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2016 (5) TMI 456 - AUTHORITY FOR ADVANCE RULINGS

2016 (5) TMI 456 - AUTHORITY FOR ADVANCE RULINGS - 2016 (46) S.T.R. 820 (A. A. R.) , [2016] 93 VST 120 (AAR) - Advertising agency service on commission basis - promotion or marketing services to the Media Owners or not - Revenue submits that as far as proposed Business Model-1 is concerned, the volume discount received by the applicant for the services provided to the Media Owner is liable to Service Tax. - Two business models - Model (1) Placement of advertisement in traditional media on behalf .....

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d 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. - In both the Models, there is no service tax liability. - Ruling No. AAR/ST/11/2016, Application No. AAR/44/ST/31/2013 - Dated:- 22-4-2016 - V. S. Sirpurkar (Ch .....

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such clients as a consideration for provision of its services. While the applicant shall provide services only to Advertisers, depending on the quantum of its advertisements placed by the applicant on various medium, the applicant could be entailed to an incentive/ volume 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 St .....

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ch 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 efficiencies, expenditure, etc. Upon the evaluati .....

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ency to place the advertisement on various media on behalf of the Advertiser. Step 5- Issuance of Release Order by Advertising Agency: Based on the approved estimate, Advertising Agency issues a release order on various Media Owner, on behalf of the Advertiser for placement of the advertisement and costs of the advertisement is generally received by the Advertising Agency in advance. Step-6 Monitoring of campaign: Advertising Agency monitors the display of the advertisement on the various media .....

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f the Advertiser b) Details of the advertisement displayed c) Name of the Advertising Agency involved d) Costs of advertisement placed (less agency commission) e) Service Tax(including cess, if any) on the cost of advertisement placed (other than non-taxable media such as print media) Advertising Agency makes the payment for the media inventory to the Media Owners on behalf of the Advertiser after retaining its commission. The Media Owner pays the service tax (including cess, if any) on the invo .....

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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 Advertise .....

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ying and selling of advertisement inventory in non-traditional media, on its own account Step 1- Client Contract: Advertising Agency is contractually engaged by the Advertiser to advise them with regard to media planning and placements of advertisements in various media. Step 2- Preparation of Media Plan: Advertiser brief 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 A .....

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rtiser may make such amendments to the media plan as may be deemed appropriate. Post incorporation of the amendment required in the media plan, Advertiser finalises and approves the media plan prepared and submitted by the Advertising Agency. Step 4- Issuance of Estimates by Advertising Agency: Based on the approved media plan, the Advertising Agency issues an estimate to the Advertiser for the costs of the advertisements (which include the margin of the Advertising Agency) for its approval. Ste .....

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ement to the Media Owner and the advertiser. Step 7- Receipt of invoice from media vendor: The Media Owner raises its invoice for the cost of the media inventory sold on the Advertising Agency. The invoice typically provides the following details: a) Name of the Advertising Agency b) Name of the Advertiser c) Details of the advertisement displayed d) Costs of advertisement placed (less margin of Advertising Agency) e) Service Tax(including cess, if any) on the cost of advertisement (other than n .....

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ency 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: Advertisi .....

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This payment is purely gratuitous. There is no contract executed by the Advertising Agency with Media Owners. 2. Applicant has raised following questions before this Authority for rulings; Question 1 - Under proposed Business Model 1, while the applicant shall be appointed by its clients i.e. the advertiser to provide services, will incidental receipt of incentives/volume discounts from Media Owner shall be considered to be providing a service, as defined under the Act, to the Media Owner and sh .....

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course of providing advertisement placement services to its client, then on what value should the Service Tax be applicable under the Act? 3. Applicant inter-alia submits that the incidental receipt of incentives / volume discounts by the applicant from the Media Owners are gratuitous payment and not for providing services; that no service tax is payable on such incentives; that the applicant does not enter into any contract for provision of service with the Media Owners; that the applicant pla .....

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bligation, 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 .....

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ed 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 applicant. Any incentives / volume discount received by the applicant from Media Owners post the issuance of the taxable invoice on the applicant for the gross amount charged to the applicant, no service tax will be payable on the said incentive / volume discount as the service tax, at the first instance, will .....

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does not provide any Declared Services under Section 66E of the Finance Act, 1994 and are not undertaking any activity for consideration for Media Owners. 6. Revenue submits that as far as proposed Business Model-1 is concerned, the volume discount received by the applicant for the services provided to the Media Owner is liable to Service Tax. Revenue further submits that reasons for this conclusion that invoices from Media Owner only mentions the name of the applicant, thus there is contractua .....

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e total sale price invoiced to the Advertiser. Revenue concludes that in this Business Model 2 also, applicant is required to pay Service Tax on the amount received from the Media Owner treating said amount as consideration for the services provided. 8. In relation of Question No. 3 raised by the applicant, Revenue submits that unless the terms of the contract are known, it is not possible to offer specific comments. 9. It is observed that applicant has given two proposed business models, as far .....

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r 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 .....

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submission of Revenue that the entire amount is payable to Media Owner in respect of space and time for media by the applicant, is also incorrect. In Step 7 of Business Model-1, it has been made amply clear that Advertising Agency (applicant) makes the payment for the media inventory to the Media Owners, on behalf of the Advertiser after retaining its commission. It is further alleged by the Revenue that applicant received separate amount as consideration for the services provided to the Adverti .....

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price invoiced to the Advertiser; that applicant is entitled to avail CENVAT credit of Service Tax paid to the Media Owner for purchase of media inventory. Applicant has confirmed that they would be paying 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); that Advertising Agency would take credit of Service Tax paid by the Media Owner on taxable invoice issued in the name of Advertising Agenc .....

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y one person for another c) for consideration and in the present case, all 3 ingredients are satisfied, thus service provided to Media Owner by the applicant will be liable 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 definiti .....

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dly 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 Finance Act, 1944 to Media Owners. Section 66E (e) reads as under; 66E. The following shall constitute declared services, namely; (e) a .....

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viding declared services to the Media Owner. 14. Revenue has raised another issue that applicant provides promotion or marketing services to the Media Owners by giving preferential treatment to the Media Owners, which provide volume discounts / incentives. It is noticed by us that Media Owners are not under any legal obligation to pay volume discounts and it is purely discretionary on the part of Media Owners. Applicant is not carrying out any activity to promote any Media Owner s business. Furt .....

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