ST is not leviable on discounts received by advertising agency from media - A discount is reduction in price given to buyer of goods or services - a receiver of services cannot be considered as agent of service providerso as to be charged to Tax under BAS - Stay ordered: CESTAT by Majority
By TIOL News Service
MUMBAI, JULY 05, 2012: THE appellant rendered the services of advertising agency and discharged service tax on the commission received by them from their client, the advertiser. The transaction involves three parties, the advertiser, the advertising agency and the media which puts out the advertisement. Print media has been exempted from service tax while the broadcasting media is not and they have discharged service tax under the broadcasting services on the consideration received. In certain cases, the media (broadcaster), gave a volume discount to the advertising agency based on the volume of business given by the advertising agency, at the end of the year which was shown as income in the books of accounts of the advertising agency.
The revenue was of the view that the volume discount received by the advertising agency is for the services rendered by the agency to the media, for promotion of the business of the latter, which falls under the category of "business auxiliary service" and the advertising agency is liable to pay service tax on this amount received.
Accordingly, a Service Tax demand in excess of Rs.90 lakhs along with interest and various penalties was confirmed by the CCE, Thane-I against the appellant and hence they are before the CESTAT with a Stay application.
The appellant inter alia made the following submissions –
++ the Commissioner has no jurisdiction to adjudicate the case as show-cause has been issued by the Commissioner of Service Tax, Mumbai .
++ that the applicant has provided the service of advertisement under the category of advertising agency and have not provided any service to the print media or broadcasting agency.
++ that the substantial demand is for the extended period and same is barred by limitation;
++ that there is no written agreement between the applicant and the print/broadcast media.
++ Reliance is placed on the decisions in Lintas India P. Ltd. vs. CST 2008-TIOL-441-CESTAT-Del, Euro RSCG Advertising Ltd. vs. CCE 2007-TIOL-495-CESTAT-Bang and Tata Motors Insurance Service Ltd. vs. CST 2008(9)STR 176(Tri-Bang).
The Revenue representative submitted that -
++ the applicant received remuneration in the form of volume discount for promoting the business of media house and hence the case laws relied upon are not applicable;
++ In the case of Grey World Wide (I) Pvt. Ltd. in appeal no. ST/300/09, this Tribunal on identical facts vide order dated 19.08.2011 (2011-TIOL-1441-CESTAT-Mum) has asked the applicant to pre-deposit substantial amount of service tax.
++ since applicant has neither informed to the department nor there is any evidence of any correspondence for clarification, the extended period has been rightly invoked.
The Member (Judicial) observed that the case law relied upon by the Revenue representative is not applicable to the facts of the case as in that case there is a written agreement between the appellant and Sony Entertainment Television . Holding that in view of the decisions in the case of Euro RSCG Advertising Ltd. , Lintas India P. Ltd. , and Tata Motors Insurance Service Ltd. relied upon by the appellant, there is prima facie case in favour of the appellant, the Member (J) granted 100% waiver of pre-deposit and ordered stay in the matter.
However, Member (Technical) took a contrary view and after distinguishing the decisions cited by the appellant, as not being applicable to the case on hand, observed that – “it is not necessary under law that every agreement must be in writing, there can be oral agreement between the two parties”, and thus the Tribunal decision in Grey Worldwide (supra) is applicable. Inasmuch as after holding that the applicant had not made a prima facie case in their favour, the Member (T) ordered a pre-deposit of 50% of the service tax amount.
In view of the difference in opinion between the Members constituting the Bench, the matter was placed before the Vice President/HOD for constituting a majority view in the matter.
The Third Member [Member(Technical)] on Reference, after culling the facts of the case, held as under –
“5. To ascertain and understand the factual position as to who decides in which media and to what extent the advertisement would be placed, I had directed the appellant to produce copies of a few orders placed by their clients for advertisement. The appellant has furnished three such orders, received by them – 1) P.O. received in February, 2012 from M/s L'oreal India Pvt. Ltd.; 2) P.O. received November, 2011 from M/s ICICI Prudential and 3) P.O. received in August, 2011 from M/s Idea Cellular Ltd. on a perusal of these purchase orders, it is seen that the clients approach the appellant with their requirements for the advertisement and the their budget for the same, the appellant prepares an initial plan of advertisement suggesting choice of media and duration of the advertisement and seeks suggestions/approval of the client. The client makes modifications in the plans submitted by the appellant and after discussion, finalizes the plan of advertisement and approves the plan. It is thus seen that it is the client, the advertiser, who finally decides the choice of the media for advertisement and the duration of the advertisement. In other words, the appellant advertising agency, does not have a free hand to decide the choice of media or duration of advertisement. If that be so, the appellant cannot function as a business auxiliary service agent of the media who can promote the business of the media. Secondly, the incentive is received by way of discount, whether prompt payment discount or volume discount. A discount is the reduction in the price given to the buyer/receiver of the goods/services. Can a buyer/receiver of services be considered as an agent of the seller/provider of service? The answer is a clear “NO”. Merely because the transaction is routed through the advertising agency, should the treatment be different. In my view, the definition of “business auxiliary service” given in the Finance Act, 1994 does not warrant such a view. It is for this reason that this Tribunal, in a number of cases relied upon by the appellant, including the Gautam & Co. case cited supra, came to the conclusion that service tax is not leviable on the discounts/incentives received by the advertising agency from the media.
6. In view of the foregoing, I am of the considered opinion that the appellant has made out a strong prima facie case for waiver of pre-deposit of the dues adjudged against them. Accordingly, I concur with the views of the Hon'ble Member (Judicial) in this regard. With these findings, I return the matter to the referring bench for pronouncing their final decision on the matter.
In view of the Majority decision, waiver of pre-deposit of the entire dues was granted to the applicants and a stay ordered.
(See 2012-TIOL-804-CESTAT-MUM)
