Introduction: In a significant legal battle between the Tamil Nadu State Transport Corporation and the Commissioner of GST & Central Excise (CESTAT Chennai), the question of whether the hiring of space for advertisements on buses by the State Transport Corporation should be classified as an advertising agency service has been the center of debate. This article delves into the details of the case, the arguments presented by both parties, and the final decision reached by CESTAT Chennai.
Detailed Analysis: The case originated when the Central Excise officers conducted an investigation into the activities of the Tamil Nadu State Transport Corporation (TSTC). They found that TSTC had been offering advertising space on its buses to various consumer brands and collecting fees for these advertisements. The revenue generated from these advertisements was categorized as ‘Non-Operational Revenue’ in their financial records.
Based on this investigation, a Show Cause Notice was issued to TSTC in September 2006, demanding service tax of Rs. 11,81,098 for the period from January 2002 to June 2006, along with interest and penalties. The adjudicating authority, after due legal process, confirmed the demand, resulting in a service tax liability of Rs. 7,93,321, in addition to interest and penalties, as per the provisions of the Finance Act, 1994. Commissioner (Appeals) also upheld this order, leading to the appeal before CESTAT Chennai.
The primary argument presented by TSTC was that they were a government undertaking in Tamil Nadu, providing transportation services to the public. They contended that the term “Advertisement Charges” used in their financial records was merely for easy identification and convenience. TSTC insisted that this terminology should not determine their classification as an advertising agency. According to TSTC, they only provided space on their buses for advertisers to display their advertisement boards. The actual making, preparation, display, or exhibition of advertisements was the responsibility of the advertisers themselves.
TSTC further emphasized that they did not engage in activities related to designing, conceptualizing, or preparing advertisements. They merely facilitated the placement of advertising boards, and the advertisers were responsible for all creative aspects. Therefore, they argued that they should not be classified as an “advertising agency” under the provisions of the Finance Act, 1994.
The Assistant Commissioner representing the Revenue argued that TSTC’s involvement in estimating space, forming layouts, deciding the nature and size of presentations, and setting prices for advertisements indicated their engagement in the essential steps of making and preparing advertisements. As per the Revenue’s argument, TSTC was directly involved in the specified aspects of making, preparation, and displaying advertisements, aligning them with the definition of an advertising agency.
Conclusion: After considering the arguments from both sides and examining the relevant provisions of the Finance Act, 1994, CESTAT Chennai reached a decisive conclusion. They found that TSTC’s primary role was to offer advertising space on their buses to advertisers, and they did not engage in the creative aspects of advertisement making, preparation, or design. Instead, TSTC’s involvement was limited to providing space for advertisements and setting certain conditions for advertisers.
CESTAT Chennai cited precedents and circulars that supported their decision. They highlighted that mere selling of space for the exhibition of advertisements did not classify TSTC as an advertising agency. As a result, the demand for service tax on TSTC was set aside, and the appeal was allowed in their favor.
This ruling by CESTAT Chennai clarifies the distinction between a service provider offering advertising space and a true advertising agency involved in the creative aspects of advertisement preparation. It reinforces the importance of analyzing the specific activities undertaken by a service provider to determine their tax liability under relevant laws.
FULL TEXT OF THE CESTAT CHENNAI ORDER
This appeal is filed by M/s. Tamil Nadu State Transport Corporation against Order in Appeal No. 32/2014-ST dated 23.1.2014 (impugned order) passed by the Commissioner of Central Excise (Appeals), Salem.
2. Brief facts of the case are that on investigation by the officers of Central Excise, it appeared that the appellant was rendering advertisement agency services by placing advertisement boards in the buses of leading consumer brands. Advertisement charges were collected by the appellant from the clients as evident from their balance sheets wherein the receipt were accounted as ‘Non-Operational Revenue’. Scrutiny of the documents revealed that during the period from January 2002 to June 2006, the appellant had collected Rs.1,28,64,245/- as advertisement income from various parties. Hence a Show Cause Notice dated 22.9.2006 was issued to the appellant demanding service tax of Rs.11,81,098/- for the period from January 2002 to June 2006 with interest and penalties. After due process of law, the adjudicating authority confirmed the demand of service tax amounting to Rs.7,93,321/- along with interest and imposed penalties under various sections of Finance Act, 1994, vide OIO No. 28/2007 Dated 31.12.2007. In appeal, Commissioner (Appeals) upheld the impugned order. Hence this appeal before the Tribunal.
