Service tax liability on write-backs and discounts upheld; pre-deposit required; coordination costs exempt pre-18-4-2006

The Tribunal held that the applicants were liable to pay service tax on write-backs and discounts received from media under 'Business Auxiliary Service'. However, it was determined that service tax on coordination costs paid to overseas entities before 18-4-2006 was not payable. The Tribunal directed the applicants to make a pre-deposit of Rs. 85,00,000 within eight weeks, with the balance amount of service tax, interest, and penalties stayed during the appeal process.

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Issues:
Seeking waiver of pre-deposit of Service Tax confirmed under 'Advertisement Agency/Business Auxiliary Service'.

Analysis:
The applicants provided advertisement services to clients and claimed deductions for amounts paid to media. Investigation revealed non-payment of service tax on written-back amounts due to rate differences in media costs and discounts received from media. A demand was proposed for service tax on coordination costs paid to overseas entities. Adjudicated demands confirmed the service tax liabilities, leading to a demand of Rs. 75,68,236. The applicants sought waiver of pre-deposit, arguing they were not liable for service tax on write-backs, discounts, or coordination costs. The Chartered Accountant representing the applicants contended that these amounts were not part of the services rendered by them. He also argued that prior to 18-4-2006, no service tax was due on coordination costs paid to overseas entities. The applicants claimed that as media was not their client, discounts and write-backs received should not be taxable. They cited a relevant legal precedent to support their position.

The JCDR representing the respondent opposed the stay application, asserting that the service tax demand was valid under 'Business Auxiliary Service' as the applicants promoted media businesses and received discounts and write-backs from them. The Tribunal heard both sides and examined the show-cause notice, which detailed the services provided by the applicants to media entities. Based on the agreement with Sony Entertainment Television, the Tribunal found that the applicants were indeed providing services to media under 'Business Auxiliary Service'. Consequently, the Tribunal held that the applicants were liable to pay service tax on write-backs and discounts received from media. However, the Tribunal also noted that service tax on coordination costs paid to overseas entities before 18-4-2006 was not payable by the applicants. Therefore, the Tribunal directed the applicants to make a pre-deposit of Rs. 85,00,000 within eight weeks and report compliance. The balance amount of service tax, interest, and penalties would remain stayed during the appeal process. The Tribunal concluded its decision on 19-8-2011.

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