Advertising space with design services classified as "Advertising Service" HSN 998361 not space sale HSN 998363

The AAAR-Telangana ruled that supply of advertising space in print media with additional design/artwork services constitutes "Advertising Service" under HSN 998361, not mere "sale of advertising space" under HSN 998363. The Authority held that when the appellant provides both space and design services to enhance advertisement appearance, even at no extra cost, it cannot be classified as simple space selling. The activity involves specialized advertising services including planning, design, and artwork that attract prospective customers. Therefore, the composite nature of services makes it advertising service rather than just space rental, requiring reclassification from the original AAR ruling.

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Issues Involved:
1. Classification of services supplied by the appellant.
2. Applicable GST rate on the services supplied.

Issue-wise Detailed Analysis:

1. Classification of Services Supplied by the Appellant:

The appellant, M/s. Time Education Kolkata Private Limited, is engaged in the business of purchasing and supplying advertisement space in print media, along with providing artwork to adorn the space. The core issue is whether this service can be classified under HSN 998363 as "sale of advertising space in print media" or under a different classification when artwork is included.

The appellant argued that their activity, whether with or without artwork, should be classified under HSN 998363, attracting a GST rate of 5% as per Sl. No. 21(i) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. They contended that the addition of artwork does not change the nature of the service, which remains the sale of advertising space in print media.

The Advance Ruling Authority (AAR) initially ruled that the service involving artwork falls under HSN 998366, attracting a higher GST rate of 18%. The AAR distinguished between mere sale of advertisement space in print media (HSN 998363) and other advertising services (HSN 998366), concluding that the latter includes additional services like artwork.

Upon appeal, the Appellate Authority examined the explanatory notes for HSN codes and concluded that the appellant's activity, including the provision of artwork, constitutes "Advertising Services" under HSN 998361. This classification encompasses a range of activities such as planning, concept development, design, and placement of advertisements, which aligns with the services provided by the appellant.

2. Applicable GST Rate on the Services Supplied:

The appellant sought a GST rate of 5% for their services, arguing that the addition of artwork should not change the classification from HSN 998363. They further contended that if the artwork is considered a separate service, the transaction should be treated as a composite supply under Section 8 of the CGST Act, 2017, with the principal supply being the sale of space in print media, thereby attracting a GST rate of 5%.

The AAR had ruled that the inclusion of artwork changes the classification to HSN 998366, attracting a GST rate of 18%. The appellant challenged this, asserting that the artwork is complementary and does not warrant a different classification.

The Appellate Authority, however, concluded that the combined service of selling advertisement space and providing artwork constitutes "Advertising Services" under HSN 998361, which attracts a GST rate of 18% as per Serial No. 21(ii) of Notification No. 11/2017-CT(Rate) dated 28.06.2017. The Authority emphasized that the additional activity of providing artwork enhances the advertisement's appeal and cannot be treated as a mere ancillary service.

Conclusion:

The Appellate Authority set aside the AAR's classification under HSN 998366 and ruled that the services supplied by the appellant fall under "Advertising Services" with HSN code 998361. Consequently, the applicable GST rate is 18%. The appeal was disposed of accordingly, modifying the lower authority's ruling to reflect this reclassification and applicable tax rate.

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