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2018 (3) TMI 105 - AT - Service TaxShort payment of service tax - advertising agency services - CBEC circular dated 31.10.1996 - Held that - the adjudicating authority while analysing the Board Circular No.341/43/63-TRU dated 31.10.1996 has completely misread the said circular. Para 4 of the circular clearly lays down that the amount paid by the advertising agency for space and time in getting advertisement published and broadcast in print/electronic media will not be included. Valuation - includibility - service of ₹ 35,31,947/- provided to the client CHI Limited based in Nigeria - Held that - the service recipient M/s.CHI Limited is located in Nigeria and has no establishment/office in India. The services provided by the appellant have been used outside India and payment of service has been received in foreign convertible currency - demand not sustainable. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Whether the appellant is liable to pay service tax on the gross amount charged for advertising services, including amounts paid to publishers/broadcasters. 2. Whether the services provided to a client based outside India qualify as export of services and are thus exempt from service tax. Issue-wise Detailed Analysis: 1. Service Tax on Gross Amount Charged for Advertising Services: The appellant, an advertising agency, was audited, and it was found that they had not been paying service tax on the total sale amount shown in their profit and loss statement. The appellant contended that service tax was charged only on the commission. The department argued that there was no agreement on record authorizing the appellant to act as a pure agent to make payments on behalf of the recipient of its service. The appellant argued that they buy space and time on behalf of their customers in print/electronic media to release ads and make payments to such publishers/broadcasters on the customer's behalf, getting reimbursed upon submission of invoices. They charge service tax only on the commission, not on the amount paid to publishers/broadcasters. This position was supported by Circular No.341/43/63-TRU dated 31.10.1996 and Rule 5 (2) of Service Tax (Determination of Value) Rules, 2006. The Tribunal found that the adjudicating authority misread the Board Circular No.341/43/63-TRU dated 31.10.1996. The circular clarified that the amount paid by the advertising agency for space and time in getting advertisements published in print/electronic media will not be included in the taxable value. This interpretation was supported by the Hon’ble Madras High Court in Adwise Advertising Pvt. Ltd vs. Union of India-2006 (2) STR 375 (Mad.). The Tribunal also referred to its own decisions in Dabur India Limited vs. CCE, Chandigarh-2017-TIOL-2954-CESTAT-CHD and Indian Oil Corporation Ltd. vs. CCE, Mumbai-2014 (36) STR 833 (Tri.-Mumbai), which held that the amount charged by broadcasters does not form part of the taxable value of the services provided by the advertising agency. The service tax is charged only on the commission. Based on these precedents and the CBEC circular, the Tribunal concluded that the demand for service tax on the gross amount, including amounts paid to publishers/broadcasters, was not sustainable and thus liable to be set aside. 2. Export of Services: The appellant provided services worth ?35,31,947/- to a client based in Nigeria and claimed that this amount should be excluded from the total sale value as they had exported taxable services. The department did not accept this claim. The appellant argued that the services were used outside India, the client had no establishment in India, and payment was received in foreign convertible currency. They relied on the Tribunal’s decision in Paul Merchants Ltd. vs. CCE, Chandigarh-2013 (29) STR 257 (Tri.-Del.), which defined the criteria for export of services. The Tribunal found that the service recipient was located in Nigeria, had no establishment in India, and the services were used outside India with payment received in foreign convertible currency. This scenario matched the criteria for export of services as defined in the Paul Merchants case. The Tribunal also referred to other supporting judgments, including Daikin Air-conditioning India P. Ltd. vs. CCE, 2017 (12) TMI 965-CESTAT-CHD, which upheld similar claims of export of services. Based on these findings, the Tribunal held that the demand for service tax on the services provided to the Nigerian client was not sustainable. Conclusion: The Tribunal set aside the order of the Commissioner (Adjudication), finding that the appellant was not liable to pay service tax on the gross amount charged for advertising services, including amounts paid to publishers/broadcasters, and that the services provided to the Nigerian client qualified as export of services and were thus exempt from service tax. Consequently, the appeal was allowed.
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