By TIOL News Service

MUMBAI, SEPT 02, 2014: THE appellants were engaged in providing advertisement services to clients. Investigation by service tax authorities revealed that they did not pay service tax on amounts which were written back as rate difference in media costs and the discounts received from the media for volume of work, which resulted in demand of service tax on the same. Service tax was also demanded on coordination cost paid to overseas entities.

T he proceedings concluded in two orders being passed by the adjudicating authority confirming a service tax demand of Rs.1,84,02,423/- for the period October 2001 to December 2006 and Rs.10,39,061/- for the period April 2006 to March 2007, respectively.

After hearing the stay application, the CESTAT had observed that the allegation against the appellant is based on the agreement entered with an electronic media house and prima facie the appellants are providing services to media under the category of BAS and liable to pay tax on the write backs and discounts received by them from media for advertisements. It was also held that appellants were not liable to pay service tax on coordination costs paid to overseas entities prior to 18.04.2006.

In fine, the Bench had directed the appellants to make a pre-deposit of Rs.85 lakhs for obtaining stay in the matter.

We reported the Stay order as 2011-TIOL-1441-CESTAT-MUM.

The appeals were heard recently.

The Bench observed –

++ At the end of the year, depending upon the volume of business given by the advertising agency, the media gives certain incentives by way of volume discounts/rate difference. There is no agreement or understanding or any contract between the advertising agency and the media for promotion of the media's business activities. There is also no obligation on the part of the media to give these incentives. These payments are made only as gratuitous payments for the advertisements placed on the media. There is no contractual obligation between the advertising agency and the media for provision of any services. In the absence of such a contractual obligation, it is difficult to accept the Revenue's contention that on the incentives received, the appellant is liable to service tax under BAS.[Held that the demand on the amounts received from the media cannot be levied to service tax under BAS -Tribunal decision in Euro RSCG Advertising Ltd. 2007-TIOL-495-CESTAT-BANG reiterated in P.Gautam & Co. 2009-TIOL-1328-CESTAT-AHM & Tradex Polymers Pvt. Ltd. 2012-TIOL-315-CESTAT-AHM relied upon.]

++ As regards the amounts of write backs, these are amounts which the appellant owed to the various print/electronic media which are yet to be claimed by the media. After showing these amounts as amounts payable for some time, the amount has been written back as per the provisions of accounting standards. These amounts are in any case payable to the media as and when the claim is lodged and, therefore, this amount cannot be construed as consideration received towards services rendered. Therefore, the confirmation of service tax demand on these amounts, i.e. volume discounts, rate difference and amounts written back cannot be sustained in law and accordingly, we set aside the same.

++ As regards the service tax demand on services received from outside India, the appellant has already discharged the service tax liability along with interest for the period on or after 18/04/2006. In the Indian National Ship owners' Association case the Bombay High Court held that demand of service tax under Section 66A on the services received from abroad on reverse charge basis would sustain only with effect from 18/04/2006 when Section 66A was inserted in the statute. Inasmuch as the appellant has discharged the service tax liability in this regard for the period on or after 18/04/2006, the demands for the previous period will not sustain.

In fine, the orders of the CST, Mumbai were set aside and the appeals were allowed with consequential relief.

In passing : Picture abhi baaki hai mere dost!

(See 2014-TIOL-1650-CESTAT-MUM)