3. No cross-objection has been filed by respondent-department.
4. We have heard Ms. Manne Veera Niveditha, learned counsel for the appellant and Shri Harendra Singh Pal, learned Assistant Commissioner (AR) for the Revenue.
4.1 The learned counsel for the appellant submitted that they are a Government of Tamil Nadu Undertaking providing transportation facility to the public. The terminology “Advertisement Charges” used by the appellant in their accounts is only for the sake of easy identification and convenience and it is not the deciding factor to determine that the appellant was covered under the service tax category “Advertising agency”. The charges collected from their clients was for using the space provided in the buses for fixing advertisement boards. She stated that in the facts and circumstances, the observations and understanding of the Adjudicating authority and the Appellate authority are totally erroneous. The appellant is not concerned with the making, preparation, display or exhibition of advertisement. This activity fully rests on the customer in the space sold offered by them (appellant). The findings of the adjudicating authority that they are estimating the space for displaying the advertisement, forming the lay out and that they decide the nature, size of the presentation of its content, apart from fixing the price are very vague and misplaced. It is quite common that space sellers identify the extent of the area and negotiate the price expected for it. This activity cannot be said to be in relation to advertisement ‘in any manner’ and instead was only in relation to sale of space. Since, the entire issue is a question of interpretation of the classification of the service as could be seen from the circulars, the question of invoking the longer time period for issue of Show Cause Notice is legally untenable. She relied on the following case laws to substantiate their claim:
1. Collector of Central Excise v. Chemphar Drugs & Liniments 1989 (40) E.L.T. 276 (SC)
2. Padmini Products v. Collector of C.Ex. 1989 943) E.L.T. 195 (SC) She prayed that the impugned order be set aside with consequential relief.
4.2 The learned Assistant Commissioner (AR) submitted on behalf of Revenue that as stated in the Order in Original, the appellant estimates the space for displaying the advertisement and for forming the layout, decide the nature, size of the presentation, apart from fixing the price. These activities would have to be considered as essential steps in the process of making / preparation of the advertisement. Hence, the appellant is concerned with the specified areas of ‘making’, ‘preparation’ and ‘displaying’ the advertisement. He prayed that the impugned order may be upheld.
5. We have heard the rival parties. It would be helpful to extract the relevant provisions of the Finance Act 1994, concerning the dispute:
Section 65(3) states:
“advertising agency” means any person engaged in providing any service connected with the making, preparation, display or exhibition of advertisement and includes an advertising consultant”
Section 65(105)(e) states:
“To any person, by an advertising agency in relation to advertisement, in any manner”
5.1 We find that the appellant has stated that they were offering space on the rear side of the bus and on the rear side of the driver’s seat to advertisers for the purpose of displaying advertisement of their choice. Their clients make best use of the space by displaying advertisement boards made according to their convenience, taste, choice, design etc. within the space allotted to them. The conditions imposed on their clients were: –
1. the advertisement charges for carrying the display boards for advertisement should be paid in advance;
2. the display boards should be of a given size
3. the display boards should be fitted with bolts, nuts in the respective depots without causing any damage to the buses;
4. the display boards should be such that they do not have any radiating effect on the eyes of the driver of buses or other drivers on the road;
5. the display boards should be firmly fixed to the bus in order to withstand the wind force and in the event of any damage to the display board, the management (TSTC) will not be responsible;
6. the fixing and maintenance of the display boards is the responsibility of the advertiser.
