No Service Tax Liability on Advertising Services: CESTAT directs Prasar Bharati to Refund Service Tax collected from Customers [Read Order]

The CESTAT, Delhi bench, while holding that Prasar Bharati has no service tax liability on the advertising services, directed the Company to make the refund to the customers as the former collected the same during the pendency of proceedings under the apprehension that the tax demand may be confirmed. The Company is also directed to furnish a compliance report with the registry of this Tribunal within 15 days thereafter.

The appellant, was only carrying the advertisements of the advertisers and broadcasting or telecasting them and not actually making the advertisements. As per the circular dated 31.10.1996, the Central Board of Excise and Customs ‘the amount paid excluding the commission by the advertising agency for space and time in getting the advertisement published in the printing media or the electronic media would not be includable’ in the value of taxable service for the purpose of levy of service tax. However, the department was of the view that the service rendered by Doordarshan Kendra, Trivandrum were taxable.

After receiving SCN, the appellant obtained service tax registration and collected tax from from the advertisers during September 2002 to March 2003. The department held that the appellant is liable to pay the amount so collected as tax, to the Central Government in terms of section 76A (2) of Finance Act.

While holding that no service tax is leviable on the appellant for the relevant period, the CESTAT bench comprise of Mr. P V Subba Rao, Member (Technical) and Mrs Rachna Gupta, Member (Judicial) held that “in the present case, it is true that no service tax was chargeable on the activity of the appellant, viz., carrying the advertisements in its broadcast and telecast. Therefore, the Government cannot collect service tax. It is also true that Section 73A(2) which mandated that any person who collects any amount as representing service tax to deposit it with the Government also did not exist at the relevant time. Thus, the Government had no authority to demand the amount.”

The Tribunal further added that “It is clear that appellant has done none of the these but has retained the amounts collected from its customers as service tax. Now learned counsel for the appellant argues that in the absence of any provision, the Government cannot demand the amount collected either as tax or under section 73A(2) and the appellant has a right to keep the amount at the expense of the customers. Such retention thereof with the appellant is definitely an act against equity making the appellant unjustifiably enriched. The statutory provisions cannot be read as to imply that the appellant has a right to such unjust enrichment. Neither has the Government any right to recover tax (section 73) or any amount collected as representing tax (section 73A) in the absence of any legal provision nor has the appellant any right to collect from the customers any amount as representing tax and retain it. The amounts collected as tax must be returned to the persons from whom they were collected.”

Directing the appellant to refund the amount to the customers within two months, the Tribunal further added that “Once, it is decided that no tax is payable, the appellant could have repaid the customers and claimed a refund. If the appellant had claimed refund without returning the amounts in part or whole to its customers, such refund would have been sanctioned under section 11B and the amounts would have been credited to the Consumer Welfare Fund under Section 11B of the Central Excise Act as applicable to the provisions of Service tax by Finance Act, 1994.”

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