CESTAT Upholds Service Tax On ₹12.66 Lakh JMRC Payment To Chandpole Bazaar Association

On 28 September, the Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) upheld the service tax liability on Rs. 12.66 lakh received by Chandpole Bazaar Vyapaar Mandal Samiti from Jaipur Metro Rail Corporation (JMRC) towards publicity and advertisement activities during Diwali celebrations.

A Bench comprising Officiating President Rachna Gupta and Technical Member P.V. Subba Rao upheld the taxability of the amount while setting aside the Commissioner (Appeals), Central Excise & CGST, Jaipur's direction to remand the matter to the original adjudicating authority. The Tribunal observed:

“JMRC has given Rs. 11 lakh for getting Jaipur Metro banners displayed at the occasion of Diwali by way of lighting and decoration in Chandpole Bazaar. The documents sufficiently reveal the nexus between the money in question and the activity required by JMRC while making payment of said money. This observation is sufficient to reject the contention of the appellant that there is no quid pro quo between the amount in question and the alleged activity of the appellant.”

The appeal arose from a service tax demand of Rs. 1,56,485 for the period from April 2014 to March 2015. The department relied on information received from the Income Tax Department showing that the association had received Rs. 12,66,063 from JMRC during the relevant financial year.

The association contended that the amount was financial assistance from JMRC towards losses suffered by shopkeepers due to construction of the Jaipur Metro in the market. It argued that there was no quid pro quo between the payment and any service provided to JMRC.

The department relied on a sanction order dated 17 October 2014, which provided for financial assistance of Rs. 11 lakh to the association for lighting and decoration at Chandpole Bazaar during Diwali, along with displaying Jaipur Metro banners and a live model of the Metro.

The Tribunal noted that the sanction order required the association to arrange the banners and other display material and submit a utilisation certificate and a statement of income and expenditure to JMRC after the event. It found that the sanction order established a clear nexus between the payment and the publicity activity required by JMRC.

The Bench rejected the association's contention that the amount was compensation for losses caused by metro construction. It noted that while the association had produced communications and minutes of meetings showing that its members had raised grievances regarding losses caused by the construction, the 17 October 2014 sanction order did not provide for compensation for such losses. Instead, the order linked the payment to publicity and advertisement of the Jaipur Metro during the Diwali festival.

The Tribunal also noted that the association's balance sheet recorded expenditure from the amount received as advertisement expenses. It held that providing publicity and advertisement constituted a “service” under Section 65B(44) of the Finance Act, 1994. The activity was neither covered by the negative list under Section 66D nor shown to be exempt under any notification. It observed:

“Apparently, the activity of providing facility of advertisement and publicity is not covered under Section 66D of the Finance Act/the negative list. Appellant has not produced any document which may prove that this activity of publicity/advertisement was ever granted exemption from payment of service tax.”

Further, the Bench held that the specific taxable service classifications referred to by the Commissioner (Appeals) were no longer relevant since the entire period involved was after the introduction of the negative list. It said the definition of “service” under Section 65B(44) was sufficient to determine taxability.

Accordingly, the CESTAT partly allowed the appeal by upholding the findings on taxability of the amount but set aside the remand direction issued by the Commissioner (Appeals).

For Appellant: Advocate Suchi Sethi

For Respondent: Mehboob Ur Rehman, Authorised Representative