firm which is an advertising agency

[Dalia Felix]

M/s ABC is a proprietary concern, the  list of the services/ products provided by which are:            

• Website designing
• Videos
• Print materials like pamphlets, posters, mugs, brochures etc.
• Newsletters intended for circulation by customers within their respective companies

What are the tax implications while a lumpsum amount is charged for the end product? Please note that ABC will be doing the designing part only and the production will be outsourced to outside vendors like printers/ videographers etc.

Please analyze the applicability of service tax/VAT in this situation.

[CASeetharaman KC]

Services provided by advertisement agencies relating to making or preparation of advertisements would be taxable.This would also cover commissions received by advertisement agencies from the broadcasting or publishing companies for facilitating business, which may also include some portion for the preparation of advertisement.

Even if the advertisement agency is doing only the designing work and the other work is outsourced, the point to be noted is that whether the billing done by the advertisement agency is for a lumpsum amount including the value of the work which is outsourced. Normally in case of advertisement agencies the client wants a lumpsum bill for all the work done and he also deduts TDS on the whole amount. If this is so then service tax would be chargeable for the whole amount and CENVAT credit can be claimed for the service tax charged on the services which have been outsourced.

To avoid this confusion in totality it would be advisable to arrange for the billing of outsourced supplies and services directly to the client and then raise a separate bill for the various services rendered by us

AI Summary

Service tax liability arises when advertising agencies bill a lumpsum including outsourced production, impacting tax and CENVAT credit.
An advertising agency's lump sum invoice that includes outsourced production is subject to service tax on the entire billed amount, since agency services for making or preparing advertisements are taxable; the agency may, however, claim CENVAT credit for service tax charged on outsourced services, and should prefer direct billing of outsourced supplies to the client with a separate invoice for agency services to avoid allocation issues.