HC eases service tax set-offs; FMCG, pharma cos to gain

In a recent landmark judgment, the Bombay High Court has made service tax set offs easier for India Inc. The definition of input services has been widened which is a very good news for corporate India, especially for companies like FMGC or pharma that have very high advertising budgets.

Here is a verbatim transcript of Isha Dalal's comments on CNBC-TV18. Also watch the accompanying video.

The Bombay High Court has pronounced a landmark judgement yesterday in the case of Coca Cola India yesterday with regards to payment of service tax.

Coke's concentrate manufacturing division was advertising for soft drinks division and the concentrate manufacturer paid service tax on these advertising expenses. The company was proposing to set-off this service tax against the excise duty liabilities of soft drink manufacturer. The Excise Department had held that this wasn't allowed since the service tax and the excise against which it was proposed to be set up were two separate products, that is the concentrate and the soft drinks respectively.

But the Bombay High Court has overturned the Excise Department's objections. It essentially held that the definition of input service can be widely interpreted and it can cover any input service as long as there is an established relationship with the final product which means service tax paid on one product can be set-off against excise on another product as long as there is an established relationship between the two.

So the definition of input services has been widened and there is very good news for corporate India, especially for companies like FMGC or pharma companies that have very high advertising budgets.