2016 (5) TMI 456 - AAR - Service Tax

Media incentives not subject to Service Tax under two business models

The case involved determining whether the incidental receipt of incentives/volume discounts from Media Owners under two different business models ... Advertising agency service on commission basis - promotion or marketing services to the Media Owners or not - Revenue submits that as far as proposed Business Model-1 is concerned, the volume discount received by the applicant for the services provided to the Media Owner is liable to Service Tax. - Two business models - Model (1) Placement of advertisement in traditional media on behalf of the advertiser - Modes (2) Buying and selling of advertisement inventory in non-traditional media, on its own account. Held that:- In proposed Business Model 1, while the applicant shall be appointed by its clients i.e. the advertiser to provide services, incidental receipt of incentives/volume discounts from Media Owner shall not be considered to be providing a service, as defined under the Finance Act, 1994, to the Media Owner and shall not be liable to Service Tax. In proposed Business Model 2, while the applicant shall buy and sell the media inventory on its own account to the advertiser, incidental receipt of incentives/volume discounts from Media Owner shall not be considered to be providing a service, as defined under the Finance Act, 1994, to the Media Owner and shall not be liable to Service Tax. In both the Models, there is no service tax liability. Issues Involved1. Whether incidental receipt of incentives/volume discounts from Media Owners under Business Model 1 is considered providing a service and liable to Service Tax.2. Whether incidental receipt of incentives/volume discounts from Media Owners under Business Model 2 is considered providing a service and liable to Service Tax.3. Determination of the value on which Service Tax should be applicable if the applicant is considered to be providing any service to the Media Owner.Detailed AnalysisIssue 1: Incidental Receipt of Incentives/Volume Discounts under Business Model 1The applicant, M/s AKQA Media India Pvt. Ltd, proposed Business Model 1 involves the placement of advertisements in traditional media on behalf of advertisers. The process includes several steps from client contracting to monitoring the campaign and receiving invoices from media vendors. The applicant raised the question of whether incidental receipt of incentives/volume discounts from Media Owners should be considered as providing a service to the Media Owner and thus be liable to Service Tax.The applicant argued that these incentives/volume discounts are gratuitous payments and not for providing any service. They cited the CESTAT order in Grey Worldwide India Private Limited, which held that no service tax is payable on such incentives. The applicant also emphasized that there is no contractual obligation with the Media Owners for these payments.Revenue contended that the volume discounts received are in the nature of consideration for services provided and thus liable to Service Tax, citing the contractual relationship indicated by invoices from Media Owners mentioning the applicant's name.The Authority observed that the media inventory is sold to the advertiser, not the applicant, and the payment for the media inventory is made by the applicant on behalf of the advertiser. Therefore, the Revenue's argument was based on an incorrect appreciation of facts. The Authority ruled that incidental receipt of incentives/volume discounts from Media Owners under Business Model 1 does not constitute providing a service to the Media Owner and is not liable to Service Tax.Issue 2: Incidental Receipt of Incentives/Volume Discounts under Business Model 2Under Business Model 2, the applicant buys and sells media inventory on its own account to the advertiser. The applicant questioned whether incidental receipt of incentives/volume discounts from Media Owners should be considered as providing a service to the Media Owner and thus be liable to Service Tax.The applicant confirmed that they would pay service tax on the gross amount charged to the advertiser and take credit of service tax paid to the Media Owner. Revenue argued that the applicant needs to discharge Service Tax liability on the total sale price invoiced to the advertiser and pay Service Tax on the amount received from Media Owners as consideration for services provided.The Authority found that the Revenue's argument was based on incorrect assumptions. The applicant's activity of buying and selling media inventory does not involve providing a service to the Media Owner. Thus, incidental receipt of incentives/volume discounts from Media Owners under Business Model 2 does not constitute providing a service to the Media Owner and is not liable to Service Tax.Issue 3: Determination of Service Tax ValueGiven the rulings on Issues 1 and 2, the question of determining the value on which Service Tax should be applicable becomes infructuous. The Authority concluded that the applicant is not providing any service to the Media Owner in either business model, and thus no Service Tax is applicable on the incidental receipt of incentives/volume discounts.Conclusion1. In Business Model 1, incidental receipt of incentives/volume discounts from Media Owners does not constitute providing a service to the Media Owner and is not liable to Service Tax.2. In Business Model 2, incidental receipt of incentives/volume discounts from Media Owners does not constitute providing a service to the Media Owner and is not liable to Service Tax.3. The question of determining the value for Service Tax does not arise as no service is being provided to the Media Owner in either business model.