The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the sale of advertisement space in print media falls within the negative list of services under the Finance Act, 1994 and is therefore not liable to service tax.
The bench of Justice S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) also ruled that trade discounts and volume-based incentives received from newspapers cannot be treated as taxable commission or Business Auxiliary Services (BAS).
The dispute arose after the Department alleged that Design Indya, an advertising agency registered under the category of “Advertising Agency Service,” was actually providing Business Auxiliary Services (BAS) to newspaper publishers by facilitating advertisement bookings and receiving commission from print media. Two show cause notices were issued covering the period from 1 April 2012 to 30 June 2017, demanding service tax of ₹8.87 crore and ₹5.86 crore, respectively.
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According to the Department, the agency received commission from newspapers for booking advertisement space but failed to discharge service tax on the entire amount received. It further alleged that trade discounts and free advertisement space received as incentives constituted consideration for taxable services.
The appellant argued that it was engaged in purchasing advertisement space in bulk from newspapers and subsequently selling that space to advertisers on its own account. It maintained that after the introduction of the negative list regime from 1 July 2012, the activity of selling space for advertisements in print media was specifically excluded from service tax under Section 66D(g) of the Finance Act, 1994.
The agency further submitted that the 15% trade discount allowed by newspapers was merely a commercial discount available to accredited members of the Indian Newspaper Society and not commission for rendering any service to newspapers. Similarly, volume-based incentives and free advertisement space were commercial incentives arising from bulk purchases and not consideration for any taxable service.
The Tribunal agreed with the appellant and observed that the entire dispute pertained to the period after the introduction of the negative list regime under the Finance Act.
It noted that the appellant’s principal activity consisted of purchasing advertisement space from print media and reselling it to advertisers. Since selling space for advertisements in print media was expressly included in the negative list under Section 66D(g), such activity could not be subjected to service tax. The Tribunal observed that although the appellant had obtained service tax registration and paid tax on its profit margin, its core activity itself was outside the tax net.
Rejecting the Department’s allegation that the 15% trade discount represented commission, the Tribunal observed that newspapers had not deducted tax at source under Section 194H of the Income Tax Act, nor issued Form 26AS indicating payment of commission.
The Bench held that the discounts received by accredited advertising agencies represented trading margins arising from bulk purchases rather than consideration for services rendered to newspapers. Consequently, they could not be taxed as Business Auxiliary Services.
The Tribunal further held that incentives and free advertisement space received upon achieving sales targets were commercial incentives rather than payments for services.
Relying upon earlier Tribunal decisions including Mudra Communications Pvt. Ltd., Grey Worldwide (India) Pvt. Ltd., and Sindhu Cargo Services Ltd., the Bench reiterated that incentives received from media houses without any contractual obligation to promote their business are not taxable under Business Auxiliary Services.
It emphasized that newspapers were not the clients of the advertising agency. Instead, the advertisers were the actual clients, while incentives flowed from newspapers purely on account of business volume achieved by the agency. Such incentives therefore did not form part of the value of taxable services.
One of the significant findings of the Tribunal related to the adjudication order’s reliance on the concept of “intermediary services.”
The Bench observed that the show cause notices had alleged only that the appellant rendered Business Auxiliary Services. However, while confirming the demand, the adjudicating authority concluded that the appellant acted as an intermediary under the Place of Provision of Services Rules, 2012.
The Tribunal held that this finding was legally unsustainable because no allegation regarding intermediary services had ever been made in the show cause notices. An adjudicating authority cannot confirm a demand on grounds not contained in the notice issued to the taxpayer.
The Tribunal also rejected invocation of the extended period of limitation.
It observed that the appellant had been registered with the Service Tax Department, regularly filing ST-3 returns and paying service tax under the category of Advertising Agency Service. The dispute essentially involved interpretation of statutory provisions concerning taxability of trade discounts and incentives.
Since there was no evidence of fraud, suppression of facts or wilful misstatement with intent to evade tax, the extended limitation period under Section 73(1) of the Finance Act could not be invoked. Accordingly, the first show cause notice covering July 2012 to March 2016 was held to be time-barred.
Having concluded that the activities themselves were not taxable and that the extended limitation was wrongly invoked, the Tribunal set aside the entire service tax demand along with consequential interest and penalties.
The appeal was allowed with consequential relief in favour of the appellant.
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