AD-inn Innovative Advertisers Vs Commissioner of Central Excise (CESTAT Chennai)
CESTAT Chennai held that the advertising materials like glow sign boards, flex printing, broachers, stickers, tags, posters, hand bills, signages, etc., which cater to the requirements of the specific customers, on which VAT is paid, is not leviable to Service Tax.
Facts-
The appellant is engaged in rendering taxable services under the category of Advertising Agency service to various clients. The Department was of the view that the Appellant had paid Service Tax on some transactions and in most of the transactions, they had paid VAT even though the job involved was similar in nature involving arrangements for installing the advertisement arches, signage boards, etc. at various places part from preparing them and the services rendered thereon appeared to fall under the category of “Advertising Agency” in terms of Section 65(3) of the Finance Act, 1994.
Accordingly, show cause notice was issued demanding service tax on Advertising Agency Service. Adjudicating authority confirmed the same. Being aggrieved, the present appeal is filed.
Conclusion-
Held that the advertising materials like glow sign boards, flex printing, broachers, stickers, tags, posters, hand bills, signages, etc., which cater to the requirements of the specific customers, on which VAT is paid, is not leviable to Service Tax. We are also of the view that Service Tax cannot be demanded in respect of cloth banners and wall painting transactions without first analyzing the nature of work undertaken by the appellant in detail.
FULL TEXT OF THE CESTAT CHENNAI ORDER
Service Tax Appeal Nos. ST/40707/2013, ST/40404/2015 and ST/40575/2015 have been filed by Mr. P. Ramesh, Proprietor, M/s. Ad-Inn Advertising Services assailing the Orders-in-Original No. 53/2012 dated 31.12.2012, No. 05/2014 dated 28.11.2014 and No. 12/2014 dated 08.12.2014 passed by the Commissioner of Central Excise, Salem Commissionerate confirming demands of Service Tax of Rs.99,64,532/-, Rs.2,47,58,873/- and Rs.1,97,32,946/-under the Category of “Advertising Service” for the periods 01.07.2006 to 31.07.2008, 01.04.2007 to 31.03.2011 and 01.04.2011 to 31.03.2012 respectively and confirming recovery of CENVAT credit erroneously taken to the tune of Rs.2,34,067/-, Rs.6,81,675/- and Rs.6,64,138/- during the said periods, under proviso to Section 73(1) of the Finance Act, 1994 by invoking the extended period and also levy of interest under Section 75 and imposition of penalties under Sections 77(e) and 78 of the Finance Act, 1994.
2.1 Brief facts of the present appeals are that Ad-Inn Advertising, a Private Limited Company w.e.f. 23.01.2007 was engaged in rendering taxable services under the category of Advertising Agency service to various clients. Earlier to till 23.01.2007, Ad-Inn Innovative Advertisers was doing into business activities as a proprietary concern and Mr. P. Ramesh was its proprietor. Same operation was continued except for change in the constitution.
2.2 The appellants are undertaking basically, the following advertising services:-
i. Taxable services such as conducting events, road shows, promotional activities, designing and erection of hoarding, etc.,
ii. Exempted services, wall painting, etc.,
iii. sales related activity, i.e., printing of wall posters, bills, banners, making glow boards etc.,
iv. Releasing of advertisement in News Paper/TV/Radio channels on commission basis.
2.3 The Department was of the view that the Appellant had paid Service Tax on some transactions and in most of the transactions, they had paid VAT even though the job involved was similar in nature involving arrangements for installing the advertisement arches, signage boards, etc. at various places part from preparing them and the services rendered thereon appeared to fall under the category of “Advertising Agency” in terms of Section 65(3) of the Finance Act, 1994. The department entertained the view that the nature of transactions provided by them was inseparable involving both preparation of advertisement material and its display and in as much as they did not raise separate invoices for the sale of goods and for providing service, it appeared that no sale is involved in such transactions and hence they are not eligible to avail the benefit of Notification No. 12/2003-ST. In respect of transactions which were considered by the Appellant as „Sale of Goods‟ (for which only VAT was paid), the Appellant had undertaken entire work including purchase of materials, preparation and installation, etc. As per Section 65(2) of the Finance Act, the term advertisement includes any notice, circular, label, wrapper, document, hoarding or any other audio or visual representation made by light, sound smoke or gas. The Department was of the view that scope of above definition of taxable service is also wide enough to cover „any service‟ rendered in any manner in relation to advertisement and therefore it appeared that products of Ad-inn are advertisement as defined under Section 65(2) of the Finance Act and they were liable to pay Service tax on the taxable value under the category of Advertising Agency service.
