Custom, Excise & Service Tax Tribunal
Quadrant Communications Ltd vs Pune Iii on 22 November, 2011
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
APPLICATION NO: 1522/2010
APPEAL NO: ST/372/2010
[Arising out of Order-in-Appeal No: PIII/VM/107/2010 dated 21/05/2020 passed by the Commissioner of Central Excise (Appeals), Pune III.]
For approval and signature:
Honble Shri Ashok Jindal, Member (Judicial)
Honble Shri P.R. Chandrasekharan, Member (Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
:
No
2.
Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
:
Yes
3.
Whether Their Lordships wish to see the fair copy of the Order?
:
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
:
Yes
Quadrant Communications Ltd.
Appellant
Vs
Commissioner of Central Excise
Pune III
Respondent
Appearance:
Shri J.A. Chiplunkar, Consultant for the appellant Shri V.K. Agarwal, Additional Commissioner (AR) for the respondent CORAM:
Honble Shri Ashok Jindal, Member (Judicial) Honble Shri P.R. Chandrasekharan, Member (Technical) Date of decision: 22/11/2011 ORDER NO: ____________________________ Per: P.R. Chandrasekharan:
This appeal and stay application are directed against the Order-in-Appeal No: PIII/VM/107/2010 dated 21/05/2020 passed by the Commissioner of Central Excise (Appeals) III, Pune.
2. The appellant, M/s. Quadrant Communications Ltd., Pune is a service provider falling under the category of Advertising Agency Service. Scrutiny of the appellants records for the period April, 2006 to March, 2007 revealed that they had not discharged service tax liability on the gross amount received by them in respect of the services rendered resulting in short levy of Rs. 36,92,136/-. It was also observed that the appellant had wrongly availed CENVAT credit amounting to Rs. 20,442/- on vehicle maintenance/insurance.
2.1. Accordingly, show cause notice dated 21/10/2008 was issued demanding service tax amounting to Rs. 36,92,136/- and disallowing CENVAT credit amounting to Rs. 20,442/- under Section 73 of the Finance Act, 1994 and Rule 14 of the CENVAT Credit Rules, 2004. The show cause notice also proposed to demand interest on the above amounts and also imposed penalties under the provisions of the Finance Act. The case was adjudicated by the jurisdictional Additional Commissioner who vide order dated 23/11/2009 confirmed the demand of service tax and also disallowed CENVAT credit. He also demanded interest on the said amounts under Section 75 of the Finance Act, 1994 and imposed penalty of Rs. 36,92,136/- under Section 78 of the said Act.
2.2. The appellant preferred an appeal before the Commissioner (Appeals) who vide the impugned order rejected their appeal and hence the appellants are before us.
3. The learned counsel for the appellant makes the following submissions:
3.1. It is an accepted practice in advertising agency business to pay the bills of advertisers such as TV channels, cinema houses, hoarding suppliers for those released in respective media and subsequently recover the same from the customers while raising the bills. The ad agency gets only the agreed commission from the customers and they have discharged service tax on the said commission income. The amount included in the bills raised on the customers which is in addition to the commission charged is only towards the reimbursement of expenses actually paid by the advertising agency and the same is not a consideration for the services provided to the customers and it is only the commission received for the service is the sole consideration for the levy of service tax under Section 67 of the Finance Act, 1994. The appellant have not availed any service tax credit on the service tax paid by the advertisers. As the said credit is not at all related to the output services provided by the appellant, the customers were not charged service tax on the expense reimbursement charged in the bills.
3.2. The learned counsel also submitted a copy of the agency agreement they had entered into with one of the customers, namely, M/s. Kitchen Appliances India Ltd. and also the bills raised on the said client and also the bill raised by the advertiser on the appellant for broadcasting the advertisement on behalf of the appellants client. The learned counsel further submitted that a perusal of these bills will make it abundantly clear that they have charged their client the same amount that the broadcasting agency has charged them for broadcasting the advertisement and the only amount additionally charged is the commission amount on which they have discharged the service tax liability.
