Levy of Service Tax

PJ/Case Study/2011-12/06

CASE STUDY

Prepared By:
CA Pradeep Jain and
Sukhvinder Kaur, LLB [FYIC]

Introduction: -

For levying service tax on a service provided by the assessee, it is first required to see whether such service is classified as a taxable service under the Finance Act, 1994. Thereafter, it is required to be seen that whether the service sought to be taxed fulfills the criteria prescribed under the provisions for the specified service. Only then the service provided by an assessee can be taxed. The case under study also involves the similar question.

Relevant Legal Provisions:-

- Clarification by Ministry of Finance F. No. 345/4/97-TRU, dated 16.8.99:

“In other words service tax is attracted on advertising agencies which are providing service to advertising agencies which are providing service to advertisers by conceptualising, designing or preparing advertisements. Print or electronic media is excluded from the levy of service tax as they do not provide any service to the advertisers, but are merely selling space or time for the exhibition of advertisements.”

- Relevant extract from Circular No. 96/7/2007-ST dated 23.8.2007:

Issue: Persons / agencies canvass advertisements for publishing, on commission basis. Such persons / agencies do not provide any other services like making, preparation, display or exhibition of advertisement. Whether merely canvassing advertisement for publishing on a commission basis by persons / agencies is classifiable as Advertising Agency service [section 65(105)(e)] or not?

Clarification: Merely canvassing advertisements for publishing, on commission basis, is not classifiable under the taxable service falling under section 65(105)(e). Such services are liable to service tax under business auxiliary service [section 65(105)(zzb)].
- Notification No. 6/2005-ST:

In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the said Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts taxable services of aggregate value not exceeding four lakh rupees in any financial year from the whole of the service tax leviable thereon under section 66 of the said Finance Act:

Provided that nothing contained in this notification shall apply to,-

(i) taxable services provided by a person under a brand name or trade name, whether registered or not, of another person; or

(ii) such value of taxable services in respect of which service tax shall be paid by such person and in such manner as specified under sub-section (2) of section 68 of the said Finance Act read with Service Tax Rules,1994.

- Notification No. 8/2008-ST says -

In the said notification, for the words “eight lakh rupees”, wherever they occur, the words “ten lakh rupees” shall be substituted.

2. This notification shall come into force on the 1st day of April, 2008.

In the matter of M/s Ganpati ADD Media, Jodhpur
[Order-In-Original no. 10/ST/2011, dated: 17.01.2011]

Brief facts of the case: -

-           Noticee is providing cable operator services. It works on commission basis for M/s Sky Media Pvt Limited.

-           Department alleged that during the period from 2008-09 to 2009-10 the noticee had provided Advertisement Service to M/s Den Sky Media Pvt Limited. And received consideration for the same but the noticee did not pay service tax nor applied for registration.

-           Show cause notice was issued to the Noticee demanding service tax with interest on the said consideration. Penalty under Section 76 was also proposed to be imposed.

Noticee’s Contentions: -

- Noticee contended that they were not providing any advertising services, they were just booking space and time for the customers and for which they received commission. Reliance was placed on Board Circular F. No. 345/4/97-TRU, Dated 16.8.99 and it was submitted that the print media and electronic media that just sells space and time for the advertisement are excluded from the levy of service tax.

- Further, reliance was placed on clarification about the issue in Circular no. 96/7/2007-ST dated 23.8.2007 and submitted that the above circular also clarified that merely if the advertisement is canvassed on commission basis it will not be classified under the category of Advertising Agency services but under the head ‘Business Auxiliary Services’.

- It was submitted that the Noticee were also engaged in just booking the space and time for their customers. The services of the advertisement were provided by DEN Sky Media. Noticee just received a fixed percentage of commission for per advertisement booking. Therefore the show cause notice that is issued to them was totally erroneous, as the Noticee were not taxable under the category of service for which the show cause notice has been issued.

- Further to support their contention that the Noticee were not covered under the head Advertisement services and were covered under the category of Business Auxiliary service, reliance was placed on following decisions:

C.S.T., AHMEDABAD Versus POORNIMA ADVERTISING & PROMOTION PVT. LTD. [2010 (20) S.T.R. 107 (Tri. - Ahmd.)]

IN RE: ABLE ADDS PVT. LTD. [2005 (187) E.L.T. 133 (Commr. Appl.)]

IN RE: PRECIOUS PUBLICATIONS PVT. LTD. [2006 (1) S.T.R. 64 (Commr. Appl.)]

It was submitted that all the cases produced above say that mere booking of space and time for the customer and passing the same to its publisher on commission basis is not classified under the head Advertising agency service. The service is to be classified under the head business auxiliary service.

