Incentive/Discount given by the Media to Advertising Agency

[CASeetharaman KC]

There are decided Tribunal cases on this issue where the Tribunal has held that incentives/discounts given by media companies to an Advertising agency would not be subject to service tax as there is no client/ service provider relationship and as far as the advertising agency is concerned it is the or the Advertiser who is its client and there is no relationship with the media company. The two cases are enumerated here below:

1. Euro RSCG Advertising Limited V/s Commissioner of Service Tax, Bangalore 2007 - TMI - 1721 - CESTAT - Bangalore - 2007 (7) S.T.R. 277( Trib- Bangalore)
2. Kerala Publicity Bureau V/s Commissioner of Central Excise, Cochin  2008 - TMI - 2534 - CESTAT - Bangalore - 2008 (9) S.T.R. 101 (Trib- Bangalore) 

Now, the department has taken another view claiming that the advertising agency is actually providing 'promotion and marketing service' to such media companies by canvassing advertisements for them and as such the incentive/discount given is classifiable under 'Business Auxiliary Service' . The fact is that the media company gives a credit note to the advertising agency only if it exceeds a certain turnover for the year which is fixed by the media company. Also it is the advertiser who decides in which newspaper to advertise and the advertising agency does not have really have any control over the advertiser's decision. To elaborate if the client (Advertiser) decides to advertise in 'The Times of India' then the advertising agency cannot force him to change it to 'Indian Express'. I would request my learned friends here to throw some light on this issue and help me with any case laws or other communications which may strengthen this argument.

 

AI Summary

Are Media Company Incentives to Ad Agencies Subject to Service Tax Under Business Auxiliary Service? A discussion was initiated regarding whether incentives or discounts given by media companies to advertising agencies are subject to service tax. Tribunal cases have previously determined that such incentives are not taxable since there is no direct client-service provider relationship between the media company and the advertising agency. However, the tax department argues that these incentives are a form of 'promotion and marketing service,' classifiable under 'Business Auxiliary Service.' It was noted that the media company issues credit notes based on turnover, and the advertiser, not the agency, decides where to place ads. A respondent expressed doubt that the department's new stance would hold in court.