CESTAT Rules, No Service Tax On Buying Or Selling Of Space In Print Media, Receiving Incentives On Meeting Targets
Pranav B Prem
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi Bench, comprising Ms. Binu Tamta (Judicial Member) and Mr. P.V. Subba Rao (Technical Member), has dismissed an appeal filed by the Revenue and upheld the order of the Commissioner (Adj.) of CGST, Delhi South Commissionerate, which had dropped a service tax demand against M/s Nexus Alliance Advertising & Marketing Pvt. Ltd.
The Tribunal ruled that the incentives or volume discounts received by the advertising agency from media houses on achieving certain business targets do not fall under the category of "declared services" under Section 66E(e) of the Finance Act, 1994, and are not liable to service tax.
Background
The respondent, M/s Nexus Alliance Advertising & Marketing Pvt. Ltd., is engaged in providing advertising agency services, including media planning and media buying on behalf of various clients. For these services, it charges a commission from advertisers and discharges applicable service tax on that commission. There is no dispute on this count.
The issue in the present case pertains to incentives or volume discounts received by the respondent from various print and media outlets, such as newspapers, TV, radio, and digital platforms. These incentives are provided by the media houses if the respondent meets certain turnover targets during a financial year.
The Director General of GST Intelligence (DGGI) took the view that such incentives amount to the respondent having undertaken an obligation to do an act in favour of the media outlets, thereby attracting service tax under Section 66E(e) of the Finance Act, 1994.
A show cause notice dated 17.10.2018 was issued proposing recovery of ₹3,95,69,248 in service tax for the period 01.04.2013 to 30.06.2017, invoking the extended period of limitation under the proviso to Section 73(1) of the Finance Act, along with interest under Section 75 and penalties under Sections 76, 77, and 78.
However, the Commissioner (Adj.), after considering the respondent’s submissions, dropped the proceedings, holding that no taxable service was rendered under Section 66E(e).
Contentions of the Revenue
The Revenue, in its appeal, contended that the Commissioner (Adj.) had erred in law in dropping the proceedings. It was submitted that the media incentive schemes were formalised through agreements signed between the respondent and the media houses, wherein the respondent undertook activities such as preparing media plans and achieving business targets. The Revenue relied on Clause B of an agreement dated 31.07.2015 to argue that the scope of work assigned to the respondent included formulation of media strategies, selection of media vehicles, and planning of campaigns.
According to the Revenue, these activities were in the nature of business promotion for the media houses and attracted the definition of “declared service” under Section 66E(e) of the Finance Act, which includes any service involving an obligation “to do an act.” It was further submitted that since the respondent earned consideration (in the form of incentives) as a result of such activities, the services rendered fell squarely within the taxable bracket.
Tribunal’s Findings
Rejecting the arguments advanced by the Revenue, the Tribunal noted that there was no agreement in existence which obligated the respondent to achieve any target or perform any activity for the media houses in exchange for incentives. The Tribunal categorically held that the respondent’s clients were the advertisers and not the media houses, and that the respondent acted strictly in accordance with the instructions and approvals of those clients.
It was observed that the media houses were under no legal or contractual obligation to pay incentives or discounts. These were purely discretionary benefits provided on achieving business volume thresholds and were in the nature of commercial arrangements, not services rendered under compulsion of contract. The Tribunal further noted that the respondent had no authority or discretion to unilaterally place advertisements with any media outlet without the explicit approval of the advertiser.
The bench observed that for a transaction to fall under the scope of “declared services” under Section 66E(e), there must exist an agreement which obligates the person to do an act, tolerate an act, or refrain from an act. Since no such contractual obligation existed in this case, and the incentives were not consideration for any service rendered to the media houses, the Tribunal held that there was no taxable service under the provisions of the Finance Act, 1994.
Final Decision
The Tribunal concluded that the findings of the Commissioner (Adj.) were legally sound and did not warrant interference. Accordingly, the appeal filed by the Revenue was dismissed.
Appearance
Present for the Appellant: Shri Harsh Vardhan, Authorised Representative
Present for the Respondent: Shri Vanadana Bhandari, Advocate
Cause Title: Principal Commissioner of CGST & Central Excise-Delhi-iv V. M/S Nexus Alliance Advertising & Marketing Pvt Ltd.
Case No: Service Tax Appeal No. 51901 OF 2019
Coram: Hon'ble Ms. Binu Tamta [Member ( Judicial )], Hon'ble Mr. P. V. Subba Rao [Member ( Technical)]
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