COMMISSIONER OF CENTRAL EXCISE APPEALS), CHENNAI
Sovereign Media Marketing (P.) Ltd., In re
P. AYYAM PERUMAL, COMMISSIONER (APPEALS)
Order-In-Appeal No. 192 of 2011 (M-ST)
OCTOBER 25, 2011
ORDER
1. This is an appeal filed by M/s. Sovereign Media Marketing (P) Ltd., Chennai (hereinafter called as the appellant) against the lower adjudicating authority’s impugned Order-in-Original No. 10/2009, dated 30-1-2009 passed by the Joint Commissioner of Service Tax. Service Tax Comm’te, Chennai. Briefly stated facts of the case are that M/s. Malar Publications Ltd. are publishers of a newspaper by name “Maalai Malar”. During the course of audit of their accounts, it was noticed that the appellant have canvassed for advertisements for Maalai Malar (published by Malar), Daily Thanthi and Rani Weekly up to 31-3-2005 and that Malar have taken over the business of the appellant as a going concern w.e.f. 1-4-2005. It appeared that the activity of canvassing for advertisements in the publications might be classified as ‘promotion or marketing of advertisement services’ of the publications and such services would fall under the category “Business Auxiliary services” w.e.f 1-7-2003. This position had been clarified in Circular No. 96/7/2007-S.T., dated 23-8-2007 stating that canvassing advertisements for publishing on commission basis were liable to service tax under Business Auxiliary Service. It appeared that the appellant had rendered ‘Business Auxiliary Service’ to the publications Malai Malar, Daily Thanthi and Rani Weekly by canvassing for advertisements in the said publications and that they were liable to pay Service tax on the amount charged by them for such services during the period from 1-7-2003 to 31-3-2005. For rendering such services, the appellant had charged an amount every month from the above three publications and the amounts have been accounted as income under the head ‘Retainer Fees received’ in the P&L account of the appellant for the years ending 31-3-2004 and 31-3-2005. The appellant had neither taken registration nor paid service tax on the above services rendered. The fact of having provided such taxable service came to light only through audit of accounts of Malar Publications. Hence, a Show Cause Notice proposing (i) to classify the activity of canvassing for advertisements in the publications by the appellant as taxable service under ‘Business Auxiliary Service’, (ii) to demand an amount of Rs.22,55,400/- towards service Tax and Rs. 18,900/- towards Education Cess on the value of services rendered during the period from 1-7-2003 to 31-3-2005 under proviso to Section 73(1) of the Finance Act, 1994 along with interest under Section 75 of the Finance Act, 1994 besides proposal to impose penalties under Sections 76 & 78 of the Finance Act, 1994 was issued to the appellant. After due process of law, the Lower Adjudicating Authority had confirmed the proceedings initiated in the Show Cause Notice after dropping the penalty imposed under Section 76 of the Finance Act, 1994 vide impugned Order-in-Original. But the Lower Adjudicating Authority gave an option to the appellant that the penalty under Section 78 would be reduced to Rs. 5,68,575/- if the service tax along with interest and above determined penalty are paid within 30 days from the date of communication of the order. But the appellant failed to utilize this opportunity.
2. Aggrieved, the appellant had filed this appeal mainly on the following grounds :
(i) that the appellant’s activity of canvassing for advertisements for the three publications was known to the Department even in 1996 and further since the appellant was under the bona fide belief that its case fell within the precincts of circular dated 28-10-2003, there was neither any suppression of facts nor willful intent to evade payment of service tax and hence the invocation of the extended period of limitation is unjustified and untenable in law.
(ii) that the appellant was engaged in canvassing advertisements for three publications of Malar group and that during the check period viz. 1-7-2003 to 31-3-2005, this activity of the appellant called ‘space selling’ was outside the purview of service tax.
(iii) that the appellant was paid retainer ship for its activities and not on commission basis and hence the levy of service tax was unjustifiable.
(iv) that in terms of Circular No. 64/13/2003-S.T., dated 28-10-2003, the activity of ‘space selling’ i.e. contacting potential advertisers and persuading them to give advertisements would not fall within the definition of advertising agency and was not subjected to service tax and hence application of Section 73(1) does not arise at all.
(v) that the activity of canvassing for advertisements also called ‘space selling’ was included as a taxable service under Section 65(105)(zzzm) w.e.f. 1-5-2006 and hence was not justified in imposing service tax on the appellant for the period 1-7-2003 to 31-3-2005.
3. A personal hearing was held on 16-9-2011 and Shri T. Vasudevan, Advocate, appeared on behalf of the appellant and reiterated their submission. Despite intimation, no one appeared on behalf of the respondent-Department.
