TAXABILITY OF BRAND PROMOTION SERVICES

[Dr. Sanjiv Agarwal]

Service tax has been imposed on services of promotion or marketing of ‘brand’ of goods, services, event, business entity etc. by the Finance Act, 2010 w.e.f. 1st July, 2010 (Notified vide Notification No. 24/2010-ST dated 22.6.2010). The gross amount or the contractual amount charged/received by the service provider shall be chargeable to service tax.

Promotion or Marketing

This service relates to promotion and marketing of brands of goods, services, events etc of a business entity for a consideration. While promotion or marketing of goods and services are covered under business auxiliary services, the promotion or marketing of intangibles such as name, trade name, logo, brand, etc and activities like any event which are either goods or services shall be covered under this category.

Brand Endorsements

The definition of business auxiliary service under section 65(19) [clause (i), (ii) and (vii)] adequately cover all type of sales promotion and marketing services under its fold.

As a brand ambassador, a person who is generally a known figure or a celebrity is engaged to promote or endorse the product or service of the person who engages it. The brand ambassador endorses the product which is nothing else but sales promotion or marketing of the product or services. It could be Hema Malini for Bank of Rajasthan or Shahrukh Khan for Lux soap or Amitabh Bachhan for Cadbury or Amir Khan for Coca Cola or cricket players for Pepsi or Rahul Dravid for Bank of Baroda, etc.

These persons get substantial amount as remuneration for promoting the products or services including launching thereof. It appearing that such services shall be liable to be taxed for service tax purpose. However, where a model is engaged by a person, say an event manager, such a model participating in a show does not have any nexus with the product manufacturer or service provider. Such models would therefore, will not get covered. They get their fees or honorarium from the agency which could be event manager or advertising agency.

Such services are already covered under section 65(19) in business auxiliary services. Promotion or marketing of brand itself has increased world over and inIndiatoo. The brands are becoming bigger and command substantial value, more than the product or service it represents. In contracts of brand promotion, there could be an engagement of professional public relation firms for improvising the brand image or engaging a celebrity or any person of eminence or follower-ship for acting as a brand ambassador or for brand endorsement. For example, Indian cricket team endorses the name ‘Sahara’ which is neither a product or a service but a name (brand) in itself and the “Sahara” group is engaged in many activities.

According to CBEC Circular No. 334/1/2010-TRU dated 26.2.2010, commercial advertisement has taken different shapes and forms. Apart from the advertisements in print and visual media and sponsorship, one of the recent trends is to advertise a brand (i.e. of goods, services, events, business houses bearing a particular brand name or house name) usually by using a celebrity (such as sportsperson, film stars, etc.) to associate him/her with the brand. The intended impression that is created in the minds of customers or users is that the products and services of that brand have the level of excellence comparable to that of the celebrity. Unlike in case of advertisements using models, a brand ambassador works under a contract of a reasonably long period, where under he is not only required to advertise the goods or service in different media but also to attend promotional, product launching events, make appearances in public activities related to the brand or the brand holder or use such goods or services in public. The contractual amounts are substantial and it may not only involve an individual celebrity but a group of celebrities such as a cricket team or the actors of a successful film.

Meaning of Brand

Explanation to clause (zzzzq) of section 65(105) provides the scope for ‘brand’ so as to include-

• Symbol,

• Monogram,

• Label,

• Signature, or

• Invented words

having or indicating any connection with the goods, services, brand or business entity to which such brand belongs.

Taxable Services

Section 65(105)(zzzzq) of Finance Act, 2010 defines taxable service in relation to promotion of brands as under —

“Any service provided or to be provided to any person, by any other person, through a business entity or otherwise, under a contract for promotion or marketing of a brand of goods, service, event or endorsement of name, including a trade name, logo or housemark of a business entity by appearing in advertisement and promotional event or carrying out any promotional activity for such goods, service or event”.

It may be noted that the two services viz, business auxiliary services in relation to promotion of or marketing of goods or services and promotion of brand service are two distinct services and should not be mistaken. In the former, only goods and services are covered where as in the later, promotion of brands or events without specific reference to any goods or services etc which are not goods or services are covered.

According to the aforesaid definition, following are the essential conditions for a taxable services of brand promotion –

(a) Brand promotion services could be provided by any person to any other person.

(b) It could be provided directly or through any business entity or otherwise.

(c) Service should be provided under a contract, i.e., there should be a contractual obligation for promotion of brand.

(d) Service should relate to promotion or marketing of a brand.

(e) Brand should be of any goods, service, event or endorsement of name.

(f) Name should include a trade name, logo or housemark of a business entity.

(g) Service may be provided by appearing in an advertisement and promotional event or carrying out any promotional activity for such goods, services or event.

CBEC Clarification

CBEC has vide Circular No. 334/2/2010-TRU dated 26.2.2010 to clarified as follows—

“4.2 It is important to note that promotion or marketing of sale of goods produced, provided or belonging to a client and promotion or marketing of services provided by the client are already covered under Business Auxiliary Services (BAS). Such activities would continue to remain classified under BAS. The difference between the services classifiable under BAS and the newly proposed service is that the latter has a wider coverage in the sense that mere promotion of a brand would attract tax under this service even if such promotions cannot be directly linked to promotion of a particular product or service. Many companies/corporate houses (for example Sahara, ITC or Tatas) are associated with a range of activities including production/marketing/sale of goods, provision of services, holding of events, undertaking social activities etc. If the brand name/housemark etc. is promoted by a celebrity without reference to any specific product or services etc., it is difficult to classify it under BAS. Such activities, like mere establishing goodwill or adding value to a brand would fall under this newly introduced service”.

Value of Taxable Service

Gross amount charged or the amount as agreed to in the contract by the service provider from the owner of brand or event or business entity, as the case may be for promotion for marketing of brand or endorsement of name shall be subject to levy of service tax.

Person Liable

Any person providing services of promotion or marketing of brand shall be liable to pay service tax for such services rendered.

 

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