2019 (4) TMI 126 - AT - Service Tax

Sale of Space or Time for Advertisement - appellants were collecting money for flashing advertisements on their websites from various parties and Google Adsense. It appeared that the said amounts collected for flashing such advertisements - demand of service tax - Held that - Any service provided/to be provided to any person in relation to Sale of Space or Time for Advertisement, etc., would come under the fold of the aforesaid service category. However, on closer analysis, it is evident that the service tax can be levied only in respect of the services provided in relation to Sale of Space or Time and not for Sale of Space or Time . This has to be so, since service tax is an indirect tax, leviable only on service and not on sale of goods - The combined takeaway from the analysis of the above legal provisions will only result in the conclusion that only services provided in relation to Sale of Space or Time for Advertisement on the internet attract service tax liability under Section 65(105)(zzzm) ibid. However, the Sale of Space or Time for Advertisement simpliciter, being only a sale of goods, that cannot be brought into the fold of taxability under the above provisions of the Finance Act, 1994. The lower authorities have confirmed the tax liability on this activity of the appellant on the mistaken premise that any person who provides space in their website for advertisement through internet is squarely covered as providing a taxable service under this category of service - the lower authorities have been found to be erroneous - demand do not sustain. Support Services of Business of Commerce - demand of service tax - Held that - As admitted by the appellants themselves in their reply dated 27.07.2009 to the Show Cause Notice dated 01.04.2009, The website belongs to them (assessee), where various e-transactions are concluded and executed by Mercado. Since the transactions emanate from their website, they are entitled for a margin out of the sale proceeds . The arrangement of sharing of net margins equally on all executive orders is only a quantification of the charges that would be payable to the appellant by Mercado for each successful transaction. Mercado is only paying the appellant for the support provided by the latter for supporting their business in the cyber world - there is no infirmity in the impugned Orders of the lower authorities which have confirmed/upheld the tax liabilities in respect of these transactions under the category of Support Services of Business or Commerce. Appeal disposed off.

Summary

Issues Involved:
1. Tax liability under "Sale of Space or Time for Advertisement" service.
2. Tax liability under "Business Support Services" for Affiliate Commission.
3. Invocation of the extended period of limitation and imposition of penalties.

Issue-wise Detailed Analysis:

1. Tax Liability under "Sale of Space or Time for Advertisement" Service:

The appellants, publishers of newspapers and magazines, were also running websites where they displayed advertisements through Google Adsense. The authorities argued that the amounts collected for these advertisements were liable to service tax under Section 65(105)(zzzm) of the Finance Act, 1994. The appellants contended that they were merely selling space on their websites, which should not attract service tax as it constituted the sale of goods, not services.

The Tribunal analyzed Section 65(105)(zzzm) and concluded that the provision pertains to services "in relation to" the sale of space or time for advertisements, not the sale itself. This interpretation aligns with the Delhi High Court's judgment in M/s. Home Solutions Retails (India) Ltd. vs. Union of India, which clarified that service tax is an indirect tax on services, not on the sale of goods. Consequently, the Tribunal held that the mere sale of space on the internet does not attract service tax under the said provision. Therefore, the demands for service tax under this category were set aside.

2. Tax Liability under "Business Support Services" for Affiliate Commission:

The appellants received commissions from Mercado Online Pvt. Ltd. for promoting their business through a partnership that involved linking Mercado’s website to the appellants' website. The authorities categorized this activity under "Business Support Services" as defined in Section 65(104c) of the Finance Act, 1994, and demanded service tax.

The Tribunal found that the appellants were indeed providing operational assistance for marketing Mercado’s products by offering their website for online shopping, which falls under "Business Support Services." The Tribunal emphasized that in the modern cyber world, operational assistance can extend to providing online marketing support. Hence, the income from Mercado was liable to service tax under this category. However, the penalties imposed for these demands were set aside, considering the appellants' bona fide belief that their activities constituted a joint venture and not a taxable service.

3. Invocation of Extended Period of Limitation and Imposition of Penalties:

The appellants argued that the extended period of limitation was not applicable as there was no suppression of facts, and they had a bona fide belief that their transactions were not taxable. The Tribunal agreed, noting that the appellants had disclosed all relevant information in their books of accounts and there was no clandestine activity. Therefore, the invocation of the extended period of limitation and the imposition of penalties under Section 78 were deemed unsustainable.

Judgment Summary:

I. Appeal No. ST/185/2011:
- Demands of ?72,32,995/- and ?38,73,853/- under "Sale of Space or Time for Advertisement" Service were set aside.
- Demands of ?51,606/- and ?72,505/- under "Business Support Service" with interest were sustained.

II. Appeal No. ST/40551/2016:
- Demands of ?23,96,603/- and ?23,76,706/- under "Sale of Space or Time for Advertisement" Service were set aside.
- Demands of ?30,745/- and ?26,963/- under "Business Support Service" with interest were sustained.

III. Appeal No. ST/40678-40679/2017:
- Demands of ?28,07,834/- and ?4,71,867/- under "Sale of Space or Time for Advertisement" Service were set aside.
- Demand of ?2,164/- under "Business Support Service" with interest was sustained.

IV. Penalties:
- Penalties related to the demands under "Business Support Service" were set aside.

Conclusion:
The appeals were disposed of accordingly, with the Tribunal setting aside the demands under "Sale of Space or Time for Advertisement" Service and sustaining the demands under "Business Support Service" with interest but without penalties. The miscellaneous application for change of cause title was allowed.