OCTOBER 06, 2020

By K Srinivasan

SOME QUESTIONS BY STAKEHOLDERS

WE are a Private limited company, registered with the RNI (Registrar of Newspapers for India). As we are service providers we want to know whether our services will come under Negative list of Services?

We want to sell our magazines/books to the subscribers. Are we eligible for exemption under service tax meaning is it in the negative list?

If not service tax, will VAT be attracted on the same?

We want to let you know that we print advertisement in the monthly magazines/books like yellow pages and we receive subscription charges from the subscribers - whether we are applicable to pay service tax on the same?

If yes, kindly tell us under which head of service we need to pay the service tax?

SOME ANSWERS BY EXPERTS:

If you sell publications that qualify as newspapers or periodicals or Trade Directories, for sales tax purposes, you don't need to charge sales tax because they're exempt.

The exemption also applies to charges for electronic versions of newspapers or periodicals or trade directories if you sell a hard-copy version and both versions contain the exact same information (except for advertising).

Therefore, there is no sales tax/VAT on sale of newspapers & magazines/books.

A LEGAL DISCUSSION

Clause (g) of Section 66(D) of Finance Act, 1994 stipulates that 'Selling of Space or Time Slots for Advertisements other than Advertisements Broadcast by Radio or Television' shall be in the Negative List, and as such no Service Tax will be levied.

Therefore, Sale of newspapers or periodicals or Trade Directories for service tax purposes are also exempt by implication, as the underlying logic is the same for the sale of the said category of goods as its first of all covered under the state List and second of all exempted in view of exempted sale / service from taxation by either the centre or the state.

Section 66B(44) of Finance Act, 1994 in its definition of Service, vide its exclusion part, states "Sales of goods is not a service".

Newspaper/Magazine subscription is sales of goods and, therefore, not liable to Service Tax and as well as exempted under Sales Tax/VAT.

A SHORT CONCLUSION REACHED

Therefore, the activities enumerated above are exempt from VAT / CST and as also vide the Negative List under Finance Act, 1994.

AN APT DIFFERENTIATION MADE

It is worth noting down the essential difference between sale of space for advertisement in the print media like Newspaper or Magazine or Book vis-à-vis sale of those media material itself for a price like sale of Newspapers or Magazines or Book, before we go into a full-fledged discussion on the above subject of their taxability under Service Tax.

Sale of Newspapers, Magazines or Books is treated as one of recovery of cost of printing and publishing them which does not result in rendering of any service.

Hence the same was rightly clarified by the Board vide its Circular dated 16.08.1999 and as also by the CESTAT Delhi, in its decision of Contact Advertising Agency case both discussed in the following Paragraphs in great detail.

Accordingly, the Printing and publishing charges recovered by the Publishers either directly or through their Advertising agents from clients on their behalf in a fiduciary capacity, to be outside the scope of Chapter V of the Finance Act, 1994.

JUDICIAL PRECEDENT

In re: M/s Contact Advertising Agency vs. CCE, Chandigarh dated 29.05.2001 - 2002-TIOL-234-CESTAT-DEL

In this appeal, filed by M/s Contact Advertising Agency, the issue involved is whether the activity of printing and publishing of yellow pages will attract levy of Service Tax.

The Appellants have submitted, in their Memorandum of Appeal –

+ that they are -

(i) printing and publishing yellow pages and

(ii) booking advertisements for newspapers and Magazines;

+ that the Assistant Commissioner under Adjudication Order No. 73/AC/99 dt. 14-9-99 held that advertisements through yellow pages do form source of advertisement and the amount is charged from the clients whose name, particulars, etc. are included in the yellow pages and as such it would attract Service Tax,

+ that Commissioner (Appeals) under the impugned Order rejected their appeal holding that they were providing services for advertisements in yellow pages;

+ that their activity is not solely of printing and publishing as in print media but they act as advertising agency.

BOARD'S CLARIFICATION

The Ministry under letter F.No.345/4/97-TRU dt 16-8-1999 [Trade Notice 99/GL-90/C.E./PRO/CAL-II/99, Dated: September 16, 1999] has clarified as under:

"I am directed to state that doubts have been raised as to whether persons engaged in the activity of compilation, printing and publishing of telephone directories, yellow pages and business directories are covered under the definition of 'advertising agency' and accordingly liable to pay service tax.

Section 65 of the Finance Act, 1994 defines an advertising agency as a Commercial concern engaged in providing any service connected with the making preparation, display of exhibition of advertising and includes advertising consultant.

In the case of persons who are printing and publishing telephone directories, yellow pages or business directories, their activity is essentially of printing readymade advertisements from the advertisers and publishing the same in the directory.

Their activities are similar to those carried out by newspapers or periodicals . As such, this activity shall not attract service tax.

However, if these persons also undertake any activity relating to making or preparation of an advertisement, such as designing, visualizing, conceptualizing etc., then they will be liable to pay service tax on the charges made thereon."

It is apparent from the above that the activity of printing and publishing yellow pages does not attract Service Tax.

However, Service Tax is attracted on advertising agencies which are providing services to advertisers by conceptualizing, designing or preparing advertisement which is not the case in question.

It is pertinent to mention that even the change brought about in 2007 in the scope of exemption that provided for selling of space for advertisement in print media, got slimmed to the exclusion of three more items namely Yellow pages, Business directories and Trade catalogues, by excluding them from the definition of print media.

LEGAL POSITION IN TERMS OF VARIOUS STATUTES

Sale of advertisement in Print media was exempt until 2012.

As per section 66D (g) of Finance Act, 1994 - "Selling of space for Advertisements in Print Media was Negative Listed Services."

Print Media means: books and newspapers.