5.2 It is seen from the above conditions that while the appellant lays down the guideline to be followed, they do not involve themselves with conceptualizing, designing or preparing of the actual advertisements. This activity rests with the advertiser himself. The appellant only facilitates the display of advertising boards on payment of charges for the space allotted. This being so the question of the appellant being involved in the making, preparation, display or exhibition of advertisements does not arise. Mere selling of space for the exhibition of advertisements will not be covered by the definition of ‘Advertising Agency’. The onus of proof regarding fulfilment of condition subject to which an exemption may be admissible lies on the assessee or upon a party claiming benefit under a notification, but in the case of subjecting an activity to levy under a taxing statute, the onus is on Revenue. The impugned order has failed to substantiate its case hence the appellant cannot be said to be carrying out the activities of an ‘advertising agency’.
5.3 The Board vide Ministry of Finance F. No. 345/4/97-TRU, dated 16-8-1999 had clarified that no service tax is chargeable on the advertisement booked for yellow pages. The reasoning given therein is also applicable to this case. It was clarified that if persons undertake any activity relating to making or preparation of an advertisement, such as designing, visualizing, conceptualizing etc., only then will they be liable to pay service tax on the charges made thereon under “advertisement agency” service. The letter was considered by the Coordinate Bench of the Tribunal in Contact Advertising Agency v. Commissioner [2001 (132) E.L.T. 245 (Tribunal)], which held:-
“4. We have considered the submissions of both the sides. . . . . The Ministry under letter dated 16-8-1999 has clarified as under:
“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.
2. 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 or 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 sevice tax. The commission received by the advertising agency would, however, be includible in the value of taxable service. In other words, service is attracted on advertising agencies which are providing service to advertisers by conceptualising, designing or preparing advertisements. Printing on electronic media are 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 o f advertisements.
3. In the case of persons who are printing and publishing telephone directories, yellow pages or business directories, their activity is essentially of printing a 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, visualising, conceptualising etc., then they will be liable to pay service tax on the charges made thereon.”
5. It is apparent from this letter that the activity of printing and publishing yellow pages does not attract service tax. However, Service Tax is attracted on advertising agencies which are providing services to advertisers by conceptualising, designing or preparing advertisement. This circular was not considered by both the lower authorities. Further, there is no finding given on the question of applicability of time limit in the impugned Order. We, therefore, set aside the impugned Order and remand the matter to the Jurisdictional Assistant/Deputy Commissioner with the direction to examine the chargeability of the activity in question to Service Tax in terms of Ministry’s letter F. No. 345/4/97-TRU, dated 16-8-1999 and also to consider question of Time limit and unjust enrichment after affording a reasonable opportunity of hearing to the Appellants.”
5.4 A similar matter was also examined by the Tribunal in Commissioner v. Incoda [2004 (174) E.L.T. 65 (Tribunal)]. It was held:
“4. The question before us is as to whether the act of displaying the advertisement in the Metro Railway Coaches is tantamount an act of Advertising Agency and is liable to pay Service Tax.
5. The similar matter came up for consideration before Delhi Tribunal in the case of Commissioner of Central Excise, Ludhiana v. Azad Publications reported in 2004 (167) E.L.T. 59 (Tri. – Del.) wherein Hon’ble Justice K.K. Usha, President, CESTAT, held as under:
“Service Tax – Advertising Agency – Respondents permitting display of advertisement on its site and raising bills for realizing rental charges – Such activity not bring the respondents under the definition of advertising agency – Section 65(2) of Finance Act, 1994.”
In the present case also, the respondent has hired space in Metro Railway Coaches and in turn provides space to its client for advertisement. The facts of the present case are similar to that of Commissioner of Central Excise, Ludhiana v. Azad Publications (supra). In view of the above, I do not find any merits in the present appeal and appeal deserves to be dismissed.
6. Consequently, I dismiss the appeal filed by the Revenue.”
We are in agreement with the reasons stated by the Tribunal in ‘Incoda’ above that hiring of space will not bring the appellant under the definition of ‘advertising agency’.
6. Since the issue has been decided on merits in favour of the appellant the question of interest, penalties or invoking the extended period does not arise.
7. Thus, the impugned order Order-in-Appeal No. 32/2014-ST dated 23.1.2014 passed by the Commissioner of Central Excise (Appeals), Salem is set aside and the appeal is allowed with consequential relief, if any, as per law.
(Pronounced in open court on 15.09.2023)