DISCOUNT / INCENTIVE NOT LIABLE TO SERVICE TAX

In Mccann Erickson (India) Private Ltd., V. Commissioner of Service Tax, Delhi [2008 -TMI - 4235 - CESTAT NEW DELHI], CESTAT held that, discount received from the print / electronic media is not subject to service tax.

Facts of the Case:

The appellants render taxable service under the category of "advertising agency service". They entered into contract with their clients for providing advertisement agency service. The appellants render advertising services to various clients in the form of creative agency wherein they create advertisement by themselves or their third party media agency wherein they do media printing and /or buying for advertisement to be published in print/ electronic media.

They were receiving 15% agency commission from authorized broadcasting and print media during the period April 2000 to March 2001. The appellants had passed on the above mentioned commission to their clients.

The case of the department is that the appellants should have included the whole amount of commission received by them in the gross taxable value. Proceedings were initiated against the appellants for recovery of the differential service tax.

The adjudicating authority confirmed the demand of service tax to the tune of Rs. 1,16,29,505/- under Section 73 read with Section 78, 76 and 77 of the Finance Act 1944. read with Rule 6(1) of the Service Tax Rules.

He demanded interest under Section 75. A penalty of Rs, 100/- per day was imposed under Section 76 of the Act. Penalty of Rs. 1,16,29,505/- was imposed under Section 78 of the Act for proposing the value of taxable services. Further, a penalty of Rs. 1,000/- was imposed under Section 77 of the Act.

Decision:

In the present case, the media gives a discount of 15% to the advertising agency. If the tariff rate is Rs. 100/-, it is sufficient the advertising agency pay the media Rs. 85/- along with service tax. The service tax component received from the advertising agency in turn is remitted to the exchequer by the media agency. The appellants have demonstrated that they have not received any amount from the media. They got only a discount from them. Perhaps the word "commission" is misleading. There is actually no evidence that the said amount has been received by the appellant from the media. In any case, any amount received by the service provider from his client only is liable to service tax and not amounts received from others. The adjudicating authority has neither considered the factual position nor the legality of the entire issue. The impugned order 12/2005, dated 27.4.2005 has no merits. Since there is no service tax liability, there is no question of imposing penalty and demanding interest. Hence, we set aside the same and allow the appeal with consequential relief. 

Also see an article by Mr. M Govindarajan as:

DISCOUNT / INCENTIVE NOT LIABLE TO SERVICE TAX / EXCISE DUTY

Note:

After the change in the definition under section 65(105)(e) and section 65(3) relating to advertisement agency, the above ruling seems to be doubtful.