4. During the hearing, in addition to reiterating the submissions made already in the appeal memorandum, the advocate has further emphasized that in terms of Board’s Circular No. 64/13/2003-S.T., dated 28-10-2003, selling of space is not liable for Service tax and he relied on the Honorable Tribunal Bangalore decision in the case of Rex Advertisers v. CST [2006] 4 STT 139 (Bang.-CESTAT).
4.1 He has further submitted that even when space selling was brought under Service tax net in 2008, sale of space for advertising in Print Media was excluded from levy of Service tax and in this regard he has relied on the Honorable Tribunal Chennai decision in the case of Malar Publications Ltd. v. CST [Stay Order No. 566 of 2010, dated 8-11-2010]. He has further undertaken to produce copy of agreement/documents specifying the nature of activity undertaken by his client during the impugned period, within 5 days.
5. I have carefully gone through the records of the case and also the oral as well as written submissions made. I find that the Department had demanded service tax on retainer ship fee earned by the appellant towards canvassing for advertisements in the publications under the category “Business Auxiliary Service” for the period 1-7-2003 to 31-3-2005. The appellant had contended that their activity is just space selling in print media which will fall under “advertising agency” services and that the activity was out of purview of service tax during the disputed period. Hence, the Short issue to be decided in the instant case is whether the activity of canvassing for advertisements in publications is taxable under ‘Business Auxiliary Service’ as alleged by the Department or not.
5.1 I find from the records that the Department classified the appellant’s activity of canvassing for advertisements in the publications as “Promotion or marketing of advertisement services” of the publications and the service includes services as commission agent under “Business Auxiliary Service”. They relied on the clarification of Board’s Circular No. 96/7/2007-S.T., dated 23-8-2007 wherein it is stated as canvassing advertisements for publishing on commission basis were liable to Service tax under “Business Auxiliary Service”. The appellant had produced copies of agreement entered into between them and Malar Publications towards canvassing of advertisement spaces with Daily Thanthi, Maalai Malar and Rani Syndicate. I find from the agreement that the appellant are paid with fixed retainer fee on monthly basis and they do not render the services to the above publications on commission basis which proves that their service will not fall under “Business Auxiliary Service”. The retainer fee is paid on fixed rate for some years as per the agreement. As the appellant is not rendering the canvassing services on commission basis, they are not taxable under “Business Auxiliary Service” as per Board’s Circular No. 96/7/2007-S.T., dated 23-8-2007.
5.2 It is pertinent to mention here that Board vide its Circular No. 64/13/2003-S.T., dated 28-10-2003 clarified that canvassing for advertisements not liable to service tax when limited to space selling.
“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.
The term canvassing may merely invoice contacting potential 2. 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.
On the other hand, ‘canvassing’ may involve such agency 3. 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, informing 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.’
In view of above, I have been directed to say that if the 4. 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.”
5.3 I find from the agreement that the activity of the appellant is limited to space selling in the three publications. The above clarification was given by the Board to agencies/persons who render canvassing services on commission basis. Board vide last para of the above circular had clarified that when their services of canvassing is limited to space selling then such services would not be liable to any Service tax. In the instant case the appellant is not rendering such service on commission basis. The amount paid by the publications is a fixed retainer fee on monthly basis. Thus by the above Circular, the appellant’s activity is not taxable under Advertising Agency during the disputed period. The Government intends to exclude print media from the purview of Service tax. In case of advertising services also, the circulars clarifying that the sale of space for advertising would not be taxable under the category of advertising services were primarily meant to save the print media from the burden of tax. In the services of sale of space of time for advertisement, a specific exclusion has been made to this effect. “Sale of space or time for Advertisement Services” was brought into the Service tax net w.e.f. 1-5-2006 only. The disputed period in the instant case is prior to that. Thus, the activity of the appellant during the disputed period is not taxable under Advertising Agency Service and Sale of Space or time for Advertisement Services too.
5.4 The appellant had submitted a copy of the Honorable CESTAT, Chennai’s Stay Order No. 566/2010, dated 8-11-2010 in respect of Malar Publications Ltd. (supra) on the similar issue. The appellant had been issued with Show Cause Notice by the Commissioner of Service Tax, Chennai for the subsequent period after M/s. Malar Publications had taken over the appellant’s company on the same issue. Here the Honorable CESTAT had waived the pre- deposit as the Tribunal had felt that there was a strong prima facie case on the appellant’s favour.
6. In view of the above discussions and taking into consideration the facts of the case, I hold that the appellant’s activity is not taxable under “business auxiliary service” and the appellant is not liable to pay Service tax on the retainer fee paid by the publications during the disputed period.
7. Hence, I set aside the impugned Order-in-Original of the Lower Adjudicating Authority and allow the appeal.
8. Appeal allowed.
