2023 (9) TMI 723 - AT - Service Tax

Tribunal rules in favor of Government Undertaking in service tax dispute

The Tribunal set aside the Commissioner of Central Excise (Appeals), Salem's order and allowed the appeal in favor of the appellant, a Government of Tamil ... Levy of Service Tax - appellant was rendering advertisement agency services by placing advertisement boards in the buses of leading consumer brands - period from January 2002 to June 2006 - HELD THAT:- The Board vide Ministry of Finance F. No. 345/4/97-TRU, dated 16-8-1999 had clarified that no service tax is chargeable on the advertisement booked for yellow pages. The reasoning given therein is also applicable to this case. It was clarified that if persons undertake any activity relating to making or preparation of an advertisement, such as designing, visualizing, conceptualizing etc., only then will they be liable to pay service tax on the charges made thereon under 'advertisement agency' service. A similar matter was also examined by the Tribunal in COMMISSIONER OF CENTRAL EXCISE, KOLKATA-V VERSUS THE INCODA [2004 (6) TMI 7 - CESTAT, KOLKATA]. It was held hiring of space will not bring the appellant under the definition of ‘advertising agency’. Since the issue has been decided on merits in favour of the appellant the question of interest, penalties or invoking the extended period does not arise. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether receipt of charges for permitting third parties to affix advertisement boards on buses amounts to provision of service by an 'advertising agency' under Section 65(3) of the Finance Act, 1994 (i.e., service 'connected with the making, preparation, display or exhibition of advertisement'). 2. Whether mere sale or hiring of physical space/time for exhibition of advertisements (without involvement in conceptualising, designing, preparing or producing the advertisement material) attracts service tax under entry 65(105)(e) ('To any person, by an advertising agency in relation to advertisement, in any manner'). 3. Whether, having decided the classificatory issue on merits in favour of the appellant, questions as to levy of interest, penalties and invocation of extended time-limit remain open. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Classification: whether charging for allowing display space on public-transport vehicles constitutes service by an 'advertising agency' Legal framework: Section 65(3) defines 'advertising agency' as any person engaged in providing any service connected with the making, preparation, display or exhibition of advertisement and includes an advertising consultant. Section 65(105)(e) levies service tax 'to any person, by an advertising agency in relation to advertisement, in any manner.' Precedent treatment: Administrative clarification (Ministry of Finance letter F. No. 345/4/97-TRU dated 16-8-1999) distinguishes between (a) agencies that conceptualise, design or prepare advertisements (liable to service tax) and (b) persons who merely sell space/time for exhibition (not liable). Coordinate Tribunal authorities have followed this distinction and held that sale/hiring of display space akin to publishing/printing of readymade advertisements (e.g., yellow pages, directories, newspapers) does not attract service tax unless the person also undertakes making/preparation activities; similar holdings appear in reported Tribunal decisions concerning display on transport/coaches. Interpretation and reasoning: The Tribunal examined factual conditions imposed by the space-provider (size limits, fixing method, safety requirements, payment terms and that fixing/maintenance is the advertiser's responsibility) and found these to be guidelines for safe fitting and uniformity, not indicia of involvement in 'making, preparation, display or exhibition' of advertisements. The crucial inquiry is whether the appellant undertook conceptualising, designing, visualising or preparing the advertisement material. The facts showed the advertisers alone prepared the display boards within the allotted space; the appellant merely furnished/hired the physical space and set objective parameters. Reliance on the administrative letter and Tribunal precedents supports the proposition that facilitation by selling/hiring space without creative or preparatory involvement does not fall within the statutory definition of 'advertising agency.' The Tribunal agreed with prior reasoning that hiring space will not bring the provider under the definition. Ratio vs. Obiter: Ratio - where a service-provider merely grants space/time for exhibition of advertisements and does not undertake or procure activities of conceptualising, designing or preparing the advertisements, such activity does not constitute an 'advertising agency' service and is not taxable under the cited statutory provisions. Obiter - observations distinguishing between mere guideline-setting (e.g., size, safety) and substantive creative involvement, though treated as central in this