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TMI Blog2001 (4) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... was against the persons who provided the services and they had to collect and pay the same. Thus, this tax could be legitimately passed on to the customers and more particularly to the persons whom the services were being offered. 4. The "services" offered by the "advertising agency" were included for the first time by Chapter VI of the Finance Act, 1997. The relevant provisions, as they stand today, after all the amendments are as under : 65 ." Definitions In this Chapter, unless the context other requires, "(1) advertisement " includes any notice, circular, label, wrapper, document hoarding or any other audio or visual representation made by means of light, sound, smoke or gas ; "(2) advertising agency " means any commercial concern engaged in providing any service connected with the making, preparation, display or exhibition of advertisement and includes an advertising consultant ; "(48) taxable service " means any service provided, (a)……… (e) to a client, by an advertising agency in relation to advertisement in any manner ; 66. Charge of service tax (1) On and from the date of commencement of this Chapter, there shall be levied a tax (hereinaft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice tax. However, if such a client is served directly by the press media or the electronic media without the intervention of an advertising agency though the client gets the identical service, the said press media or the electronic media is not taxed. This, according to the learned Counsel, amounts to "discrimination" and, therefore, the provisions of the Finance Act are challenged on the ground that they contravene Article 14. 9. One other similar challenge for the "discrimination" is that in the matter of calculation of tax, the actual expenses towards the services regarding the advertising are not excluded and the tax is charged on the "gross amount" charged by the advertising agency from its clients while, in case of other agencies such expenditure is allowed and is permitted to be deducted from the "gross amount" charged thereby, their tax liability is reduced to a considerable extent. The case of the petitioners is that this also is arbitrary. 10. Mr. Chandrasekaran, learned Senior Counsel appearing on behalf of the respondents argues that there is no question of this tax being beyond the "legislative competence" of the Parliament as the tax does not pertain to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. In paragraph 87 of his speech, the then Finance Minister has referred to the fact that the "service sector", which accounts for 40% of our Gross Domestic Product (GDP), was not subjected to the taxation and that there was a need to widen the base for domestic indirect taxes. The Finance Minister argued that there was no sound reason for exempting the service sector from taxation when "goods" are taxed and that in many countries "goods" and "services" were treated alike for the tax purposes. A reference was also made to the report of the Taxation Reforms Committee suggesting tax on "services" for broadening the base of the indirect taxes. That is how the "services" offered to begin with by telephones, non-life insurance and stock brokers came to be charged at the rate of 5% of tax. Eventually, number of other services came to be included which services were hitherto untaxed. This speech can be used by us to see the "object of the service tax" which would help us to understand the real nature thereof. In this behalf, the observations of the Apex Court in the decision reported in AIR 1981 SC 1922 ( K.P. Varghese v. I.T. Officer, Ernakulam ) are apposite. The Apex Court has app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use in Section 2 Clause (15) of the Act was relied upon by the Court for the purpose of ascertaining what was the reason for introducing that clause. The speech made by the Finance Minister while moving the amendment introducing sub-section (2) clearly states what were the circumstances in which sub-section (2) came to be passed, what was the mischief for which Section 52 as it then stood did not provide and which was sought to be remedied by the enactment of sub-section (2) was found necessary. It is apparent from the speech of the Finance Minister that sub-section (2) was enacted for the purpose of reaching those cases where there was understatement of consideration in respect of the transfer or to put it differently, the actual consideration received for the transfer was 'considerably more' than that declared or shown by the assessee, but which were not covered by sub-section (1) because the transferee was not directly or indirectly connected with the assessee. The object and purpose of sub-section (2), as explicated from the speech of the Finance Minister, was not to strike at honest and bona fide transactions where the consideration for the transfer was correctly disclosed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses its expertise in making or preparing the advertisement so that it becomes an effective advertisement. It also decides as to where it should be displayed and on what occasions it should be exhibited. It selects the place, time as also the media for flashing the advertisements. While considering the challenge to a notification whereby the commission received by the advertising agency from the media was included in the "gross amount" charged by the agency and was made taxable, a Division Bench of this Court, to which one of us (V.S. Sirpurkar, J.) was a party, repelled the challenge while considering this aspect of the services given by the advertising agency and we would choose to rely on that judgment in explaining the task undertaken by and the services provided by the advertising agencies. The tax under the present provisions is essentially only for the services and that is where it stands wholly distinct, separate and away from the territory chartered by Entry 55 of the State List (List II). That tax simply cannot be called to be a "tax on advertisements". 18. The learned Senior Counsel also argues that even if this tax is held to be integrally connected with the advertis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... television, as the case may be, the radio or television simply would flash the advertisement as per the instructions of the person concerned but such person will not get the advantage of the expertise of the advertising agency. Therefore, it cannot be said that the press media and electronic media provide the same service and, therefore, it cannot be complained that they should also be brought in the tax net like the advertising agencies. As we have already pointed out that there is ample discretion in the legislature, which discretion has been recognised and approved by the Apex Court in the celebrated decision of Federation of Hotels and Restaurants case, cited supra, wherein the following paragraph would highlight the subject : "It is now well settled that though taxing laws are not outside Article 14, however, having regard to the wide variety of diverse economic criteria that go into the formulation of a fiscal-policy legislature enjoys a wide latitude in the matter of selection of persons, subject-matter, events, etc., for taxation. The tests of the vice of discrimination in a taxing law are, accordingly, less rigorous. In examining the allegations of a hostile, discrimin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h would be paid by the client to the advertising agency for its services. It is also explained that any market survey or research conducted by the advertising agency for the purposes of advertising involves expenditure and such an expenditure would also be included in the gross amount charged. The learned Counsel points out that as against this there are some services wherein a concession is given by deducting the expenditure incurred by an agency giving the services. Our attention was invited to the "manpower recruitment agency" covered by Section 65(24) which means any commercial concern engaged in providing any service, directly or indirectly, in any manner for recruitment of manpower, to a client. Our attention was invited to an extract of a Trade Notice No. 7/97-ST, dated 4-7-1997 issued by the Mumbai Commissionerate wherein in paragraph 1.3 the following portion was relied upon. "1.3 Service tax on manpower recruitment agency shall be the gross amount charged to the client for services rendered in relation to the recruitment of manpower excluding the amount incurred by the manpower recruitment agency on behalf of the client towards expenses which are reimbursed on actual b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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