Service Tax on advertising, courier and pager services - Service Tax - Trade Notice No. 114/96

Attention of the trade is invited to Section 85 of the Finance (No. 2) Act, 1996 which provides for charging of service tax on the services rendered by advertising agencies, courier agencies and pagers. Levy of service tax on these services will come into force from 1-11-1996. ( Notification No. 6/96-ST, dated 31-10-1996 refers). Notification No. 7/96 have been amended to define the person responsible for collecting the Service Tax in relation to advertising, courier and paging services. Notification No. 7/96-ST dated 31-10-1996 , may please be referred to in this regard. 2. In the context of these three services certain points have been raised for clarification which are discussed below :- Advertising Agencies 3. The expression advertising agency has been defined to mean any commercial concern engaged in providing any services connected with the making, preparation, display or exhibition of advertisements and includes an advertising consultant. It would, thus, be noticed that the scope of the service which is included in the tax net extends not only to any service connected with making, preparation of advertisements but also includes any service connected with display or exhibition of advertisements. 4. It is further to be clarified that in relation to advertising agency, the service tax is to be computed on the gross amount charged by the advertising agency from the client for services in relation to advertisements. This would, no doubt, include the gross amount charged by the agency from the client for making or preparing the advertisement material, irrespective of the fact that the advertising agency directly undertakes the making or preparation of advertisement or gets it done through another person. However, the amount paid, excluding their own commission, by the advertising agency for space and time in getting the advertisement published in the print media (i.e. Newspapers, periodicals etc.) or the electronic media (Doordarshan, private TV Channels, AIR etc.) Will not be includible in the value of taxable service for the purpose of levy of serviced tax. The commission received by the advertising agency would, however, be includible in the value of taxable service. 5. A question has been raised whether any expenses incurred by the advertising agency on account of travel, transportation and stay in hotels etc. is to be excluded for computing the value of taxable service. The answer to this question lies in the negative. As explained above, the value of taxable service is the gross amount charged by the advertising agency in relation to the services rendered to his client. The charges aforesaid are thus clearly includible in the value of taxable service. 6. It has been represented that in some cases the advertising agency do market research for the client and a question has been raised whether the expenses incurred on market research by the advertising agency are to be excluded from the value of taxable service. In this context, it is clarified that if the market research relate to advertisement then the market research forms part of the service in relation to advertisement and all expenses charged from the client on this account are includible in the value of taxable service. 7. It has been mentioned that in the case of foreign TV channels certain amount is charged directly to the clients by the foreign TV channels in foreign currency. As regards the inclusion of such payments in the value of taxable service, such amounts paid directly by the client in foreign currency are not includible as these amounts are not charged by the advertising agency from the clients. 8. It has been represented that in many cases the advertising agency gets a documentary or film prepared by an independent film producer on behalf of the client. In such cases, the film producer deals with the advertising agency and the payment to him is also made by the advertising agency and not by the client directly. Ultimately, however, the advertising agency charges the client for the amount paid to the film producer. Under these circumstances a question has been raised whether the film producer is also liable to pay service tax on the documentary or film prepared by him in relation to an advertisement. In this connection, it is relevant to note that taxable service is a service provided to a client by an advertising agency in relation to advertisement in any manner. Client is the advertiser. Therefore, in this case the advertising agency cannot be considered as a client when the definition of taxable service in relation to advertisement is interpreted in proper context. Accordingly, it is clarified that a film producer in this case is not liable to service tax. However, the advertising agency will no doubt include the expenses incurred on getting the film or documentary produced on behalf of the client in the gross amount charged from the client on which service tax will be collected by the agency. it goes without saying that if the film producer chooses to charge the client directly for the film or documentary produced by him then the film producer is to be regarded as having rendered service to the client in relation to advertisement and he will, therefore, be liable to pay service tax accordingly. 9. A doubt has been raised whether service tax becomes payable even if the client does not make the payment to the advertising agency. In this context, it is clarified that the advertising agency is legally bound to collect and pay service tax. However, if the advertising agency fails to collect the service tax, the responsibility for payment of tax lies on the advertising agency. The advertising agency, therefore, cannot claim any exemption from payment of service tax on the ground that the same was not paid by the client. 10. A point has been raised whether Directorate of Audio and Visual Publicity (DAVP) in the Ministry of Information and Broadcasting is liable to pay service tax on services rendered by it to the different Departments of the Central Government in relation to Government advertisements. It is clarified that DAVP not being a commercial concern is not liable to pay service tax. 11. Points have been raised about the scope of the term courier agency. Courier agency has been defined to be a commercial concern engaged in the door to door transportation of time sensitive documents, goods or articles, utilising the services of a person, either directly or indirectly, to carry or accompany such documents, goods or articles. It is thus to be seen that any commercial concern engaged in the activity described above is a courier agency for the purposes of Section 85 of the Finance (No. 2) Act, 1996 and it is not relevant whether such commercial concern describes itself as a courier agency or not. What is of significance is that once the commercial concern falls within the definition of the term courier agency it is liable to pay the service tax on the services provided by it. 12. As regards to the scope of courier agency, the definition is quite elaborate and self-explanatory. Moreover, courier agencies are clearly identifiable by virtue of the nature of business performed by them in the matter of delivery of time sensitive documents, goods or articles. The nature of their business is quite distinct from the ordinary transporters which carry goods from one place to another place. What distinguishes the commercial concern as courier agency from an ordinary transporter is the service provided by it in the door to door transportation of time sensitive documents, goods or articles. 