Introduction: The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) in Mumbai recently made a crucial ruling concerning the levying of service tax. The case in point is Commissioner of Service Tax-VI Vs Group M Media (I) Pvt. Ltd. The Tribunal ruled that service tax is not leviable on volume discounts and incentives received by Group M Media (I) Pvt. Ltd. from media owners at the end of the financial year. This article explores the judgment in detail, analyzing its implications and significance.
Legality of the Order: The Revenue-Department had filed an appeal questioning the legality of the order passed by the Commissioner of Service Tax-VI, Mumbai. This order had absolved Group M Media from the payment of service tax on volume discounts and incentives received from media owners.
Facts of the Case: Group M Media (I) Pvt. Ltd. is engaged in the placement of advertisements in various media outlets on behalf of its clients. The crux of the dispute was whether the volume discounts and incentives received by the company should be considered as taxable service.
Arguments Presented: The Department argued that the volume discounts should be classified under “Business Auxiliary Service” and thus be subject to service tax. The Respondent countered this by referring to earlier rulings and stating that these volume discounts were gratuitous and not subject to tax.
The Shift in Law: The department’s representative emphasized that service tax laws underwent a sea change in 2012, shifting from selective to comprehensive taxation. However, they failed to distinguish this in the order, according to the tribunal.
Past Precedents and Rulings: The Counsel for Group M Media cited previous tribunal decisions and an advanced ruling, stating that incentives received from media houses post-2012 should not be liable for service tax.
Conclusion: The CESTAT Mumbai ruled in favor of Group M Media (I) Pvt. Ltd., stating that service tax was not leviable on volume discounts and incentives. The tribunal also noted that both the media house and the respondent had already discharged their Service Tax liabilities. Moreover, it stated that any incentive received as an expression of gratitude or generosity is not taxable. This ruling has significant implications for advertising agencies and media houses and could set a precedent for future cases.
FULL TEXT OF THE CESTAT MUMBAI ORDER
Legality of the order passed by the Commissioner of Service Tax-VI Mumbai, absolving liability of the Respondent M/s. Group M Media (I) Pvt. Ltd. company from payment of Service Tax on volume discounts/incentives received from the Media owners at the end of the financial year is assailed by the Revenue-Department in this appeal.
2. Facts of the case, in a nutshell, is that Respondent M/s. Group M Media (India) Pvt. Ltd. has been engaged in placement of advertisements in media on behalf of its various clients. For placing orders in the print and broadcasting media, the Respondent prepares media plan, seeks approval of its plans, takes note of its suggestion, seeks choices of Media House for publication purpose and publishes the same. On its own, Respondent does not promote or canvass for any media houses for placing advertisement by its clients and depending on the media house chosen by the clients, the Respondent places order for publication, charges Service Tax against commission received by it for such publication, applicable Service Taxes were charged by media house on the cost of media publication, which in turn was passed on directly to the advertisers’ by the Respondent for payment. The dispute relates to the volume discount/incentives received by the Respondent from the media house at the end of the year for providing voluminous advertisements. Respondent claims the same as completely gratuitous in nature while the Appellant-Department claims it to be of Business Auxiliary Service in reverse flow provided by the Respondent as an intermediary. On the strength of show-cause notice, duty demand was raised against the Respondent that has suffered adjudication process but the findings of the Commissioner referred above have gone in favour of the Respondent, challenging the legality of the which Department is before us in the present Appeal.
3. During the course of argument, learned Authorised Representative for the Appellant-Department Mr. Badhe Piyush Barasu submits that the order passed by the commissioner was duly review by the committee of Chief Commissioners, wherein it was clearly indicated that out of two show cause notices demanding Rs.8,59,64,219/- and Rs.10,68,66,472/- which were adjudicated vide Order-in-Original that corresponds to two periods between financial years 01.04.2011 and 31.03.2013 but in the meanwhile Service Tax laws had undergone sea changes with paradigm shift from selective taxation scheme to comprehensive taxation scheme w.e.f. 01.07.2012 with introduction of negative list of services vide Notification No. 26/2012 that had excluded certain services and included all other services under the cover of Service Tax net and the Learned Commissioner had failed to distinguish both the period in his order. He further submitted that the scope and term of the services rendered by the Respondent M/s. Group M Media (I) Pvt. Ltd. house is ‘intermediary’ and not ‘advertising agency services’ in respect of the volume discount as it had received from the media house and in view of the decision of the Tribunal passed in the case of BBC World (India) Pvt. Ltd. Vs. CST in New Delhi reported in 2009-YIOL-376-CESTAT-DEL, duty is payable by the Respondent for which order of Commissioner is required to be set aside.
