2002 (2) TMI 2 - AT - Service Tax

Custom-made signboard fabrication vs advertising agency service: taxable classification rejected for lack of agent relationship; remanded.

Whether manufacture of signboards to customer specifications constitutes 'advertising agency' service taxable under the Act was the dominant issue. The ... Payment of service tax - Advertising Agency - imposition of Penalty - bona fide belief - reasonable cause for the failure to file the returns - HELD THAT:- We find that the term 'advertising agency' is defined in the Act and as per the definition the advertising agency is to meet any commercial concerned engaged in providing any service connecting with the mail, preparation, display or exhibition and advertising and includes advertising consultant. The appellants are only manufacturing the sign boards as per the requirements of their customers. Such an activity cannot be held to be advertising agency as the appellants are not rendering any advertising service. The person like the appellants cannot be called as advertising agency as they are only writing or preparing the sign boards at the behest of their customers. There is no evidence on record to show the relationship between the customers and the appellant is of advertising agent which is necessary for imposition of service tax. As the appellants were not considering themselves as advertising agency under bona fide belief, the provisions of Sec. 80 of the Act are relevant. In these circumstances, we find that whole issue requires reconsideration by the adjudicating authority. Therefore, the impugned order is set aside and the appeals are allowed by way of remand. Issues Involved:The issues involved in this case are (1) Whether the appellants are liable to register under the Service Tax Act for providing advertising services, (2) Imposition of penalty for failure to file returns under the Service Tax Act.Issue 1: Liability to Register under Service Tax Act:The appellants, engaged in manufacturing NEON light sign boards, were issued show cause notices for registration under the Service Tax Act as they were considered to be providing taxable advertising services. The adjudicating authority directed the appellants to comply with registration requirements, file returns, and pay service tax. The Commissioner (Appeals) rejected the appeal filed by the appellants.The appellants contended that they do not fall under the definition of an advertising agency as they do not provide services to customers or enter into service contracts. They argued that they only prepare sign boards and charge a lump sum sale price. The Tribunal found that the appellants' activity of manufacturing sign boards does not qualify as advertising agency services as they are not engaged in providing advertising services. The relationship between the appellants and customers did not meet the criteria for imposing service tax.Issue 2: Imposition of Penalty for Failure to File Returns:Another show cause notice was issued to the appellants for not filing returns under the Service Tax Act, with a penalty of Rs. 5,36,800. The adjudicating authority upheld the notice, and the Commissioner (Appeals) dismissed the appeal.The appellants argued that they had a bona fide belief that they were not covered under the Act, hence did not file returns. They cited Section 80 of the Act, which states that no penalty shall be imposed if the assessee proves there was a reasonable cause for the failure. The Tribunal noted that the Commissioner (Appeals) did not consider Section 80 while imposing the penalty. As the appellants genuinely believed they were not an advertising agency, Section 80 was relevant. The Tribunal set aside the order and allowed the appeals for reconsideration by the adjudicating authority.In conclusion, the Tribunal found in favor of the appellants on both issues, highlighting the need for a reassessment by the adjudicating authority regarding registration and penalty under the Service Tax Act.