Whether the cost of materials that get consumed in the construction of stalls be included in taxable value?

Case:- IMPACT COMMUNICATIONS VERSUS COMMISSIONER OF SERVICE TAX, NEW DELHI

Citation:- 2012 (28) S.T.R. 156 (Tri. - Del.)

Brief facts:-The appellants were registered for paying service tax under the head for “Event Management Services” and were paying such tax. On scrutiny of their records, Revenue noticed that during the period Oct. 2003 to March 2007 the appellants had not paid service tax on gross value received from their customers but were paying tax only on a part of the money received from them. A Show Cause Notice, issued on 24-3-2009, demanding tax short paid and proposing penalties for such short payment was adjudicated by the Commissioner by the impugned order in the present appeal.
The appellants were providing services for promotion of the products of various companies by organizing stalls at exhibitions, taking floats displaying advertisements of products to different locations and in some cases by selling products from such stalls, floats etc. Some examples of work executed by them are given in brief below :
(i)     Designing, fabricating and running a stall for Godrej Sara Lee at Kullu Dasshera Mela and also at ITC E-Choupal in Lucknow. This event involved responsibilities like :
(a)    Designing & fabrication of stall.
(b)    Managing the Stall activity with gimmicks.
(c)    Selling from the stall and data collection.
(d)    Submission of reports on daily and city basis.
(e)    Necessary permissions required for execution of activity.
(f)     To provide computer with joystick for the entire activity.
(g)    Printing and installation of 50 banners.
(h)    Providing branded T-shirts and Caps.
(ii)    Advertising using Floats in the Rural Area of UP, Haryana and Uttaranchal for Maruti Suzuki which involved responsibilities like :
(a)    Anchor and Promoter of approved quality to engage the crowd at every location:
(b)    Necessary back up power, fuel and other daily necessities for your staff.
(c)    Lights and audio system.
(d)    Caps, T-shirts for the promoters.
(e)    Leaflets to be printed in quantity as discussed, with a provision for dealer stamp.
(f)     All necessary permissions at the event locations and also obtaining permits for crossing State borders.
(g)    Car race demo game as per discussion.
(h)    Database generated during each event day will be set to us in a soft copy, in details and also a summary everyday, for the day and also on a cumulative basis.
(iii)   Advertising the products of Escorts Ltd. in Pau Kissan Mela at Ludhiana the work involved responsibilities like :-
(a)    10ft. x 8ft. six flex prints.
(b)    6ft. x 4ft. four flex facia print cut outs.
(c)    Fabrication with ceiling & light (in Board, Ply & Flex and carpeting).
(d)    6ft. x 3ft. fifty six flex kiosks printing.
(e)    Mounting of 56 nos. kiosks on poles.
(f)     Transportation Delhi-Ludhiana-Delhi.
(g)    Cost of one supervisor.
(h)    Cost of four promoters.
(i)     Audio and Video Photography for two days.

Appellant’s contentions:-The appellants submit that the above services cannot be considered as “Event Management Service”. According to them the services are more appropriately classifiable under “Business Auxiliary Service” or “Business Exhibition Service”. More than the classification, the main argument of the Counsel for the appellants is that the appellants are not required to pay service tax on the value of materials, used in their activity, reimbursed by their principals. He submits that they would be liable to pay tax only on the commission they were receiving because they were eligible for the exemption under Notification 12/2003-S.T., dated 20-6-2003. He submits that the Appellants were paying tax on the commission received. He also relies on C.B.E. & C.’s Circular 96/7/2007, dated 23-8-2007.
He also submits that since these demands are based on audit reports the extended period of time cannot be invoked in this case for raising the demand and therefore the demand is mostly time-barred.

