Pure agent

[Sohail Ahmed]

Sir,

Say A is registered as advertising agency. He procure orders for advertisment and get it done in print and electronic media. He get 15% discount on such orders. He issue invoices of same value and pays service tax only on 15% discount. My question is

1. In which category of services does he fall.

2. Can he avail cenvat credit of service tax he pays on bills he receives.

[YAGAY and SUN]

In our view this discount is nothing else but commission which you are receiving for providing of taxable services. Input services which are necessary to provide such out put services are eligible for availing CENVAT credit. In our view this may be classified under Business Support Service of the erstwhile Service Tax Laws under Finance Act, 1994.

[KASTURI SETHI]

Agreed with M/s Yagay and Sun, Sirs but it is classified under BAS category. There is clause to cover such commission in the definition of B.A.S. Rate is same but proper classification is required.

[Sohail Ahmed]

Thanks for reply.

It means advertising agency is wrong classification and cenvat credit is not available. Bcos service tax paid by him is not input.

[YAGAY and SUN]

There was no one to one correlation in service tax regime. Hence may be available.

[KASTURI SETHI]

I support the views dated 7.6.18 of M/s.YAGAY And SUN, Sirs.

AI Summary

Commission treatment of advertising discounts may trigger service tax liability with potential CENVAT credit if inputs serve the output.
Discounts received by an advertising agency from vendors are to be regarded as commission for provision of taxable services classified as Business Auxiliary Services; input services necessary to provide those output services are generally eligible for CENVAT credit, subject to proper classification and a demonstrable nexus between inputs and outputs even without strict one-to-one correlation.