being incurred by them initially. It is they who pay the advertising agency along with the amount of Service Tax. The entire advertising expenses are being reflected by them in their balance sheet. If subsequently they are reimbursed by their parent company to some extent, the same would not change legal scenario. Having paid the entire cost of advertising charges along with Service Tax from their own pocket, they are entitled to the credit of Service Tax so paid by them. Revenue should not be concerned with further financial arrangements between parent company and the subsidiary company.
Contentions of the Revenue
The Revenue contended that in spite of making promises to produce an agreement between the subsidiary company and parent company before the adjudicating authority, the appellant has not done so. Revenue also refers to press note published before the introduction of Cenvat Credit Rules, which is to the effect that –
“in principle credit of tax paid on those taxable services would be allowed which go to form part of the assessable value on which excise duty is charged.”
The revenue contended that if the value of any service does not form part of the assessable value of the goods, the Service Tax credit would not be available. However, on being questioned, she fairly agrees that there is no adverse finding or allegation of non-inclusion of the advertising charges in the assessable value of their final product.
Held by Hon’ble CESTAT, New Delhi
The Hon’ble CESTAT, New Delhi stated that Revenue has not given any finding that advertising cost was not incurred by the appellants. Merely because the appellants stand reimbursed part cost of the advertising expenses from their parent company, does not mean that the appellants would become disentitled to the Service Tax actually paid by them. The financial arrangement between the subsidiary company and the parent company has no connection or relevance for the purpose of availability of credit of Service Tax paid by the assessee.
The Hon’ble CESTAT stated if the assessee would have sought deductions of the advertising cost received by them from their parent unit for arriving at the assessable value of their final product, the Revenue would not have admittedly granted the same. As such, procurement of finances for running any business is the subject matter between two individuals not related or connected to the legal proposition.
In view of the above, the appeal is allowed.