2019 (2) TMI 1310 - AT - Service Tax

Classification of services - Advertisement agency service or not - monthly printing charges - appellant had charged service tax on 5% of the billed amount and discharged VAT @ 4% on 95% of the billed amount - Department took the view that appellants should have treated the entire transaction as towards provision of taxable services under the category of Advertising Agency and discharged the service tax on the entire value - Held that - The services provided, for being exigible to service tax liability would have to be one which is connected with the making or preparation of an advertising or its display or exhibition. It is therefore relevant to examine whether the appellants provided any such service where the activity of the appellant would then fall under any of these categories - Surely it cannot be said of the appellants that they had prepared advertising material on their own. On the other hand, the facts clearly indicate that the basic market promotional material as per the approved design lay out by Reader s Digest had been given to the appellants for getting them printed in approved material. Appellants were only required to procure the material including paper, get the subject matter printed on to such paper with personalization for individual clients and post/despatch the material as per the mailing schedule. It cannot also be said of the appellants that they were engaged in display or exhibition or for that matter that they were Advertising Consultant for Reader s Digest. This agreement is a Master Agreement and not the local country agreement. Be that as it may, what comes out of para.4.02 is that the appellant is required to create specification sheet and project documents subject to Reader s Digest approval. . From such activity, it cannot be concluded that appellants were engaged in making or preparing advertisement per se - the end product on which advertisement has been printed and communicated to the clients of Reader s Digest in a personalized form is to be of dimensions which are approved by the postal authorities. None of the other functions included in para 4.02 bear any remote connection to making or preparation of advertisement or for that matter, display of such advertisement. We are certainly not enthused by the attempt of the department to straightjacket the appellants into the category of Advertising Agency Service . This is not to say that activity provided by appellants does not fall under any taxable category listed out during the period of dispute in the Finance Act, 1994, but Advertising Agency Service itself they certainly are not. The impugned order to the contrary confirming the demand of service tax liability on the appellants under the category of Advertisement Agency Service cannot sustain and will require to be set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Classification of services provided by the appellants to Reader's Digest as taxable services of "Advertising Agency" under Section 65(105)(e) of the Act, demand of service tax, interest, and penalties imposed.

Analysis:
The case involved the appellants providing manpower supply services to clients, including Reader's Digest, through a Master Agreement with the parent company. The department alleged that the appellants provided composite services akin to an advertising agency, leading to a show cause notice for service tax demands. The appellants contended that their services were composite, involving goods and services, and not typical of an advertising agency. They argued that the value of goods supplied should not be part of the taxable service value, citing Notification No.12/2003 and relevant case laws.

The tribunal examined the definitions of "Advertisement," "Advertising Agency," and "Taxable Service" under the Finance Act, 1994. The appellants' services were analyzed to determine if they fell under the category of services connected to the making or preparation of advertisements. The tribunal noted conflicting interpretations by the department and appellants regarding the nature of services provided, especially in relation to advertising activities.

The tribunal found that the appellants' services did not align with the definition of "Advertising Agency Service." While the department alleged composite services under various categories, the tribunal concluded that the services did not merit classification as "Advertisement Agency Service." The tribunal highlighted discrepancies in the department's conclusions and set aside the demand for service tax liability under the "Advertising Agency Service" category.

In conclusion, the tribunal allowed the appeal, overturning the service tax liability imposed on the appellants as an advertising agency. The judgment provided consequential benefits to the appellants as per the law, emphasizing the need for a clear alignment between the nature of services provided and the applicable tax categorization.

This detailed analysis of the judgment showcases the dispute over the classification of services and the tribunal's decision to set aside the demand for service tax liability under the "Advertising Agency Service" category.