- Further, it was submitted that the demand raised on the Noticee was on the whole amount of the bills. They were working on commission basis. The amount that was charged in the bill was passed on to the advertising agency. Invoices were produced to show that they were issued by Den Sky Media Network Ltd. It was submitted that from the said Invoices it was clear that the Noticee were getting just the 15% trade discount. On the rest of the amount on which service tax has been charged by the party and it has been paid by the said service provider. So the only amount on which the service tax is to be paid by the Noticee was only the amount of commission received by them. As per invoice, the commission received by them is 15% only. Thus, the department can also raise the demand of service tax on that 15% commission earned only. Further to support their contention, Noticee relied on the following decisions-

FIFTH ESTATE COMMUNICATIONS (P) LTD. Versus COMMISSIONER OF SERVICE TAX, CHENNAI [2008 (12) S.T.R. 352 (Tri. - Chennai)]

MOULIS ADVERTISING SERVICES P. LTD. Versus COMMISSIONER OF S.T., CHENNAI [2008 (12) S.T.R. 225 (Tri. - Chennai)]

From the above reproduced citations it was also clear that the service tax liability in case of booking of space and time on behalf of the client is only of the commission earned by the agency. Therefore the show cause notice issued to the Noticee demanding the service tax on the whole amount of the bill is wholly and totally erroneous and is liable to be set aside. Even all the advertising agencies, all over India and even in your good honour’s jurisdiction are paying service tax only on commission received from newspapers.

- Further, it was submitted that the Noticee have earned the total amount of commission @ 15% as stated earlier also. Even out of this commission, certain portion is to be passed on to the clients. The amount charged from client is chargeable to service tax. As the Noticee have to pass on maximum part of this commission to the buyer then the service tax should be charged on this realised amount only. This could be better understood with an example.

Example: Suppose the total advertising agency charges are Rs. 1000/-. Out of this thousand rupees 150 is commission (@15%). So the service tax is already paid on the balance amount i.e. Rs. 850/-. We have to bill the customer along with the service tax. The amount will be charged with 150+850+87.55, but as the customer is aware that we are earning commission @ 15%, he ask for discount from the same. Suppose we pass on the discount @ 10%. The service tax can be charged only on rest of the amount.

Further to support our contention appellant relied on LINTAS INDIA (P) LTD.Versus COMMISSIONER OF SERVICE TAX, DELHI [2008 (10) S.T.R. 474 (Tri. - Del.)]

In the above case also it has been said that the discount given to the customers cannot be said as commission earned by the assessee. The same decision applies in Noticee’s case also and therefore they were liable to pay service tax only on the commission that has been earned by them.

- It was submitted that even if the contention of the department is accepted, which is not the case, then the Noticee have to pay the service tax on the whole amount. In that case, they will get the credit of the amount that has been paid by Den Sky Media Network Pvt. Ltd. The same has been also said in the case of PURNIMA ADVERTISING AGENCY P. LTD. Versus COMMR. OF S. T., AHMEDABAD [2010 (19) S.T.R. 723 (Tri. - Ahmd.)]

Therefore, the Noticee will get the credit on invoices. The invoices along with statement were enclosed to their reply. This clearly shows that the service tax is paid on all the invoices. Hence, the credit should be allowed to the Noticee on all these invoices. Hence, the demand will be reduced by that amount.

- It was further submitted that the amount that has been received by the Noticee is the amount including service tax. Therefore if the contention of the department is accepted that the service tax has to be paid by them then the amount will be cum duty and service tax will be calculated accordingly. The same has also been held in -

IN RE: ABLE ADDS PVT. LTD. [2005 (187) E.L.T. 133 (Commr. Appl.)]

IN RE: PRECIOUS PUBLICATIONS PVT. LTD. [2006 (1) S.T.R. 64 (Commr. Appl.)]

Therefore if the department contention is also accepted then the 15% commission is the amount including service tax. So the tax will be excluded while calculating the amount liable for service tax under the Service Tax Act, 1994 applying the above mentioned decisions in Noticee’s case.

- It was further submitted that the show cause notice has been issued charging service tax at the rate of 12.36% for the demand of the period 2008-09 and 2009-10. But the rate of service tax applicable from 24.2.2009 was 10.30%. The show cause notice also covers a period beyond 24.2.2009. But the rate that is taken for calculating the demand of service tax is 12.36%. Hence the demand calculated is totally erroneous and such an erroneous shoe cause notice is liable to be set aside.

