2024 (2) TMI 196 - AT - Service Tax

Advertising agency liable for service tax only on commission, not entire invoice values

CESTAT Chennai held that an advertising agency was liable for service tax only on commission received from print media and TV/radio advertisements, not on ... Liability of service tax - Advertising Agency - Demand of service tax where they had not paid service tax but had paid only VAT and where they paid neither service tax nor VAT - credit of service tax taken by Ad-inn in respect of broadcasting of advertisement which are not their input services, is admissible under CCR or not - invocation of extended period of limitation. Nature of activities: i. Taxable services such as conducting events, road shows, promotional activities, designing and erection of hoarding, etc., ii. Exempted services, wall painting, etc., iii. sales related activity, i.e., printing of wall posters, bills, banners, making glow boards etc., iv. Releasing of advertisement in News Paper/TV/Radio channels on commission basis. Liability to pay tax - Advertising Agency - HELD THAT:- The assessee is indicating a value in the invoices which is inclusive of the Commission received on which service tax is duly paid. From the clarifications issued in the above circular, it is amply clear that the Appellant in this case is required to pay service tax on the commission received from the print media for publishing of advertisements and also for release of advertisements in TV and FM Radio - the Commission earned by the Appellant is taxable only to the extent charged and included in the gross value and not the entire gross amount indicated in the invoice. Since the Appellant has discharged VAT and Service Tax on the relevant portions of Sale or Service, as the case may be, demand of Service Tax in respect of sale transactions is not legal and so cannot be sustained. The lower adjudicating in Para 17 of the impugned order computed the differential value from the Appellant’s financial statements without analysing in detail whether the Appellant was indulging in making and preparation of the advertisements involving conceptualization, visualization and designing. As such, inference drawn and findings are devoid of merits - The advertising materials like glow sign boards, flex printing, broachers, stickers, tags, posters, hand bills, signages, etc., which cater to the requirements of the specific customers, on which VAT is paid, is not leviable to Service Tax - Service Tax cannot be demanded in respect of cloth banners and wall painting transactions without first analyzing the nature of work undertaken by the appellant in detail. Recovery of CENVAT credit erroneously taken, alongwith interest and penalty - Advertising Service - for the periods 01.07.2006 to 31.07.2008, 01.04.2007 to 31.03.2011 and 01.04.2011 to 31.03.2012 - HELD THAT:- The Appellant, in the case of advertisement through FM/Visual media, at the behest of their clients were availing the services of FM and TV channels including satellite channels who charged service tax along with charges for broadcasting the advertisements. As it is a part of their advertisement work, it is an input service. The only condition for availing credit on inputs / input services is that the said services should be used directly or indirectly in providing the output service and in their case, the Appellant have directly utilised the services of broadcasting agencies and other advertising agencies to provide the output services and hence they are eligible to avail the service tax paid on the said service providers - The Appellant is an advertising agency and so they can avail the services of broadcasting agencies and hence the services of broadcasting are an input service. At no point of time, the appellant were acting as intermediaries and hence the Appellants are entitled to avail the credit of Service tax paid by them as input services. Invocation of extended period of limitation - HELD THAT:- The appellant was issued with a Show Cause Notice dated 12.10.2007 vide C.No. V/30/16/2007-STU by the Assistant Commissioner of Central Excise and Service Tax, Madurai involing the same issue of suppression of Service Tax values when ST-3 returns filed were compared against the relevant financial statements of the appellant for the period from 01.04.2002 to 30.06.2006. Again involving the same issue and by invoking extended period, these impugned Show Cause Notices No. 03/2011-ST dated 03.11.2011, No. 09/2012-ST dated 11.10.2012 and No. 06/2013-ST dated 12.07.2013 for periods from 01.07.2006 to 31.07.2008, 01.04.2007 to 31.03.2011 and 01.04.2011 to 31.03.2012 were issued against the appellant demanding Service Tax and proposing penalties which is blatantly against the provisions of law. The impugned orders are set aside - Appeal allowed. Issues Involved:1. Taxability of services rendered by Ad-Inn under the category of 'Advertising Agency' as defined under Section 65(3) of the Finance Act.2. Admissibility of CENVAT credit taken by Ad-Inn in respect of broadcasting advertisements.3. Invocation of the extended period of limitation for the demand of service tax.Summary:Issue 1: Taxability of Services Rendered by Ad-InnThe appellant, Ad-Inn Advertising, was engaged in rendering taxable services under the category of 'Advertising Agency' and paid service tax on certain transactions while paying VAT on others. The Department contended that the nature of transactions was inseparable and involved both preparation and display of advertisement materials, thus falling under the 'Advertising Agency' category as per Section 65(3) of the Finance Act, 1994. The Tribunal examined various judicial precedents, including the definition of 'Advertising Agency' and concluded that mere manufacturing of products as per instructions without any creativity or conceptualization does not constitute 'Advertising Agency' services. The Tribunal held that if VAT was paid on the value indicated in the invoice, it tantamounts to a sale on which no service tax is leviable. Consequently, the demand for service tax on transactions where VAT was paid was not sustainable.Issue 2: Admissibility of CENVAT CreditThe Department disallowed CENVAT credit availed by the appellant on services such as broadcasting, arguing that these were not input services for Ad-Inn. The Tribunal held that the services of broadcasting agencies were indeed input services for the appellant, as they were directly utilized in providing output services. The Tribunal disagreed with the Department's view that the appellant acted as a pure agent and thus was not eligible for CENVAT credit. It was concluded that the appellant was entitled to avail the credit of service tax paid on input services.Issue 3: Extended Period of LimitationThe appellant argued that the extended period of limitation could not be invoked as the Department was already aware of the facts through earlier show cause notices. The Tribunal referred to Supreme Court judgments in Nizam Sugar Factory and ECE Industries Limited, which established that when facts are known to the Department, subsequent notices alleging suppression are not sustainable. The Tribunal found that the impugned show cause notices were issued in contradiction to judicial discipline and set aside the orders on the grounds of limitation.Conclusion:The Tribunal set aside the impugned orders, holding that the appellant was not liable to pay service tax on transactions where VAT was paid, was entitled to avail CENVAT credit on input services, and that the demands were time-barred. The decision provided consequential reliefs to the appellant as per the law.