Custom, Excise & Service Tax Tribunal
M/S. Everest Brand Solution Pvt.Ltd vs Cst, Delhi on 22 January, 2018
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
SCO 147-148, SECTOR 17-C, CHANDIGARH-160017
DIVISON BENCH
Court-I
Appeal No. ST/4087/2012
(Arising out of OIO No.75-76/AKM/2012 dt.2409.2012 passed by the Commissioner of Service Tax, New Delhi)
Date of Hearing/decision: 22.01.2018
M/s. Everest Brand Solution Pvt.Ltd Appellant
Vs.
CST, Delhi Respondent
Present for the Appellant: Shri B.L.Narsimhan, Advocate Present for the Respondent: Shri Tarun Kumar, AR Coram: Honble Mr.Ashok Jindal, Member (Judicial) Honble Mr.Devender Singh, Member (Technical) FINAL ORDER NO. 60109/2018 PER: DEVENDER SINGH The brief facts of the case are that the appellant is an advertising agency. It provides advertising agency services to its customers in and outside India. An audit of the appellant was conducted and it was found that the assessee had not been paying service tax on the total sale amount as shown in their profit and loss statement. The appellant had stated that the service tax was charged only on the commission. The department also found that there was no agreement between the assessee and the recipient of the service on record and thus there was no evidence that the appellant had been authorized to act as pure agent to make payment on behalf of the recipient of its service.
2. Another issue that came up during the audit, was that during financial year 2009-10, they provided service of Rs.35,31,947/- to their client CHI Limited based in Nigeria and contended that this amount should be excluded from the total sale value as they had exported taxable services to a place outside India. The department did not accept the assessee claim of Export of services. Accordingly, two show cause notices dated 23.10.2009 and 21.10.2009 were issued to the appellant. The same were adjudicated, resulting in confirmation of demand along with interest and imposition of penalties. Aggrieved from the same, the appellant have filed this appeal.
3. Ld. Advocate for the appellant submits that they buy space and time on behalf of its customers in print/electronic media to release ads. The appellant also make payments to such publishers/broadcasters on customers behalf and is entitled to get the same reimbursed on submission of invoices or bills issued by such publishers. For these agency services, the appellant gets commission from its customers and the appellant also raises an invoice on its customers towards reimbursement of the advertisement cost in addition to its commission. Appellant charges tax only on its commission under advertisement agency service and no service tax is charged on the amount paid to publishers/broadcasters. It was also contended that the appellants invoices are duly supported by the publishers invoices/bills. He referred to the Circular No.341/43/63-TRU dated 31.10.1996 and Rule 5 (2) of Service Tax (Determination of Value) Rules, 2006 to contend that the advertising agencies are pure agent of their client and the amounts charged by the publishers/broadcasters for advertisement services are not included in the assessable value of services provided by the appellant. He also contended that the issue is covered in favour of the appellant in view of the above circular and the judgment of the Honble Madras High Court in the case of Adwise Advertising Pvt.Ltd vs. Union of India-2006 (2) STR 375 (Mad.). He submitted that the above judgment has been followed in the following recent decisions:-
(i) Dabur India Limited vs. CCE, Chandigarh-2017-TIOL-2954-CESTAT-CHD
(ii) M/s.Adbur Pvt.Ltd. vs. CST, Delhi-2017-TIOL-2409-CESTAT-DEL
(iii) Indian Oil Corporation Ltd. vs. CCE, Mumbai-2014 (36) STR 833 (Tri.-Mumbai)
4. On the second issue, he submitted that the appellant had provided services, which were used outside India and CHI Limited has ordered the provision of services from outside India as it has no establishment/offices in India. He also averred that the payment for such services is received in foreign convertible currency and, in this regard, he drew attention to documents on pages 304-317 of the paper book. He relied on the following case laws:
(1) Daikin Air-conditioning India P.Ltd. vs. CCE, 2017 (12) TMI 965- CESTAT-CHD (2) Yamazaki Mazak India Pvt.Ltd. vs. CCE, Pune-I-2017 (8) TMI 1050-CESTSAT-MUM (3) Paul Merchants Ltd. vs. CCE, Chandigarh-2013 (29) STR 257 (Tri.-Del.)
5. He also argued on limitation and submitted that in view of the Circular dated 31.10.1996, they were under bonafide belief that no service tax was payable by them.
6. Ld.AR reiterated the findings in the adjudication order and emphasized that in the absence of an agreement, the claim of pure agent is without any basis. He further submitted that advertising is a category three service and location of service is an important factor.
