2008 (12) TMI 65 - AT - Service Tax

Advertising agency services - M/s. H.K. Associates received commission on sale - No evidence have been relied upon to hold that M/s. H.K. have designed the advertisements - amounts paid to M/s. H.K. Associates by KBPL have been accounted as advertisement and sales promotion expenses. A portion of the sum so received was spent on advertisement by H.K. Associates. These facts alone can not lead to an inference that M/s. H.K. Associates have rendered the services as advertising agency

Summary

Issues:
1. Challenge to demand of service tax and penalty by M/s. H.K. Associates.
2. Department seeking modification of the order and separate penalties on various parties.
3. Interpretation of agreements between KBPL and M/s. H.K. Associates.
4. Classification of payments made by KBPL to M/s. H.K. Associates.
5. Allegations of evasion of service tax and penalties imposition.

Analysis:

Issue 1:
M/s. H.K. Associates challenged the demand of service tax and penalty imposed on them. The Commissioner confirmed the demand and penalty under sections 76, 77, and 78 of the Act. The advocate for M/s. H.K. Associates argued that the agreements were for collecting sale proceeds, not for advertising services. They contended that the amounts received were commissions, not payments for advertising. The Tribunal found that the agreements and balance sheets supported M/s. H.K. Associates' claim, allowing their appeal.

Issue 2:
The Department sought modification of the order and separate penalties on parties involved. The Department claimed that the payments made to M/s. H.K. Associates were for advertising services based on initial statements. However, the Tribunal noted that no evidence proved M/s. H.K. Associates provided advertising services. The Tribunal rejected the Department's appeals, as the agreements and balance sheets indicated the payments as commissions, not for advertising.

Issue 3:
The Tribunal analyzed the agreements between KBPL and M/s. H.K. Associates. They found that the agreements focused on collecting sale proceeds, with KBPL bearing advertisement expenses. The Tribunal noted that the balance sheets clarified the nature of payments as commissions on sales, not for advertising services. The Tribunal dismissed allegations of anti-dating agreements to evade service tax.

Issue 4:
The classification of payments made by KBPL to M/s. H.K. Associates was crucial. The Department argued that substantial amounts were paid as salary and commission to partners, indicating payment for different purposes. However, the Tribunal found no conclusive evidence to support this claim. They emphasized the lack of investigation into the services rendered by M/s. H.K. Associates and the absence of contact with dealers.

Issue 5:
Allegations of evasion of service tax and penalties imposition were addressed. The Department's claim that payments were for advertising services was refuted based on the lack of evidence. The Tribunal highlighted that actual advertising work was done by other parties, not M/s. H.K. Associates. The balance sheets and agreements supported M/s. H.K. Associates' contention that the payments were commissions for sale, leading to the dismissal of the Department's appeals.