Service Tax -on value addition

[deepak gulati]

As an agent(individual) provided in relation to advertisement in print media i sold advertisement to the client inclusive of profit margin and commission .Means we purchased from advertisement Company at ₹ 30000/-(Company is not charging any service tax as it is covered under negative list) and sold at ₹ 35000/.

Can anyone please tell me that as an agent in which service i am covered and what is service tax implication and on what value ? How to do invoicing for the same ?

Company =======> Agent ========> Client

30000 35000 (Service Tax ==?)

(without service tax )

[KASTURI SETHI]

Sh.Deepak Gulati Ji,

This activity falls under the erstwhile category of BAS (Now Other Than Negative List). Pl. go through the definition of BAS specified under erstwhile Section 65(105)(zzb) which is extracted below:-

“business auxiliary service” means any service in relation to, -

(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or

(ii) promotion or marketing of service provided by the client; or

[ * * * * ]

(iii) any customer care service provided on behalf of the client; or

(iv) procurement of goods or services, which are inputs for the client; or

  [Explanation. - For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “inputs” means all goods or services intended for use by the client;]

[(v) production or processing of goods for, or on behalf of, the client;]

(vi) provision of service on behalf of the client; or

(vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision,

and includes services as a commission agent, [but does not include any activity that amounts to manufacture of excisable goods].

[Explanation. - For the removal of doubts, it is hereby declared that for the purposes of this clause, -

(a) ”commission agent” means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person -

(i) deals with goods or services or documents of title to such goods or services; or

(ii) collects payment of sale price of such goods or services; or

(iii) guarantees for collection or payment for such goods or services; or

(iv) undertakes any activities relating to such sale or purchase of such goods or services.

Your activity is covered under highlighted services. Taxable value will be ₹ 5000/-. You may call it profit or commission.These are the services charges and these are clearly identifiable. You have purchas bill and sale bill. Hence service charges can be easily separated and thus identifiable. You may be thinking about treating ₹ 35000/- as cum-tax price but here this is not the situation.The amount of ₹ 5000/- will be treated as commission/taxable value.

This service cannot fall under the category of 'Intermediary Services' under Rule 2 (f) of Place of Provision of Services Rules, 2012 as it falls under exclusion clause (service being provided in your account.) This is the major difference between 'Commission Agent' and 'Intermediary Service."

[deepak gulati]

Thank you sir. But still there is issue for invoicing as there is our profit of (let say 4000 )and 1000 is our commission) Please tell me about the invoice.
Invoice

Advertisement =34000 or Advertisement(inclusive commission) =35000

Commission =1000 Service Tax@14% on commission Rs. 1000

Service Tax@14% on 5000 SBC@ .5%

@.5% on 5000

[KASTURI SETHI]

Sh.Deepak Gulati Ji,

Pl. see the definition of 'Consideration' in Explanation to Section 67. Note the words, 'Any Amount Payable' . This definition does not make difference between profit and commission. You received the amount of ₹ 5000/- because of taxable service. You will invite litigation, if ST paid on ₹ 1000/- only. You may seek other experts' opinion. I have given my opinion.

[CSSANJAY MALHOTRA]

Dear Mr. Deepak,

Legal opinion of Sir Sh. Kasturi ji is in compliance to law and squarely applicable in your case, since yourself is involved into contacting the advertisers & accordingly persuading them to go for advertisement in relevant print media. Hence, your activity would be covered under Business Auxiliary Service and as correctly stated amount of ₹ 5000/- is chargeable to Service Tax.

(F) Clarifications issued by the Board:

(i) The Board vide Circular No.96/7/2007-ST dated 23.08.2007 on advertising agency services has clarified the following issues-

004.01 / 23.08.07

Persons / agencies canvass advertisements for publishing, on commission basis. Such persons / agencies do not provide any other services like making, preparation, display or exhibition of advertisement. Whether merely canvassing advertisement for publishing on a commission basis by persons / agencies is classifiable as Advertising Agency service [section 65(105)(e)] or not?

Merely canvassing advertisements for publishing, on commission basis, is not classifiable under the taxable service falling under section 65(105)(e). Such services are liable to service tax under business auxiliary service [section 65(105)(zzb)].

Had you been involved in the designing, making or drafting of Advertisement and afterwards getting the same published in print media, the amount of commission received from Print Media would be treated as "Advertising Agency" Service. However Service Tax liability would have remained same.

Extracts from CBEC Clarification vide F. No. 341/43/2001-TRU, dated 18-10-2001

Para 3. It will be relevant to mention here that on the commission/discount received by the advertising agency, service tax is separately leviable under the category of advertising services. In this regard, your attention is invited to Board’s circular F. No. 341/43/96-TRU, dated 31-10-96 wherein it was clarified that the commission received by the advertising agency for getting the advertisement published in the print media (i.e. newspaper, periodicals etc.) or the electronic media (Doordarshan, private channels, AIR etc.) will be includible in the value of taxable service under the category of the “advertising service”

[KASTURI SETHI]

SH.CS SANJAY MALHOTRA JI,

Sir, You have fortified my reply with Board's Circulars You have devoted your precious time.I replied on the basis of common knowledge. Thanks a lot.

With regards.

KASTURI SETHI

[deepak gulati]

THANK YOU KASTURI SETHI JI AND SANJAY MALHOTRA JI.

AI Summary

Business auxiliary service: advertising resale mark-up is taxable consideration, requiring service tax on the value addition. Supply of procured print-media advertising space with a mark-up is taxable as business auxiliary service. The agent's identifiable mark-up is the consideration for the taxable service and must be included in the taxable value; labeling part as 'profit' versus 'commission' does not alter valuation. The agent should invoice and segregate the service charge/commission element, on which service tax and applicable cesses are to be computed, rather than treating only a portion of the mark-up as taxable.