1. Since the issue involved in these appeals are one and the same, we are taking up them for passing a common order.
2. The appellants provide advertising services to their various clients. In order to provide the above services, they in turn, get in touch with media for booking of time slot on various satellite channels to their clients. As per industry practice, the Broadcasting agency provides 15% discount from their Tariff rate to the appellants. The appellants provide advertising services to two categories of the client. The first category is fee based clients and the second one is non-fee based client. In the case of fee based clients, the appellants charged the clients a fixed fee per month irrespective of whether any advertisement is broadcast or not. In respect of these clients, the appellants provide advertising service by engaging print media, TV channels and charge the clients without any mark up and pass on the discount given to them by the Broadcasting agency. Suppose the Tariff rate charged by the broadcasting agency is Rs. 100/-, they give 15% discount to the appellants. As a result, they charge only Rs. 85/- along with 10.5% service tax which they have to pay to the Exchequer.
The appellants passed on the discount given to them by the broadcasting agency by charging Rs. 85/- plus 10.5% service tax from their clients.
Revenue has issued a Show Cause Notice for payment of service tax on the 15% discount given to the appellants by the broadcasting agency.
The Jurisdictional Commissioner confirmed a demand of Rs. 55,05,725/- in terms of Section 75(1) of Finance Act 1994. The details of the amount are given in Annexure II of Show Cause Notice. Interest under Section 75 has been demanded. Penalty under Section 76 at the rate of 200/- per day has been imposed. A penalty of Rs. 70 lakhs has been imposed under Section 78 of the Finance Act, 1944 for suppressing the value of the taxable service with an intent to evade payment of service tax. The appellants strongly challenge the findings in the impugned order.
3. Shri G. Shivadass, learned Advocate appeared for appellants and Shri R.K. Singla, Jt. CDR appeared for the Revenue.
(i) The appellants have not received the amount of discount either from the client or the Broadcasting agency.
(ii) The Commissioner has confirmed the demand on the ground that the Annexure II to the show cause notice indicated that the appellants had received an amount of Rs. 6,52,27,619/-, Neither the Show Cause Notice nor the Order-in-Original adduce any evidence whatsoever for having received the said amount as commission.
(ii) According to Rule 6 of Service Tax Rules, 1994, the service tax is payable only when the amount for the taxable service is received by the service provider. In the present case, the appellants have not received 15% discount components either from the client or from the Broadcasting agency.BPL Ltd. v. Commissioner of Service Tax, Bangalore 2006 (77) RLT 766 (CESTAT - Ban.) has held that the service tax is not liable to be paid if the amount in question is not received from the customer.
(iv) The Show Cause Notice dated 8.4.2005 was issued for taxable services rendered for the period from January 2000 to December 2004.
The appellants are registered with the Department since 2001 and they are paying service tax regularly and filing return. Thus the Department had the knowledge of activities undertaken by the appellants. Therefore the longer period cannot be invoked and the demand is barred by limitation.
5. A Show Cause Notice dated 17.3.2005 was issued to the appellants for payment of service tax, interest and penalty for cash discount and target incentives collected from the media in consideration for the services rendered under the category of 'Advertising Agency'. In their reply to the above mentioned Show Cause Notice, the appellants contended that the cash discount is income from the payment of bills and not for the services rendered to their clients. Further incentives received are not related to the service rendered to their client nor is it passed on to their clients. Lower authority confirmed the proposals in the Show Cause Notice. He demanded service tax of Rs. 4,21,431/-.
Interest under Section 75 of the Finance Act has been demanded. Penalty of Rs. 100/- per day were demanded under Section 76 of the Finance Act, 1994. A penalty equal to the service tax amount confirmed was imposed under Section 78 of the Finance Act, 1994. The Commissioner (Appeals) in the impugned order upheld the order of the lower authority. Hence the appellants have come before the Tribunal for relief.
6. Shri Raghuraman, learned Advocate appeared for the appellants and Shri R.K. Singla, learned Jt. CDR appeared for the Revenue.
(i) The cash discount and incentives for target achieved have nothing to do with the rendering of services by the appellants to their clients and therefore they are not liable to be included as value of the taxable services.
(ii) The cash discount is received when the appellants make prompt payment of bills to the media. It is not for the services rendered to their clients and hence this amount is not liable for service tax. The appellants get 15% commission from the press media when the same is paid within 60 days after the advertisements are released in the newspaper.
(iii) The Commission received on services rendered was introduced under the head business auxiliary services with effect from 16.6.2005.
(iv) The Commissioner (Appeals ) has not properly applied the Board's Circular No. 341/43/96-TRU dated 1.10.96. The commission referred in the above Circular is media commission for which the appellant has already paid the service tax and the same cannot be equated to cash discount and incentives.
(v) The Original authority accepts that the cash discount and incentives are not received by the assessee in relation to services provided by them to their clients. In such circumstances, no service tax is leviable on the said amount.
(vi) The amounts received has nothing to with making, preparing, displaying and exhibiting of advertisements. Instead they relate to space selling which is not liable to service tax as per Board's Circular No. 64/13/2003-ST dated 28.10.03.
