2008 (5) TMI 258 - HC - Service Tax

Definition of the term Advertisement u/s 65(2) is inclusive one and therefore wide enough to include production and sale of advertising materials Decision of CESTAT reversed order of adjudicating authority confirmed matter remanded to determination of correct tax liability penalty waived conditional

Summary

Issues:
- Challenge to order cancelling demand of service tax
- Interpretation of definition of "advertisement" and "advertising agency"
- Determination of liability to pay service tax as an advertising agency
- Consideration of exemption under Circular dated 16-8-1999

Analysis:
The case involves an appeal by the Commissioner of Central Excise challenging the cancellation of service tax demand on the respondent, engaged in making and selling advertisements. The Tribunal had ruled in favor of the respondent, stating they are not an "advertising agency" as defined under the Finance Act, 1994. The respondent's primary argument was that their activity of making advertising materials through screen printing did not align with the definition of advertisement or advertising agency. However, the adjudicating authority and the Commissioner (Appeals) upheld the demand for service tax. The High Court analyzed the definitions of "advertisement" and "advertising agency" under Sections 65(2) and 65(3) of the Act.

The High Court noted that the respondent's activities, including making vinyl stickers, banners, boards, and other advertising materials, fell within the definition of advertisement as per Section 65(2) since they involved visual representations made for display. The Court disagreed with the Tribunal's view that advertisement always involves creative work, emphasizing that various forms of advertising, even simple ones like displaying names or logos, constitute advertisement. The Court held that the respondent's production and sale of advertising materials qualified as advertisement under the Act.

Regarding the definition of an "advertising agency" under Section 65(3), the High Court disagreed with the Tribunal's interpretation that all activities related to advertisement must be carried out by the entity to qualify as an advertising agency. The Court clarified that any commercial concern engaged in activities connected with advertisement, such as making, preparation, or display, would be considered an advertising agency. As the respondent was involved in producing and selling advertising materials based on customer orders, they were liable to pay service tax as an advertising agency.

Additionally, the High Court addressed the respondent's reliance on an exemption circular related to printing activities, stating that it did not apply since the respondent's primary business was producing and selling advertising materials, not printing work alone. The Court allowed the appeal, reversing the Tribunal's decision and restoring the Commissioner (Appeals) order. However, the Court granted the respondent an opportunity to produce necessary records for re-fixation of liability and directed the cancellation of penalty upon payment of tax with applicable interest within the specified time frame. Failure to comply would result in sustaining the original demand and penalty.

In conclusion, the High Court ruled in favor of the Commissioner of Central Excise, holding the respondent liable to pay service tax as an advertising agency based on their activities of producing and selling advertising materials, which fell within the definitions provided under the Finance Act, 1994.