Distribution of credit of advertisement services by Head office when final products are fully exempt.

PJ/CASE LAW/2014-15/2556

Case:- PARLE AGRO PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, VAPI

Citation: - 2015 (37) S.T.R. 385 (Tri.-Ahmd.)

Brief facts:- These appeals have been filed by the appellants against OIO No. 02/MP/VAPI/2010, dated 8-2-2010/5-3-2010 passed by Commissioner of Central Excise, Customs & Service Tax, Vapi under which demands have been confirmed for wrongly taken CENVAT Credit taken by appellant M/s. Parle Agro Pvt. Ltd., Silvassa. Penalties were also imposed upon M/s. Parle Agro Pvt. Ltd., Silvassa and M/s. Parle Agro (Pvt.) Ltd., Andheri (East), Mumbai.

Brief facts of the case are that main appellant-M/s. Parle Agro Pvt. Ltd., Silvassa are engaged in the manufacture of non-alcoholic beverages base (NABB) or soft drink concentrate. Main appellant took CENVAT Credit of Advertisement services availed by the Headquarters M/s Parle Agro (Pvt.) Ltd., Andheri (East) under ISD invoices for the services tax paid on the finished products i.e. non-alcoholic beverages Frooty, Appy, etc. It is the case of the Revenue that NABB concentrate is used in the manufacture of Frooty, Appy, etc., which are fully exempted from payment of Central Excise duty as per Notification No. 3/2006-C.E., dated 1-3-2006, therefore, CENVAT Credit of Advertising services availed with respect to exempted goods cannot be availed by the main appellant on the ISD certificates issued by the second appellant. It is also the case of the Revenue that a credit of Rs. 14,72,243/- is taken by the main appellant which represents Service Tax paid by the second appellant with respect to exempted finished products manufactured by their franchisees located at various places.

Appellant’s contention:- Shri Jigar Shah (Advocate) appearing on behalf of the appellant also explained certain facts that the products NABB concentrate is sold by the main appellant to the franchisees and also to appellant’s own bottling plants situated elsewhere in the country. That in terms of the said agreement, the appellants also supply NABB, packing material etc., to be used for the manufacture of fruit juices i.e. “Frooti” and “Appy” along with technical know how for the manufacturers of the same. That the brand name “Frooti” and “Appy” are owned by the appellants. That the said fruit juices are cleared by the franchisees to depots/dealers/ C&F agents. That the said fruit juices shall be cleared by the franchisees under the brand name owned by the appellants. The said fruit juices contain MRP (maximum retail price) as determined by the appellants.

After explaining the control over the brand name and the manufacturing activities it was argued by the ld. Advocate that services availed by the Headquarters with respect to advertisement of the end products “Frooti” and “Appy” will be admissible as ‘input services’ under Rule 2(l) of CENVAT Credit Rules, 2004, for NABB concentrate manufactured by the appellants as increase in production of the end products, for which advertisements is done, will also increase the consumption of their final products NABB. That the cost of Advertisement done by the appellants gets included in the assessable value of NABB. Ld. Advocate heavily relied upon the case law of Coca Cola India Pvt. Ltd. v. CCE, Pune-II, reported as [2009 (15)S.T.R. 657 (Bom) = 2009 (242)E.L.T. 168 (Bom)]. He made the bench go through the issues framed before Mumbai High Court, in Para 1 of this judgment, and Paras 21 and 22 of this case to drive home the point that Service Tax credit on advertisement services availed on the finished soft drinks was held to be admissible for the manufacture of soft drink concentrate. It was also his case that for procedural lapses CENVAT Credit cannot be denied on ISD invoices as held by the following case laws :-

(i)    ECOF Industries Pvt. Ltd. v. CCE, Bangalore [2010 (17)S.T.R. 515 (Tri-Bang)]

(ii)   CCE, Bangalore-I v. ECOF Industries Pvt. Ltd. [2011 (23)S.T.R. 337 (Kar.) = 2011 (271)E.L.T. 58 (Tribunal)]
(iii) CCE, Vapi v. Jindal Photo Ltd. [2009 (240)E.L.T. 728 (Tri.-Ahmd.) = 2009 (14)S.T.R. 812 (Tribunal)]
(iv) CCE, Indore v. Grasim Industries Ltd. [2010 (20)S.T.R. 513 (Tri-Del)]
(v)   Vimal Enterprise v. UOI [2006 (195)E.L.T. 267 (Guj.)]
(vi) CCE Bangalore-I v. Raja Magnetics Ltd. [2010 (250)E.L.T. 352 (Kar.)]

The appellant also argued that investigation started in the year 2006 and continued till 2008 and the statement of Shri Krishnan Seshadari was also recorded in 2008. It was thus his case that extended period cannot be invoked in the present proceedings and no penalties/interest is invokable against the appellants in these proceedings.