- Further, it was submitted that the amount that has been taken in the show cause notice for calculating the service tax demand is Billed amount + 10%+ 10%. But as the Noticee is contending from the beginning that the amount billed is already paid to Den Sky Media Pvt. Ltd. and the service tax liability on the same has to be discharged by them only. Therefore the amount on which service tax can be demanded is 15% commission. But the department is adding 10%+ 10% on billed amount +10%. The maximum commission earned is 15% so the department asking for service tax on more than 15% is totally erroneous and is liable to be set aside. It is further submitted that how this amount of 10%+ 10% has been arrived by the department is not known to them. Normally, all the agencies charge the same amount that is billed to them. Only the commission given by newspaper agency is their income. Hence, the show cause notice is totally erroneous and liable to be set aside.

- Further, it was submitted that if the department’s contention is accepted, which is not the case, then also the Noticee cannot be denied the benefit SSI exemption under Notification No. 6/2005-ST. The limit of 4 lacs was enhanced and is at present 4 lakhs vide Notification No. 8/2008-ST.

It was submitted that since the aggregate value of taxable services in the show cause notice itself is less than the exemption limit, hence the same is applicable to the Noticee. Therefore the benefit of the above notification will be applied in their case also. As the total value on which service tax is demanded in show cause notice is 622652 for the year 2008-09 and 262134 for the year 2009-10 i.e. not crossing the trash hold limit of 10 lacs, service tax cannot be demanded from them. Furthermore, if we see the commission amount only then it is very much below the exemption limit.

- It was submitted that the show cause notice has been issued saying that the Noticee were engaged in providing service namely “Advertisement and Cable Operator Services” under sub clause (90a) of Section 65 of the Finance Act, 199. The clause 90a of the Section 65 defines Renting of immovable property. Therefore the show cause notice issued to the assessee is totally wrong in classification of service and mentioning its section.

- The show cause notice also imposes interest under Section 75 of the Service Tax Act, 1994. It was submitted that the section says that if some provisions are not complied with then the interest also has to be paid to the Govt. with the demand of tax. As the demand of service tax raised on the Noticee is also not sustainable the demand of interest under the show cause notice is totally erroneous.

- Further, it was submitted that the penalty is also imposed on the Noticee for contravention of the provisions of Section 67 to Section 70. The Section 67 is for valuation of taxable services for charging service tax, 68 for Payment of service tax, 69 for registration and 70 for Furnishing of return. As the Noticee had not crossed the limit of Rs. 10 lacs for the year ending 2009 and 2010, they had not violated any of the provisions of these sections. There was no need for the Noticee to take registration, pay tax or to file the returns. Therefore penalty cannot be imposed on them. The show cause notice therefore should be set aside.

Findings of the Deputy Commissioner: -

The Deputy Commissioner held as under:

- It was held that the service provided by Noticee on commission basis to M/s Den Sky Media Net Works P. Ltd cannot be termed as Advertisement services as the Noticee was not designing or preparing advertisement. Moreover, the clarification of Ministry F. No. 345/4/97-TRU dated 16.08.1999, M/s Den Sky Media Net Works P. Ltd which is an Electronic media is excluded from levy of service tax as merely selling space or time for exhibition of advertisement is not covered under Advertisement service so as clarified vide Circular No. 96/7/2007-ST dated 23.08.2007 this service falls in the category of Business Auxiliary Service (Section 65(105)(22b).

- It was further held that the Noticee is entitled to avail the exemption of Rs. 10 lakhs as provided under Notification No. 6/2005-ST as amended vide Notification No. 8/2008-ST. It was held that the Department has arrived at the notional gross consideration figures by adding 10% as Administrative Expenses plus 10% Profit to the amount billed by M/s Den Sky Media P. Ltd.

- It was further held that since consideration received in 2007-08 was less than Rs. 8 lakhs so in the year 2008-09 the Noticee is entitled to avail Notification No. 6/2005-St and in the same way it is entitled to avail full exemption in the year 2009-10 as its proceeds in the year 2008-09 & 2009-10 was less than Rs. 10 lakhs limit. So it is very much entitled to avail exemption under Notification No. 6/2005-ST as it neither provided Branded Service not was covered under exclusion clause contained in Para (ii) of Notification No. 6/2005-ST as the noticee is not providing any service other than Business Auxiliary services as discussed above.

- It was held that the Noticee did not provide service of Cable Operator and Advertising service.

Decision of the Deputy Commissioner:-

The proceedings initiated by the impugned show cause notice were dropped.

Conclusion:-

The learned Adjudicating Authority rightly set aside the demand and held that when electronic media was excluded from levy of service tax then service tax cannot be demanded merely for selling space or time for exhibition of advertisement especially when the Noticee were not designing or preparing the advertisement.

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PJ/CASE STUDY/2011-12/06
11 May 2011

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PJ/CASE STUDY/2011-12/06
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