7. Heard the parties and examined the record.
8. On the first issue, we find that the appellant is providing taxable service of advertising service and the Revenue has alleged that the service tax is to be paid on the gross amount charged by the advertising agency from the client for the services. We find that the adjudicating authority while analysing the Board Circular No.341/43/63-TRU dated 31.10.1996 has completely misread the said circular. Para 4 of the circular which is reproduced below clearly lays down that the amount paid by the advertising agency for space and time in getting advertisement published and broadcast in print/electronic media will not be included:-
4. It is further to be clarified that in relation to advertising agency, the service tax is to be computed on the gross amount charged by the advertising agency from the client for services in relation to advertisements. This would, no doubt, include the gross amount charged by the agency from the client for making or preparing the advertisement material, irrespective of the fact that the advertising agency directly undertakes the making or preparation of advertisement or gets it done through another person. However, the amount paid, excluding their own commission, by the advertising agency for space and time in getting the advertisement published in the print media (i.e. Newspapers, periodicals etc.) or the electronic media (Doordarshan, private TV Channels, AIR etc.) Will not be includible in the value of taxable service for the purpose of levy of serviced tax. The commission received by the advertising agency would, however, be includible in the value of taxable service.
9. We also find that the Honble Madras High Court in the case of Adwise Advertising Pvt.Ltd (supra) had examined the circular in the context of similar issue and has held as below:-
9.?It will be seen in this behalf that selection of, a particular print media or a particular electronic media would also be a part of the services because the advertising agency would be expected to advise its clients as regards the media through which such advertisements should be flashed. Thus, locating or selecting a particular media would be a Service, by the advertising agency in relation to the advertisements. Now, it is an admitted position that the total amount, which is described as Gross Amount spent by the clients for such services is chargeable except to the extent of the actual charges of the advertisement charged by the media because it is obviously not a service rendered by the advertising agency. The amount, which is spent for flashing an advertisement in a particular print media or electronic media, cannot be said to have been paid towards the services rendered by the advertising agency. It is simply a consideration paid to that print media or electronic media, as the case may be, for flashing that advertisement. However, when an advertising agency gets some Commission, though out of the consideration received by the media, it is because that advertising agency has selected that particular media for flashing the advertisement, which is nothing but a Service by that advertising agency. In relation to the advertisement given to the client, in whose benefit the said advertisement is flashed. Therefore, we have no hesitation to hold that any commission earned by the agency even from the advertising media, if it forms a part of the gross amount charged by such agency from the clients in relation to that advertisement, could be included in the value of the taxable service. When we see the impugned circular/letter, it explains precisely this position and nothing more. Therefore, it cannot be said that such a circular/letter has the effect of enlarging the scope of Section 67(d) of the Act, as is argued. We are in agreement with the learned single Judge, who has by making a reference to Section 65(16) of the Act commented upon the Taxable Service and has pointed out that the taxable service by an advertising agency is the service provided to its clients in relation to the advertisements in any manner. We have already shown above that even selecting or locating a particular print media or electronic media for flashing a particular advertisement would amount to a taxable service by the advertising agency and any commission earned by it on that account even from such print media or electronic media, if it forms a part of the Gross Amount charged and spent by the client, would be covered in Section 67(d) of the Act.
10. This Tribunal in the case of Dabur India Ltd. (supra) has examined identical question and came to the following conclusion:
We find from the invoices placed on record that the Dabur India Ltd. Kaushambi is the recipient of two services, namely, the service from the advertising agencies like ADBUR and broadcasting agency service by the broadcasters. The invoices of broadcasters are telescoped into the invoice of advertiser indicating service tax paid by them. The bills by the broadcasters are raised on the appellant. The amount charged by the broadcasters does not form part of the taxable value of the services provided by the advertising agency. The Service Tax charged by the advertising agency is on the commission it charges, which is mentioned in the invoices issued to M/s Dabur India Ltd. Kaushambi. We find merit in the contention of the appellant that the Broadcasting and advertisement have been done on behalf of the appellant and they have borne the incidence of Service Tax, the credit cannot be denied. In this regard, the ratio of this Tribunal judgment in the case of Indian Oil Corporation Vs. CCE, Mumbai-III is also applicable to the facts of this case wherein this Tribunal held as below:-
6.?We have gone through the copies of sample invoices produced by the applicant, issued by Times Global Broadcasting Co. Ltd. In the invoices it is specifically mentioned that the advertiser is Indian Oil Corporation Ltd. (applicant). Further, we find that the advertising agencies while discharging the service tax liability have not taken into consideration the expenses in respect of the advertisement in the electronic media as clarified by the Board in the circular, dated 1-11-1996. For ready reference, the relevant portion of the Boards Circular is reproduced below:-
4.?It is further to be clarified that in relation to advertising agency, the Service Tax is to be computed on the gross amount charged by the advertising agency from the client for services in relation to advertisements. This would, no doubt, include the gross amount charged by the agency from the client for making or preparing the advertisement material, irrespective of the fact that the advertising agency directly undertakes the making or preparation of advertisement or gets it done through another person. However, the amount paid, excluding their own commission, by the advertising agency for space and time in getting the advertisement published in the print media (i.e. Newspapers, periodicals etc.) or the electronic media (Doordarshan, private TV Channels, AIR etc.) will not be includible in the value of taxable service for the purpose of levy of Service Tax. The commission received by the advertising agency would, however, be includible in the value of taxable service.
