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TMI Blog2024 (5) TMI 936X X X X Extracts X X X X X X X X Extracts X X X X ..... the business was frustrated due to supervening impossibility under the provisions of the contract Act, thus the parties were no longer required to perform the obligations, as the same cannot be performed. Further, admittedly, in the changed circumstances, there has been Novation of agreement due to financial difficulty of the appellant, the parties agreed to convert the deposit made by IMPL to equity, which has admittedly been agreed upon. Thus, we set aside the impugned Review Order and confirm the Order-in-Original. Accordingly, the appeal is allowed with consequential benefits. - MR. ANIL CHOUDHARY, MEMBER (JUDICIAL) AND MR. A.K. JYOTISHI, MEMBER (TECHNICAL) Shri Y Sreenivasa Reddy, Advocate for the Appellant. Shri Wagh Chittaranjan Prakash, Authorised Representative for the Respondent. ORDER The appellant (FMPL for short) started their business in the year 2006 as an Advertising Agency and they were registered with the Service Tax Department providing service under the head sale of time or space to their clients particularly by way of electronic bill boards operated by them. Accordingly, appellant was discharging the service tax liability and filing the returns. 2. Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay, throughout the year. Any down time exceeding 3 hours a day would result in pro-rata reduction of the minimum guarantee amount. The rational behind this clause was that if the boards were not functional, IMPL s clients who had booked timeslots, would naturally not pay for non-display of their advertisement and thus the revenue generation would be effected. 5. However, IMPL failed to market the bill boards as planned and the appellant continued to sell time slots to local clients and run the bill boards and also paid service tax thereon. IMPL wrote a letter to appellant dated 29.03.2007 and 02.05.2007 explaining the reasons for their failure and requested the appellant to convert the amount paid by them under the agreement into equity in the appellant company. The said business of selling time slots on the bill board was frustrated in August 2007, when the bill boards were shut down by Order of the High Court in a Public Interest Litigation, on the safety aspect, vide Order dated 28.08.2007, a copy of this order is enclosed in the appeal paper book. Thus, the appellant was also unable to provide the availability of bill boards to IMPL, for sale of advertisement or time slots. 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. They entered into an agreement dated 14.01.2007 with M/s IMPL and M/s IMPL, in pursuance of the said agreement, made certain payments to them. It is alleged in the Show Cause Notice that the said payments are in lieu of taxable service provided or to be provided and, accordingly, the service tax is chargeable under the category of sale of space or time for advertisement . Refuting the allegation, M/s FMPL have submitted that the agreement with M/s IMPL was revenue sharing business contract ; the amount received by them was not in lieu of taxable services provided or to be provided. 17. I have carefully considered the matter in dispute. The nature and essence of the agreement between M/s FMPL and M/s IMPL is the crux of the matter. What is to be decided is whether (i) the relationship between M/s FMPL and M/s IMPL can be said to be that of service provider and service receiver (ii) the activity/transaction in between FMPL and IMPL is a taxable service under Sale of space or time for advertisement and so as to attract the service tax liability. 18. Regarding (ii), I find that the agreement nowhere refers or affirms that any space or time is provided/sold to IMPL by FMPL. In fact, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be acting as a partner/agent who will bring corporate client to FMPL. This is further made clear by para 10 of the agreement which stipulates that IMPL shall be exclusive partners of FMPL for sale of commercial space to corporate clients. Clearly, the agreement is not for selling the space in bulk to IMPL. That the nature of the agreement is a revenue sharing partnership agreement is further clear from the first condition of the agreement which provides as under: FMPL hereby grants an exclusive right of Selling Advertising time to corporate clients on the Five Screens put up in Hyderabad, to IMPL. M/s IMPL shall be finalizing the sale agreements for all the five screens and shall be responsible for the recovery of the revenues from each screen from its corporate clients for M/s FMPL. Corporate clients would mean Body corporate within or outside Hyderabad/Andhra Pradesh (Visual soft, TV9, Maa-TV, Hero Honda, LG, Samsung, Pepsi etc) and selling of timeslots to such clients would be the exclusive domain of IMPL. Other clients who have market only in Hyderabad/Secunderabad such as stores (Meena Bazar, Mochi, Apollo Hospital etc). Educational Institutions based out of Hyderabad/AP li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 20 lakhs per screen per annum from the Net revenues earned. Such a provision/proposition can have no place in a situation of service-provider receiver relationship. In effect, the said remuneration to IMPL is a clear indicator of recognizing their defined share in the common activity and in addition to the share in the net revenue as per the specified proportion/percentage. In other words, the terms of the agreement and the manner of transactions/remuneration envisaged therein, clearly reveal this to be a case where one person has made the investment in property/equipment and owns it and joins hands with another person having marketing potential/intangible asset, for the purpose of raising income from the combination of the assets. In this manner, the arrangement can only be described as a mutually agreed partnership business contract. The agreement further talks of making certain payments by IMPL as under: 5. Within 3 days of execution of this contract Rs.1.56 crores shall be payable by IMPL to FMPL. 6. This advance shall be adjusted in 20 equal instalments starting July 2007. In case of early termination, M/s IMPL shall retain amounts payable to M/s FMPL towards minimum