In a recent case, the Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has held that the service tax leviable on publicity charges received by media companies from intermediary agencies. It was bserved that a sub-contractor would be liable to pay Service Tax even if the main contractor has discharged Service Tax liability on the activity undertaken by the sub-contractor in pursuance of the contract.
Selvel Media Services Private Limited, the appellant/assessee is registered with Service Tax for providing services related to the ‘Advertising agency’s services’ as defined under Section 65(3) and is a taxable service under Section 65(105)(e) of the Finance Act, 1994.
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It was found that the appellant was not correctly declaring the amount which was being shown as ‘exempted services’, other than export, in the periodical ST-3 returns for the period 2006- 07 and 2007-08. On enquiry, the department noted that during the said period, the appellant had included the total amount of ‘Publicity charges’ received from intermediary agencies under the category of exempted services’ in the ST-3 returns, as per Trade Notice No. 47- CE(Misc-47)/96 dated 14.11.2006 issued by Central Excise Commissionerate, New Delhi.
The total amount of ‘Publicity charges’ received from Intermediary Agencies by the appellant appeared to be liable to be included in the gross amount received by them and leviable to Service Tax. The Department alleged that the appellant had not included the total amount of ‘Publicity charges’ received from the Intermediary Agencies during the period 2006-07 and 2007-08 in the gross value received on which the appellant had not paid service tax. A show cause notice was issued to the appellant demanding service tax along with interest and alleging imposition of penalty under Section 76, 77 & 78 of the Finance Act, 1994.
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The Department found that the appellant had not included the total amount of ‘Publicity charges’ received from the Intermediary Agencies in the gross value received on which the appellant has not paid service tax. For the same, another show cause notice was issued to the appellant demanding service tax.
The assessee contended that it used to lease hoarding sites from municipal authorities and sub-lease them to various advertising agencies. These advertising agencies would display advertisements of their clients on these hoarding sites. Against the sub-leasing of the hoarding sites, the appellant used to charge publicity charges to the advertising agencies.
Further submitted that the service of ‘sale of space or time for advertisement’ was inserted under Section 65 (105) as sub-clause (zzzm) of the Finance Act on 01.05.2006. The Department has erroneously held that the activity performed by Appellant falls under the category of ‘advertising agency’ service which falls under Section 65(105)(e) of the Finance Act.
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It was argued that the third-party advertising agencies fall under the afore-said definition and not the appellant who is merely sub-leasing the sites. In view of the aforementioned submissions, the activities performed by the appellant clearly falls under the category of ‘sale of space or time for advertisement and not ‘advertising agency’ service.
The assessee contended that since the activities undertaken by the appellant fell under the category of ‘sale of space or time for advertisement’ which was introduced w.e.f. 01 May 2006, no Service tax liability would arise on the invoices issued by the Appellant prior to 01 May 2006.
The appellant has contended that the liability to pay service tax is on the main contractor, therefore a sub-contractor is not liable to pay service tax. Till May-2006, they have not charged service tax on the bills raised to the main contractor that they have started paying service tax from May-2006 onwards.
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The two-member bench of Binu Tamta ( Judicial Member ) and Hemambika R. Priya ( Technical Member ) has observed that a sub-contractor would be liable to pay Service Tax even if the main contractor has discharged Service Tax liability on the activity undertaken by the sub-contractor in pursuance of the contract.
While dismissing the appeal, the tribunal upheld the demand along with interest on the ‘Publicity Charges’ received by the appellant for the normal period only. Further set aside the penalties under Section 77 & 78 of the Finance Act, 1944.
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