2024 (5) TMI 936 - AT - Service Tax

Applicability of service tax on the transaction - Advertising Agency - service under the head sale of time or space to their clients particularly by way of electronic bill boards - revenue sharing arrangement - transactions done through the banking channel - Nature of the agreement - HELD THAT - Considering the facts on record and after going through the agreement between the parties, we find that the agreement is in the nature of Joint Venture/Partnership for sharing the profits of business to be carried out on by both the parties in mutual benefit. We further, take notice of the glaring fact on record, that the said business stood frustrated due to / Public Interest Litigation and the Order passed by Hon ble High Court dated 28.08.2007, thus the said business could not be carried on and even the business of existing bill boards of the appellant had to be shut down in larger public interest. Thus, the agreement to carry on the business was frustrated due to supervening impossibility under the provisions of the contract Act, thus the parties were no longer required to perform the obligations, as the same cannot be performed. Further, admittedly, in the changed circumstances, there has been Novation of agreement due to financial difficulty of the appellant, the parties agreed to convert the deposit made by IMPL to equity, which has admittedly been agreed upon. Thus, we set aside the impugned Review Order and confirm the Order-in-Original. Accordingly, the appeal is allowed with consequential benefits.

Summary

Issues Involved:
1. Nature of Agreement between FMPL and IMPL.
2. Taxability of Payments under the Agreement.
3. Applicability of Service Tax.
4. Validity of Extended Period of Limitation.

Summary:

1. Nature of Agreement between FMPL and IMPL:
The appellant (FMPL) entered into an agreement with IMPL on 14.01.2007 to market electronic billboards. The agreement was a Joint Venture/Partnership where FMPL set up billboards and IMPL marketed time slots. The agreement granted IMPL exclusive rights to sell advertisement time to corporate clients, and the revenue generated was to be shared between FMPL and IMPL. The Joint Commissioner concluded that the agreement was a revenue-sharing business contract, not a service provider-service receiver relationship.

2. Taxability of Payments under the Agreement:
The Show Cause Notice alleged that payments made by IMPL to FMPL were for taxable services under the category of "sale of space or time for advertisement." However, the Joint Commissioner found that the agreement did not involve the sale of space/time to IMPL but granted exclusive marketing rights. The payments were considered as part of a revenue-sharing agreement, not for taxable services.

3. Applicability of Service Tax:
The Joint Commissioner held that no taxable service of "sale of space or time for advertisement" was provided by FMPL to IMPL. The agreement was for revenue sharing, and no specific space/time was sold. The minimum guarantee amount was seen as a security-cum-binding element, not consideration for services. The Commissioner's review order was based on misinterpretation, and the Tribunal confirmed that the agreement was frustrated due to supervening impossibility following a High Court order, leading to the conversion of deposits into equity.

4. Validity of Extended Period of Limitation:
The Tribunal found that FMPL maintained proper records, was registered with the Department, and filed returns regularly. There was no case of misrepresentation or fraud, making the extended period of limitation inapplicable. The Tribunal set aside the Review Order and confirmed the Order-in-Original, allowing the appeal with consequential benefits.