Document Fragment View

Matching Fragments

8. The second challenge to the constitutional validity of the impugned legislation is on the basis of article 14 of the Constitution of India. The argument is rather novel. The contention is that the legislature has 'discriminated' the advertising agencies like the petitioners vis-a-vis the press media and the electronic media. The argument is that if a service is given as contemplated in the Act by the advertising agency, the advertising agency has to pay the service tax. However, if such a client is served directly by the press media or the electronic media without the intervention of an advertising agency though the client gets the identical service, the said press media or the electronic media is not taxed. This, according to the learned counsel, amounts to 'discrimination' and, therefore, the provisions of the Act are challenged on the ground that they contravene article 14.

17. In this behalf, the learned counsel for the petitioners very fervently argue that if the advertisement is not floated or given, there would be no question of the tax and, therefore, this tax has to be described as a 'tax on advertisements'. The wording of Entry 55 does not support the contention. When we read the provisions of section 65(1) and (2) and section 65(48)(e), it is clear that this tax does not depend upon the advertisement. Even if widest possible interpretation is taken of Entry 55, it cannot amount to a tax on advertisement. The impost of the tax on advertisement would be essentially on a person, who gives the advertisement or the media which publishes such advertisement. We are not concerned with the subject here. The present impost is, however, not on the person who gives the advertisement but the impost is on the agency, which is a commercial concern and is engaged in providing the services connected with the making, preparation, display or exhibition of the advertisements in any manner, whether it be a newspaper advertisement or a hoarding or an audio or video advertisement. The advertising agency uses its expertise in making or preparing the advertisement so that it becomes an effective advertisement. It also decides as to where it should be displayed and on what occasions it should be exhibited. It selects the place, time as also the media for flashing the advertisements. While considering the challenge to a notification whereby the commission received by the advertising agency from the media was included in the 'gross amount' charged by the agency and was made taxable, a Division Bench of this court, to which one of us (V.S. Sirpurkar, J.) was a party, repelled the challenge while considering this aspect of the services given by the advertising agency and we would choose to rely on that judgment in explaining the task undertaken by and the services provided by the advertising agencies. The tax under the present provisions is essentially only for the services and that is where it stands wholly distinct, separate and away from the territory chartered by Entry 55 of the State List (List II). That tax simply cannot be called to be a 'tax on advertisements'.

21. In the first place, let us first see where a person gets his advertisement flashed in the press media or electronic media, can it be said to be a service. In our opinion, it could certainly not be said to be a service provided by the press media or electronic media. There is nothing done excepting flashing a prepared advertisement by the press media or for that matter electronic media. The decision as to how and in what format the advertisement should be, how it should be projected, at what point of time it should be flashed, in which areas it should be exhibited or the manner in which it should be drafted and exhibited has got nothing to do with the press media or electronic media. That would be the task of 'advertising agency' alone. Therefore, when we consider the situation, where a client goes to the press media and asks for flashing of the advertisement and such advertisement is flashed in the media, this cannot be deemed to be a service provided by that media to such a client. Similarly, when a person approaches the electronic media and flashes an advertisement on the radio or television, as the case may be, the radio or television simply would flash the advertisement as per the instructions of the person concerned but such person will not get the advantage of the expertise of the advertising agency. Therefore, it cannot be said that the press media and electronic media provide the same service and, therefore, it cannot be complained that they should also be brought in the tax-net like the advertising agencies. As we have already pointed out that there is ample discretion in the legislature, which discretion has been recognised and approved by the Apex Court in the celebrated decision of Federation of Hotels & Restaurant case (supra), wherein the paragraph would highlight the subject :

We do not find any 'hostile discrimination' being even distantly spelt out as against the advertising agencies.

22. It was tried to be suggested that the advertising agency makes some expenditure for preparation of display of exhibition of advertisement, perhaps the staff of the advertising agency has to undertake the travel, has to get the assistance of the artists who are required to be paid and some times the agency has to spend enormously in preparation of a proper advertisement but, such expenditure is not exempted. The learned counsel invited our attention particularly to the extract of a Trade Notice No. 1 of 1996-ST, dated 31-10-1996. This seems to have been issued by the Mumbai Commissionerate. In paragraph 2 thereof, the department has taken a stand that in relation to an 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 the advertisements, which would 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. It is then pointed out in the same notification, that the amount paid by the advertising agency for the space and time in getting the advertisement published in the print media or the electronic media would not be includible in the value of taxable service. However, the commission earned by it would undoubtedly be includible in the gross amount charged. We have already pointed out that we have already taken the view that such commission can be legitimately included. In paragraph 3 of this notification, the department has taken a view that any such expenditure cannot be excluded and would be taxable as that would be the ultimate amount, which would be paid by the client to the advertising agency for its services. It is also explained that any market survey or research conducted by the advertising agency for the purposes of advertising involves expenditure and such an expenditures would also be included in the gross amount charged. The learned counsel points out that as against this there are some services, wherein a concession is given by deducting the expenditure incurred by an agency giving the services. Our attention was invited to the manpower recruitment agency' covered by section 65(24) which means any commercial concern engaged in providing any service, directly or indirectly, in any manner for recruitment of manpower to a client. Our attention was invited to an extract of a trade notice No. 7/97-ST, dated 4-7-1997 issued by the Mumbai Commissionerate wherein in paragraph 1.3, the following portion was relied upon :