Advertising Agency Service

September 16, 2016   admin  Service Wise Implications
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  • Taxability as settled by precedents / Circulars / Trade notices

ActivityWhether falls within the scope of present serviceReference
Compilation, printing and publication of telephone directoriesNo.Trade Notice No. 99/GL-90/CE/PRO/Cal-II/99 [Para 35.1 of the Circular]
Permitting display of advertisement on its site for rent/ space sellingNo.CCE Ludhiana v Azad Publications, 2004 (167) ELT 59 (Tri.-Del.) 2006 (3) STR 249 (Tri.-Del.)
Hiring of space in state Road Transport Buses and putting readymade Government’s/DAVP’s advertisementsNo.CESTAT order [ 2006 (4) STR J46 SC ]
Space selling means contacting potential advertisers and persuading them to give advertisements to a particular newspaper/periodical/magazine.No.Bhavya Enterprises (Advertisers) v CCE, Delhi, III 2005 TIOL 566 CESTAT Del. : 2006 (1) STR 50 (Tri.-Del.)
Procuring hoardings space for advertisement purposes from municipal authoritiesNo.REX Advertisers v CST, Bangalore, 2006-TIOL-1009-CESTAT-BANG
Sale of time slot in electronic mediaNo.Need wise Advertising Pvt. Ltd. V CST, Ahmedabad, 2010-TIOL-1619-CESTAT-AHM
Making the sign board as well as installing the same at specified places for displayYesAjanta Fabrication v CCE, Meerut, 2006-TIOL-202-CESTAT-Del : 2006 (2) STR 4 (Tri.-Del.)
BroadcasterNo.Zee Telefilms Ltd., M/s Star India (P) Ltd. v CCE (Appeals) Mumbai-IV, 2006-TIOL-945-CESTAT-MUM : 2006 (4) STR 349 (Tri.-Mum.)
Selling of rights to telecast cricket matchesNo.Commissioner of Service Tax, Mumbai v Board of Control of Cricket in India, Mumbai, 2007-TIOL-684-CESTAT-MUM : 2007 (7) STR 384 (Tri.-Mum.)
Sale of printed advertisement materialNoIn Re: Elegant Publicities 2007 (8) STR 76 (Commr. Appeals)
Publishing Yellow PagesNoContact Advertising Agency Vs Commissioner of Central Excise 2001 (132) ELT 245 (Delhi-CESTAT)
Ministry of Finance F. No. 345/4/97-TRU, dated 16-8-1999
Cinema Theatres projecting advertisements or web-sites which display advertisementsNoSiti cable Network Private Limited Vs Commissioner of Central Excise Mumbai, 2006 (4) STR 555 (Mumbai-Trib.)
Canvassing only for space sellingNoCircular No. 64/13/2003-S.T., dated 28-10-2003
Canvassing involving receiving the text of advertisement, estimating the space that such advertisement would occupy in the newspaper/periodical/magazine, negotiating the price, forming the general layout of the advertisement that would finally appear in the newspaperYesCircular No. 64/13/2003-S.T., dated 28-10-2003
selling the time allotted to a producerNoCircular No. 78/08/2004-ST, dated 23-3-2004
Obtaining order of advertisement and passing it on to the publisher/newspaper/periodicals without making, preparing or display of advertisementNoIn Re: Precious Publications Pvt Ltd 2006 (1) STR 64 (Comm Appeal)
Mere painting of advertisement on wallNoDhan Shree Publicity V CCE, Jaipur-I, 2008 (10) STR 209 (Tri.-Del)
Sale of air time for advertisementNoZee Telefilms Ltd V CCE 2004 (170) ELT 157 (Tri. Del)
Manufacturing Sign Boards for the customerNoStar Neon Signs V CCE, Chandigarh (2002) 141 ELT 770 (Tri-Del.)
Cinema theaters projecting advertisements on behest of Advertising agenciesNo‘Frequently asked questions on service tax’ issued in October 2003
Cavass advertisement services for publisherNoCircular No. 96/7/2007-Service Tax dated 23-8-2007

  • Accounting Code

Such codes are no longer statutory but used for statistical purpose for the purpose of registration and for payment of tax as specified vide Circular No.165/16/2012 –ST dated 20.11.2012:

Tax Collection of Service Interest and penalties on such service
00440013 00440016
  • Value of Taxable Service

Section 67 read along with Service Tax (Determination of Value) Rules, 2006 provides the manner of determining the value of taxable services on which services tax should be levied.

In respect of Advertisement services, the following points require attention:

  • Commission received by an advertisement agency would be included in the value of taxable service- Circular No 341/143/96-TRU, dated 31.10.1996
  • Value of taxable service is gross amount charged from the client in relation to advertising services. The charges towards transportation, stay in hotels etc are to be included in the value of taxable services- Circular No 341/143/96-TRU, dated 31.10.1996.

