As a relief of Bajaj Herbal,the Ahmedabad bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that no service tax is leviable on advertising agency services provided by foreign-based services provided for marketing and directed to re-adjudicate the matter to find out the nature of service.
Bajaj Herbals Pvt Ltd, the appellant engaged in the manufacture of Hair oil, Hair Cream, Toothpaste etc. and holds a Central Excise registration as well as Service Tax registration under the category of GTA service. From the audit of the records, it was revealed that the appellant had made payments to various parties towards Exhibition expenses, Sales Promotion expenses and Advertisement expenses in foreign currency to the foreign-based service providers.
It was contended by the department that these services being classifiable under the category of ‘Business Exhibition Services’, ‘Business Auxiliary Services’ and ‘Advertising Agency Services’ and the appellant being the recipient of the said services, the person liable to pay Service Tax under the provision of Section 66A of the Finance Act, 1994, on reverse charge mechanism. Accordingly, a show cause notice dated 15.03.2013 was issued to the appellant.
The Adjudicating Authority confirmed the Service Tax on the taxable value paid as commission income in foreign currency under the category ‘Business Exhibition Services’ for the year 2007-08. , towards Sales Promotion expense in foreign currency under the category of ‘Business Auxiliary Service’ for the year 2008-09. Further service tax towards Advertisement expenses incurred in foreign currency under the category of ‘Advertising Agency Services’ for the year 2008-09 to September 2010 and v) Service Tax of Rs. 2,23,358/- on the taxable value of Rs. 23,91,875/- towards Advertisement expenses incurred in foreign currency under the category of ‘Advertising Agency Services for the period October 2010 to November 2011, along with interest and also imposed late fees/penalties under Sections 70,76,77 & 78 under the Finance Act, 1994.
The Commissioner(Appeals) out of total demand confirmed by the Adjudicating Authority dropped demands on ‘Business Exhibition Services’ and ‘Business Auxiliary Service’. Shri R R Dave, Consultant appeared on behalf of the appellant and submitted that the demand was confirmed for advertising agency service on the reverse charge mechanisms on the appellant even though the advertising agency service was provided by the foreign-based service provider outside India. Therefore, when the service was performed outside India, which is out of the taxable territory the same is not liable to service tax in India.
Shri Anoop Kumar Mudvel, Superintendent (AR) appearing on behalf of the revenue reiterated the finding of the impugned order.
It was viewed that the Service Tax demand was upheld on the ground that even though the service was provided outside India the same was received by the appellant in India and such advertising agency service is undisputedly about the business or commerce of the appellant. Therefore, the same is liable to service tax in the hands of the appellant.
A two-member bench comprising Mr. Ramesh Nair, Member (Judicial) and Mr. Raju, Member (Technical) observed that “merely because the recipient is located in India that is not the deciding factor that the service was received in India.”
It was observed that the service of advertising agency service was provided by the foreign-based service provider for the marketing and sales promotion of the appellant’s goods in a foreign country only. However, this aspect was not properly considered by both the lower Authorities. As per the facts available in the record, we find that if the service so provided in a foreign country admittedly is not received in India and not used in India, the appellant is prima facia not liable for Service Tax.
However, whether the advertising agency service was received in India for use in the marketing and sales promotion of goods, without ascertaining this fact cannot be concluded that the appellant is liable for payment of service tax. Therefore the CESTAT allowed the appeal filed by the appellant by way of remand to the Adjudicating Authority for passing a fresh order.
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