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ST – Discounts given by print/electronic media to advertising agency is not chargeable to service tax as the same is not charge for services rendered to client-advertisers: CESTAT

2019-TIOL-2521-CESTAT-BANG

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH, BANGALORE
COURT NO. I

Appeal No. ST/501/2009-DB

Arising out of Order-in-Appeal No. 26/2009-ST, Dated: 27.02.2009
Passed by the Commissioner of Central Excise, Customs & Service Tax (Appeals), Cochin.

Date of Hearing: 19.08.2019
Date of Decision: 19.08.2019

M/s MUDRA COMMUNICATIONS PVT LTD
5TH FLOOR, KANNANKERI ESTATE
MARINE DRIVE, COCHIN-682031

Vs

COMMISSIONER OF CENTRAL EXCISE, CUSTOMS AND SERVICE TAX
COCHIN-CCE C R BUILDING, I S PRESS ROAD
ERNAKULAM, COCHIN-682018 KERALA

Appellant Rep by: Mr N Anand & K S Ravi Shankar Advs.
Respondent Rep by:
 Mr Rama Holla, Superintendent AR

CORAM: S S Garg, Member (J)
P V Subba Rao, Member (T)

ST – Appellant is providing “advertising agency” service – they place advertisements as per the request of the clients in various print and electronic media – the print/electronic media in which the advertisements have to be placed are decided by the clients – media raises a bill or invoice on the appellant towards advertisement and gives 15% discount, which discount is either deducted from the gross amount or the invoiced amount could be the net of the discounted amount – appellant raises a bill on the clients for the amount charged by the media plus their commission/discount and in some cases they may pass on part of their commission to their clients – allegation in the SCN is that the appellant had not paid service tax on the full amount of commission earned by them from print and electronic media; that they should have discharged service tax on the entire amount of commission received by them from the print/electronic media regardless of the fact whether part of such amount has been passed on to their clients or not – demand confirmed by lower authorities, hence appeal before CESTAT.

Held: Service Tax has been discharged on the entire amount received by appellant from their client-advertisers for the services rendered by them – amount which they got as discount from the print/electronic media and passed on to their client-advertisers is not chargeable to service tax as the same is not charge for their services – demand on this count is set aside: CESTAT [para 15]

ST – Sale of time-slots purchased by appellant from film producers/serial producers for advertisement in electronic media has been made taxable by Finance Act, 2006 – since the entire demand is for the period prior to March 2006 i.e. before the charging section was introduced, the demand cannot be sustained: CESTAT [para 17]

Appeal allowed

Case laws cited:

McCann Erickson (India) Pvt. Ltd. vs. CST – 2008-TIOL-271-CESTAT-DEL…Para 6

Euro RSCG Advertising Co. – 2007-TIOL-495-CESTAT-BANG…Para 6

Grey Worldwide Pvt. Ltd. – 2014-TIOL-1650-CESTAT-MUM…Para 6

Adwise Advertising Pvt. Ltd. vs. UOI – 2003-TIOL-117-HC-MAD-ST…Para 10

FINAL ORDER NO. 20655/2019

Per: P V Subba Rao:

The appellant, M/s. Mudra Communications Pvt. Ltd, has filed this appeal against the impugned Order-in-Appeal No.26/2006-ST dated 27.2.2009.

2. Heard both sides and perused the records. The appellant herein is a private limited company registered with the Service Tax department as a service provider under the category of “advertisement agency” service. As per the request of the clients, they place advertisements on their behalf in various print media and electronic media. The print/electronic media in which the advertisements have to be placed are decided by the clients and so are the duration and size of the advertisements. The media raises a bill or invoice on the appellant towards advertisement and they give 15% discount. This discount is either deducted from the gross amount or the invoiced amount could be net of the discounted amount. For example, if Rs.100/- is the total bill either the invoice by the media on the appellant could be for Rs.100/- minus discount of Rs.15/- or the invoice could be for Rs.85 itself. On the amount which the media is actually receiving i.e., Rs.85/- in this example, the media agency is discharging service tax. The appellant would, in turn, raise a bill on the clients for the amount charged by the media plus their commission/discount. In some cases, they may, in fact, pass on part of the commission to their clients. In the above example, either the appellant invoices their clients for Rs.100 or any amount between Rs.85/- and Rs.100/-. The appellant has been discharging service tax on the amount which they are actually charging for their services to their clients. It could be Rs.15/- in the above example or less if some discount is passed on to the customers.

