2024 (3) TMI 1422 - AT - Service Tax

Recovery of service tax with interest and penalty - services provided by the appellant fall under the category of Business Auxiliary Service or Advertising Agency Service or Sale of Space or Time Slot for Advertisement Service ? - quantification of Service Tax demand - Services provided by the party are exempted after introduction of Section 66D of the F A 1994 w.e.f. 01.07.2012 - invocation of extended period beyond 5 years. Computation of Demand - HELD THAT - The entire demand made in the show cause notice and the impugned order is based on presumed commission of 15% whereas the actual value of sales margin is available and on the basis of the said commission works out year wise as indicated in column 5. If the commission was even to be averaged out the same would have been only 6.67% as per the figures indicated in the SCN and impugned order on the basis of Balance Sheets/ Profit and Loss Account of the appellant. From the invoices raised by the print media on the appellant and by the appellant on their clients it is evident that normally appellants were getting discount of 15% from the print media and they were in turn passing certain discounts to their clients while billing them. In certain cases it may be that no discount has been passed and on the basis of the those document both show cause notice and impugned order presume that commission earned by the appellant is 15 %. This fact is not established either by the figures in the balance sheet nor evidenced by the invoices of the print media on appellant and the appellant on their clients. Thus the manner in which the demand has been computed by the impugned order and the Show cause Notice/ Statement of Demand are at variance and do not inspire confidence. In fact the actual discount should have been worked out on the basis of receipts and payments which are available in the audited balance sheet. Classification of Services - HELD THAT - It is evident that North Eastern Railway (NER) has raised an advertisement order upon the appellant specifying the category of the advertisement and newspapers in which the same was required to be published. News Paper Agencies in which the said advertisement was published have raised the bill on the appellant for publishing the said agreement by allowing discount of 15% to the appellant. On publication of the said advertisements appellant has raised the invoices of NER for the amounts charged by the Newspaper Agencies without allowing any discount to their client on each of the invoices raised by the Newspaper Agencies on the appellant. The name of the client is indicated as NER. From the above documents it is quite evident that appellant has purchased these spaces for publication the advertisement given by NER. In these publications on a discount of 15% and have sold the same to their clients without allowing for any discount. There are no merits in the impugned order demanding service tax on the services provided by the appellant by classifying their services under the category of Business Auxiliary Services. The services provided by the appellant would have merited classification under the category of advertising agency services and the appellants were required to pay service tax under this category on the income received under this category. It is noted in the show cause notice and the impugned order that appellant were paying service tax on the income earned that is net surplus i.e. difference of payment received and the payment made. The demand made by classifying the services provided under the category of Business Auxiliary Services on a notional value of the commission received cannot be sustained. Time Limitation - HELD THAT - As the case cannot be upheld on the merits itself the issue of limitation not considered. Penalties - HELD THAT - As the demand of tax is set aside the penalties imposed too are set aside. Conclusion - i) The appellant s services were not taxable post-01.07.2012 and that the quantification of the demand was incorrect. ii) The services provided by the appellant would have merited classification under the category of advertising agency services and the appellants were required to pay service tax under this category on the income received under this category. iii) As the case cannot be upheld on the merits itself the issue of limitation not considered. As the demand of tax is set aside the penalties imposed too are set aside. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

1) Whether the services provided by the appellant fall under the category of "Business Auxiliary Service" or "Advertising Agency Service" or "Sale of Space or Time Slot for Advertisement Service".

2) Whether the quantification of the Service Tax demand is correct.

3) Whether the services provided by the appellant are exempted after the introduction of Section 66D of the Finance Act, 1994, effective from 01.07.2012.

4) Whether the invocation of the extended period beyond 5 years is legal and proper.

5) Whether the appellant is liable to penal action for various acts of omission and commission.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Classification of Services

- Relevant Legal Framework and Precedents: The classification of services under the Finance Act, 1994, particularly under Sections 65 and 66, and the introduction of the negative list under Section 66D, are central to determining the correct classification. The Tribunal referred to precedents such as the case of M/s Varadhi Advertisers Pvt. Ltd. and others to interpret the classification.

- Court's Interpretation and Reasoning: The Tribunal found that the services provided by the appellant were more appropriately classified under "Advertising Agency Service" rather than "Business Auxiliary Service". The Tribunal noted that the appellant was engaged in the sale of space for advertisements in print media, which was not taxable under the negative list regime post-01.07.2012.

- Key Evidence and Findings: The Tribunal examined sample invoices and found that the appellant received a discount from print media, which was passed on to clients without further discounts, indicating a trading activity rather than an agency relationship.

- Application of Law to Facts: The Tribunal applied the principles from the Finance Act and relevant case law to conclude that the appellant's activities constituted the sale of space in print media, exempt from service tax post-01.07.2012.

- Treatment of Competing Arguments: The Tribunal rejected the revenue's argument that the appellant was acting as a commission agent, noting the absence of any agency agreement and the nature of transactions indicating a trading activity.

- Conclusions: The Tribunal concluded that the services provided by the appellant should be classified under "Advertising Agency Service" and were exempt from service tax post-01.07.2012.

Issue 2: Quantification of Service Tax Demand

- Relevant Legal Framework and Precedents: The Tribunal examined the methodology for calculating service tax liability, emphasizing the need for accurate assessment based on actual receipts and payments.

- Court's Interpretation and Reasoning: The Tribunal found that the demand was based on an incorrect presumption of a 15% commission, whereas the actual sales margin was significantly lower.

- Key Evidence and Findings: The Tribunal analyzed financial statements and invoices to determine the actual sales margin, which averaged 6.67%, contrary to the revenue's assumption of 15%.

- Application of Law to Facts: The Tribunal applied accounting principles and statutory provisions to correct the quantification of the service tax demand.

- Treatment of Competing Arguments: The Tribunal dismissed the revenue's methodology as lacking evidentiary support and inconsistent with financial records.

- Conclusions: The Tribunal held that the demand was incorrectly quantified and could not be sustained.

Issue 3: Exemption Post-01.07.2012

- Relevant Legal Framework and Precedents: Section 66D of the Finance Act, 1994, introduced a negative list, exempting certain services from taxation.

- Court's Interpretation and Reasoning: The Tribunal interpreted the negative list to include the sale of space for advertisements in print media as non-taxable.

- Key Evidence and Findings: The Tribunal relied on statutory definitions and clarifications to determine the scope of exempt services.

- Application of Law to Facts: The Tribunal applied the negative list provisions to conclude that the appellant's services were exempt post-01.07.2012.

- Treatment of Competing Arguments: The Tribunal rejected the revenue's contention that the services were taxable, citing clear legislative exemptions.

- Conclusions: The Tribunal concluded that the appellant's services were exempt from service tax post-01.07.2012.

3. SIGNIFICANT HOLDINGS

- Core Principles Established: The Tribunal reaffirmed the principle that services should be classified based on their true nature and statutory definitions, not presumptions. It emphasized the importance of accurate quantification of tax liabilities based on actual financial data.

- Final Determinations on Each Issue: The Tribunal set aside the demand and penalties, holding that the appellant's services were not taxable post-01.07.2012 and that the quantification of the demand was incorrect.

- Verbatim Quotes of Crucial Legal Reasoning: "The services provided by the appellant would have merited classification under the category of advertising agency services and the appellants were required to pay service tax under this category on the income received under this category."

- Conclusion: The appeal was allowed, and the impugned order was set aside, providing relief to the appellant.