The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore, has set aside a service tax demand of approximately ₹1.27 crore imposed on a publicity company for renting hoardings and advertising space to other advertising agencies.

The bench of P.A. Augustian (Judicial Member) and Pullela Nageswara Rao (Technical Member) that merely subletting a hoarding site to an advertising agency, without providing services falling within the statutory definition of “advertising agency service,” did not attract service tax for the period up to April 30, 2006.

For the subsequent period, the CESTAT found that the advertising agencies had discharged service tax on the amounts collected from their clients, including the consideration paid for using the hoardings. The matter was consequently revenue-neutral and did not justify invoking the extended period of limitation.

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A Division Bench comprising Judicial Member P.A. Augustian and Technical Member Pullela Nageswara Rao passed the ruling in an appeal filed by M/s Diamond Publicities Pvt. Ltd. against the Commissioner of Service Tax, Bangalore-I.

The dispute concerned the taxability of consideration received by the appellant for renting hoardings to advertising agencies for displaying advertisements.

The department initiated proceedings by issuing a show cause notice on October 4, 2010, covering the period from April 1, 2005 to September 30, 2007.

Through an Order-in-Original the adjudicating authority confirmed two separate demands against the appellant.

A demand of ₹44,65,842 was confirmed under the category of “advertising agency service” for the period from April 1, 2005 to April 30, 2006. A further demand of ₹82,10,787 was confirmed under “sale of space or time for advertisement service” for the period from May 1, 2006 to September 30, 2007.

The total demand thus amounted to ₹1,26,76,629, apart from applicable interest and penalties imposed under various provisions of the Finance Act, 1994.

Aggrieved by the adjudication order, the company approached the CESTAT.

The appellant submitted that it had paid service tax whenever hoardings or advertising space were provided directly to clients other than advertising agencies.

However, where the hoardings or advertising space were provided to advertising agencies, the appellant did not separately pay service tax. According to the company, the advertising agencies were the principal service providers and had paid service tax on the entire consideration collected from their clients, including the amounts subsequently paid to the appellant.

The appellant argued that demanding service tax once again from the hoarding company would effectively result in double taxation, particularly when the advertising agency could not obtain the corresponding CENVAT credit.

It relied on a clarification issued by the office of the Commissioner of Central Excise, Chennai, on July 22, 2003. The clarification stated that where a hoarding company directly billed an advertiser, the hoarding company was liable to pay service tax.

However, where the hoarding company billed an advertising agency and that agency, in turn, billed the ultimate client, the advertising agency was responsible for paying service tax on the gross amount, including the amount paid to the hoarding company.

The appellant maintained that it had acted in accordance with this understanding and was under a bona fide belief that no additional service tax was payable on amounts received from registered advertising agencies.

For the period ending April 30, 2006, the appellant relied upon the Tribunal’s earlier decision in Commissioner of Central Excise, Ludhiana v. Azad Publications.

In that case, the Tribunal had held that merely subletting a site to an advertising agency, without providing any service of the kind covered by the statutory definition, would not make the site owner liable to service tax as an advertising agency.

Accepting this contention, the CESTAT observed that the controversy for the period up to April 30, 2006 was squarely covered by the ruling in Azad Publications.

The Bench held that the mere act of subletting a site to an advertising agency, without rendering the nature of services defined under the Finance Act, 1994, did not create a service tax liability under “advertising agency service.”

“Sale of space or time for advertisement service” was introduced as a separate taxable service with effect from May 1, 2006.

The appellant continued paying service tax where hoardings or advertising space were supplied directly to advertisers. It did not separately discharge tax where such space was supplied to advertising agencies, since those agencies were paying tax on the gross consideration collected from their clients.

The Tribunal found that this arrangement created a revenue-neutral situation. The consideration received by the appellant had already formed part of the taxable value on which the advertising agencies discharged service tax.

This circumstance also supported the appellant’s explanation that it had acted under a bona fide interpretation of the applicable tax provisions rather than with an intention to evade tax.

A significant part of the dispute concerned the department’s invocation of the extended period of limitation.

The show cause notice was issued on October 4, 2010, while the disputed period ran from April 2005 to September 2007. The entire demand was therefore outside the normal limitation period.

The appellant argued that the show cause notice did not identify any positive act of concealment or deliberate suppression. The demand had been calculated entirely from its statutory records, and the company had regularly filed its ST-3 returns.

It was submitted that a mere allegation of suppression could not justify the extended limitation period, particularly when the dispute involved the interpretation of tax provisions and conflicting judicial views existed on the liability of subcontractors and intermediate service providers.

The appellant relied upon the Supreme Court’s rulings in Pushpam Pharmaceuticals Co. v. Collector of Central Exciseand Padmini Products v. Commissioner of Central Excise. These decisions establish that suppression sufficient to invoke extended limitation must involve a deliberate act accompanied by an intention to evade payment of duty or tax.

The CESTAT noted that the department’s show cause notice did not allege any positive act of concealment by the appellant.

The entire demand had been derived from statutory records maintained by the company. Further, the dispute involved the interpretation of the scope of taxable services, and conflicting judicial views existed regarding liability in such arrangements.

Referring to the Supreme Court’s decision in Pushpam Pharmaceuticals, the Tribunal held that a bald allegation of suppression could not constitute sufficient grounds for invoking the extended period.

The Bench observed that the appellant had been paying service tax on advertising space provided directly to persons other than advertising agencies. In transactions involving advertising agencies, tax was being paid by those agencies on amounts that included the consideration paid to the appellant.

The CESTAT concluded that the service tax demand raised through the October 2010 show cause notice for the period between 2005 and 2007 was beyond the normal limitation period.

It held that the demand, along with interest and penalties, could not be sustained through invocation of the extended period of limitation.

Accordingly, the Tribunal set aside the adjudication order dated April 9, 2012 and allowed the company’s appeal with consequential relief in accordance with law.

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