guaran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o in the agreement as commission, but the lable given by the parties cannot be determinative, because it is for the court to decide whether the amount is trade discount or not, whatever be the name given to it. If we look at the terms of the agreement, it is clear that the agreement was between the manufacturer and the dealers on principal to principal basis. The clauses of the agreement clearly show beyond doubt that under the agreement, the mopeds were sold by the manufacturer to the dealers and the dealers did not act as agents of the manufacturer for the purpose of effecting sales on behalf of the manufacturer. The relationship between the manufacturer and the dealers was clearly on principal to principal basis and in the circumstances it is difficult to see how the amount of commission allowed to the dealers in respect of different varieties of mopeds could be regarded as anything other than trade discount. The manufacturer charged to the dealer the price of the mopeds sold to them less the amount of commission in respect of different varieties of mopeds. These amounts allowed to the dealers were clearly trade discount liable to be deducted from the price charged to the dealer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances, cell phones, automated teller machines, internet; (ii) selling time slots on radio or television by a person, other than a broadcasting agency or organization; and (iii) aerial advertising . The taxable service means any service provided or to be provided to any person, by any other person, in relation, to sale of space or time for advertisement, in any manner, but does not include sale of space for advertisement in print media and sale of time slots by a broadcasting agency or organization. In the instant case, no space has been sold to IMPL. In other words, no taxable service of the kind sale of space or time for advertisement has been provided. Accordingly, the liability to service tax is not attracted. 29. The agreement was made on 14th January 2007. However, as early as February 26th 2007, M/s IMPL wrote to FMPL that they are not commercially ready to market the outdoor space and that the payments made by them may be treated as a security deposits. A copy of this letter has been produced before the Joint Commissioner. Again the IMPL vide their letter dated 29.03.2007 requested to treat the amount as security deposit or return the same or convert into equity in FMPL. M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eptember, 2008 and also paid the appropriate service tax along with interest. I find that the company started its business in Dec, 2006. Immediately on commencement of business, they have taken the service tax registration and also filed the half yearly return for the half year ending 31st March 2007 after paying appropriate service tax with interest. (They have paid over Rs.7.0 Lakhs as service tax in that period). The monthly liability for the next month i.e. April, 2007 was also discharged. However, the service tax liability for the period May to July 2007 was paid only after the investigation was initiated by the DGCEI. The business was closed in August 2007 after Hon ble High Court s Order. They have now filed returns for the subsequent period; copies of which have been produced before me. As stated above, the filing of PIL against the bill boards, High Court s Order, resignation of the Director and filing of Charge-Sheet against him, closure of the business were the factors for non-payment of service tax for the last three months (May- July 2007). Accordingly, I am satisfied that there existed reasonable cause for their failure to pay the service tax on time. Accordingly, I r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was any amount received towards such service provided or to be provided. Further, before the said agreement could be acted upon and business could be undertaken, due to Public Interest Litigation, the Hon ble High Court imposed a ban on such activity of putting up electronic bill boards and selling of time slots, in the larger public interest. Thus, the whole contract had got frustrated and the business could not be done due to supervening impossibility. Thereafter, admittedly, the appellant was required to return the money received as deposit and / or advance to IMPL. However, the appellant was unable to return the funds, the parties mutually agreed to convert such funds to equity, and admittedly equity shares have been allotted by the Board of Directors of the appellant to IMPL, and in proof thereof the appellant have filed the requisite return (Form I) before the Registrar of Companies. It is further urged that written agreement has got higher evidentiary value than oral statement. The Revenue have mis-guided itself by giving greater weightage to the statement recorded in the course of the investigation. Such statements are malafide and wrong, given due to on going dispute betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made out, thus extended period of limitation is not available to Revenue. 12. Learned AR for Revenue relies on the impugned order. 13. Having considered the rival contentions, considering the facts on record and after going through the agreement between the parties, we find that the agreement is in the nature of Joint Venture/Partnership for sharing the profits of business to be carried out on by both the parties in mutual benefit. We further, take notice of the glaring fact on record, that the said business stood frustrated due to / Public Interest Litigation and the Order passed by Hon ble High Court dated 28.08.2007, thus the said business could not be carried on and even the business of existing bill boards of the appellant had to be shut down in larger public interest. Thus, the agreement to carry on the business was frustrated due to supervening impossibility under the provisions of the contract Act, thus the parties were no longer required to perform the obligations, as the same cannot be performed. Further, admittedly, in the changed circumstances, there has been Novation of agreement due to financial difficulty of the appellant, the parties agreed to convert the deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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