The mere rental or sale of advertising space, without active involvement in the conceptualization, design, or creation of advertisements, does not classify a service provider as an 'advertising agency' liable for service tax under the Finance Act, 1994.

Per M. Ajit Kumar,

This appeal is filed against Order-in-Appeal No. 129/2016 (STA–II) dated 26.08.2016 (impugned order), passed by the Commissioner of Service Tax (Appeals–II), Chennai.

2. The appellant provides advertisement services. With permission from local police authorities in major districts of Tamil Nadu, the appellant installed and maintained timer devices at traffic signals at its own cost. These devices displayed countdown time for motorists, and the appellant was permitted to install a small advertising panel below the timer for commercial use. It was alleged by the Revenue that the appellant was allowing other advertising agencies to display advertisements in the panel for consideration. The money earned from advertising using the panel, according to Revenue, constituted the consideration and should be adopted as the taxable value. During audit, the amount received as consideration for sale of advertising space without paying Service Tax was quantified as ₹9,89,354/- for the period April 2004 to March 2008. Accordingly, a Show Cause Notice was issued for recovery of tax along with interest and penalties. The adjudicating authority confirmed the demand with interest and imposed penalties under Sections 76 and 78 of the Finance Act, 1994. The appeal before the Commissioner (Appeals) was rejected, leading to the present appeal.

3. The learned Advocate Shri J. Shankarraman appeared for the appellant and Ld. Authorized Representative Smt. Anandalakshmi Ganeshram, appeared for the respondent.

3.1 Shri J. Shankarraman the Ld. Counsel for the appellant submitted as follows:

A. The Appellant merely installed timer devices at traffic signals with police permission and commercially exploited the space below by displaying company names without any designing, conceptualizing, or creative input. Such activity amounts only to sale of advertising space and does not qualify as “advertising agency” service.

B. As clarified by CBEC Circular No. 64/13/2003-ST dated 28.10.2003, mere sale of advertising space, without involvement in design or conceptualization, was not taxable prior to 01.05.2006. “Selling of space” itself became taxable only from 01.05.2006 under Section 65(105)(zzzm); hence, any demand for the prior period is unsustainable.

C. The Appellant acted only as a sub-contractor, and consistent CBEC Circulars (1997–1998) as well as judicial precedents hold that service tax is payable by the main contractor. In the present case, the principal advertising agencies have already discharged service tax on the full value, and double taxation is impermissible. This position is squarely supported by Hi Tech Publicities v. CCE and Rex Advertisers v. CST.

D. The entire issue is revenue neutral, as any tax paid by the Appellant would be available as CENVAT credit to the principal agencies. The Appellant neither collected service tax nor suppressed facts, regularly filed ST-3 returns, and acted under a bona fide belief based on circulars and settled law; therefore, extended period and penalties are not invocable.

E. The show cause notice dated 12.10.2009 seeks to cover the period April 2004 to March 2008, which is largely time-barred under Section 73, and penalties are also not sustainable in view of Section 80 of the Finance Act, 1994.

F. The Ld. Counsel relied upon the following judgments in support of his submissions:

a. Rex Advertisers Vs Commissioner of Service Tax, Bangalore [2006 (2) STR 330 (Tri-Bang)]

b. Hi-Tech Publicities Vs Commissioner of Central Excise, Madurai [2018 (9) GSTL 119 (Tri-C