Assessee was engaged in the manufacture of personal computers and used the products of Intel and Microsoft for such manufacture. A specified percentage was paid by these two companies on the condition of including their logos on publicity material of the assessee. The reimbursements were mode from a fund created out of a contribution of the two entities that was directly linked to purchases effected in the past by the assessee. The Department raised demand on the ground that displays were for a consideration and the said consideration was liable to Service Tax.
On appeal to tribunal, tribunal held that the assessee was manufacturer of branded products and by no stretch of imagination, could it be inferred that in the process of promoting its own products, the components in the personal computers were also marketed for a consideration paid by Intel and Microsoft. A question that arose was whether the two suppliers benefited in any manner from the inclusion of their logos in the advertisement and publicity material deployed by the assessee. In scale and reputation, the assessee was incomparable with the two global giants.
It was difficult to conceive that the products of these two entities would find additional acceptability in the market owing to the inclusion of their respective logos. The products themselves were amenable to utilization only by computer manufacturers and the publicity, if any, among the potential customers of the assessee was unlikely to derive any economic benefits to the suppliers.
The tribunal pointed that reimbursement was from funds added in proportion to the procurements effected by the assessee from the two suppliers and not from enhanced sales attributed. The tribunal held that the scheme incentivized the assessee to procure more products from the two suppliers and to enhance the sales of the computers manufactured by the assessee. Such a benefit to the assessee would not qualify as promotion of product of client.