2014 (10) TMI 562 - AT - Service Tax

Cenvat credit of Service Tax paid - Receipt of payment for sales promotion activity - overriding commission to be treated as expenditure incurred after the removal of the goods from the factory - Held that - LPG stoves manufactured by the appellant are sold through the dealers of Indane gas of Indian Oil Corporation Ltd. for permitting the appellant to sell the stoves through the Indian Oil Corporation dealers of LPG gas and for allowing the appellant to put the logo indane and logo of the appellant on the stove as well as on publicity material and for stating that LPG stoves are recommended by Indane, the appellants have paid some consideration and the receiver has discharged the Service Tax obligation treating it as Business Auxiliary Service. Memorandum of Understanding is very clear and clearly shows that what is undertaken by Indian Oil Corporation Ltd. is in reality a sales promotion activity and therefore appellant has made out a prima facie case for eligibility of Cenvat credit availed by them. Accordingly there shall be complete waiver of pre-deposit and stay against recovery during the pendency of appeal - Stay granted.

Summary

Issues:
Cenvat credit denial on Service Tax paid for sales promotion activity by Indian Oil Corporation Ltd. - Whether payment is overriding commission or sales promotion activity.

Analysis:
The judgment addresses the issue of Cenvat credit denial on Service Tax paid by Indian Oil Corporation Ltd. for the amount received from the appellant for sales promotion activity. The denial was based on the contention that the payment constituted an overriding commission, making it an expenditure incurred post goods removal, rendering credit inadmissible. An amount of Rs. 2,17,915/- with interest and penalty equal to the denied credit was imposed. The appellant argued that the LPG stoves they manufacture are sold through Indane gas dealers of Indian Oil Corporation Ltd., and the consideration paid was for various promotional activities, including displaying logos and endorsements. The Memorandum of Understanding's Clause 2 was highlighted to demonstrate that the activities undertaken by Indian Oil Corporation Ltd. indeed constituted sales promotion. The tribunal found merit in the appellant's argument, acknowledging a prima facie case for Cenvat credit eligibility. Consequently, a complete waiver of pre-deposit and a stay against recovery during the appeal's pendency were granted, indicating a favorable outcome for the appellant. The judgment emphasizes the importance of analyzing the nature of payments in the context of sales promotion activities to determine the admissibility of Cenvat credit, ensuring a fair and just application of tax laws.