Whether advertising agency is liable for service tax on the amount retained from clients?

PJ/Case Laws/2012-13/1438

Case:- LINTAS INDIA PVT. LTD. V/S COMMISSIONER OF SERVICE TAX, MUMBAI-II

Citation:- 2013(29) S.T.R. 68 (Tri. - Mumbai)

Brief Facts: - The applicant undertook advertising work for their clients on two components (i) creation of advertising material and (ii) placement of advertising material in the media for display. For providing this service to their client i.e. advertising they are getting certain commission and discharging the service tax liability. There is no dispute on that. The dispute is regarding the payments received by applicant for media cost. For example out of Rs. 100/- billed to the client, Rs. 85/- is as media cost and Rs. 15/- as commission (which is taxable). Out of Rs. 85/- only Rs. 80/- is actually paid to the media. The allegation is that sometimes out of the media cost of Rs. 85/- payable to the broadcaster, the applicant paid less than Rs. 85/- to the broadcaster. As the applicants are paying less amount to the broadcaster and keeping some amount with them which has been written off in the books of accounts as “write backs”. The service tax demand on this amount has been confirmed for Rs. 1,36,84,668/- under the category of advertising agency service. Another demand of Rs. 84,58,513/- has been confirmed on discounts received by the applicant from media for giving bulk volume advertisement to them. This demand has been confirmed under the category of Business Auxiliary Services. The applicant is seeking waiver of pre-deposit of the impugned demands in this appeal.

Appellant’s Contention: - The appellant submits that the amount of “write backs” is payable by them at any time as asked by the persons on behalf of the short payment is made i.e. broadcaster or by the advertiser. He further submitted that their main activity is advertising agency and for that they receive a commission. On that commission they are discharging service tax liability. He further submits that the amount which they have to pay to media for advertisement is by error/dispute, therefore, the amount was paid less. Therefore, the said amount shall not form a part of taxable service. He further submitted that the amount retained by them as “write backs” cannot be treated as a part of service tax as the same is of the cost of the media and the same shall not be includable in their taxable amount. In support of their contention they relies on the judgment of the Hon’ble High Court of Bombay in the case of Commissioner of Income Tax v. Heros Publicity Services - 2001 (248) ITR 256 (Bom.). He further submitted that most of the demands are barred by limitation. For demand on account of volume discounts he submitted that in the case of Group M Media India Pvt. Ltd. v. CST vide Order No. M/436/11/CSTB/C-I, dated 20-10-2011, this Tribunal has granted unconditional waiver of pre-deposit. Therefore, he takes support of that decision and advanced arguments on the same line for this matter also.

Respondent’s Contention: - The respondent contends that as per Board’s Circular No. 341/43/96, dated 31-10-1996, it is clarified that the service tax is to be computed on gross amount charged by the advertising agency less amount paid to the print media. Admittedly, in this case the applicant has retained more amounts apart from the amount on which they have discharged the service tax liability, therefore the difference of the amount which they retained without paying the service tax, they are liable to pay service tax. He further submitted that in the case of Group M. Media India Pvt. Ltd (supra), this Tribunal has granted unconditional waiver of pre-deposit on the facts that the client will decide the advertiser and the liberty was not given to the applicant, if same is the case of the applicant then the decision of Group M. Media India Pvt. Ltd. (supra) is applicable.

Reasoning of Judgment: - The Hon’ble Tribunal held that the applicant is liable to pay service tax on the amount which they have retained with themselves i.e. the amount received from the client less amount paid to the media. Same view has been expressed by the Board’s Circular which relied upon by the learned A.R. In view of the observation prima facie they are of the view that the applicant has failed to made out a case for 100% waiver of pre-deposit of the demand confirmed against them on account of “Write backs”. Accordingly, they direct the applicant to make a pre-deposit of 25% of Rs. 1,36,84,668/- within eight weeks from today.
Further they find that the appellant has been able to show that in the present case also the advertising agency is not at the liberty to decide the advertiser. Therefore, the facts are somehow same to the facts of Group M. Media India Pvt. Ltd. (supra) wherein this Tribunal has granted unconditional waiver of pre-deposit. Therefore, they waive the requirement of pre-deposit of tax Rs. 84,58,513/- demanded on account of Volume discounts.

Decision: - The stay was granted.

Comment:-This is also one of the issues that has not been able to resolved on account of various controversial judgments delivered. However, service tax should not be charged again on the amount retained from the clients as it is in the nature of profit and not Commission to be covered under BAS.

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PJ/Case Laws/2012-13/1438

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