(vii) In view of the above submissions the appellant is not liable to pay interest and no penalty can be levied as the appellants are not liable to pay the service tax demanded.
(viii) The appellants had a bonafide belief that they are not liable to pay service tax on the cash discount and incentives received by them. Hence invocation of longer period alleging intention to evade service tax is not sustainable.
9. We have gone through the records of the case carefully. In respect of the first appeal, the Show Cause Notice has made the following allegations against the appellants in Para 2 (b). We are reproducing the said Paragraph herein below: 2. (b) the assessee have not paid Service Tax amounting to Rs. 55,05,725/- on a taxable value of Rs. 6,52,27,619/- (as indicated in Annexure II to this notice) which is the fixed commission earned on monthly basis by the assessee from the media for releasing advertisements of certain customers during the period from January 2000 to December 2004; We are also reproducing the said Annexure II mentioned in the Show Cause Notice: Details of cases where the service provider is receiving a lump sum amount from their client as agency fee every month and hence are not collecting commissions on Individual Invoices and therefore no service tax is paid on Individual bills The appellants pleaded before the original authority that they had not billed nor collected the amount of Rs. 6,52,27,619/- from the clients and this cannot be taken as the value of the taxable services provided by the agency. They had also stated that the broadcasters gave agency commission through trade discount on percentage basis at 15%. The Commissioner has given the following findings.
The contention of the assessee is not legally sustainable in respect of liability of service tax on payment received by them towards retainership arrangement The assessee interalia stated that they charge lump sum amount of fee on periodic to their clients and that the amount of service tax due on such receipts is deposited. The evidences on record do not corroborate the contention of the assessee. Annexure II to the Show Cause Notice clearly mentioned that the assessee received retainership payment / agency fee to the tune of 6,52,27,619/- from their clients (up to May 03, from June 03 to Sep 04 and Oct 04 to Dec 04). The service tax liability on the aforesaid amount of agency fee / lump sum payment was computed to be Rs. 55,05,725/- and the assessee could not adduce any documentary evidence to substantiate their claim that the service tax amount due on such receipts had been duly paid. There is no evidence regarding payment of Rs. 55.05 lakhs (approx.) towards service tax during the aforesaid period. No evidence has been brought on record by the assesee to the effect that the service tax liability on the lump sum payment received from the clients was discharged by them, in duly prescribed manner. Since Service Tax was legally paid on the said lump sum payment and the assessee received payment from their clients as shown in Annexure II, the amount of Service Tax not deposited/not paid to the Government account, is recoverable from them under the provisions of law.
After making above observations, the Commissioner has confirmed the amount invoking extended period. He has also imposed a huge penalty of Rs. 70 lakhs under Section 78 of the Finance Act, 1994. Both the Show Cause Notice and the impugned order show total non-application of mind.
The Show Cause Notice has just assumed that the appellant received an amount of Rs. 6,52,27,619/- from the media. There is absolutely no evidence that the appellants had received the above mentioned sum from anybody. It is not understood on what basis Annexure II to the Show Cause Notice was prepared by the authority who issued the Show Cause Notice. At this point let us be very clear on the legal position. The appellant is an advertising agency. The taxable service in respect of advertising agency is defined in Section 65 (105) (e) in the following manner: to a client, by an advertising agency in relation to advertisement in any manner.
In the present case, a person or an organization who wants to advertise their product approaches an advertising agency. Therefore such a person / organization who wants to avail the services of advertising agency becomes the client of the advertising agency. The advertisement can be done in various ways either through Print Media or through Radio or Television, etc. in order to fulfill the requirements of his client the advertising agency which is the service provider gets in touch with the appropriate media. In other words as far as the advertising agency is concerned, its client is not the media. In order to provide advertising services the advertising agency charges certain amounts from the clients. Such amounts are liable to service tax. With regard to the relationship between the advertising agency and the media, the advertising agency has to pay amount to the media and not the other way. To put it differently, the media such as broadcasting agency charges the advertising agency for insertion of the advertisement either in Print Media or in Television. 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.
10. As regards the second appeal, the service tax has been demanded on the amounts received as (i) cash discount (ii) target incentives. The Show Cause Notice dated 17.2.2005 itself makes it clear that these amounts have been received from the media. Since these amounts have not been received from the clients of the service provider (the appellants) there is no liability of service tax on these amounts. What is this cash discount? The appellants have stated that some of the publications request for their payments before the advertisements are released and have agreed discount on these advance payments. These discounts on the bills are received from the publications and not from the clients. Thus cash discount is an income from payment of bills in advance and not from services rendered to clients and does not attract service tax. In addition to this cash discount, the appellants received incentives from certain publications after they reached certain targets of advertising business given to them. This incentive is called target incentive. It is in no way connected to the service rendered to the clients nor is billed to the clients. In fact the lower authority in the Order-in-Original dated 27.2.2005 has observed there is no dispute that the cash discount and incentives are not received by the assessee in relation to the service provided by them to their clients. We are surprised that after making such observations the authority has chosen to confirm the demand. In view of the above findings, the impugned Order-in-Appeal confirming the Order-in-Original does not have merit.
We set aside the impugned order and allow the appeal with consequential relief.
(Operative portion, of the has been pronounced in the open court on completion of hearing)