Lux Industries Retains Rs 1.58 Crore Service Tax Credit on Its TV Ads Despite Channels Billing Agency, as CESTAT Rejects Revenue Appeal

In brief

The question

Whether Lux could claim CENVAT credit of service tax on broadcasting services arranged through Prachar where the channels’ invoices were addressed to Prachar, but the advertisements were for Lux and the charges and tax were passed on to and borne by Lux.

The court held

The Tribunal held that Lux was entitled to CENVAT credit of the service tax paid on broadcasting services procured through Prachar and that the invoice-addressing objection did not justify denial of credit.

It also directed

It dismissed Revenue’s appeal, upheld the Commissioner (Appeals)’ order, and granted consequential relief, if any, in accordance with law.

The Tribunal did not consider it necessary to decide Lux’s limitation plea.

01Facts

Lux Industries, a hosiery-garment manufacturer, engaged Prachar Communications Ltd. to arrange television advertisements. The channels invoiced Prachar for broadcasting and paid service tax; Prachar invoiced Lux for the broadcasting charges and tax as reimbursement, along with its agency commission and tax. Lux took CENVAT credit of the tax on both components for March 2011 to February 2013.

¶ 2

The Department denied credit of ₹1,58,15,615 on the broadcasting charges, reasoning that the channels had invoiced Prachar rather than Lux. The adjudicating authority confirmed the demand, but the Commissioner (Appeals) allowed the credit. Revenue appealed.

¶ 3–4

The Tribunal noted that the appeal had been authorised despite the Committee of Commissioners accepting the order on merits, because Revenue had challenged one of the precedents relied on below.

¶ 8–9

02Issues

i.Whether Lux could claim CENVAT credit of service tax on broadcasting services arranged through Prachar where the channels’ invoices were addressed to Prachar, but the advertisements were for Lux and the charges and tax were passed on to and borne by Lux.

¶ 13–17

ii.Whether any deficiency arising from the channels’ invoices being addressed to Prachar precluded credit under Rule 9(2) of the CENVAT Credit Rules, 2004.

¶ 5, 17

03Law Applied

Under Rule 2(l) of the CENVAT Credit Rules, 2004, advertising is included within “input service”; Rules 3 and 9 govern entitlement to and documentation for CENVAT credit, and Rule 9(2) permits credit where the prescribed particulars and evidence establish receipt and use of the service despite a documentary deficiency.

¶ 5, 15, 17

It relied on Indian Oil Corporation Ltd. v. CCE, Mumbai-II, 2014 (36) S.T.R. 833 (Tri.-Mum.), and Zapak Digital Entertainment Ltd. v. CST, Mumbai-II, 2017 (49) S.T.R. 455 (Tri.-Mum.), concerning credit on broadcasting services procured through an advertising agency. It also relied on Shivraj Cable Network v. CCE, Raigad, 2015 (39) S.T.R. 670 (Tri.-Mum.), for the principle that a documentary discrepancy need not defeat credit where receipt, payment and accounting for the service are established.

¶ 4, 10–11, 17

The Tribunal also considered Rule 4A of the Service Tax Rules, 1994, and Section 35B(2) of the Central Excise Act, 1944 in relation to the Revenue’s grounds and appeal authorisation.

¶ 5, 8

Provisions in the judgment · 2 · Linked ones open on LawLens

Central Excise Act, 1944 Section 11 Section 35

04Reasoning

The Tribunal found that the advertisements promoted Lux’s products, Lux commissioned them, and Lux bore the broadcasting charges and related tax; the Department’s objection rested solely on the addressee of the channels’ invoices. Prachar treated the broadcasting charges as reimbursement, did not include them in the value of its own taxable service, and did not claim the tax as its input credit. The Tribunal therefore rejected the contention that broadcasting was Prachar’s input service merely because the channels invoiced it.

¶ 14–15

It also considered it inconsistent for the Department to allow credit on Prachar’s commission for procuring the broadcasts while denying credit on the broadcasts themselves.

¶ 16

Since Prachar’s invoices disclosed the relevant tax and service particulars, and the channels’ invoices named Lux as advertiser, the Tribunal held that Rule 9(2) did not bar credit; there was also no risk of double credit.

¶ 17

The Tribunal further noted that the Department’s challenge to Zapak Digital had been dismissed, Indian Oil Corporation remained unchallenged, and the jurisdictional High Court had dismissed Revenue’s appeal in Power Soap Ltd. on the same issue.

¶ 10–12