Respondent’s contention:- The Revenue defended the orders passed by the adjudicating authority. It was his case that Department could only detect the irregular credit taken on the basis of investigations done on an information. That Revenue had no knowledge that ISD documents are for Service Tax paid with respect to exempted final product. He made the bench go through Paras 28 & 34.8 of the order passed by the adjudicating authority to argue that OIO dated 8-2-2010/5-3-2010 has been correctly passed against the appellants.

Reasoning of judgment:- Heard both sides and perused the case records as well as the written submissions made by the appellants. Ld. Advocate appearing on behalf of the appellants has mainly argued the case of his clients on the grounds that advertisements services availed by the appellants with respect to the finished goods “Frooti” and “Appy” are availed in or in relation to the manufacture of NABB concentrate and that such CENVAT Credit is admissible to the appellants as per Rule 2(l) of the CENVAT Credit Rules, 2004. Appellants have mainly relied upon the case law of Coca Cola India Pvt. Ltd. v. CCE, Pune -II (supra). It is observed from the relied upon judgment that is not evident whether the soft drinks manufactured from the concentrates in the case before Mumbai High Court were fully exempted or duty was paid by the ultimate bottlers. In the present proceedings, it is not disputed by the appellants that the final products “Frooti” and “Appy” are fully exempted products. The facts of the relied upon case law are not the same as the facts involved in the present proceedings and are thus not applicable to the present appeals.

It is observed that opening Para 28(ii) and Para 34.8 of the adjudication order appealed against clearly brings out that Advertisement services are availed by the appellants with respect to fully exempted final products “Frooti” and “Appy”. The moot point for consideration will be whether Service Tax credit will be available to the appellants for availing advertisement services with respect to exempted products. Para 8 of the case law ECOF Industries Pvt. Ltd. v. CCE, Bangalore (supra), also upheld by Karnataka High Court, is very relevant in this regard and is reproduced below :-
“8. The combined reading of the Rule 7 and the clarificatory Circular dated 23-8-2007 clearly shows that there are only two restrictions regarding the distribution of the credit. The first restriction is that the credit should not exceed the amount of Service Tax paid. The second restriction is that the credit should not be attributable to services used in manufacture of exempted goods or providing of exempted services. There are no other restrictions under the rules. The restrictions sought to be applied by the Department in this case in limiting the distribution of the Service Tax credit made in respect of the Malur Unit on the ground that the services were used in respect of the Cuttack Unit finds no mention in the relevant rules. As such, restricting the distribution of Service Tax credit in a manner as has been done by the impugned order of the lower appellate authority (original authority had approved of such distribution) cannot be upheld. In case the Department wants to place such restriction as is sought to be placed in the case, the rule is required to be amended.”
In view of the above observation of CESTAT Bangalore procedural irregularities can be ignored while allowing CENVAT Credit but such credit should not be pertaining to inputs/input services used in the manufacture of exempted goods. The CESTAT is of the considered view that appellants were not entitled to avail CENVAT Credit of Advertisement services availed with respect to exempted finished products “Frooti” and “Appy”. Simply including the cost of advertisement expenses in the assessable value of NABB concentrate will not make all the CENVAT Credit admissible if the end products for which services are availed were fully exempted. Therefore, the case laws relied upon by the appellants are not applicable to the facts & circumstances of the present proceedings.

So far as invocation of extended period is concerned detailed findings have been given by the adjudicating authority in Para 35.1 to 35.10. Revenue will not come to know from a CENVAT document issued by the ISD appellant whether the credit passed under an ISD document is pertaining to services availed for an exempted final product or not. The same fact was brought to light only an an information followed by detailed investigation. Therefore, extended period will be applicable in the present proceedings. Appellant also never approached the Revenue at any stage to seek clarification whether such a credit of Advertisement services availed with respect to exempted final products “Frooti” and “Appy” will be admissible or not. In view of these observations extended period is correctly invoked and penalties have been correctly imposed upon the appellants. They do not find any reason to interfere with the order passed by the adjudicating authority.

Appeals filed by the appellants are dismissed by upholding the Order-in-Original passed by the adjudicating authority.

Decision:- Appeal dismissed.

Comment:- The essence of this case is that when the Input Service Distributor can distribute only that cenvat credit which is eligible to be taken by the assessee. It is settled law that the CENVAT credit of inputs / input services used for the manufacturing of the exempted goods / providing exempted output services cannot be taken as per CENVAT Credit Rules, 2004. Consequently, the cenvat credit of advertising services used for manufacturing fully exempted products is not admissible and when the credit cannot be legitimately availed, the question of distribution of credit does not arise at all.

Prepared by: Kushal Shah

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PJ/CASE LAW/2014-15/2556

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