The Delhi Bench of Customs Excise & Service Tax Appellate Tribunal ( CESTAT ) in M/s. Avadh Enterprises vs CCE(Adj.) held that advertisement expenditure incurred for advertisement of products other than what was agreed, cannot be considered as input services within the definition of Rule 2 (l) of the Cenvat Credit Rules, 2004.
In the instant case, the appellant was appointed as an agent for marketing and sales promotion of products of the company M/s. United Spirits Limited. The appellant is registered as Business Auxiliary Services under section with the Service Tax Department. Cenvat Credit was claimed by the appellant on advertisement through television network on payment of Service Tax under Business Auxiliary Service. They claimed the credit on the ground that the advertisements were inputs for the output service of promoting/marketing the products of the company. The claim was rejected by the adjudicating authority on the ground that the advertisement has undertaken were not for sales promotion of liquor but for other products of the same brand and ordered for besides interest thereon under Rule 14 of the Cenvat Credit Rules read with Section 75 of the Finance Act, 1994. The penalty equal to the credit being denied was also ordered to be recovered.
The Counsel for the appellant argued that promotional activities undertaken by appellant focuses on brand promotion of the company and not of any specified product or liquor as per the probation imposed under Indian laws. He further argued that brand promotion directly helps in increasing the sales of the company of all the products uniformly irrespective of the fact that the brand is commonly used upon various products.
The Departmental Representative (D.R) contended that that advertisement services cannot be considered as input services since such advertisement has no nexus with the output service rendered by the appellant for United Spirits Limited.
The bench comprising of Judicial Member S. K. Mohanty and Accountant Member V. Padmanabhan found that the advertisement expenditure was incurred for advertisements of other products but not for liquor. From the agreement between the appellant and the company the Tribunal noted that the first clause of the agreement made it clear that the agreement is for marketing the Indian Made Foreign Liquor (IMFL) products manufactured by the company. The Tribunal also recorded the fact that advertisement of alcohol beverages is banned in India. The bench said that the input service in the form of advertisement could not be considered as used for providing the output taxable service of promotion or marketing as the output service is for promoting the IMFL produced by the company but the advertisement expenditure was incurred for advertisement of other products.
“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. Consequently, we are of the view that such advertisement services do not come under the definition of input service within the definition of Rule 2 (l).” observed the Bench.
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