2015 (7) TMI 633 - AT - Service Tax

Advertising agency service - Denial of CENVAT credit - The Revenue s only objection for denial of Cenvat credit of Service Tax paid by the appellant is that their parent company has reimbursed the part of the cost of advertisement expenses and as such, they have not incurred the entire advertisement expenses from their pocket. - Held that - Merely because the appellants stand reimbursed part cost of the advertising expenses from their parent company, does not mean that the appellants would become disentitled to the Service Tax actually paid by them. As rightly pleaded before us, the financial arrangement between the subsidiary company and the parent company has no connection or relevance for the purpose of availability of credit of Service Tax paid by the assessee. - Credit allowed - Decided in favour of assessee.

Summary

Issues:
1. Availability of Cenvat credit for Service Tax paid on advertising expenses incurred by a subsidiary company.
2. Denial of Cenvat credit by Revenue due to reimbursement of advertising expenses by the parent company.

Analysis:
Issue 1: The appellant, a subsidiary engaged in manufacturing motorcycles, procures advertising services and pays the Service Tax on the advertising cost. The main contention is the entitlement to Cenvat credit for the Service Tax paid. The appellant argues that since they initially incur the entire advertising expenses and pay the Service Tax, they should be eligible for the credit, regardless of subsequent reimbursement by the parent company. The Tribunal notes that the Commissioner did not find that the advertising cost was not incurred by the appellant. The financial arrangement between the subsidiary and parent company does not affect the appellant's right to claim the Service Tax credit they actually paid. The Tribunal emphasizes that the availability of credit should not be influenced by the internal financial arrangements between related entities.

Issue 2: The Revenue objects to granting Cenvat credit based on the reimbursement of part of the advertising expenses by the parent company. The Revenue argues that if the value of a service does not form part of the assessable value of goods, the Service Tax credit would not be available. However, the Tribunal observes that there was no adverse finding regarding the inclusion of advertising charges in the assessable value of the final product. The Tribunal rejects the Revenue's argument, stating that the financial arrangements between related companies do not impact the eligibility of the subsidiary to claim the Service Tax credit. The Tribunal sets aside the impugned order and allows the appeal, emphasizing that the reimbursement by the parent company does not disentitle the subsidiary from claiming the credit for Service Tax paid.

In conclusion, the Tribunal rules in favor of the appellant, holding that the subsidiary company is entitled to claim the Cenvat credit for the Service Tax paid on advertising expenses, irrespective of the reimbursement by the parent company. The judgment highlights that the legal entitlement to the credit is based on the actual payment of Service Tax by the appellant, regardless of subsequent financial arrangements between related entities.