The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has held that money received by a traders’ association for displaying Jaipur Metro banners and a live model during Diwali constituted consideration for publicity services.
The bench of Rachna Gupta (Officiating President) and P.V. Subba Rao (Technical Member) rejected the association’s contention that the payment represented compensation for business losses suffered by shopkeepers during metro construction.
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The bench found a direct connection between the financial assistance sanctioned by Jaipur Metro Rail Corporation (JMRC) and the promotional activities required from the association.
While endorsing the findings on taxability, the tribunal set aside the Commissioner (Appeals)’ direction remanding the matter for fresh adjudication. It held that classification under the earlier service-specific provisions was unnecessary because the disputed period fell under the negative-list regime. The appeal was consequently disposed of as partly allowed.
The proceedings concerned Chandpole Bazaar Vyapaar Mandal Samiti, a traders’ association in Jaipur, for the financial year 2014–15.
Based on information received from the Income Tax Department, the service tax authorities identified gross receipts of â‚ą12,66,063. The department sought documents explaining the receipts, but the association initially failed to appear or furnish the required explanation.
A show cause notice dated November 5, 2019, proposed recovery of service tax of â‚ą1,56,485, together with interest under Section 75 of the Finance Act, 1994, and penalties under Sections 77 and 78.
The demand was confirmed through an adjudication order dated February 4, 2021. On appeal, the Commissioner (Appeals) remanded the matter to the original adjudicating authority for a fresh speaking order after considering the association’s submissions and observing the principles of natural justice. The association challenged that appellate order before CESTAT.
The association argued that the money had been received on behalf of shopkeepers who suffered losses because of metro construction in Chandpole Bazaar.
Its counsel relied on correspondence and minutes of meetings with JMRC, contending that these documents established the difficulties faced by traders and showed that the payment was financial assistance to reimburse expenses incurred in overcoming those losses.
According to the association, there was no reciprocal arrangement under which it supplied a service to JMRC in exchange for payment. It therefore disputed the department’s treatment of the receipts as consideration for taxable services.
The association also cited the Supreme Court decisions in State of West Bengal v. Calcutta Club Ltd. and CTO v. Youngmen India Association in support of its submissions.
The department, however, relied on JMRC’s sanction letter dated October 17, 2014. It argued that the payment was specifically linked to displaying Jaipur Metro banners and a model, making it consideration for promotional activities.
The tribunal examined the sanction letter, which approved financial assistance of â‚ą11 lakh for organising lighting and decoration in Chandpole Bazaar during Diwali, together with the display of Jaipur Metro banners and a live model of the metro rail.
The letter also required the association to arrange banners and other display materials in coordination with JMRC’s designated official.
Further, the association had to maintain separate accounts of income and expenditure, submit a utilisation certificate and expenditure statement within two weeks of the Diwali event, and return any unspent balance to JMRC.
CESTAT held that these conditions established a clear nexus between the payment and the activities expected by JMRC. This defeated the association’s argument that there was no exchange of consideration for services.
Although the correspondence and meeting records reflected shopkeepers’ grievances about losses caused by construction, the tribunal found that the sanction letter did not grant compensation for those losses. Instead, JMRC sought publicity for the metro during a festival period attracting substantial footfall in the market.
The bench applied Section 65B(44) of the Finance Act, 1994, which defined “service” to include an activity carried out by one person for another for consideration, subject to specified exclusions.
It held that the association’s advertising and publicity activities satisfied that definition. The tribunal also found that the activity was outside the negative list under Section 66D and that the association had not produced evidence establishing an applicable service tax exemption.
The association’s accounting records further supported this conclusion. The tribunal noted that expenditure from the amount received had been recorded as advertisement expenses, consistent with the promotional purpose specified in the sanction letter.
The Commissioner (Appeals) had observed that the original adjudication order did not adequately explain how the association’s activities fell within certain earlier service-specific provisions of the Finance Act.
CESTAT held that this was not a valid basis for remand. The entire demand period, April 2014 to March 2015, followed the introduction of the negative-list regime. For deciding the dispute, the relevant provision was the definition of service under Section 65B(44), rather than the earlier classification clauses cited in the appellate order.
The tribunal therefore removed the remand direction while endorsing the other findings concerning the nature of the payment and the services provided.
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