2018 (5) TMI 221 - AT - Service Tax

CENVAT credit - input services - advertisement in electronic media i.e. through television network on the payment of service tax - reason for the disallowance is that the advertisement undertaken were not for sales promotion of liquor but for other products of the same brand. Whether advertisement services used by the appellant can be considered as input services for the provision of the output service of promotion and marketing of the liquor produced by M/s United Spirits Limited the customer? - Held that - It is an admitted fact that the advertisement expenditure was incurred for advertisements not for liquor but of other products of the company such as soda - Since the entire agreement with M/s United Spirits Limited is entered into with the appellant for promotion of IMFL the advertisement services cannot be considered to be used in promotion and marketing of IMFL - such advertisement services do not come under the definition of input service within the definition of Rule 2 (l) - credit not allowed. Whether the disallowance of Cenvat credit can be sustained for the period covered by longer period of limitation under Section 73? - Held that - Such advertisements are consciously made without showing liquor circumventing the ban on advertisement for the IMFL products but the appellant have asserted that such advertisements were for promoting the sale of IMFL by the company. This amounts to not only suppression of facts but even borders on fraud - demand for longer period upheld. Appeal dismissed - decided against appellant.

Summary

Issues:
1. Disallowance of Cenvat credit on advertisement services for promoting products of a company.
2. Whether advertisement services can be considered as input services for the output service of promoting and marketing liquor.
3. Validity of the demand for service tax for an extended period.

Issue 1: Disallowance of Cenvat Credit on Advertisement Services:
The appellant, appointed as an agent for marketing and sales promotion of products, availed Cenvat credit on advertisement services during the disputed period. The Adjudicating Authority disallowed the credit, leading to recovery and penalty orders. The appellant challenged this disallowance, claiming the advertisement expenses were input services for promoting the company's products. The dispute centered on whether the advertisement services were directly related to the output service provided by the appellant.

Issue 2: Consideration of Advertisement Services as Input Services:
The crux of the dispute was whether the advertisement services used by the appellant could be considered as input services for promoting and marketing liquor produced by the company. The appellant argued that since the promotional activities focused on the company's brand, which indirectly increased liquor sales, the advertisement services qualified as input services. However, the Tribunal found that the advertisement expenditure was for products like soda, not liquor, and did not directly promote the IMFL produced by the company. The Tribunal concluded that such advertisement services did not fall under the definition of input service.

Issue 3: Validity of Demand for Service Tax for Extended Period:
The appellant contended that there was no suppression of facts regarding Cenvat credit availed, as details were declared in monthly returns. However, the Tribunal noted that the advertisements for liquor promotion were legally prohibited in India, leading the appellant to advertise other products to circumvent the ban. This deliberate act was seen as suppression of facts and even bordering on fraud. Consequently, the demand for service tax for an extended period was upheld.

In conclusion, the Tribunal upheld the impugned order, rejecting the appellant's appeal. The judgment emphasized the importance of ensuring that input services are directly related to the output services provided, especially in cases involving advertisement services for restricted products like liquor.