2013 (8) TMI 747 - AT - Service Tax

CENVAT credit - Input service of advertisement service - Held that - The main condition of the input service is that it has to be used for providing an output service - the output service of the applicant is to provide financial advice to mutual fund to invest the funds. The obligation of the Asset Management Company is to take all reasonable steps and exercise due diligence to ensure the investment of funds is not contrary to SEBI Regulation and the trust deeds. According to the Revenue, in terms of Rule 5 of Service Tax Rules, 2006, the applicant acted as a pure agent of the mutual fund and they incurred the advertisement expenses for the benefit of the mutual funds. It is also contended that the applicants outward service is only investment and advisory services rendered to the mutual funds, for which advertisement cannot be input service.- prima facie case is against the assessee - pre-deposit of Rs. 25 Lacs ordered - stay granted partly.

Summary

Issues:
1. Eligibility to avail CENVAT credit on advertising expenses as input service.

Analysis:
The case involved the question of whether the applicant, engaged in financial activities managing assets of a mutual fund, was eligible to avail CENVAT credit on advertising expenses as an input service. The Central Excise officers found that the applicant wrongly availed CENVAT credit on advertisement services rendered as a pure agent of the mutual fund, contrary to Rule 2(l) of the CENVAT Credit Rules, 2004. A show-cause notice was issued proposing tax demand, interest, and penalty, which was confirmed by the Commissioner.

The applicant argued that the advertisement expenses were incurred to promote investments in the mutual fund scheme, thereby promoting their own business. They cited SEBI regulations and circulars to support their claim that these expenses were part of their business promotion activities. The applicant contended that they only availed credit on the portion of advertisement expenses not reimbursed by the mutual fund and utilized the credit for paying tax on output services, claiming revenue neutrality and no intent to evade tax.

On the other hand, the Revenue argued that the applicant acted as a pure agent of the mutual fund and the advertisement expenses were incurred for the benefit of the mutual fund, not as an input service for the applicant's output services. They cited a Supreme Court judgment to support their argument that inclusion of expenses in taxable value does not prove the service was for output services. The Revenue alleged suppression of facts with intent to evade tax, invoking an extended period of limitation.

After considering the arguments, the Tribunal analyzed the definition of input service under Rule 2(l) of the CENVAT Credit Rules, emphasizing that it must be used for providing an output service. The Tribunal found merit in the applicant's argument that the advertisement expenses were incurred for the mutual fund's benefit, not as an input service for the applicant. The Tribunal noted the audit's detection of alleged non-payment of tax and reserved the time-bar issue for appeal hearing.

The Tribunal directed the applicant to predeposit a specified amount pending appeal, indicating that the applicant failed to establish a prima facie case for waiving the entire dues. Upon compliance with the predeposit, the balance amount of tax, interest, and penalty would be waived, and recovery stayed during the appeal's pendency.