2006 (2) TMI 50 - AT - Service Tax

Service Tax Advertising agency and its client definition under Service tax Broadcasting by sale of time slots did not amount to advertising agency -Flashing of advertisement in electronic media not liable to service tax Advance Rulings are binding only on parties. The appellants receive from advertising agencies or advertiser the advertisement duly recorded on the media. The appellants do not make or prepare the advertisement. In fact, they neither have expertise nor skill required in this regard. This is done by the advertising agency appointed by the advertiser. The advertising agency already pays service tax under the heading advertising agency in connection with concerned flashing advertisement by broadcaster. Provisions of law that there can be a second levy or double levy for the same service again as an advertising agency has not been shown to us. Demand of duty and penalty set aside.

Issues Involved:
1. Classification of services provided by the appellants under 'advertising agency' services.
2. Applicability of service tax on activities undertaken by the appellants.
3. Interpretation of statutory definitions and circulars.
4. Liability of service tax for the period prior to 16-07-2001.
5. Legitimacy of extended period for demand and penalties.
6. Applicability of interest and penalties.

Issue-wise Detailed Analysis:

1. Classification of Services Provided by the Appellants:
The primary issue was whether the activities of the appellants fell under the definition of 'advertising agency' services as per Section 65(2) of the Finance Act, 1994. The appellants argued that their activities were not connected with the making, preparation, display, or exhibition of advertisements but were related to broadcasting services. The Tribunal emphasized that the definition of 'advertising agency' must be interpreted in context and not in isolation. The Tribunal referred to various judicial precedents to establish that the appellants' activities did not fit the ordinary accepted version of an 'advertising agency,' which involves planning, designing, and managing advertisements.

2. Applicability of Service Tax on Activities Undertaken by the Appellants:
The Tribunal noted that the appellants were engaged in activities such as soliciting and booking advertisements, providing advertising materials, collecting payments, and conducting market research. However, these activities were performed on behalf of foreign broadcasters and not directly for advertisers. The Tribunal concluded that the appellants' services were more aligned with broadcasting services, which became taxable only from 16-07-2001. Therefore, the appellants could not be classified as 'advertising agencies' for the period prior to this date.

3. Interpretation of Statutory Definitions and Circulars:
The Tribunal examined the statutory definitions and various circulars issued by the Central Board of Excise and Customs (CBEC). It highlighted that the definition of 'advertising agency' should not be read in an all-encompassing manner. Circulars dated 31-10-1996 and 16-08-1999 clarified that the service tax was applicable to advertising agencies involved in making, preparation, display, or exhibition of advertisements. The Tribunal emphasized that the appellants' activities did not fall within this scope as they were primarily selling time slots for advertisements on behalf of foreign broadcasters.

4. Liability of Service Tax for the Period Prior to 16-07-2001:
The Tribunal held that the appellants were not liable to pay service tax under the category of 'advertising agency' for the period prior to 16-07-2001. It noted that the definition of 'broadcasting agency' was introduced with effect from 16-07-2001, and the appellants' activities were specifically covered under this new category. The Tribunal referred to the decision in Glaxo SmithKline Pharmaceuticals Ltd., which established that the introduction of a new tariff entry implied that the coverage under the new entry was not covered by the earlier entry.

5. Legitimacy of Extended Period for Demand and Penalties:
The Tribunal found that the demand for service tax beyond the normal period of limitation was not sustainable. It held that the appellants could legitimately entertain a bona fide belief that their activities were not liable to service tax under the category of 'advertising agency' based on the circulars issued by CBEC. The Tribunal referred to the Supreme Court's decision in Padmini Products, which established that mere failure or negligence on the part of the assessee to take out a license or pay duty due to a bona fide belief would not attract the extended period of limitation.

6. Applicability of Interest and Penalties:
The Tribunal held that since the demand for service tax was not sustainable on merits and limitations, no interest was recoverable. It noted that the appellants had not collected service tax from their customers, and therefore, Section 75 of the Finance Act, 1994, which deals with the recovery of interest, was not applicable. The Tribunal also found no grounds for imposing penalties under various provisions of the Finance Act, 1994, as there was no allegation of suppression of facts or intent to evade payment of service tax. It referred to Section 80 of the Finance Act, 1994, which provides that no penalty shall be imposable if the assessee proves that there was reasonable cause for the failure.

Conclusion:
The Tribunal set aside the duty demands, interest liability, and penalties imposed on the appellants. It concluded that the appellants' activities did not fall under the category of 'advertising agency' services for the period prior to 16-07-2001 and that they were not liable to pay service tax under this category. The appeals were allowed, and the orders were set aside.

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