3. The allegation in the show-cause notice is that while conducting audit of accounts of the assesse, it was noticed that the assessee has not paid service tax on the full amount of commission earned by them from print and electronic media. When a part of the commission is being passed on to their clients, they have been discharging service tax only on the remaining part of the commission as indicated above. It is asserted that the service tax needs to be discharged on the full amount of commission received by the appellant and therefore, they should have discharged service tax on the entire amount of commission received by them from the print/electronic media regardless of the fact whether part of such amount has been passed on to their clients or not.

4. The second issue raised in the show-cause notice is regarding the Free Commercial Time (FCT) obtained by them from the producers of content. The assessee purchased time slots for advertisements in the electronic media from film/ serial producers and sold it to advertisers. The appellant purchased time-slots for advertisement in electronic media from either telecaster or broadcasting company or from film producers or serial producers. When the time-slot (FCT) was purchased from telecasting and broadcasting company, they raise invoices and also charge and pay service tax. When time-slot was purchased from film producers or serial producers, no service tax is either charged or paid by the appellant. The show-cause notice proposed to demand service tax on purchase of time-slot (FCT) from film / serial producers. The appellant contested the demands on merit as well as on plea of limitation. Not agreeing with the appellant’s contentions, the adjudicating authority confirmed the appeals. On challenge, the first appellate authority upheld the orders of the adjudicating authority. Hence, this appeal.

5. Learned counsel for the appellant submits that as far as the first issue of discount given by media to them for advertisement is concerned, he would submit that they have been discharging service tax on the gross amount received by them as commission for their services. If Rs.100/- is the billed amount, of which Rs.85/- is charged by the media company after giving a discount of Rs.15/-, the media company is discharging service tax on this amount. They are discharging service tax on Rs.15/-. If, on the other hand, they charged their clients less, say Rs.90/- (by passing on the benefit of Rs.10/- to their clients), the media is discharging service tax of Rs.85 and they have been discharging service tax on Rs.5. Therefore, they are discharging the service tax on the entire amount which they receive as commission for their services. These facts are evident from the show-cause notice itself.

6. Secondly, he would further argue that discounts and incentives received by an advertising agency from print media are not charges received for services and cannot be charged to service tax either under Business Auxiliary Services or under Advertisement Services as has been held by the Tribunal in the following cases:

(i) McCann Erickson (India) Pvt. Ltd. vs. CST: 2008 (10) STR 365 (Tri.-Del.) = 2008-TIOL-271-CESTAT-DEL

(ii) Euro RSCG Advertising Co.: 2007 (7) STR 277 (Tri.-Bang.) = 2007-TIOL-495-CESTAT-BANG

(iii) Grey Worldwide Pvt. Ltd.: 2015 (37) STR 597 (Tri.-Mum.) = 2014-TIOL-1650-CESTAT-MUM

7. As far as the second issue of tax on time-slots (FCT) which have been bought directly from film producers/serial producers for advertisement is concerned, he would submit that it has been clarified by the CBEC vide Circular No.78/08/2004-ST dated 23.3.2004 as follows:

Service tax on selling Television serial episodes to TV Channels and Free Commercial Time to advertising agencies, not leviable

Circular No. 78/08/2004-S.T., dated 23-3-2004

F.No. 241/01/2004-CX.4

Government of India
Ministry of Finance (Department of Revenue)
Central Board of Excise & Customs, New Delhi

Subject : Service Tax on the production of Television serials.