3. On scrutiny of records, it was noticed that during the period from 01.04.2006 to 31.03.2008, the Appellant had rendered taxable services valued at Rs.12,66,78,223/- out of which they had declared and paid Service Tax on the taxable value of Rs.3,34,09,844/- only and differential taxable value of Rs.9,32,68,379/- had not been declared in the ST-3 returns and had escaped Service Tax assessment. Service Tax on the value of Rs.9,32,68,379/- worked out to Rs.1,14,35,610/- which was liable to be recovered under proviso to Section 73(1) of the Finance Act in as much as there was suppression of facts with an intention to evade payment of appropriate service tax.
4. Further, it appeared that the Appellant had taken CENVAT credit of Rs.2,34,067/- during the period 2006-07 and 2007-08 based on invoices raised by various broadcasters which were in relation to broadcasting of advertisement for their clients. The department was of the view that such services do not qualify as input services for the Appellant and therefore the CENVAT credit availed was inadmissible under the provisions of CENVAT Credit Rules, 2004(CCR). Therefore, it appeared that the CENVAT credit availed erroneously was liable to be recovered under Rule 14 of CCR read with Section 73(1) of the Finance Act.
5.1 A Show Cause Notice No. 03/2011 dated 03.11.2011 was issued to the Appellant by the Commissioner of Central Excise and Service Tax, Madurai proposing (i) to demand the Service Tax of Rs.1,14,35,610/- on Advertising Agency Service for the period from 01.04.2006 to 31.03.2008 besides proposing to levy interest under Section 75 and to propose penalties under Sections 76,77 and 78 of Finance Act, 1994. and (ii) to recover the CENVAT Credit of Rs.2,34,067/- erroneously availed under Rule 14 of CCR, invoking Section 73(1) of the Finance Act, besides proposing to levy interest under Section 75 and to propose penalties under Sections 76, 77 and 78 of Finance Act, 1994 read with Rule 15 of CCR. Subsequently, the following two other Show Cause Notices were issued on the Appellant:
(i) Show Cause Notice dated 11.10.2012 was issued to the Appellant proposing to demand Service Tax of Rs.2,47,58,873/- on Advertising Agency Service for the period from 01.04.2007 to 31.03.2011 invoking Section 73(1) of the Finance Act, 1994 besides proposing to levy interest under Section 75 and to propose penalties under Sections 76, 77 and 78 of Finance Act,1994. Further, an amount of Rs.6,81,675/- erroneously availed as CENVAT Credit was sought to be recovered under Rule 14 of CCR, invoking Section 73(1) of the Finance Act, besides proposing to levy interest under Section 75 and to propose penalties under Sections 76,77 and 78 of Finance Act, 1994 read with Rule 15 of CCR.
(ii) Show Cause Notice dated 12.07.2013 was issued to the Appellant proposing to demand Service Tax of Rs.1,97,32,946/- on Advertising Agency Service for the period from 01.04.2011 to 31.03.2012 invoking Section 73(1) of the Finance Act, 1994 besides proposing to levy interest under Section 75 and to propose penalties under Sections 76, 77 and 78 of Finance Act, 1994. Further, it was proposed to recover CENVAT credit of Rs.6,64,138/- erroneously availed, invoking Section 73(1) of the Finance Act, besides proposing to levy interest under Section 75 and to propose penalties under Sections 76, 77 and 78 of Finance Act, 1994 read with Rule 15 of CCR.
5.2 After due process of law, the Adjudicating Authority vide Order-in Original No.53/2012 dated 31.12.2012, confirmed demand of Rs.99,64,532/- and Rs.2,34,067/- in Show Cause Notice dated 03.11.2011 and imposed equal penalty under Section 78 of the Act read with Rule 15(3) of CCR besides imposing penalties under Section 77 and levying interest under Section 75 of the Finance Act,1994. Aggrieved, the appellant is on appeal before this forum in ST/40707/2013.
5.3 Similarly the demands in Show Cause Notices dated 11.10.2012 and 12.07.2013 were fully confirmed by the lower authority as proposed in the said Notices and Penalty imposed Under Section 78 read with Rule 15 of CCR and besides imposing penalties under Section 77 and levying interest under Section 75 of the Finance Act, 1994. Aggrieved by the above Orders, the appellant is on appeal before this forum in appeals ST/40404/2015 and ST/40575/2015.
6.1 Ld. Advocate Shri S. Murugappan representing the Appellant submitted that prior to Show Cause Notice No. 3/2011 dated 03.11.2011, a demand notice was issued for the period from 2002-2006 invoking extended period and since the facts were known to the Department, the other three notices alleging suppression are not sustainable since the department was already aware of the issue in view of the following Supreme Court judgements:
(i) Nizam Sugar Factory Vs. Collector of central Excise, AP reported in [2008 (9) STR 314 (SC)]
(ii) ECE Industries Limited Vs. Commissioner of Central Excise, New Delhi reported in [2004 (164) ELT 236 (SC)].
