Whether credit is deniable on the ground that a part of cost of advertisement expenses was reimbursed by parent company?

PJ/CASE LAW/2015-16/2635

Case:-SUZUKI MOTORCYCLE (I) PVT. LTD. VERSUS COMMISSIONER OF C. EX., DELHI-III

Citation:- 2015 (38) S.T.R. 209 (Tri. - Del.)

Brief facts:- The appellant is a 100% subsidiary of their parent company located in Japan. A part of the advertising expenditure incurred by them is being received by them from their parent company. 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.

Appellant’s contention:- The appellant being aggrieved with the said order of the Commissioner, strongly contended that admittedly the entire advertisement expenses are being incurred by them initially. It is they who pay the advertising agency along with the amount of Service Tax. The entire advertising expenses are being reflected by them in their balance sheet. If subsequently they are reimbursed by their parent company to some extent, the same would not change legal scenario. Having paid the entire cost of advertising charges along with Service Tax from their own pocket, they are entitled to the credit of Service Tax so paid by them. Revenue should not be concerned with further financial arrangements between parent company and the subsidiary company.

Respondent’s contention:-Learned DR reiterated the reasoning of the adjudicating authority and submitted that in spite of making promises to produce an agreement between the subsidiary company and parent company before the adjudicating authority, the appellant did not do so. She also referred to press note published before the introduction of Cenvat Credit Rules, which is to the effect that -
“In principle credit of tax paid on those taxable services would be allowed which go to form part of the assessable value on which excise duty is charged.”
From the above, she concluded that if the value of any service does not form part of the assessable value of the goods, the Service Tax credit would not be available. However, on being questioned, she fairly agreed that there was no adverse finding or allegation of non-inclusion of the advertising charges in the assessable value of their final product.

Reasoning of judgement:- Commissioner did not give any finding that advertising cost was not incurred by the appellant. Merely because the appellant stood reimbursed part cost of the advertising expenses from their parent company, did not mean that the appellants would become disentitled to the Service Tax actually paid by them. As rightly pleaded, 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. By adopting the same reasoning of the Commissioner, they observed that if the assessee would have sought deductions of the advertising cost received by them from their parent unit for arriving at the assessable value of their final product, the Revenue would not have admittedly granted the same. As such, procurement of finances for running any business is the subject matter between two individuals not related or connected to the legal proposition. Having said so, they did not find any merits in the Revenues’ stand. Accordingly, the impugned order was set aside and appeal allowed with consequential relief.

Decision:- Appeal allowed.

Comment:- The crux of the case is that Service tax credit is not deniable on the grounds that a part of the expense is reimbursed by the parent company to the subsidiary company. 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.

Prepared By:- Sharad Bang

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PJ/CASE LAW/2015-16/2635

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