Representation have been received in the Board with regard to levy of service tax on the activities undertaken by the television serial producers, who either

(i) sell TV serial episodes to the TV channels, or

(ii) allow such episodes to be telecasted by the channels in lieu of procurement of Free Commercial Time (FCT), which is sold by them to advertising agencies for showing advertisements.

2. It appears that in some jurisdiction service tax is being demanded on the services listed at (‘i’) under the category of Videotape Production Services, and in respect of services listed at (‘ii’) under the category of Advertisement Agency Services.

3. The issue has been examined. The taxable service i.e. “video tape production service” is on the process of recording of any programme, event or function on magnetic tapes (including editing thereof). The tax is therefore limited to the technical function of recording or editing what is recorded and not on the entire gamut of production of serials. In case the producer hires a video-grapher or an editor, the payment made for services would be taxable at the hands of such service providers. However, no tax is leviable on the producers for selling the serial to channel.

4. Similarly, in case of FCT, selling the time allotted to a producer does not fall within the purview of “advertisement service” since this activity is not connected to making, preparation, display or exhibition of advertisement. This is akin to providing space in a newspaper or magazine for publishing an advertisement and has nothing to do with actual presentation of the advertisement.

5. The field formations may suitably be informed.

6. Trade Notice may be issued for information of the trade.

7. The receipt of this Circular may kindly be acknowledged.

8. Hindi version will follow.

8. He would submit further that only with effect from 2006, the sale on advertisement space or time-slot has been brought under the tax net by Finance Bill, 2006. The scope of this has been clarified by the CBEC vide Circular No.334/4/2006-TRU dated 28.2.2006 in para 3.9.

“The Finance Minister has introduced the Finance Bill, 2006 in the Lok Sabha on 28th February, 2006. Changes in service tax have been made vide Clause 68 of the Finance Bill, 2006 and through notification Nos. 1 to 7/2006- Service Tax, all dated 1st March, 2006. Details of the changes are explained in the Explanatory Notes. For complete details, clause 68 of the Finance Bill, 2006, notifications and Explanatory Notes may be referred to. Salient features of the changes are discussed hereinafter :

……

3.9 Sale of Advertising Space or Time : Sale of media in television and radio by a broadcasting agency or organization is taxable under Section 65(105)(zk). Services provided by advertising agencies are taxable under Section 65(105)(e).

This entry proposes to levy service tax on sale of time or space for advertisement, excluding sale of space for advertisement in print media. Sale of advertising time in television and radio by any person other than broadcasting agency or organization is also covered under this sub-clause. Some of the other modes of advertisement covered under this mode are internet advertisement, advertisement on buildings, vehicles, etc., advertisement in motion pictures, television serials, video and music albums, mobile phones, ATMs, films and television serials (known as product placement). It may be noted that advertisement in print media is excluded.”

He would, therefore, urge that the entire period in question being prior to March 2006, no service tax can be levied on the sale of FCT which they buy from the serial producers and sell to the advertisers.

9. In view of the above, he would submit that the entire demand needs to be set aside along with interest. Consequently, the penalties also need to be set aside.

10. Per contra, the learned Departmental Representative submits that with regard to the commission earned by the advertising agency from the agency media that the Hon’ble High Court of Madras in the case of Adwise Advertising Pvt. Ltd. vs. UOI: 2001 (131) ELT 529 (Mad.) = 2003-TIOL-117-HC-MAD-ST has categorically held that the amount which the advertising agency receives from the client is chargeable to service tax including any commission / discounts which they receive from the advertising media. He also relies on the Board Circular No.341/43/96-TRU dated 31.10.1996 to assert that the commission received by the advertising agency would be includable in the value of taxable services.

11. In view of the above, learned Departmental Representative urge that the impugned order is correct and calls for no interference.