As per section 1(1) of Press and Registration of Books Act, 1867 -

Book includes (meaning general meaning of book plus) every volume, part or division of volume, and pamphlet, in any language, and every sheet of music, map, chart or plan separately printed but does not include business directories, yellow pages and trade catalogues which are primarily meant for commercial purpose.

Newspaper means any printed periodical work containing public news or comments on public news.

Following were not further covered in Negative List, which earlier were -

Advertisement broadcast by Radio or Television; advertisements in bill boards, public places, buildings, conveyance, cell phones, internet, Aerial advertising etc. i.e. these are liable to Service Tax provided service is given in taxable territory (Refer Place of provision of Service Rules, 2012).

A suitable change was brought about in the definition of Sec 65 D(g) of the Finance Act, 1994 in October 2014 on the above lines, a bit belatedly though to tune with the negative List regime.

That did not envisage any taxability on the publication of Business directories, yellow pages and Trade Catalogues as well, wherein readymade advertisements from advertisers were accepted by the Publishers of those Publications either directly or through Advertising agents who collected the publication charges and remitted it back as a pure Agent in a fiduciary capacity.

Publication or placement of advertisements in Business directories, yellow pages and Trade Catalogues, primarily a source of advertisement and meant for a commercial purpose which is what a business directory all about, cannot be equated to books, not being covered under print media anymore, is admittedly a well-known fact to all the stakeholders.

But, since the fact of printing of the subject directory and the publication charges collected consequently for the same, regardless of its purpose whether commercial or otherwise so long as it does not amount to advertising, is of no consequence here, as the same can't be levied to any service tax as rightly held by the CESTAT, Delhi in the case of Contact Advertisement Agency case (supra.)

LACUNAE OF TIME BY A SMALL OVERSIGHT:

During the period 01.07.2012 to 01.10.2014, i.e. after the introduction of the Negative list regime, there was no inclusion in the definition 65B(39a) in the Finance Act, 2012 to exclude from the purview of print media certain items like Business directories, Yellow Pages and Trade catalogues.

So, during the above mentioned period, even the said exclusion lacked any statutory support for the levy of tax on the space booked for any advertisement in the form of Print media, which is not the subject matter of discussion as it is about publication charges and does not concern with any advertisement business.

THE CONSTITUTIONAL ANGLE MISSED

Advertisement in the above said three forms of Print media, even if held to be falling under Advertisement post Negative list w.e.f 01.10.2014 under Sec 65B(39a), their sale (other than Advertisement published in Newspaper) would be falling under the purview of Entry 55 of List II of Seventh Schedule of the Constitution, outside the legislative competence of the Central enactments like the Finance Act 1994/2012/2014, to levy any tax.

In fact, sale of advertisement in print media was introduced in the CGST Act, 2017 only after due deletion of the Entry 55 of List II of the Seventh Schedule vide the Constitutional Amendment (101st) Act, 2016 dated 08.09.2016.

The Government could have wisely refrained from the levy of even the sale of Advertisement in the above three forms of books like yellow pages by artificially excluding them from the purview of print media.

The Government could have kept them outside the purview of the negative list regime introduced through Finance Act, 2012 belatedly though in 2014 and could have waited until the introduction of GST through the 101st Constitutional Amendment Act for due deletion of Entry 55 of List II of VII Schedule.

An attempt to tax the same under the concurrent taxing jurisdiction under GST as done now would appear to be the best and the earlier attempts made of the levy earlier is liable to be rejected as it lacks legislative competence in the matter.

With the advent of GST by virtue of 101 st Amendment Act, 2016 dated 08.09.2016, Entry 55 of List II of VII Schedule was dropped among many other entries from the Central and State Lists, thereby enabling the Centre and the States to together tax advertisement in Print media including Newspapers, concurrently under GST.

LAW UNDER THE NEW GST REGIME

Publishing and Printing of all types of books including of Print media were brought under GTS levy @5% Tax without ITC, under SAC 998912 as other Manufacturing services.

Thus, levy on Printing and Publishing of books including yellow pages, Business directories and trade catalogues and many such similar things, got ratified for the first time only from the time of introduction of GST and not any time earlier, is the clear message the Author likes to carry to all the stake holders through this Article.

THE C & AG EFFECT

The C & AG had an occasion to do a review of the Media and Entertainment Sectors, during which time he had a raised a question about the non-levy of Service tax on the publishing and printing charges collected by the Publishers and Advertising Agents on behalf of their Publishers by equating it to a service by way of Advertisement till 2012/ and service by way of Business Support after 2012.

This has consequently created a ripple effect across the country by triggering issue of time barred show cause notices, alleging suppression and misstatement by invoking larger periods of limitation by the field formations and the Director of GST Intelligence so as to protect revenue interests, on a highly abstract subject involving serious issues of interpretation of the statutes as detailed above. This is going to create mayhem and result in long and protracted litigations across the country, going against the very spirit of the national litigation policy.

WAY FORWARD

The issue involves complex study of the various developments and milestones of change effected by the Governments through various Finance Acts and amendments from time to time, in the backdrop of the Service Tax Statutes and State and Central Lists of the Constitution.

Therefore, will the Government intervene and direct its field formations to put on hold these notices on the one hand and clarify the same by suitably addressing the C & AG on the other, through an opinion sought from the Law Ministry, if necessary, is an eagerly awaited response of all the stake holders affected by this adverse action of the Department.

[The Author is a former Assistant Commissioner of GST, Chennai and a CBIC Master Trainer, GST and currently a Senior Associate, Indirect & Corporate Taxes, at a Chennai-based Law Firm, RANK Associates. The views of the Author are purely personal.]