3.3. He further placed reliance on Rule 5 of the Service Tax (Determination of Value) Rules,2006. As per the said rule where any expenditure or costs are incurred by the service provider in the course of providing taxable services, all such expenditure or costs shall be treated as a consideration for the taxable services provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service. Sub-rule (2) of the said rule states that subject to provisions of sub-rule (1), the expenditure or costs incurred by the service provider as a pure agent of the recipient of service, shall be excluded from the value of the taxable service if all the following conditions are satisfied, namely:-
(i) the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured;
(ii) the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service;
(iii) the recipient of service is liable to make payment to the third party; (iv) the recipient of service authorises the service provider to make payment on his behalf; (v) the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party; (vi) the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service; (vii) the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and (viii) the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.
3.4. Learned counsel argues that what they have rendered in respect of advertisements in various media are in the capacity of a pure agent and, therefore, these costs incurred by them and reimbursed by their client cannot be added to the taxable value for the purpose of levy of service tax.
4. The learned AR appearing for the Revenue, on the other hand, reiterates the findings given in the lower appellate authoritys order.
5. After hearing the arguments, we are of the view that the appeal itself can be taken up for disposal. Accordingly, after grant of stay against recovery of dues adjudged, we take up the appeal itself for consideration and disposal.
6. We have carefully considered the rival submissions.
6.1. From the agency agreement, a copy of which has been provided by the appellant, it is seen that the client has appointed the appellant to act as an advertisement agent/consultant on the terms set out in the agreement. As per the scope of the work indicated in the said agreement, the appellant will act as an exclusive creative agency of the client for certain brands specified therein. The terms and compensation indicates that the appellant is entitled for an agency commission of 10% on gross media spent which includes print advertisement, TV advertisement, outdoor hoardings, mobile hoardings, radio and internet, etc. Artwork, creative, film production, print production, etc. will be billed as per the agencys rate card, and all other expenses incurred on behalf of the client, third party costs, etc. will be billed to the client with the agency commission at the rate of 10% of the actual cost. It is further provided that whenever the agency is required to make advance payments to models, photographers, hoarding contractors, filmmakers, etc. on behalf of the client, these shall be paid by the client in advance. From the above agreement it does not come out clearly that the agency is working as a pure agent of the client so as to attract the provisions of sub-rule (2) of Rule 5 of the Service Tax (Determination of Value) Rules, 2006 especially when the client pays the agency, advance payments for payments to be made by the agency to various others.
6.2. The value added tax practiced in India is on invoice basis. The service tax liability has to be discharged on the gross amount charged to the client and the service provider can avail Service Tax/excise duty paid on the inputs or input services used in or in relation to the provision of output service. Rule 5 of the Service Tax (Determination of Value) Rules, 2006 makes it abundantly clear that where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided and shall be included in the value for the purpose of charging service tax on the said service. Therefore, in the instant case also the appellants are liable to pay service tax on the gross amount charged from their clients in respect of the advertising agency services rendered.
6.3. However, the appellant shall be eligible to take credit of the excise duty/ service tax paid on inputs / input service used in or in relation to the provision of the output service. In the instant case, the appellant has stated that they have not availed any input service tax credit used in or in relation to the provision of output service. The appellant are, under the CENVAT Credit Rules, entitled to avail such credit, subject, of course, providing necessary documents in respect of such credit. Therefore, the matter has to be remanded back to the original authority for quantification of the service tax demand after taking into account the input/input service tax credit that the appellant will be eligible to take in respect of the output service rendered.
7. Therefore, after granting stay against the dues adjudged in the impugned order, we remand the case back to the original adjudicating authority to adjudicate the case afresh and re-quantify the service tax demand after taking into account the eligible input service tax credit that the appellant is entitled to, subject to production of necessary documentary evidence in support of their claim. Needless to say, the appellant shall be granted a reasonable opportunity to present their submission. As the issue relates to interpretation of law, we are of the view that no penalty is warranted in this case.
8. Thus, the appeal is allowed by way of remand.
(Operative part Pronounced in Court) (Ashok Jindal) Member (Judicial) (P.R. Chandrasekharan) Member (Technical) */as 9