Respondent’s contentions:- The Ld AR for Revenue draws our attention to the definition of “Event Management” at 65(40) of Finance Act 1994 which reads as under :
“(40) “event management” means any service provided in relation to planning, promotion, organising or presentation of any arts, entertainment, business, sports, marriage or any other event and includes any consultation provided in this regard;”
He also points out the clarification issued by C.B.E. & C. vide F. No. B11/1/2002-TRU, dated 1-8-2002 and C.B.E. & C. Circular No. 96/7/2007 dated 23-8-2007 which reads as under :
“(i) Nature of services
Para 2. As per clause (34), “event management” means any service provided in relation to planning, promotion, organizing or presentation of any arts, entertainment, business, sports or any other event and includes any consultation provided in this regard. Vide clause (90)(zu), taxable service means any service provided to a client, by an event manager in relation to event management. Event manager has been defined in clause (35) as any person who is engaged in providing any service in relation to event management in any manner - BII/1/2002- TRU, dated 1-8-2002,
Para 3, An event manager is hired to execute an event such as product launch of any corporate, promotional activities, concerts/rock show, official meets, award functions, beauty pageants, entertainment events, exhibitions, private functions, and sports event etc. Event manager uses his expertise and ideas to manage an event. Event manager is supposed to manage a venue, sets including decoration of sets, mandap, chair, table, barricades, sound, light video, electrical, security, communication, invitations to the event/sale of tickets and publicity of the event. He has also to manage the stage show, artist, musician, choreographers and other miscellaneous items for holding of event. All services provided by the event manager are liable to service tax. This also covers any construction provided for organizing an event - BII/1/2002-TRU, dated 1-8-2002.
(ii) Service tax is not on the event but on the service provided for managing an event, thus revenue generated by renting out the exhibition space or sale of ticket will not be subject to service tax.
Para 5. A point has been raised as to whether in the case where event is organized/manager in-house but certain contractors are appointed say for stage/mandap preparation, for lighting/sound system, for advertising the event etc. and revenue is generated by renting out the exhibition space and sale of ticket, whether service tax will be leviable on the amount charged by the contractors or on the amount generated by sale of space or tickets etc. It is clarified that service tax is not on the event but on the service provided for managing an event. Therefore in a case where the event is organized/managed by the sponsor himself, no service tax is payable as “event management”. However, the contractors who provide service as mandap keeper, videographer, security agency etc. are no doubt liable to pay service tax on their “taxable service”. It is clarified that service tax under the category of event management is not leviable on the sale proceeds of tickets or revenue generated from the sale of space - B II/1/2002-TRU, dated 1-8-2002.
Note :Revenue generated from sale of pace is now specifically covered in the category of Sale of Space or time for Advertisement Services with effect from 1-5-2006.
(iii) Two services,-namely “Business Exhibition Service” and “Event Management Service”, and the two service providers of the respective services are distinct
Organizers of Trade Fairs and Exhibitions solicit participation from the trade and industry and provide space and other facilities, including furniture, cabins, security, electricity, etc., to display products and provision of services. Whether services provided by the organizers of trade fairs/exhibitions are covered within the scope of event management service [Section 65 (105)(zu)].
Clarification :Trade fairs and exhibitions are organized by persons. Such organizers of trade fairs and exhibitions provide services to exhibitors in relation to business exhibition. Services provided by an organizer of trade fairs and exhibitions to an exhibitor in relation to business exhibition is liable to service tax under “Business Exhibition Service” [Section 65(105)(zzo)] with effect from 10-9-2004.
In addition, an organizer of the trade fair or business exhibition may engage an event manager to provide service to the organizer in relation to organizing trade fairs and exhibitions. In such cases, the event manager renders like service of “Event Management” to the organizers and is liable to pay service tax under “Event Management Service”. The two services, namely “Business Exhibition Service” and “Event Management Service”, and the two service providers of the respective services are distinct- Reference Code No. 041.01/23-8-2007 of Circular No. 96/7/2007 dated 23-8-2007.”
The AR also argues that exemption under Notification 12/2003-S.T., dated 20-6-2003 will not be available to the appellants because the material used is consumed in providing the service and there is no sale of the material as such.
The AR points out that in the case of materials like tea bags, posters, advertisement materials like caps which were supplied by their principals. Without making the stalls concerned or constructing the floats required they could not have rendered the service for which they have entered into contract and therefore the value reimbursed for such items used in providing the service should form part of the value of service rendered not withstanding that such amounts are separately billed.

Reasoning of judgment:-At this prima facie stage they are of the view that the service rendered by the appellants fall under the category of Event Management Service. Even if it falls under the category of Business Auxiliary Service or Business Exhibition Service tax liability would arise for certain periods that is after 1-7-2003 for Business Auxiliary Service and after 1-5-2006 for Business Support Service.
The real issue to be decided is whether the cost of materials that get consumed in the construction of floats and stalls will get excluded under Notification 12/2003-S.T. What we find is that these are not situations were materials procured from the market is supplied to the principal in the same form. This is not like a spare part of motor vehicle sold by a Service Station, where the spare part has use for the person availing the service beyond the stage of service. This is more like chemicals used in providing photographic service which issue has been decided by the Tribunal in Aggarwal Colour Advance Photo System v. CCE - 2011 (23)S.T.R.608 (Tri.-LB).This is a case where the appellant procures raw materials and make objects necessary for rendering services and uses it for rendering such services.
Prima faciethey are not in agreement with the argument regarding time-bar. This is a case where the appellant organizes his affairs in a way to give the impression that major part of the remuneration is received as re-imbursement. Such arrangements come out of detailed knowledge of legal provisions and a belief that payment of tax can be avoided. This does not happen due to lack of knowledge. So the only issue relevant is that the appellant had disclosed the amounts received as re-imbursements to the department. There is no evidence of such disclosure. So at this stage they prima facie feel that extended period can be invoked in this case.
So prima facie they do not see this as a case for complete waiver of pre-deposit of dues arising from the order for admission of appeal. So the appellants are directed to deposit Rs. 30 lakhs (Rupees Thirty lakhs) towards duty demand confirmed in the impugned order, within 12 months from the date of the order, for admission of appeal. Subject to such deposit pre-deposit of balance dues arising from the order will be waived and there shall be stay on collection of such amounts during the pendency of the appeal.

Decision:-Stay partly granted.

Comment:- The analogy of the case is that as in the present case, use of materials is essential for rendering the service of event management because the materials are used for construction of stalls, they will be included in the taxable value of service. The materials used in the present case are in the nature of consumables rather than goods sold during the course of provision of service. Consequently, the value of such consumable material is prima facie includible in the taxable value of service.

Prepared by: Monika Tak

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PJ/Case Law/2014-15/2357

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