2011 (11) TMI 297 - AT - Service Tax

Advertising Agency Service assesee pay the bills of advertisers and subsequently recover the same from the customers while raising the bills along with its commission - service tax paid on commission received Revenue contending levy of service tax on gross amount charged from clients Held that - Rule 5 of the Service Tax (Determination of Value) Rules, 2006 states 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. In instant case from the agreement between agency & its clients it does not come out clearly that the agency is working as a pure agent of the client. Therefore, service tax would be levied on the gross amount charged from clients. Further, appellant under the CENVAT Credit Rules is entitled to avail such credit of the service tax paid on input service used in or in relation to the provision of the output service. 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.

Issues:
1. Short levy of service tax and disallowed CENVAT credit.
2. Interpretation of the agency agreement and determination of service tax liability.
3. Applicability of Rule 5 of the Service Tax (Determination of Value) Rules, 2006.
4. Eligibility of the appellant to avail input service tax credit.

Analysis:
1. The appellant, a service provider falling under 'Advertising Agency Service', was found to have not discharged service tax liability on the gross amount received for services rendered, resulting in a short levy of Rs. 36,92,136. Additionally, the appellant wrongly availed CENVAT credit on vehicle maintenance/insurance. The jurisdictional Additional Commissioner confirmed the demand of service tax, disallowed CENVAT credit, imposed interest, and penalty. The appellant's appeal before the Commissioner (Appeals) was rejected, leading to the current appeal.

2. The appellant argued that the additional amounts charged in bills to customers were only for expense reimbursements, not for services provided, and thus not subject to service tax. They claimed to act as a pure agent based on an agency agreement, but the tribunal found the agreement did not clearly establish pure agency status. The tribunal emphasized that service tax must be paid on the gross amount charged to clients, as per Rule 5 of the Service Tax Rules, despite any expense reimbursements.

3. The tribunal analyzed Rule 5 of the Service Tax (Determination of Value) Rules, 2006, which states that all costs incurred by the service provider in providing taxable services are considered as consideration for the service and should be included in the value for service tax purposes. The appellant's argument of acting as a pure agent was not accepted as the agreement did not unequivocally demonstrate pure agency status, especially when the client made advance payments for expenses.

4. The tribunal noted that while the appellant claimed not to have availed input service tax credit, they were entitled to do so under the CENVAT Credit Rules. The case was remanded to the original authority for reevaluation of the service tax demand, considering the eligible input service tax credit. No penalty was imposed due to the interpretational nature of the issue. The appellant was granted an opportunity to present necessary documentary evidence for their claim.

In conclusion, the tribunal allowed the appeal by remanding the case for a fresh adjudication to quantify the service tax demand after accounting for the input service tax credit eligibility, emphasizing the importance of complying with service tax regulations despite expense reimbursements and agency agreements.

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