7.?We observe that there is no dispute in the present case that the broadcasting of advertisement has been done on behalf of the appellant and the bills have also been raised on the appellant and the appellant has borne the incidence of Service Tax on the broadcasting service. Further, while passing the order, dated 30-9-2013, the adjudicating authority has caused verification of the transactions undertaken by the appellant in respect of broadcasting services and advertising agency services. After verifying that the appellant had availed both the services and has also borne the incidence of Service Tax, he came to the conclusion that the appellant is rightly eligible for the benefit of the Cenvat credit of the Service Tax paid on broadcasting service. The same ratio shall apply for the previous period also. Therefore, we do not find any merit in the impugned order. Accordingly, we set aside the same and allow the appeal with consequential relief, if any, in accordance with law.
11. Following the above judgment and by relying on the CBEC circular dated 31.10.1996 mentioned above, we find that the demand on the issue is not sustainable and is therefore liable to be set aside.
12. On the second issue, we find that the service recipient M/s.CHI Limited is located in Nigeria and has no establishment/office in India. The services provided by the appellant have been used outside India and payment of service has been received in foreign convertible currency. In the circumstances, the issue is covered by the decison of this Tribunal in the case of Paul Merchant-2013 (29) STR 257 (Tri.-Del.),wherein this Tribunal has held below:-
77.The point of? difference as mentioned in Para 60 of the referral order has been answered by third Member as under :-
In view of the above discussion, the points of difference, mentioned in para 60 are answered as under :-
(i) The term export has not been defined either in Article 280(1)(b) or in any of the article of the Constitution of India. Though the Apex Courts judgments in the case of the State of Kerala v. The Cochin Coal Company Ltd. [(1961) 2 STC 1 SC] and Burmah Shell Oil Storage & Distribution Co. of India v. Commercial Tax Officer & Others reported in (1960) 11 STC 764 (SC) explain the meaning of the term export, the ratio of these judgments which are with regard to export of goods, is not applicable for determining what constitutes the export of services. There is no question of Export of Services Rules, 2005, being in conflict with Article 286(1)(b) of the Constitution of India.
(ii) The principle of equivalence between the taxation of goods and taxation of service had been laid down by the Apex Court in the case of Association of Leasing & Financial Service Companies v. Union of India (supra) and All India Federation of Tax Practitioners v. Union of India (supra) in the context of constitutional validity of levy of Service Tax on certain services. This principle does not imply that Service Tax should be levied and collected in exactly the same manner as the levy and collection of tax on goods or that export of service should be understood in exactly the same manner in which the export of goods is understood. In fact the question as to what constitutes the export or import of service was neither raised nor discussed in the above-mentioned judgments of the Apex Court. As discussed in this order, the Export of Services Rules, 2005 are in accordance with the Apex Courts ruling in the above-mentioned judgments that Service Tax is a value added tax, which in turn is a destination based consumption tax in the sense that it is levied on commercial activities, and it is not a charge on the business but a charge on the consumers. There is nothing in Export of Service Rules, 2005 which can be said to be contrary to the principle that a service not consumed in India is not be taxed in India.
(iii) What constitutes export of service is to be determined strictly with reference to the provisions of Export of Services Rules, 2005. Not doing so and leaving this question to be determined by individuals tax payers or tax collectors for each service, based on their deductive ability would result only in utter confusion and chaos.
(iv) Money transfer service is being provided by the Western Union from abroad to their clients who approached their offices or the offices of their agents for remitting money from to friends/relatives in India. The service being provided by the agents and sub-agents is delivery of money to the intended beneficiaries of the customers of WU abroad and this service is business auxiliary service, being provided to Western Union. It is Western Union who is the recipient and consumer of this service provided by their agents and sub-agents, not the persons receiving money in India.
(v) The consumer of the service provided by the agents and sub-agents of WU in India is the Western Union, located abroad who use their services for their money transfer business not the persons receiving money in India. Since the service provided is Business Auxiliary Service classifiable under Section 65(105)(zzb) read with Section 65(19) of the Finance Act, 2005, and has been provided in relation to business of Western Union located abroad, and the payment for the service has been received in India in convertible foreign currency, the same has to be treated as export of service. It is the person who requested for the service and is liable to make payment for the same who has to be treated as recipient of the service, not the person or persons affected by the performance of the service. Thus, when the person on whose instructions the services in question had been provided by the agents/sub-agents in India and who is liable to make payment for these services, is located abroad, the destination of the services in question has to be treated abroad. The destination has to be decided on the basis of the place of consumption, not the place of performance of service, in the case of this service.
(vi) Reimbursement of advertisement and sales promotion activities received from WU is not taxable as the same are for the services provided to WU, which are export of service.
(vii) ................................... The above decision has been followed in numerous judgments. One such judgment is in the case of M/s.Daikin Air Conditioning India (P) Ltd.
By following above decisions, we hold that the demand on the second issue is not sustainable.
13. In view of the foregoing, the order of the Commissioner (Adjudication) is not sustainable and the same is set aside.
14. In the result, the appeal is allowed.
(operative part of order pronounced in the court)
ASHOK JINDAL DEVENDER SINGH
MEMBER (JUDICIAL) MEMBER (TECHNICAL)
mk
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Appeal No.ST/4087/2012