Brief Facts of the case:
The appellant (assessee firm) is holding the brand name of Wagh Bakri Tea. They are letting their brand name to others and are paying service tax on such royalty charged received under Intellectual Property Right Services. Appellant has obtained a legal opinion, as per that opinion, appellant is also required use the trade mark directly if it wants to retain right on the trade mark and if the appellant does not use the trade mark but only grants permission to others than appellant may loose the ownership right of trade mark and may also be exposed to litigation. Working upon the advice appellant also gets the tea packed on its own account and avail the services of packers etc. for which credit has been claimed by the appellant. The appellant also claimed credit in respect of Telephone Services & Chartered Accounts Services & Security Services as the same used both with respect to providing Intellectual Property Right Services as well as the activity of sales of their products got packed by the appellant.
All such above cenvat credits were disallowed by the adjudicating authority by invoking the extended period of limitation, he also levied equivalent penalties.
Aggrieved by the order of the adjudicating authority, assessee preferred an appeal before the CESTAT.
Contention of the Assessee:
The learned counsel for the assessee contended that service tax credit on packaging services availed by the appellant is concerned , the activity is done with respect to packing of Wagh Bakri tea as the packing activity has to be done in order to protect their ownership right over the Trade Mark. He also produced copy of the legal opinion on that issue.
He also argued that as per Rule 6 (5) of the Cenvat Credit Rules, 2004 Cenvat Credit on certain specified services was admissible in full even if the services are used partly for exempted goods/services or trading purposes. The security services as defined u/s 65(105)(w) is also covered by such Rule 6)5) , thus, the credit in respect of security service is allowable even if it partly used for packing the tea (which is trading activity) and partly for providing Intellectual Property Rights services(IPRs).
The credit in respect of Telephone Services & Chartered Accounts Services & Security Services as the same used both with respect to providing Intellectual Property Right Services as well as the activity of sales of their products got packed by the appellant.
In this respect he relied on CESTAT Ahmedabad judgment in case of CCE Vadodara-II vs. Siemens Healthcare Diagnostics Ltd. .
Contention of the Revenue:
The learned counsel for the revenue contended that Packaging Services & Security Services are not in relation to providing of Intellectual Property Right Services, either directly or indirectly. He also pointed out that that no provision of the Trade Marks Act, 1999 have been quoted by the Patent & Trade Marks legal advisor , whose opinion was taken by appellant, under which it is obligatory that appellant should himself use the brand name by getting the impugned product manufactured/ packed on his own account.
He also argued that credit with respect to other services is not admissible as the same are not used exclusively for providing output services i.e. Intellectual Property Right Services.
Decision of the CESTAT:
The tribunal after considering the rival submissions observed that the legal opinion was obtained by the appellant after the show cause notice but in that opinion no provisions of the Trade Marks Act or any Rules made there under are mentioned under which it is obligatory on the part of the appellant to compulsorily use the Trade Mark himself. Lending its trade mark, getting royalty & paying service tax on the part of appellant should be sufficient to establish that his Trade Mark has been used. Therefore, the packaging services availed by the appellant has to be considered to have been utilized for packing of tea bags and cannot be considered to be availed directly or indirectly in maintaining/protection of appellants Trade Mark.
As regards the admissibility of Cenvat credit on security services is concerned, tribunal observed that as per Rule 6 (5) of the Cenvat Credit Rules, 2005 full credit of Security Services credit is permissible if, the credit of such services is not exclusively used in relation to exempted goods or providing exempted services. According credit of service tax on security services is correctly availed by the appellant.
So far as credit of Chartered Accounts Services & Telephone Services is concerned the same are availed both for undertaking trading activity and for providing Intellectual Property Right
Services. As no separate figures are available for such services it will be appropriate that appellant only takes proportionate value wise credit on such services used commonly in providing trading activity and providing Intellectual Property Right Services and pay the remaining amounts with interest.
As far as the invocation of extended period is concerned tribunal observed that improper credit taken which was detected by the department officers only. At no stage of appellant approached the department for any guidance that there was any confusion in admissibility of credit on the impugned services. Therefore, extended period will be applicable. However, Cenvat Credit with respect to security services and partly with respect to two other services has been held to be admissible under this order. Appellant thus had a reasonable case to hold a view that Cenvat credit was admissible. Appellant’s case is, thus, covered by the provisions of Section 80 of the Finance Act, 1994. and accordingly penalties imposed upon the appellant are set-aside.
Thus, the assessee’s appeal allowed in part.