2007 (6) TMI 42 - AT - Service Tax

Cenvat credit - Appellant contended that the service tax paid on the advertisement of CT/TMT bars manufactured by it and its credit can be availed at the time of payment of excise duty - Held that appellant contention is correct and allowed

Summary

Issues:
1. Whether the appellant is entitled to Cenvat credit in relation to the franchise earnings.
2. Whether the service tax paid on advertisement expenses is available as Cenvat credit.
3. Whether the manufacturing activity of CT/TMT bars by the appellant can be considered as an output service for the purpose of Cenvat credit.

Analysis:

Issue 1:
The appellant, a manufacturer of CT/TMT bars, franchised the brand name 'Kamdhenu' to other manufacturers for use in relation to CT/TMT bars. The receipts from such franchising are deemed liable to service tax under 'Business Auxiliary Service'. The appellant had been discharging the service tax on such receipts. However, the appellant did not take Cenvat credit in relation to the franchise earnings as franchising a brand name is not considered an input in the manufacture of CT/TMT bars.

Issue 2:
The appellant was availing input service tax credit for the service tax paid on the advertisement of CT/TMT bars manufactured by it. The appellant argued that since advertisement is aimed at sales promotion of the manufactured bars, it qualifies as an input, and the service tax paid on it should be available as Cenvat credit. This credit could then be utilized for payment of excise duty on the manufactured CT/TMT bars.

Issue 3:
The impugned order held that the appellant's manufacturing activity concerning CT/TMT bars should be considered an output service, making the tax paid an output service tax not eligible for Cenvat credit. The appellant challenged this finding, arguing that manufacturing cannot be equated to a service, emphasizing the fundamental distinction between the two. The appellant contended that Rule 6 of the Cenvat Credit rules, 2004, which applies to assessees engaged in both exempt and taxable services, should not be applicable in this case as the appellant is not involved in any exempted output service.

In conclusion, the Tribunal agreed with the appellant's position, stating that the manufacture and sale of CT/TMT bars should not be categorized as a service. The distinction between manufacturing and service is fundamental, and the lower authorities erred in treating the appellant's manufacturing activity as an output service. The Tribunal emphasized that the franchise business of the brand name is unrelated to the manufacturing activity for Cenvat credit purposes, while advertisement expenses are considered inputs related to manufacturing. Therefore, the impugned orders were set aside, and the appeals were allowed in favor of the appellant, granting consequential relief if applicable.