The Service Tax (Determination of Value) Rules, 2006 provides for the following illustration in the context of Advertisement:

Illustration 1. – X contracts with Y, a real estate agent to sell his house and thereupon Y gives an advertisement in television. Y billed X including charges for Television advertisement and paid service tax on the total consideration billed. In such a case, consideration for the service provided is what X pays to Y. Y does not act as an agent behalf of X when obtaining the television advertisement even if the cost of television advertisement is mentioned separately in the invoice issued by X. Advertising service is an input service for the estate agent in order to enable or facilitate him to perform his services as an estate agent.

Thus, the value of taxable Advertisement services is to be determined in terms of provision of Section 67 read with the prescribed Rules.

  • Abatement

No abatement has been granted to any person liable to pay service tax under the Section.

  • Exemptions available
  1. General Exemption
  • Small Service Provider

Vide Notification No 33/2012-ST, dated 20.06.2012 – Exemption to Small service providers having taxable turnover of less than 10 Lakhs and providing services other than by way of under a brand name.

  • Import of Technology

Vide Notification No. 14/ 2012-ST, dated March 17, 2012 – Exemption in respect of Taxable service involving import of technology, from so much of service tax, as is equivalent to the extent of amount of R&D Cess payable on the said transfer of technology under the provisions of section 3 of the Research and Development Cess Act, 1986.

 

  • To Foreign Diplomatic missions and their personnel

Vide Notification No 27/2012-ST, dated 20.06.2012 – Exemption for all the taxable services provided by any person, for the official use of a foreign diplomatic mission or consular post in India, or for personal use or for the use of the family members of diplomatic agents or career consular officers posted therein.

  • Services by TBI or STEP

Vide Notification No 32/2012-ST, dated 20.06.2012 – All taxable services provided by TBI or STEP have been exempted

  • Services provided to SEZ

Vide Notification No 40/2012-ST, dated 20.06.2012, all taxable services received by a Unit located in a Special Economic Zone (SEZ) or Developer of SEZ for the authorized operations, has been exempted from the levy of whole of the service tax.

  • Specific Exemptions

No Specific Exemption had been granted by the government in case of Advertisement services.

  • Important Cases

    • Everest Brand Solution (P.) Ltd. v. Commissioner of Service Tax, New Delhi [2014] 41 taxmann.com 375 (New Delhi – CESTAT)

    Assessee, an advertising agency, was discharging service tax on consideration received by it. But assesse was not including the amount collected towards space in print media or electronic media for display of advertisement in its taxable value, which was, subsequently, paid to such media. Department sought levy of service tax on such amount. But it was held that such amount was not includible in taxable value as held in the judgment of Advise Advertising (P.) Ltd. v. Union of India 2001 (131) ELT 529 (Mad.).

    • Lintas India (P.) Ltd. v. Commissioner of Service Tax, Mumbai-II [2013] 31 taxmann.com 109 (Mumbai – CESTAT)

    In this case it was held that the difference between sum collected from client in name of media cost and actual payment to media was liable to service tax under advertising agency’s services, but, bulk volume discount received from media was not taxable.

    • Percept D’mark (India) Ltd. v. Commissioner of Service Tax, Mumbai – I [2013] 37 taxmann.com 86 (Mumbai – CESTAT)

    Assessee was engaged in an activity for arranging celebrities/cricketers for promotion and publicity of two wheeler manufactured by Hero Honda Ltd. Department sought levy of service tax thereon under advertisement agency service. But it was held that thesaid activity undertaken by assessee was not covered under Advertising Agency’s Services

