By TIOL News Service:

NEW DELHI, MAY 12, 2016: THE applicant AKQA Media India Pvt. Ltd intends to carry out the activity of an advertising agency, whereby it shall provide professional services to its clients (i.e. Advertisers) in relation to placement of advertisements in various mediums. Further, the applicant intends to charge commission from such clients as a consideration for provision of its services. While the applicant shall provide services only to Advertisers, depending on the quantum of its advertisements placed by the applicant on various mediums, the applicant could be entailed to an incentive/ volume discount from the Media Owners.

Applicant submits that they propose to undertake two business models, which are as under -

Model 1- Placement of advertisement in traditional media on behalf of the advertiser

Model 2 - Buying and selling of advertisement inventory in non-traditional media, on its own account

The Applicant has raised following questions before the Authority for Advance rulings -

Question 1 - Under proposed Business Model 1, while the applicant shall be appointed by its clients i.e. the advertiser to provide services, will incidental receipt of incentives/volume discounts from Media Owner shall be considered to be providing a service, as defined under the Act, to the Media Owner and shall the same be liable to Service Tax?

Question 2 - Under proposed Business Model 2, while the applicant shall buy and sell the media inventory on its own account to the advertiser, will incidental receipt of incentives/volume discounts from Media Owner be considered to be providing a service, as defined under the Act, to the Media Owner and shall the same be liable to Service Tax?

Question 3 - In case, it is considered that the applicant is providing any service to the Media Owner, in the course of providing advertisement placement services to its client, then on what value should the Service Tax be applicable under the Act?

Applicant submits that the issue was examined by the CESTAT in its order in the case of Grey Worldwide India Private Limited - 2014-TIOL-1650-CESTAT-MUM wherein it was held that no service tax is payable on such amount (i.e. incentives / volume discounts) received by the Advertising Agency from the Media Owners; that in any event, once media owner discharges the service tax on the gross amount charged by them to the advertisers and the applicant having discharged the service tax on the agency commission received by the applicant, no further service tax will be payable as consideration for services charged by the media owners and the applicant has already suffered the service tax in full .

In regard to the Proposed Business Model 2, it is submitted that the applicant would be paying the service tax (including cess, if any) on the gross amount charged to the advertiser for the media inventory (except non-taxable media such as print media). The media owners would charge the applicant the service tax on the gross amount charged to the applicant. Any incentives / volume discount received by the applicant from Media Owners post the issuance of the taxable invoice on the applicant for the gross amount charged to the applicant, no service tax will be payable on the said incentive / volume discount as the service tax, at the first instance, will be paid on the gross amount charged to the applicant. The applicant, in turn, will pay service tax on the gross amount charged by the applicant to the advertiser.

Applicant also submitted that post Negative List regime, Jurisdictional Commissioner of Service Tax has passed an Order-in-Original in the case of M/s Group M. Media India Private Limited holding that volume discounts are not liable to Service Tax; that they do not provide any promotion or marketing services to the Media Owners; that applicant does not provide any Declared Services under Section 66E of the Finance Act, 1994 and are not undertaking any activity for consideration for Media Owners.

Revenue submits that in respect of both the proposed Business models, the volume discount received by the applicant for the services provided to the Media Owner is liable to Service Tax.

The authority observed that no iota of the evidence had been produced by the Revenue to indicate that there is an activity undertaken by the applicant, which resulted in Media Owner giving volume discount to the applicant, especially when the choice of selecting Media Owner is reportedly with the Advertiser and not with the Advertising Agency (applicant). And, therefore, volume discount that could be received from the Media Owners by the applicant is not in relation to any activity undertaken by the applicant and hence it is not service.

It was also observed that Media Owners are not under any legal obligation to pay volume discounts and it is purely discretionary on the part of Media Owners. Applicant is not carrying out any activity to promote any Media Owner's business. Further, which Media Owner is to be engaged, is the decision of the advertiser and not of the applicant. Therefore, applicant cannot be said to provide promotion or marketing services to Media Owners.

The arguments of the Revenue were held to be based on an incorrect appreciation of facts.

Placing reliance on the Tribunal decision in M/s Grey Worldwide India Private Ltd., - 2014-TIOL-1650-CESTAT-MUM, the Authority concluded that the applicant is not liable to pay Service Tax in respect of both the proposed business models. The Question 3 was, therefore, held to be infructuous.

(See 2016-TIOL-14-ARA-ST)