13. It has been pointed out that some transporters also undertake the door to door transportation of goods or articles and they have also made special arrangements for speedy transportation and timely delivery of such goods or articles. In fact, many of them advertise themselves as Express Cargo Service giving assurance of delivery within the stipulated time period. The nature of service thus provided by these transporters is not different from the service provided by the conventional courier agencies. Therefore, these express cargo services are also liable to pay service tax. 14. It may be clarified that only such agencies fall within the scope of the term courier agency which are commercial concerns. The term commercial concern does not include a Government department within its scope. Accordingly, the Speed Post Services provided by the Department of Posts do not attract service tax. 15. It has been pointed out that in some cases one courier agency, who undertakes to deliver the documents, goods or articles received from customers, utilises the services of another company for in-transit movement of such documents etc. from one point to another. These are, technically, called co-loaders. The co-loader undertakes to transport the documents, goods or articles on behalf of the courier agency and charges the courier agency for such services. A question has been raised whether under these circumstances the co-loaders are also liable to pay service tax. 16. In this context, it is clarified that co-loaders provide service to the courier agencies as such. They do not provide directly any service to the customer who gives the documents, goods or articles to the courier agency for their delivery to the consignee. What is chargeable to service tax is the service provided by courier agency to the customer. In this case, the courier agency being not a customer as such, the service provided by co-loader to the courier agency is not chargeable to service tax. It is significant to point out that the charges of the co-loaders to the courier agency for in-transit movement of goods, documents or articles are in any case ultimately recovered by the courier agency from the customer and these charges are included in the gross amount charged by the courier agencies from customers on which the service tax is computed. 17. As regards the value of taxable service it is the gross amount charged by the courier agency from the customer for services in relation to door to door transportation for time sensitive documents, goods or articles. The service tax is, therefore, to be computed on the gross amount charged by the courier agency from the customers. 18. A question has been raised whether courier agency is liable to pay service tax on the transportation of documents, goods or articles which are sent abroad. In this context, it is clarified that the courier agency is liable to pay service tax on the gross amount charged in India from the customer even if the documents, goods or articles are delivered abroad. However, in respect of documents, goods or articles which have been received from abroad and delivered to a customer in India, the courier agency is not liable to pay any service tax provided that the customer in India is not charged by amount for delivery of such documents, goods or articles in India. 19. It has been represented that some courier agencies undertake comprehensive business and provide integrated transportation, warehousing, packing, inventory management, etc. Doubts have been expressed whether courier agencies are liable to pay service tax in respect of service provided in relation to warehousing, packing, inventory management, etc. It is clarified that where even the above facilities are relatable to door to door transportation and are undertaken by the courier agencies themselves, the charges for such facilities are also includible in the gross amount and service tax collected accordingly. Pagers 20. It is gathered that in the case of paging services, the telegraph authorities normally charge the subscriber in advance on a quarterly basis for the paging service provided. The service tax will be chargeable on the gross amount charged form the subscriber. Payment of Service Tax 21. It may be mentioned that the service tax is applicable on any service which is provided on or after 1-11-1996. However, it is provided in Section 68(2) of the Finance Act, 1944 that a person responsible for collecting the service tax is required to pay the service tax collected during any calendar month to the Government account by the 15th of the next month. Accordingly, what is actually collected by the advertising agency in a given month as service tax from its clients has, of course, to be deposited to the account of the Central Government by the 15th of next month. It has been decided that notwithstanding the provisions of Section 68(3) of the Finance Act, 1994 , an advertising agency may be asked to pay the tax collected in a given month and not the amount of tax payable on the bills raised in that month. Nevertheless, the legal liability to pay the tax on the bills raised during the month lies on the advertising agency. This not only applies to advertising agencies (including hoarders) but also to courier agencies and pagers as well. Rule 6 of the Service Tax Rules, deals with payment of Service Tax. The existing Banks authorised to collect Central Excise duties in each of the Commissionerate will undertake the collection work of Service Tax. State Bank of India is authorised to collect Service Tax in this Commissionerate. A copy of TR-6 form is enclosed for the purpose of deposit of service tax. The service tax will be deposited under the head 0044 . Registration 22. As per Section 69 of Chapter V of the Finance Act, 1944, read with Rules 3 and 4 of Notification No. 2/94-S.T., dated 28th June, 1994 every person responsible for collecting the service tax is required to be registered with the concerned Central Excise Officer appointed under rule 3. Notification No. 2/94-S.T., dated 28th June, 1994 is being amended to provide that the person responsible for collecting the service tax in relation to the services provided by an advertising agency which raise the bills for services rendered to a client. Thus, where the bills are raised by a regional office for all its branches under that region, the regional office alone may be registered and not the individual offices which do not raise the bills. Similarly, if the Head office of the advertising agency has a centralised billing system in respect of services rendered to clients from each of the branches, the Head office alone may be registered. In case the day-to-day billing is not centralised at the regional office or at the Head office and there is merely a reconciliation of the accounts and business done from each of the offices on a periodical basis, each office has to be registered and pay the service tax. Same procedure applies to courier agencies. The assessees will apply for registration in Form ST-1 An acknowledgment will be provided on the duplicate copy of the ST-1 form by the Superintendent of Central Excise, in whose jurisdiction the assessees operate. The registration certificate will be granted in Form ST-2 within 7 days from the date of receipt of application for registration. If the registration certificate is not granted within the said period the registration applied for shall be deemed to have been granted. 23. For the convenience of the assessees the following are enclosed : (i) Chapter V of the Finance Act, 1994 (ii) Service Tax Rules, 1994 (iii) TR 6 Form. 24. In case of any difficulty, the assessees are requested to contact the jurisdictional Assistant Commissioner of Central Excise, or Superintendent of Central Excise, or this office. [F. No. 341/43/96-TRU]