12. Countering the argument, learned counsel for the appellant would submit that they are full in compliance with the judgment of the Hon’ble High Court of Madras in the above Adwise Advertising Pvt. Ltd. (supra) inasmuch as they have discharged service tax on the gross amount received from their clients. As far as the amount which has been paid to the media is concerned, the media has already discharged the service tax on this amount. On the remaining amount which they received towards their services, they have discharged the service tax liability. He would submit that they have not received any commission from the media. The print media only give them a discount of 15% and billed them for lower amount. Of this discount, in some cases they have appropriated the entire amount and discharged service tax on the entire amount so retained. In other cases, they have retained only part of the discount so received and passed on the rest to their clients and discharged service tax on the amount so collected from the clients. The allegation in the show-cause notice is that they are liable to pay service tax even on the remaining amount which they have passed on to the clients and which they have not collected at all. Since this does not form part of the gross amount charged, the question of liability of service tax on this amount does not arise.

13. We have considered the arguments on both sides and perused the records. The issues to be settled by us are:

(i) Whether the discount given by the media who sold space in print media to the appellant for advertisement and which they pass on to their client advertisers, is liable for payment of service tax under the category of ‘advertisement services’.

(ii) When the appellants have purchased time-slots (FCT) from film producers and serial producers for advertisement in electronic media, whether they are liable for payment of service tax under the category of advertising agency during the period prior to Finance Act, 2006.

(iii) Whether the demands are liable to be confirmed in view of the above, along with interest.

(iv) Whether the penalties under Sections 76, 77 and 78 of the Finance Act, 1994 can be imposed upon them.

14. As far as the first issue of discount given by the print media is concerned, the learned counsel for the appellant submits that they have retained the discounts in full in some cases and billed their client-advertisers for the full amount. In such cases, they have discharged service tax on the entire amount of discount retained by them. In other cases, they have retained only part of the discount given to them by the media and passed on the rest to their client-advertisers; in such cases, they have billed them for a lower amount and they have also discharged service tax on whatever amount which they have retained towards their services.

15. In view of the above, in this case, we find that the service tax has been discharged on the entire amount received by the appellant from their client-advertisers for the services rendered by them. This is in compliance with the judgment of the Hon’ble High Court of Madras in the case of Adwise Advertising Pvt. Ltd. (supra) inasmuch as they have discharged service tax on the entire consideration which they received for their services. In view of the above, the demand raised in show-cause notice, confirmed in the Order-in-Original and upheld in the impugned order on the amount which they have not received as consideration i.e., the amount which they got as discount and passed on their client advertisers, is not chargeable to service tax as the same is not charged for their services. The demand on this account needs to be set aside and we do so.

16. As far as the second issue of sale of time-slots purchased by the appellant from film producers / serial producers for advertisement in electronic media is concerned, the same has been made taxable only with effect from Finance Act, 2006 as indicated in CBEC Circular No.334/4/2006-TRU dated 28.2.2006, para 3.9 of which is reproduced herein below:

“3.9 Sale of Advertising Space or Time: Sale of media in television and radio by a broadcasting agency or organization is taxable under Section 65(105)(zk). Services provided by advertising agencies are taxable under Section 65(105)(e).

This entry proposes to levy service tax on sale of time or space for advertisement, excluding sale of space for advertisement in print media. Sale of advertising time in television and radio by any person other than broadcasting agency or organization is also covered under this sub-clause. Some of the other modes of advertisement covered under this mode are internet advertisement, advertisement on buildings, vehicles, etc., advertisement in motion pictures, television serials, video and music albums, mobile phones, ATMs, films and television serials (known as product placement). It may be noted that advertisement in print media is excluded.”

17. Since the entire demand is for the period prior to March 2006, i.e., before the charging Section was introduced on this count, the same cannot be sustained. Accordingly, the demand on this account also needs to be set aside and we do so. Accordingly, demand of service tax on both counts in the impugned order needs to be set aside. Consequently, interest and all penalties need to be set aside and we do so.

18. In view of the above, the impugned order is set aside and the appeal is allowed with consequential relief, if any.

(Operative portion of the Order was pronounced in Open Court on 19.08.2019)

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