2026 (2) TMI 1021 - AT - Service Tax

Taxability of online advertising confirmed, but extended limitation for recovery requires specific proof of fraud or suppression.

Sale of space or time for internet advertising for the years under review is taxable, with limited cum tax relief applied for the earlier year. The ... Taxability of sale of space or time for advertisement on internet - extended period of limitation under proviso to Section 73(1) of the Finance Act, 1994 - benefit of cum-tax price u/s 67(2) of the Finance Act, 1994 - penalty u/s 77(1)(d) and 78 of the Finance Act, 1994 - bona fide belief and suppression of facts - reliance on third party data supplied by CBDT - HELD THAT:- It is evident that appellant was providing certain advertisement services through internet also known as Aerial advertising or selling space for advertisement on internet & sell I.T. goods on their website namely COUPONSCULTURE.COM, PINKNET.IN. Appellant was under a belief that their services fall under the negative list as per Section 66 D(g) of the Finance Act, 1994. As such they were in relation to sale of space for advertisement on internet for this reason they had not taken registration during the period of 2015-16 and have not paid the service tax. The said claim has been rejected by the Original Authority only by stating that appellant have provided only electronic copies of invoices and not actual invoices in support of their claim made. I express my ignorance in understanding what Adjudicating Authority intends to say by that? Electronic invoices are accepted invoice for all purposes and would not require even a signature on it if issued from secure server as per the Information Technology Act, 2000. I find that Adjudicating Authority has completely ignored the provisions of the said Act while making such an observation and for rejecting the claim of the appellant. Also observe that when appellant had come seeking registration in the year 2016-17 in respect of similar/ same services provided they had disclosed the entire nature of their activities to the revenue authorities and it was incumbent upon the authorities to make further enquiries as required to assess the tax liability if any for the past period. Once appellant had disclosed the nature of his activities to the revenue authorities while seeking the registration and concerned authorities failed to make enquiries at that time, then I do not find any reason for making this demand by alleging suppression etc., for invoking the extended period of limitation as per proviso to Section 73 (1) for making this demand. Having noted, appellant was entertained a bonafide belief that his services were falling under Negative List of services and was not required to pay any service tax. In view of the above bonafide belief he entertained the demand made by alleging suppression etc. to invoke extended period of limitation could not have been made. Thus, demand made by invoking extended period cannot be upheld. Thus, do not find any merits in the impugned order and the same is set aside. Appeal is allowed. Issues: (i) Whether sale of space or time for advertisement on internet during FY 2015-16 & 2016-17 was taxable; (ii) Whether demand raised by invoking the extended period of limitation under Section 73(1) of the Finance Act, 1994 (proviso) is sustainable in the absence of fraud, collusion, wilful misstatement or suppression of facts.Issue (i): Whether sale of space or time for advertisement on internet during FY 2015-16 & 2016-17 is taxable.Analysis: The service classification timeline was applied: sale of space/time for advertisement became taxable for modes other than print media from 01.10.2014 onward. Evidence of website-based advertisement activity and sample invoices were considered. The adjudicating authority and first appellate authority had recorded that internet advertisement services for the relevant years fell under the taxable category; export benefit and cum-tax relief for 2015-16 were examined and adjusted.Conclusion: The sale of space or time for advertisement on internet for FY 2015-16 & 2016-17 is taxable, subject to the limited cum-tax relief extended for FY 2015-16.Issue (ii): Whether the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 can be invoked to sustain the demand.Analysis: Authorities and precedents requiring specific and positive averments of fraud, collusion, wilful misstatement or suppression of facts to invoke the extended limitation were applied. The record showed disclosure by the taxpayer upon registration application and no specific allegations in the show cause notice establishing mala fide or deliberate suppression. Relevant case law was applied to the facts to assess whether the threshold for invoking the proviso was met.Conclusion: Invocation of the extended period of limitation under Section 73(1) proviso is not sustainable on the facts; the demand based on the extended period is set aside.Final Conclusion: The taxable character of internet advertisement services for the relevant years is affirmed but the demand raised by invoking the extended limitation period is quashed; overall the appeal is allowed and the impugned order setting aside or modifying earlier orders is set aside to the extent it relied on the extended period.Ratio Decidendi: The proviso to Section 73(1) of the Finance Act, 1994 permitting invocation of an extended limitation period applies only where there is specific and positive material showing fraud, collusion, wilful misstatement or suppression of facts with intent to evade payment of service tax; mere non-payment or bona fide belief in non-taxability does not justify the extended period.