Principal Commissioner of CGST And Central Excise Vs Nexus Alliance Advertising And Marketing Pvt Ltd (Delhi High Court)
The Delhi High Court dismissed an appeal filed by the tax department challenging an order of the Customs, Excise and Service Tax Appellate Tribunal which had held that performance incentives received by an advertising agency from media houses were not liable to service tax. The respondent was engaged in providing advertising agency services, including booking advertising space and time slots in print and electronic media on behalf of its clients. Service tax on agency commission was undisputed and duly paid.
Following an investigation, the department alleged that incentives received by the agency from media houses upon achieving revenue targets amounted to consideration for promoting the business of media owners and constituted taxable “business auxiliary service” or a declared service under Section 66E(e) of the Finance Act, 1994. A show cause notice was issued seeking recovery of service tax on such incentives. However, the adjudicating authority dropped the proceedings, holding that no service was rendered by the agency to the media houses in relation to the incentives.
On appeal, the Tribunal upheld this view, noting that the agency’s clients were advertisers, not media houses, and that there was no contractual obligation on the agency to meet targets for media owners. Incentives were paid at the discretion of media houses if business volumes increased, without any enforceable obligation. The Tribunal held that Section 66E(e) applies only where there is a clear contractual agreement to do, tolerate, or refrain from an act for consideration, which was absent in this case.
