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.

 

[Rama Krishana]

As you have discussed two cases in the query, I hope that the new issue created by the department with regard to same facts, would not sustain in the court of law since the nature of discount is altogether different from commission or remuneration for services rendered.

AI Summary

Business Auxiliary Service classification of media incentives challenged where discounts are turnover-linked credit notes, not payments for services. Whether media incentives to advertising agencies attract service tax: tribunals held such incentives non-taxable due to absence of a client-service provider relationship between media and agency, while the department asserts agencies provide promotion and marketing services to media classifiable as Business Auxiliary Service; facts include turnover-triggered credit notes and advertisers' independent choice of media, and commentary that the department's reclassification differs from payment for services.