9911796707
TMI Blog2016 (5) TMI 456X X X X Extracts X X X X X X X X Extracts X X X X ..... lume discount from the Media Owners. Applicant submits that they propose to undertake two business models, which are as under; Proposed Business Model 1- Placement of advertisement in traditional media on behalf of the advertiser Step 1- Client Contract: The Advertisers (the clients) enters into contract with the Advertising Agency (like the applicant) to advise them for placements of advertisements in various media such as radio, print, television, internet, hoardings etc., and procurement of the approved media inventory from the media owners on behalf of the Advertiser. Step 2- Preparation of Media Plan: Advertiser briefs the Advertising Agency on the requirements to be considered for preparation of the media campaign such as target audience, budget, etc. Based on the parameters provided by the Advertiser, Advertising Agency prepares a media plan. The media plan generally consists of various media options available, various estimated rates for advertisement slots on different media, estimated agency commission amount and service tax leviable on the agency commission. Step 3-Approval of the Media Plan: Advertiser evaluates the media plan from a perspective of its efficienci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y adjusts the payment made to the Media Owner from and out of advance or seeks reimbursement of costs of advertisement plus applicable taxes (including cess, if any) charged by the media owner. The Advertising Agency pays the service tax (including cess, if any) on the agency commission charged by it to the Advertiser. The Advertiser takes credit of service tax paid by the Media Owner on the cost of the media inventory, based on the taxable invoice issued in the name of the Advertiser. Further, Advertiser takes credit of service tax paid by the Advertising Agency on the agency commission, based on the taxable invoice issued in the name of the Advertiser by the Advertising Agency. Step 9- Receipt of volume discount: Post the completion of the transaction, at the year end, Media Owners, suo moto, at their sole discretion, may give incentives / volume discounts to the applicant (i.e. Advertising Agency). The parameters for providing such incentives/volume discount are decided by the Media Owner unilaterally. The payment is purely gratuitous. There is no contract executed by the Advertising Agency with Media Owners. Proposed Business Model 2 - Buying and selling of advertisement inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy) e) Service Tax(including cess, if any) on the cost of advertisement (other than non-taxable media such as print media) Advertising Agency makes the payment for the media inventory purchased from the Media Owners either from and out of the advance or from its account. The Media Owner pays the service tax (including cess, if any) on the invoice value (without the margin of the Advertising Agency). Step 8- Raising of invoice by Advertising Agency: Advertising Agency further raises an invoice on the Advertiser for the consolidated costs including the margin of the Advertising Agency and service tax (including cess, if any) (the same is agreed in the approved media plan and the estimate). The Advertising Agency takes credit of service tax paid by the media based on the taxable invoice issued in the name of the Advertising Agency. The Advertising Agency pays the service tax (including cess, if any) on the gross amount charged to the advertiser (which include both the costs to the media owner and the margin of the Advertising Agency). Step 9- Receipt of payment: Advertising Agency receives the payment from the advertiser for the consolidated amount (which includes both the cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no obligation, either contractual or otherwise, on the media owners to pay incentives / volume discounts to the applicant. Applicant further submits that the above issue was examined by the CESTAT in its order in the case of Grey Worldwide India Private Limited-2015(37) S.T.R. 597 (Tri.-Mumbai) wherein it was held that no service tax is payable on such amount (i.e. incentives / volume discounts) received by the Advertising Agency from the Media Owners; that in any event, once media owner discharges the service tax on the gross amount charged by them to the advertisers and the applicant having discharged the service tax on the agency commission received by the applicant, no further service tax will be payable as consideration for services charged by the media owners and the applicant has already suffered the service tax in full. 4. In regard to the Proposed Business Model 2, it is submitted that the applicant would be paying the service tax (including cess, if any) on the gross amount charged to the advertiser for the media inventory (except non-taxable media such as print media). The media owners would charge the applicant the service tax on the gross amount charged to the appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertisement in traditional media on behalf of the advertiser. Business Model 2 pertains to buying and selling of the advertisement inventory in non-traditional media, on his own (applicant) account. Now, we come to the issues raised by the Revenue. As far as Business Model-1 is concerned, Revenue submits that the amount received by the applicant from the Media Owner is in the nature of consideration received for the services provided and liable to Service Tax for following reasons; a) Invoices pertaining to transaction from Media Owner only mention the name of the applicant. Consequently, contractual relationship for provision of service exists only between these two parties. b) Entire amount payable to Media Owner in respect of space and time for media is payable by the applicant. c) Applicant received separate amount as consideration for the service provided to the Advertiser. 10. It is noticed that "Step 7 - Receipt of invoice from media vendor" of Business Model-1, clearly mentions that the Media Owner raises its invoices for the cost of the media inventory sold on the advertiser. Further, invoice will mention the name of advertiser and also the name of the applicant, bes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to Service Tax. Applicant submits that they will not carry out any activity for consideration. It is to be observed that in the definition of 'service', there has to be nexus between activity and consideration. In case, there is no nexus between the activity and consideration, such an activity shall not fall under the definition of "service", as the concept "activity for consideration" involves an element of contractual relationship. This relationship could be express or implied, for which the burden of proof would be on the Department. In the subject case, no iota of the evidence has been produced before us by the Revenue to indicate that there is an activity undertaken by the applicant, which resulted in Media Owner giving volume discount to the applicant, especially when the choice of selecting Media Owner is reportedly with the Advertiser and not with the Advertising Agency (applicant). Therefore, volume discount that could be received from the Media Owners by the applicant is not in relation to any activity undertaken by the applicant. Therefore, it is not service. 13. Revenue has also argued that the applicant provides Declared Service in terms of Section 66 E (e) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . There is no contractual obligation between the advertising agency and the media for provision of any services. In the absence of such a contractual obligation, it is difficult to accept the Revenue's contention that on the incentives received, the appellant is liable to service tax under BAS. This was the view taken by this Tribunal consistently in a series of decisions starting from Euro RSCG Advertising Ltd. 17. In view of the above, we rule as under; 1. In proposed Business Model 1, while the applicant shall be appointed by its clients i.e. the advertiser to provide services, incidental receipt of incentives/volume discounts from Media Owner shall not be considered to be providing a service, as defined under the Finance Act, 1994, to the Media Owner and shall not be liable to Service Tax. 2. In proposed Business Model 2, while the applicant shall buy and sell the media inventory on its own account to the advertiser, incidental receipt of incentives/volume discounts from Media Owner shall not be considered to be providing a service, as defined under the Finance Act, 1994, to the Media Owner and shall not be liable to Service Tax. 3. In view of Rulings 1 and 2 above, Q ..... X X X X Extracts X X X X X X X X Extracts X X X X
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