  • Related Circulars and Notification

    • Extracts of CBEC instruction letter F. No. 341/43/96-TRU, dated 31-10-1996/trade notice no.1/96-ST, dated 31-10-1996, Mumbai Commissionerate-i
    • Ministry of finance F. No. 345/4/97-TRU, dated 16-8-1999
    • Trade Notice No. 99/GL-90/CE/PRO/CAL-11/99
    • Extracts of CBEC instruction letter F. No. 341/43/96-TRU, dated 31-10-1996/trade notice no.1/96-ST, dated 31-10-1996, Mumbai Commissionerate-I
    1. The expression ‘advertising agency’ has been defined to mean any commercial concern engaged in providing any services connected with the making, preparation, display or exhibition of advertisements and includes an advertising consultant. It would, thus, be noticed that the scope of the service which is included in the tax net extends not only to any service connected with making, preparation of advertisements but also includes any services connected with display or exhibition of advertisements.
    1. It is further to be clarified that in relation to advertising agency, the service tax is to be computed on the gross amount charged by the advertising agency from the client for services in relation to advertisements. This would, no doubt, include the gross amount charged by the agency from the client for making or preparing the advertisement material, irrespective of the fact that the advertising agency directly undertakes the making or preparation of advertisement or gets it done through another person. However, the amount paid, excluding the own commission, by the advertising agency for space and time in getting the advertisement published in the print media (i.e., newspapers, periodicals, etc.) or the electronic media (Doordarshan, private TV channels, AIR, etc.) will not be includible in the value of taxable service for the purpose of levy of service tax. The commission received by the advertising agency would, however, be includible in the value of taxable service.
    1. A question has been raised whether any expenses incurred by the advertising agency on account of travel, transportation and stay in hotels, etc., is to be excluded for computing the value of taxable service. The answer to this question lies in the negative. As explained above, the value of taxable service is the gross amount charged by the advertising agency in relation to the services rendered to his client. The charges aforesaid are thus clearly includible in the value of taxable service.
    1. It has been represented that in some cases the advertising agency do market research for the client and a question has been raised whether the expenses incurred on market research by the advertising agency are to be excluded from the value of taxable services in the context. It is clarified that if the market research relates to advertisement then the market research forms part of the service in relation to advertisement and all expenses charged from the client on this account are includible in the value of taxable service.
    1. It has been mentioned that in the case of foreign TV channels certain amount is charged directly to the clients by the foreign TV channels in foreign currency. As regards the inclusion of such payments in the value of taxable service, such amounts paid directly by the client in foreign currency are not includible as those amounts are not charged by the advertising agency from the clients.
    1. It has been represented that in many cases the advertising agency gets a documentary or film prepared by an independent film producer on behalf of the client. In such cases, the film producer deals with the advertising agency and the payment to him is also made by the advertising agency and not by the client directly. Ultimately, however, the advertising agency charges the client for the amount paid to the film producer. Under these circumstances a question has been raised whether the film producer is also liable to pay service tax on the documentary or film prepared by him in relation to an advertisement. In this connection, it is relevant to note that taxable service is a service provided to a client by an advertising agency in relation to advertisement in any manner. Client is the advertiser. Therefore, in this case the advertising agency cannot be considered as a client when the definition of taxable service in relation to advertisement is interpreted in proper context. Accordingly, it is clarified that a film producer in this case is not liable to service tax. However the advertising agency will, no doubt include the expenses incurred on getting the film or documentary produced on behalf of the client in the gross amount charged from the client on which service tax will be collected by the agency. It goes without saying that if the film producer chooses to charge the client directly for the film or documentary produced by him then the film producer is to be regarded as having rendered service to the client in relation to advertisement and he will, therefore, be liable to pay service tax accordingly.
    1. A doubt has been raised whether service tax becomes payable even if the client does not make the payment to the advertising agency. In this context, it is clarified that the advertising agency is legally bound to collect and pay service tax. However, if the advertising agency fails to collect the service tax, the responsibility for payment of tax lies on the advertising agency. The advertising agency, therefore, cannot claim any exemption from payment of service tax on the ground that the same was not paid by the client.
    1. A point has been raised whether Directorate of Audio and Visual Publicity (DAVP) in the Ministry of Information and Broadcasting is liable to pay service tax on services rendered by it to the different Departments of the Central Government in relation to Government advertisements. It is clarified that DAVP not being a ‘commercial concern’ is not liable to pay service tax.

     

    • Ministry of Finance F. No. 345/4/97-TRU, dated 16-8-1999

    I am directed to state that doubts have been raised as to whether persons engaged in the activity of compilation, printing and publishing of telephone directories, yellow pages and business directories are covered under the definition of ‘advertising agency’ and accordingly liable to pay service tax.

    The matter has been examined. Section 65 of the Finance Act, 1994 defines an advertising agency as a commercial concern engaged in providing any service connected with the making, preparation, display or exhibition of advertising and includes advertising consultant. Vide Letter No. 341/43/96-TRU, dated 1st October, 1996, it was clarified that in relation to an advertising agency, the service tax is to be computed on the gross amount charged by the advertising agency from the client on services in relation to advertisements. This would, no doubt, include the gross amount charged by the agency from the client for making or preparing the advertisement material irrespective of the fact that the advertising agency directly undertakes making or preparation of advertisement or gets done through another person. However, the amount paid, excluding their own commission by the advertising agency for space and time in getting the advertisement published in print media or the electronic media will not be includible in the value of taxable service for the purpose of levy of service tax. The commission received by the advertising agency would, however, be includible in the value of taxable service. In other words, service tax is attracted on advertising agencies which are providing service to advertisers by conceptualizing, designing or preparing advertisements. Print or electronic media is excluded from the levy of service tax as they do not provide any service to the advertisers, but are merely selling space or time for the exhibition of advertisements.

