2025 (4) TMI 1114 - AT - Service Tax

Media Agency Volume Discounts Exempt from Service Tax Under Section 66E(e) of Finance Act, 1994

PRINCIPAL COMMISSIONER OF CGST & CENTRAL EXCISE-DELHI-IV Versus M/s NEXUS ALLIANCE ADVERTISING & MARKETING PVT LTD

The SC/Tribunal examined whether incentives from media houses constitute a declared service under Section 66E(e) of the Finance Act, 1994. The court ... Levy of service tax - declared service - incentives or volume discounts received by the respondent from media houses for achieving certain business targets - case of the Revenue is that the respondent had agreed to do an act for the media channels and print media and the incentive given by them to the respondent is the consideration for this obligation - HELD THAT:- It is found from the facts of this case that the respondent has no agreement with the media houses to meet any target nor is there any obligation on the media house to provide incentives/ discount. In fact, the respondent’s clients are the advertisers. They decide and approve the media plans suggested by the respondent. Therefore, the respondent has no discretion to get the advertisements published in a particular newspaper or broadcast through channels of its choice. The Respondent, therefore, cannot have an obligation to the media houses. All that is paid by the media houses is, if the respondent achieves particular target while carrying out its business for its clients, the media house gives some incentives. Section 66E(e) covers as declared services only such cases where there is an obligation under an agreement on the assessee to carry out an act or to tolerate an act. Such is not the case here. Conclusion - i) The demand of service tax on incentives received by the respondent under declared services was rightly rejected. ii) The extended period demand, interest, and penalties proposed by the Revenue were not sustainable. The impugned order passed by the Commissioner is correct and calls for no interference. The impugned order is upheld and the appeal filed by the Revenue is dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal are:Whether the incentives or volume discounts received by the respondent from media houses for achieving certain business targets constitute a declared service under Section 66E(e) of the Finance Act, 1994, thereby attracting service tax liability.Whether the respondent had an obligation under any agreement with the media houses to perform acts that would trigger service tax under the declared service provision.Whether the Commissioner was justified in dropping the proceedings initiated against the respondent and its director despite the Revenue's claim for recovery of service tax, interest, and penalties.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Whether the incentives received by the respondent from media houses constitute a declared service under Section 66E(e) of the Finance Act, 1994Relevant legal framework and precedents: Section 66E(e) of the Finance Act, 1994 defines declared services to include 'agreeing to the obligation to refrain from an act, or to tolerate an act or situation, or to do an act.' This provision is designed to tax services where the service provider agrees to undertake or tolerate certain obligations as part of the contractual arrangement.Court's interpretation and reasoning: The Tribunal examined whether the incentives received by the respondent from media houses amounted to consideration for agreeing to an obligation under Section 66E(e). The Revenue's contention was that the respondent, by accepting incentives, agreed to perform acts (business promotion of media owners) that fall within the declared services category.Key evidence and findings: The investigation by the Director General of GST Intelligence (DGGI) revealed that the respondent received volume discounts or incentives from media houses upon achieving certain turnover targets. However, the agreements between the respondent and the media houses were not established to contain any obligation on the respondent to perform specific acts or to meet targets as a contractual duty. Instead, the respondent's clients - the advertisers - approved the media plans, and the respondent acted solely as an agent for them.Application of law to facts: The Tribunal found that Section 66E(e) applies only when there is an agreement imposing an obligation on the service provider to do or tolerate an act. Here, the respondent had no such obligation towards the media houses; the incentives were conditional on business volume but did not arise from an enforceable obligation to perform any act for the media houses' benefit.Treatment of competing arguments: The Revenue argued that the media agency agreements and the scope of work authorized the respondent to formulate media strategies and plans, implying an obligation to promote media houses. The Tribunal rejected this by emphasizing that the respondent's primary obligation was towards its clients (advertisers), not the media houses, and that the incentives were merely commercial benefits without any corresponding obligation.Conclusion: The incentives received by the respondent do not constitute a declared service under Section 66E(e) because no obligation was agreed upon with the media houses to do or tolerate an act.Issue 2: Whether the respondent had an obligation under any agreement with media houses to perform acts attracting service taxRelevant legal framework and precedents: The scope of declared services under Section 66E(e) requires a contractual obligation to perform or tolerate an act. The existence and terms of agreements are critical to determine the nature of the obligation.Court's interpretation and reasoning: The Tribunal scrutinized the media agency agreements and found that they authorized the respondent to carry out media planning and buying on behalf of clients but did not impose any obligation towards media houses to achieve targets or perform acts that would trigger service tax under declared services.Key evidence and findings: The agreements specified the scope of work as media strategy formulation and media buying for clients, with no clause imposing an obligation to promote media houses or meet targets for incentives. The incentives were discretionary benefits from media houses, not contractual obligations.Application of law to facts: Since no obligation was agreed upon with media houses, the respondent's receipt of incentives cannot be construed as consideration for declared services under Section 66E(e).Treatment of competing arguments: The Revenue's reliance on the clauses in the agreements to establish obligation was found unpersuasive as the agreements were client-centric and did not create duties towards media houses.Conclusion: The respondent did not have any obligation under agreements with media houses that would attract service tax under declared services.Issue 3: Whether the Commissioner was justified in dropping the proceedings against the respondent and its directorRelevant legal framework and precedents: The Commissioner has the authority to drop proceedings under the service tax law after considering submissions and evidence. The extended period of limitation under proviso to Section 73(1) was invoked by the Revenue for recovery of service tax.Court's interpretation and reasoning: The Commissioner, after examining the facts and submissions, found no liability for service tax on the incentives and accordingly dropped the proceedings. The Tribunal upheld this decision, finding no error or misappreciation of facts or law.Key evidence and findings: The absence of any contractual obligation with media houses and the nature of the incentives as commercial benefits rather than consideration for declared services were key to the Commissioner's decision.Application of law to facts: The Tribunal concluded that the Commissioner's order was legally sound and consistent with the provisions of the Finance Act.Treatment of competing arguments: The Revenue's appeal was dismissed as it failed to demonstrate any error in the Commissioner's reasoning or findings.Conclusion: The Commissioner was justified in dropping the proceedings, and the Tribunal upheld the impugned order.3. SIGNIFICANT HOLDINGS'Section 66E(e) covers as declared services only such cases where there is an obligation under an agreement on the assessee to carry out an act or to tolerate an act. Such is not the case here.''The respondent has no agreement with the media houses to meet any target nor is there any obligation on the media house to provide incentives/ discount.''The respondent's clients are the advertisers. They decide and approve the media plans suggested by the respondent. Therefore, the respondent cannot have an obligation to the media houses.''All that is paid by the media houses is, if the respondent achieves particular target while carrying out its business for its clients, the media house gives some incentives.''The impugned order passed by the Commissioner is correct and calls for no interference.'Core principles established include:Declared services under Section 66E(e) require an agreed obligation to do or tolerate an act; mere receipt of incentives without such obligation does not attract service tax.Incentives or volume discounts given by media houses to advertising agencies for achieving business targets are commercial benefits and do not constitute taxable declared services absent contractual obligations.The agency's role as a service provider to clients (advertisers) does not create obligations towards media houses for the purpose of declared services.The Commissioner's discretion to drop proceedings is upheld where no legal or factual basis for service tax liability is found.Final determinations:The demand of service tax on incentives received by the respondent under declared services was rightly rejected.The extended period demand, interest, and penalties proposed by the Revenue were not sustainable.The impugned order dropping proceedings against the respondent and its director is upheld and the Revenue's appeal is dismissed.