1. This application is filed by M/s. Skriji Ads, Chennai for waiver of predeposit and stay of recovery of service tax of an amount of Rs. 2,02,080/-, a penalty of Rs. 1,94,000/- imposed under Section 76 of the Finance Act '94 (the Act) and another penalty, of Rs. 1,000/- imposed under Section 77 of the Act. The appellants are engaged in rendering advertisement service. In addition to displaying advertisements, the appellants also leased out hoardings to its associates who undertook the activity of displaying advertisements. The demand has been raised on the appellant for leasing out hoardings; for service tax on the leased amounts collected. The appeal has been filed with a delay of 9 days. The delay has been explained as caused by the demise of the mother of the accountant of the appellant in charge of excise matters.
After hearing both sides, the requirement of predeposit is waived and the delay in filing the appeal is condoned. The appeal is taken up for disposal.
2. The appellant is engaged in displaying advertisements. It also provides on lease hoardings to its associates who are engaged in advertising. The appellant had failed to pay service tax for the activities they are engaged in during the period 2002-2005. When the investigation started, they paid the service tax of Rs. 2,89,686/- along with interest for the amounts charged for displaying advertisement, as an advertisement agency. The impugned demand and penalties relate to charges collected for hoardings leased out to various other advertisement agencies, displaying advertisements.
3. The learned Counsel for the appellants reiterates the grounds taken before the lower authorities. It is argued that when the advertiser pays service tax for exhibiting any advertisement material, the taxable value would include the charges for preparing and maintaining hoarding or for hiring the hoarding. Therefore, there was no need for the appellant to pay service tax on the charges collected from the advertising agencies for leasing out the hoardings to them. The appellant relies on a clarification dated 22.7.2003 issued by the Commissioner of Service Tax in support of their above plea. The said communication had clarified that when a hoarding company provided service of display of an advertisement to an advertiser, the hoarding company was the 'service provider' and the advertiser was the 'client'.
The gross amount charged by the hoarding company to the client was liable to pay service tax. But when the hoarding company billed an intermediary i.e., an advertising agency, which in turn billed the clients, then the advertising agency/intermediary was the service provider who was liable to pay tax. It is argued that in view of the above clarification, the original authority could not have demanded the impugned tax on charges for leasing out hoardings to an advertisement agency. Moreover, the department was bound by its own clarification.
The original authority had rejected their argument on the plea that 'a simple letter issued from the department cannot override the statutory provisions' and hence the assessee was liable to pay tax on the taxable value received from clients/advertising agency. In the impugned order, the Commissioner (Appeals) held that the clarification was not applicable to advertisement companies like the appellant. He affirmed the impugned order on the above basis.
4. Learned SDR submits that the activity in respect of which service tax has been demanded is squarely covered by the definition of taxable service rendered by the 'advertisement agency'. There is no dispute as regards this aspect. The clarification issued by the department was applicable to the appellant on condition that the advertising agency who hired the hoarding paid service tax as an advertisement agency on the taxable value including the charges relatable to leasing or, owning and maintaining the hoarding. The appellant had not established before the lower authorities that the taxable value relatable to the hoarding had suffered tax.
5. In her rejoinder, the learned Counsel submits that almost all the associates who had taken hoardings on lease were registered with the department and the department could have verified whether the said advertisement agencies had paid service tax also on that part of the taxable value relatable to the cost of leasing the hoarding. Department had not made any effort to verify whether the tax demanded was due from the appellants in view of the clarification issued by the department.
The learned Counsel prays that the matter may be remanded so that they could furnish the required evidence to establish that they were not liable to pay the impugned tax in terms of the clarification issued by the Commissioner.
6. The learned SDR has no objection to the matter being remanded to give an opportunity to the appellants to establish that the tax due had already been received by the department.
7. I have carefully considered the facts of the case and the submissions made by both sides. The following is an extract from the letter issued by the Commissioner to the Tamil Nadu Outdoor Advertising Association of which appellant is a member: The terms 'advertisement', taxable service', and 'advertising agency', are defined in Section 65 of Finance Act 1994, o "taxable service" means any service provided to a client, by an advertising agency in relation to advertisement, in any manner; o "advertisement" includes any notice, circular, label, wrapper, documents, hoarding or any other audio or visual representation made by means of light, sound, smoke, or gas; o "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.
Thus when a Hoarding company provides a service of Display of an advertisement to an advertiser, the hoarding company is the 'service provider' and the advertiser is the 'client'. The gross amount charged by the hoarding company to the client is liable to service tax. But when the hoarding company is billing an intermediary i.e., an advertising agency, which in turn bills the clients, then the advertising agency/intermediary is the service provider who is liable to pay tax.
In view of the above, it is clarified that if the hoarding company bills their clients directly then they have to pay service tax. If the hoarding company chooses to bill the advertising agency since the hoardings were booked by the advertising agency, then the hoarding company need not pay service tax. But it is the advertising company who is responsible to pay service tax on the gross bill amount including the money paid to the hoarding company, as they are actually billing the clients. The hoarding company should however ensure that the person, to whom the board is let out, is registered with Service Tax as an Assessee.
7.1 There cannot be any dispute that the appellant is covered by the statutory definition of 'advertising agency', being a commercial concern engaged in providing service connected with the making, preparation, display, or exhibition of advertisement. As per the clarification, when a hoarding company like the appellant billed an intermediary i.e., an advertising agency which in turn billed its clients, then the advertising agency/intermediary is a service provider who is liable to pay tax. As the liability of the hoarding company is passed on to the ultimate advertising agency, the department had clarified that the hoarding company should ensure that the person, to whom the board (hoarding) is let out, is registered with service tax as an assessee. The letter of the Commissioner had also clarified that with effect from 14.5.2003, as per Notification No. 5/2003 dated 14.5.2003, the ultimate advertising agency/intermediary could also avail credit of service tax if paid by it towards hiring of hoarding.
8. It emerges from the arguments of both sides that the appellants are liable to pay service tax on the charges collected for leasing out hoarding to advertising agencies who exhibited publicity material and collected charges from their clients. However, if service tax is paid by such advertising agencies on the gross value including cost towards hoarding for exhibiting advertisements from their clients, there was no need for agencies like the appellants also to pay service tax for leasing out the hoardings. However, that the clients of the appellants are advertising agents registered with the department as assesses and had paid the service tax due was not established before the lower authorities by the appellants. In the circumstances, the matter is remanded to the original authority for taking a fresh decision in the matter. The appellants shall be provided adequate opportunity to present their case before a final decision is taken. The appeal is allowed by way of remand.