CESTAT Chennai Allows ₹1.58 Crore CENVAT Credit To Lux Industries On Broadcasting Services

On Wednesday, 11 November, the Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), dismissed the Revenue's appeal against an order allowing Lux Industries Limited CENVAT credit of Rs. 1,58,15,615 on service tax paid on broadcasting services procured through an advertising agency.

A Bench comprising Judicial Member Ajayan T.V. and Technical Member Vasa Seshagiri Rao held that a manufacturer can claim CENVAT credit on broadcasting services used to advertise its products, even when television channels raise invoices in the advertising agency's name, if the agency acts only as an intermediary and does not avail the credit. It observed:

“A service on which the intermediary neither paid tax as part of its output nor took credit as an input cannot be treated as the intermediary's input service merely because the channel's invoice was addressed to it.”

Lux Industries, which manufactures hosiery garments under the brand name 'LUX', had engaged Prachar Communications Limited to arrange television advertisements for its products. Prachar booked airtime with Zee Entertainment Enterprises Limited, Sony Entertainment Television and other television channels.

The channels raised invoices on Prachar and paid service tax on the broadcasting charges. Prachar, in turn, raised invoices on Lux Industries, showing the broadcasting charges and corresponding service tax as reimbursement, along with its agency commission and the service tax payable on the commission.

The Revenue disputed Lux Industries' claim to CENVAT credit on the broadcasting charges, contending that the channels had invoiced Prachar rather than the manufacturer. It argued that the broadcasting services constituted Prachar's input services and that Lux Industries could claim credit only on the service tax paid on the agency commission. The adjudicating authority confirmed the demand along with interest and penalty.

The Commissioner (Appeals) set aside the adjudication order, finding that Prachar had acted only as an intermediary and that the channels' invoices identified Lux Industries as the advertiser.

First, the Tribunal examined the circumstances in which the Revenue had authorised the appeal. It noted that the Committee of Commissioners had agreed that the order allowing the credit was acceptable on merits.

On the merits, it rejected the Revenue's contention that the broadcasting services constituted Prachar's input services rather than those of Lux Industries. It noted that Prachar had neither paid service tax on the broadcasting charges as part of its own output service nor availed CENVAT credit on the tax charged by the channels. Instead, it had passed on the broadcasting charges and corresponding service tax to Lux Industries as reimbursement.

Further, the Bench observed that Prachar could not be treated as having received the broadcasting services as its own input services merely because the channels had addressed their invoices to it. The advertisements were for Lux Industries' products, and the manufacturer had commissioned the advertisements, paid the broadcasting charges and borne the corresponding service tax. It held:

“The service was received by the manufacturer within the meaning of Rule 3 of the CCR, and advertisement falls expressly within the inclusive limb of 'input service' under Rule 2(1).”

found the Revenue's position inconsistent. Having allowed credit on the service tax paid on Prachar's agency commission for procuring airtime, it could not deny that Lux Industries had received the broadcast itself. It said:

“Having accepted that the Respondent received the agency service of procuring the broadcast, the Revenue cannot contend that the Respondent did not receive the broadcast so procured. Both components arise from a single transaction. One cannot be accepted as an input service of the Respondent while the other is treated as an input service of Prachar.”

On the objection concerning the invoices, the Bench held that Prachar's invoices disclosed the service tax paid by the channels, the description and value of the services, and the particulars of the parties, thereby satisfying the requirements of Rule 9(2) of the CENVAT Credit Rules.

It also noted that the channels' invoices identified Lux Industries as the advertiser and that Prachar had raised its invoices on the manufacturer. Further, that there was no risk of the same credit being claimed twice, as Prachar had not availed the credit. It held that CENVAT credit could not be denied on account of a deficiency in the documents when payment of tax, receipt of the services and their use by the manufacturer were undisputed.

Accordingly, the CESTAT dismissed the Revenue's appeal and upheld the order allowing Lux Industries CENVAT credit of Rs. 1,58,15,615, along with consequential relief, if any, in accordance with law.

Counsel for Appellant: M. Selvakumar, Authorised Representative

Counsel for Respondent: M. Karthikeyan, Advocate