6.2 It was averred that all facts of rendering of services either taxable or non-taxable was intimated to the department by way of filing of periodical ST-3 returns and therefore the notices were hit by limitation as there was no suppression involved. The notices were issued based on financial data available in the Balance Sheet which were available to the Department. There was no suppression of fact by way of fraud, collusion, wilful mis-statement with intent to evade payment of Service Tax as all facts were declared to the Department. In the above circumstances, allegation of suppression with intent to evade payment of Service Tax was totally unwarranted. To allege suppression of facts, there should be mens rea to evade payment of tax which was not established and hence suppression could not be alleged. The following case laws were cited in reliance of the above submission:-
(i) S. K. Sacks (p) Ltd. Vs. Commissioner of Central Excise [2012 (276) ELT 186 (P & H)]
(ii) Commissioner of Central Excise Vs. ESS ESS Engineers [2011 (23) STR 3 (P&H)]
(iii) Commissioner of C.Ex, Chandigarh Vs. Pepsi Foods Ltd. [2010 (260) ELT 481 (SC)]
(iv) Bellary Steels & Alloys Limited Vs. Commissioner of C.Ex, Belgaum [2006 (199) ELT 808 (Tri.-Bang.)]
(v) Lanco Industries Ltd. Vs. Commissioner of C.Ex, Tirupathi [2012 (25) STR 206 (Tri.-Bang.)]
6.3 It was contended that the impugned notice/order were issued/ passed based on a suspicion that entire activities or business carried out by the Appellant were taxable services only, without conducting any detailed investigation and hence notice/order are invalid.
6.4 It was submitted that the entire figures in the Profit and Loss Account could not be taken as a taxable income through advertisement service, without carrying out any investigation and without causing any verification of the documents. The Appellant produced a lot of evidence which was not admitted by the lower authority.
6.5 It was submitted that every service rendered is not subject to levy of Service Tax and only taxable service is subject to levy of Service Tax. In this regard the Ld. Counsel would take us through the decision in the case of Zodiac Advertisers Vs. Commissioner of Central Excise in which the Hon‟ble Tribunal, Bangalore held that in the absence of any creativity relating to preparation, making and display undertaken by the Appellants, mere manufacture of products as per instructions of the service receiver would not bring them under the definition of „Advertising Agency‟. It was held by the Hon‟ble Tribunal that mere manufacturing the product as per instructions and specifications of the job work would not amount to rendering the service which can fall in the category of „Advertising Agency‟. Applying the analogy of the decision taken in this case, when the matters are just printed without the activities relating to making or preparation of an advertisement like designing, visualising, conceptualising, etc. there is no liability to pay service tax on the charges made thereon. Though the Hon‟ble High Court of Kerala reversed the decision of the Hon‟ble CESTAT, the Hon‟ble Supreme Court remanded the matter for de-novo proceedings to decide whether there was any conceptualisation. The Hon‟ble Supreme Court, in the above case, reported in [2009 (14) STR 449 (SC)] held as follows:-
“2. Having heard learned counsel on both sides, we are of the view that an important question of law does arise in this case, namely, whether an assessee comes within the definition of the word „advertising agency‘ as defined in Section 65(3) of the Finance Act, 1994 as amended.
3. However, on perusing the record, we find that material documents, particularly, orders and purchase materials, books of accounts etc., were not placed before the Tribunal/Adjudicating Authority despite being called upon to do so. There is a specific finding to that effect in the High Court‘s Order impugned herein.
4. In the circumstances, we set aside the order of the High Court as well as that of the Tribunal, giving final opportunity to the appellant herein to produce all the relevant records particularly to show the nature of the work which the appellant specifically undertakes. Accordingly, the matter stands remitted to the Tribunal which would examine whether the appellant herein is undertaking the work of conceptualising, visualising and creating the advertisement or whether it is only complying with the instructions of its clients. This aspect needs further details. Therefore, we are setting aside the order of the Tribunal as well as the order of the High Court.”
6.6 The Ld. counsel has submitted that, as they were printing the matters supplied by the clients, they were not liable to pay service tax on the activities relating to printing of materials either on paper or cloth or flex. Printing of flex is also not liable to be taxed as no creativity was involved therein and the advertisement materials in the flex were not conceptualised or designed by the Appellant but are just printing the matter. Likewise no service tax is chargeable on printing of cloth. However, the lower authority without going into the merits of the issue and without analysing the facts put forth by the Appellant had just confirmed the demands.
6.7 Ld. Counsel also submitted that the Appellant prepares banners either on cloth or flex and the matter for the banners will be supplied by their clients and they have designed the banners or matters. The Appellant also supplies caps, banners to clients which were bought out and supplied and is a sale of material for which appropriate sales tax was discharged.
6.8 It was further submitted that for the same activity sales tax/ service tax was not leviable. That except for the matters which involve service tax, they have paid sales tax as follows (in respect of SCN No. 3/2011):