4. In response to such submissions, Learned Counsel for the Respondent Mr. Prasad Paranjape submits that issue is no longer res-integra in view of the decision of this Tribunal which are passed in Respondent’s own case on 27.08.2014 and 02.07.2015, apart from the fact that authority for advance ruling on 22.04.2016 had ruled, in respect of a group company of Respondent, that volume discount/incentive received from media house post July, 2012 should not be liable to Service Tax and the same finds approval of the Hon’ble High Court of Madras in the case of T.V. Sundram Iyengar & Sons Pvt. Ltd. Vs. Commissioner of CGST & Central Excise, Madurai reported in 2021 (55) GSTL 144 (Mad.) which had reproduced a para of the said ruling of the Authority of Advance Ruling (AAR) in the body of its order and accepted the reasoning available therein. He further submitted that in the Appellant’s own case and in the case of Grey Worldwide (India) Pvt. Ltd. vs. Commissioner of Service Tax, Mumbai 2015 (37) STR 597 (Tri.-Mumbai) and also in other judgments including in the findings of the Advanced Ruling Authority wherein reliance is placed on Grey Worldwide decision, it had been consistently held that since there is no obligation on the part of media/media house to give any incentive and in view of the fact that there was no agreement or understanding or contract between the advertising agency and the media house for promotion of media business activity, such receipt of commission/volume discount are voluntary and gratuitous in nature without any obligation on the part of media house to pay such incentive to the Respondent for which interference by the Tribunal in the order passed by the Commissioner is uncalled for.
5. We have perused the case record, the review order passed by the Committee of Commissioner, written notes and the case law compilation submitted by the learned Counsel for the Respondent. At the outset it is to be said that Service Tax has been discharged on the basis of invoice raised by the media house by the clients/ advertisers on the entire consideration amount and against service commission received by the Respondent from the advertisers, service tax was also discharged but because of large volume of advertisement was facilitated by the Respondent, as a token of gesture/gratitude, media house passed on certain discount/incentives to the Respondent against which Service Tax was already discharged by themselves. Therefore, the said incentive can’t be equated with consideration to the activities carried out by the Respondent for the reason that Respondent had not promoted or canvased in placing of advertisement by its client on any specific media house and the choice of media house nested with the clients, for which it can’t be considered as any kind of activity against which incentive/discount was received by the Appellant as a consideration, apart from the fact that against placing the order of its client in the print or broadcasting both media house as well as Respondent had discharge their Service Tax liabilities. The only ground on which the Review order is based is on the decision of the CESTAT passed in the case of BBC World (India) Pvt. Ltd. Vs. Commissioner of Service Tax way back in 2009 that is far before introduction of comprehensive taxation scheme in 2012 and that will have so application to the present issue for the reason that for the period pre 2012, the issue had been settled by this Tribunal in several decisions including in Respondent’s own case for two different periods and for the period post 2012, even though advanced ruling of the AAR is not a binding precedent and binds only intra parties, the acceptance of the said ruling by the Hon’ble High Court of Madras would operate as a binding precedent for this Tribunal besides the fact that any reward/incentive or discount received as an expression of gratitude or generosity is held consistently as not taxable. Hence the order.
6. The appeal is dismissed and the order passed by the Commissioner of Service Tax-VI, Mumbai vide Order-in-Original No. 08/ST-VI/RK/2015 dated 15.01.2016 is hereby confirmed.
(Order pronounced in the open court on 30.08.2023)