TaxTMI 
TaxTMI 
2016 (3) TMI 139
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....1994 for discharge of tax liability on "reverse charge" basis has been invoked. 2. Appellant is a manufacturer of pharmaceutical products that are exported to Ukraine for which agreements were entered into with M/s Biogenetica Ltd, M/s Nicocardia Ltd and M/s Selesta Holding Company Ltd for market promotion and publicity. The balance sheets of the appellant for 2004-05, 2005-06 and 2006-07 revealed that payments of Rs. 26,44,75,407, Rs. 24,28.59,517 and Rs. 48,49,08,646 were effected in these respective years to these Cyprus-based entities in foreign currency and these had been booked as 'advertisements and business promotion expenses". Proceedings were initiated against the appellant for recovery of tax that had not been discharged on these amounts that were alleged to be consideration for having received 'advertising agency services' - a service taxable under section 65 (105)(e) of Finance Act, 1994 with effect from 1st November 1996. 3. In the impugned order the demand was restricted to the period after 18 th April 2006 as the taxable service was rendered by a provider based outside India and tax collection on 'reverse charge' basis under section 66A fro....
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....Services (Provided from Outside India and Received in India) Rules, 2006 provides in Rule 3(iii) that all residuary services shall be liable to tax if provided to a recipient in India for use in relation to business and commerce. He draws our attention to the agreement that appellant entered into with M/s Selesta Holdings Co Ltd to justify classification as 'advertising agency service.' Likewise the agreements entered into with M/s Biogenetica Ltd and M/s Nicocardia Ltd were also presented before us to show that these entities, being agents of the appellants who procure publicity material for the appellant, were not receiving the payments as reimbursements. The statements of the Manager (Taxation) and a Director, relied upon by the adjudicating authority, were also pointed out to demonstrate that the beneficiary of the advertising campaign was the appellant whose agents merely represented them in Ukraine. It was also highlighted that the tax was computed on the basis of details furnished by the appellant and, hence, their claim that payments recorded for 2006-07 included those which related to previous years was not tenable. 6. We take note that the adjudicating authorit....
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....ollowed by computation of the value of the taxable service. In these proceedings, the second requirement appears to have been met with the standards of reasonableness. That will, however, not suffice without ascertaining if a taxable service has been rendered. 9. The service rendered in any manner by advertising agency in relation to advertisement is taxable under section 65(105)(e) of Finance Act, 1994 and 'advertising agency' as per section 65 (3) is: 'any person engaged in providing any service connected with the making, preparation, display or exhibition of advertisement and includes an advertising consultant'. 10. While the person rendering the taxable service can be by any type of person, taxability requires that such person must be connected with making, preparation, display or exhibition of advertisement. From the word 'connected' therein, it can be inferred that these activities need not necessarily be executed directly by the person so engaged; sub-contracted as a whole or of a portion is a connect that will render such activity leviable to tax. The sample of invoices referred to supra do demonstrate a connection with advertising mat....
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....rt. The underpinning of export promotion strategy of the country are the modes by which taxes on inputs/input services borne by the manufacturer or service provider catering to the international market place is refunded or exempted from taxes that are otherwise chargeable from the customer residing in the country. 13. To ensure that there is no undeserved availment of this privilege, duties on inputs or taxes on input services are refunded or rebated through these notifications and procedures. These are predicated upon the inescapability of including tax in the prices charged by supplier of inputs or provider of inputs services. The mechanism is geared to compensate the normal legislative competence and intention to tax domestic consumption of goods and services. 14. Import of inputs, if required in the production process, is a physical unavoidability and hence duties may be collected and refunded or may be exempted upfront for exporters. Services procured from external providers being invisible are subject to tax through the legal fiction of crossing of national boundaries and subject to tax in the hands of the recipient of service. Exporters who avail of such taxable servic....