2011 (5) TMI 527 - AT - Service Tax

Advertising agency service - 15% discount given by the media as earning by the appellant - service tax demand - Held that - 15% of the discount shown cannot be considered as a commission actually paid to the appellant and the same is only a pricing mechanism and what they actually receive from the clients, which ranges from 2.5% to 15%, is the service charges received by them. It is not disputed that the appellants have paid service tax on the actual amount of agency commission received by them. Therefore, commission is not includible in gross taxable value because amount received by the service provider from his client only is liable to service tax & not amounts received from others - See McCann Erickson (India) Pvt. Ltd. Vs. CST, Delhi 2008 (1) TMI 137 - CESTAT NEW DELHI - decided in favour of assessee.

Summary

Issues:
Interpretation of service tax liability on discounts received by an advertising agency from media companies.

Analysis:
The appeal before the Appellate Tribunal CESTAT, New Delhi challenged the order of the Commissioner regarding the service tax liability on discounts received by an advertising agency from media companies. The appellant, an advertising agency, entered into contracts with clients for arranging advertisements in print and electronic media. They received a 15% discount on the bills raised by the media companies, which they then passed on to their clients along with their commission ranging from 2.5% to 15%. The Department contended that the 15% discount should be considered as earnings by the appellant, thus attracting service tax.

The appellant relied on a previous decision of the Tribunal in the case of McCann Erickson (India) Pvt. Ltd. Vs. CST, Delhi to support their position. The Department, represented by the Ld. DR, reiterated the findings of the Commissioner in favor of imposing service tax on the discount received by the appellant. However, the Tribunal, comprising M Veeraiyan and M Ravindran, held that the 15% discount should not be considered as commission paid to the appellant but rather as a pricing mechanism. The actual service charges received by the appellant from their clients, ranging from 2.5% to 15%, were subject to service tax, which the appellant had already paid.

The Tribunal's decision was supported by the precedent set in the case of McCann Erickson (India) Pvt. Ltd., reinforcing the view that the discount received should not be treated as commission earned by the appellant. Consequently, the Tribunal set aside the Commissioner's order and allowed the appeal, providing consequential relief in accordance with the law.