Service Tax on advertising agent service

[Sudhir Kumar]

The department has issued Multiple Show Cause Notice to a client in the matter of service tax from advertising agency service. One show cause notice for the period 2008-09 to 2011-12 amounting to Rs. 79 Lacs was issued in 2013 by the Additional/Joint Commissioner, another show cause notice for the period 2008-09 to 2013-14 amounting to Rs. 8 crore was issued in 2015 by the Commissioner and the third one for the period 2014-15 amounting to Rs. 1.04 Crore was issued in 2017 to the same client on same matter. The client/noticee during the period 2008-09 to 2014-15 was engaged in providing taxable services as Advertising agency. They noticee claim that only 15% of the consideration amount is given to them as commission while rest amount was given to the print media by the recipient hence service tax is applicable on only 15% of the consideration amount which they have received. But the department has issued notice taking whole amount of consideration as taxable value and computed service tax on that:- the queries are

(i) Is single adjudication possible for all 03 show cause notice issued by the department for different period on similar issued to the similar person?

(ii) whether the noticee is liable for tax only on 15% of the consideration amount received from the Print media as they claim or whole amount of consideration will come under the net of service tax?

(iii) Incentives received by the noticee from different print media due to achieving target withing due time, will come under the purview of service tax?

Please guide.

[KASTURI SETHI]

Dear Querist,

The query-wise reply is as under :-

(i) Yes. This practice has been in force for about 50 years. This is as per Board's instructions. It is an internal administrative mechanism in order to Govt.'s precious time. Such practice also Court's as well as assessees' time.

(ii) Does your client book order only for advertisement in print media ? What amount is being credited into his books of account ? Only commission or the whole payment ? This information is crucial. A comprehensive reply along with case laws is possible only after receipt of this information.

(iii) Taxable.

To be continued.

[Sudhir Kumar]

Please post the instruction or notification of the board.

[KASTURI SETHI]

In my  reply at serial no.1 Para (i) please read "in order to save' instead of 'in order to'.

[Shilpi Jain]

Are these incentives in the nature of discounts?

Further facts required to comment on your queries. Suggested that you approach a professional who can guide you on your litigation process and ensure your best interest.

[KASTURI SETHI]

Dear Querist,

At serial no. 2 above, you have requested for instruction or notification. I have not mentioned about notification or circular. Instruction can be verbal or through letters. There is a large number of cases wherein multiple SCNs on the same issue were adjudicated by way of Common Adjudication Order (Single). This is easily traceable from CEGAT/CESTAT's Orders.

If you think to fight the case on this ground, this ground will not be sustainable.

Also go through the following :

Section 67 (3) of the Finance Act The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.

Explanation. — For the purposes of this section, —

(a) [“consideration” includes —

(i) any amount that is payable for the taxable services provided or to be provided;

(ii) any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed;

(iii) any amount retained by the lottery distributor or selling agent from gross sale amount of lottery ticket in addition to the fee or commission, if any, or, as the case may be, the discount received, that is to say, the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such ticket.’.]

[(b)  *  *  *  * ]

(c) “gross amount charged” includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and [book adjustment, and any amount credited or debited, as the case may be, to any account, whether called “Suspense account” or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise.]]

AI Summary

Taxable value: advertising agency services attract service tax on gross consideration, not just retained commission. Consolidation of multiple overlapping show cause notices into a single adjudication is an established administrative practice; taxable value for advertising agency services is governed by the gross amount charged principle so the entire consideration is prima facie taxable unless agency accounts show only commission as the amount charged; incentives received from media for meeting targets qualify as taxable consideration.