decision, are consistent with binding ratio drawn from statutory text and precedents. Conclusion: The activity of permitting advertisers to affix their own display boards in allotted bus spaces, subject to non-creative operational conditions, is not a taxable 'advertising agency' service. The adjudicating authorities failed to establish that the appellant engaged in making, preparation, display or exhibition of advertisements within the meaning of Section 65(3). Issue 2 - Value inclusion and treatment of receipts described as 'Advertisement Charges': whether nomenclature or accounting description determines taxability; evidentiary burden Legal framework: Levy depends on statutory definition and taxable event, not mere accounting description. Where an exemption or non-levy is claimed, the onus lies on the claimant; conversely, for imposition of a tax under a charging provision, the onus is on Revenue to prove the taxable element. Precedent treatment: The Tribunal and administrative clarification treat receipts for space/time sale separately from amounts charged for making/preparing advertisement. Authorities have held that gross amounts received for making/preparing advertising material and commissions are includible, while amounts passed on for purchase of space/time are not. Interpretation and reasoning: The appellant's ledger entries describing receipts as 'Advertisement Charges' are insufficient to establish that the appellant provided services connected with making/preparation/display of advertisements. The material produced showed that advertisers themselves designed and fixed the boards; the appellant's role was confined to space provision and prescribing non-creative standards. Since Revenue bears the burden to demonstrate that the statutory elements of 'advertising agency' service are satisfied, ledger nomenclature alone cannot sustain a tax demand absent evidentiary proof of creative/preparatory services. Ratio vs. Obiter: Ratio - accounting description does not determine classification; the substantive nature of the service must be established by evidence, and the burden to prove taxability rests with Revenue. Obiter - the description of typical operational conditions (size, safety, fixing) is explanatory, not defining. Conclusion: The appellants' characterization of receipts as 'Advertisement Charges' does not, without more, establish chargeability; Revenue failed to discharge the onus of proving provision of advertising-agency services. Issue 3 - Applicability of administrative circulars and earlier Tribunal decisions; role in adjudication Legal framework: Administrative clarifications and prior Tribunal decisions interpreting statutory terms are persuasive in determining levy, especially where they explicate the distinction between creative/preparatory services and mere sale/hire of space/time. Precedent treatment: The Tribunal relied on the Ministry's 1999 letter and coordinate-bench decisions that applied it, holding printing/publishing of readymade advertisements and mere space-hiring not taxable unless making/preparation activities are undertaken. Interpretation and reasoning: The authorities below did not consider the administrative clarification; the Tribunal applied the clarification and consistent precedents to conclude that the facts did not establish a taxable advertising-agency service. The Tribunal concluded that the logic of the 1999 clarification - that conceptualising, designing or preparing adverts attracts service tax whereas sale of space does not - applies to the facts. Ratio vs. Obiter: Ratio - administrative clarification and consistent Tribunal precedents are determinative in distinguishing taxable advertising-agency activities from non-taxable space-hiring. Obiter - references to particular prior cases serve to illustrate the applied principle. Conclusion: The administrative letter and Tribunal precedents apply and support non-taxability on the facts; the impugned order erred by not applying that guidance. Issue 4 - Consequences: interest, penalties and extended limitation once classification decided in appellant's favour Legal framework: Interest and penalties arise only if tax is lawfully exigible; extended limitation applies only where conditions permitting its invocation are established by evidence and proper legal reasoning. Interpretation and reasoning: Because the Tribunal decides the core taxability issue against Revenue on merits, there is no subsisting tax liability to which interest or penalties may properly attach; similarly, extended period invocation cannot sustain a demand once the foundational taxability is negated. Ratio vs. Obiter: Ratio - where the substantive levy is held not to be attracted, consequential claims for interest, penalties and extended limitation fall away. Obiter - none. Conclusion: Interest, penalties and extended-period invocation do not survive the adverse decision on primary taxability; the impugned order is set aside and the appeal allowed with consequential relief as per law.