CESTAT Sets Aside Demand on ISD-Distributed Advertisement Services, Holds Booking of Expenses at Head Office Not Covered by Rule 7 [Read Order]
The Tribunal observed that it has consistently been held that services received by the head office and distributed through ISD qualify as eligible input services, if the conditions under Rule 7 are satisfied
The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside demands raised on CENVAT credit availed on advertisement agency services distributed by the input service distributor. The Bench held that Rule 7 of the CENVAT Credit Rules, 2004 does not require such expenses to be booked in the books of account of the manufacturing unit.
Kansai Nerolac Paints Ltd., engaged in the manufacture of paints, emulsions and varnishes, appealed against the Order-in-Original dated June 30, 2014. The order confirmed demand of allegedly wrongfully availed CENVAT credit amounting to ₹3.07 crore along with interest and penalty.
During audit of the appellant’s records, it was noticed that CENVAT credit had been availed on advertisement agency services distributed by the head office. And the expenditure had been booked in the books of the head office. On this basis, credit was denied and show cause notices were issued for different periods in violation of Rule 7 of the CENVAT Credit Rules, 2004.
The appellant contended that there is no condition under Rule 7, Rule 2(l) or Rule 2(m) requiring expenses to be booked in the books of account of the factory. Reliance was placed on CBEC clarifications and circular recognising services such as advertising may be received at head office. It was further submitted that eligibility of credit has to be examined at the ISD level.
The matter was heard by S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member).
The Tribunal observed that Rule 7 imposed only two restrictions on distribution of credit - firstly, the credit distributed should not exceed the service tax paid and secondly, credit attributable to exempted units should not be distributed. It was held that no additional provision could be read into the rule.
Relying on its earlier decision in CCE, Chandigarh-I v. Brillion Consumer Products Pvt. Ltd., the Tribunal reiterated that the Department does not have jurisdiction to question the correctness of credit distributed by the ISD from the recipient. The Tribunal further held that the amended provisions of Rule 7 were applicable only prospectively from April 1, 2012 and could not be applied to earlier periods.
The Tribunal also noted that in the appellant’s own case, as well as in several other decisions, it has consistently been held that services received by the head office and distributed through ISD qualify as eligible input services, if the conditions under Rule 7 are satisfied.
In view of the settled legal position, the Tribunal held that the show cause notices and the impugned order could not be sustained. Accordingly, all three appeals were allowed with consequential relief.
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