    In the case of persons who are printing and publishing telephone directories, yellow pages or business directories, their activity is essentially of printing readymade advertisements from the advertisers and publishing the same in the directory. Their activities are similar to those carried out by newspapers or periodicals. As such, this activity shall not attract service tax. However, if these persons also undertake any activity relating to making or preparation of an advertisement, such as designing, visualizing, conceptualizing etc., then they will be liable to pay service tax on the charges made thereon.

    [Source :Contact Advertising Agency v. CCE [2007] 7 STT 343 (New Delhi – CEGAT)].

    • Circular no. 64/13/2003-S.T., dated 28-10-2003

    The representations have been received in this office with regard in the leviability of Service Tax under the category of Advertising Agency Services in respect of persons agencies engaged in canvassing for advertisements for which they get commission from the publishers. The persons involved do not provide any service like making, preparing, displaying and exhibiting and only undertake canvassing for the advertising.

    1. The term canvassing may merely invoice contacting potential advertisers and persuading them to give advertisement to a particular newspaper/periodical/magazine. The making and preparation of the advertisement namely, drafting of the text, preparation of layout is left either to the advertiser or to newspaper/periodical/magazine. Such a service is known as ‘space selling’. In such cases, since the agency undertakes the job of merely bringing the order for an advertisement and does not undertake any further activity, it would not fall within the definition of advertising agency and will not be subjected to service tax.
    1. On the other hand, ‘canvassing’ may involve such agency approaching a customer, receiving the texts of the advertisement (including photographs, monograms etc. of the customs), estimating the space that such advertisement would occupy in the newspaper/periodical/magazine, negotiating the price, forming the general layout of the advertisement, that would finally appear in such newspaper etc. In such cases the term ‘canvassing’ would certainly fall within the phrase ‘any service provided in any manner connected to making, preparing, displaying and exhibiting, and would be taxable service.’
    1. In view of above, I have been directed to say that if the canvassing is limited to space selling then such services would not be liable to any service tax. However, if canvassing is involving receiving the text of advertisement, estimating the space that such advertisement would occupy in the newspaper/periodical/magazine, negotiating the price, forming the general layout of the advertisement that would finally appear in the newspaper then such activity would be liable to service tax under the category of Advertising Agency Services
    • Circular no. 78/08/2004-ST, dated 23-3-2004

    Representation have been received in the Board with regard to levy of service tax on the activities undertaken by the television serial producers, who either

    (i) sell TV serial episodes to the TV channels

    (ii) allow such episodes to be telecasted by the channels in lieu of procurement of Free Commercial Time (FCT), which is sold by them to advertising agencies for showing advertisements.

    1. It appears that in some jurisdiction service tax is being demanded on the services listed at (1) under the category of Videotape Production Services, and in respect of services listed at (2) under the category of Advertisement Agency Services.
    1. The issue has been examined. The taxable service, i.e., video tape production service is on the process of recording of any programme, event or function on magnetic tapes (including editing thereof). The tax is therefore limited to the technical function of recording or editing what is recorded and not on the entire gamut of production of serials. In case the producer hires a videographer or an editor, the payment made for services would be taxable at the hands of such service providers. However, no tax is leviable on the producers for selling the serial to channel.
    1. Similarly, in case of FCT, selling the time allotted to a producer does not fall within the purview of ‘advertisement service’ since this activity is not connected to making, preparation, display or exhibition of advertisement. This is akin to providing space in a newspaper or magazine for publishing an advertisement and has nothing to do with actual presentation of the advertisement.
    • Circular no. 96/7/2007-ST, dated 23-8-2007, as amended by Circular no. 98/1/2008-ST, dated 4-1-2008.

    Reference CodeIssue
    -1-2
    004.01/23.08.07Persons/agencies canvass advertisements for publishing, on commission basis. Such persons/agencies do not provide any other Merely canvassing advertisements for publishing, on commission basis, is not classifiable under the services like making, preparation, display or exhibition of advertisement.
    Whether merely canvassing advertisement for publishing on a commission basis by persons/agencies is classifiable as Advertising Agency service [section 65(105)(e)] or not?

 

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1 thought on “Advertising Agency Service”

  1. We Have a firm We, Purchase Material (Goods Like Plain Star Matt Flex & Vinyl & Printing Flex boards & Vinyl Sunboard . Printing on FLEX & ECO Vinyl Stick on Vinyl Sunboard or Hand over them to the clients and apart from the above also arrange the prepared hoardings at the required site as per client request. please clear- 1.Whether treated as sale or service under gst. 2.What will be hsn code 3.What will be gst rate.

    Read more at: http://www.caclubindia.com/experts/hsn-code-for-flex-banner-printing-2512684.asp

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