Mere Sale Of Advertising Space Without Creative Input Not Taxable Under Finance Act: CESTAT Chennai

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 2 April held that mere sale of advertising space, without any element of designing, conceptualising or preparing advertisements, does not amount to taxable “advertising agency service” under the Finance Act, 1994.

A Bench comprising Technical Member M. Ajit Kumar and Judicial Member Ajayan T.V. held:

“under Section 65(3) of the Finance Act, 1994, service tax applies only where services of making, preparation, display or exhibition of advertisement are rendered. As per CBEC's clarification dated 16.08.1999, these should involve activities such as designing, visualising, or conceptualising advertisements. Mere sale of space does not attract tax as 'Advertising Agency Service'. Accordingly, display of a company name simpliciter, as in this case, does not amount to advertising agency service, and the impugned order is liable to be set aside.”

Digital AD Media Worldwide Pvt. Ltd., the appellant, had installed timer devices at traffic signals with permission from police authorities and used the space below the timers to display advertisements.

The Revenue alleged that by allowing other advertising agencies to use such space for consideration, the appellant was rendering “advertising agency service” under Section 65(3) read with Section 65(105) of the Finance Act, 1994, and demanded service tax for the period April 2004 to March 2008 along with interest and penalties under Sections 76 and 78.

The Tribunal examined the statutory definition of “advertising agency” under Section 65(3), which covers services connected with the making, preparation, display or exhibition of advertisements.

It noted that, as per long-standing CBEC clarifications, including the letter dated 16 August 1999, service tax is attracted only when the service provider is involved in activities such as designing, visualising or conceptualising advertisements. Mere sale of space for displaying advertisements does not fall within the taxable net.

Applying this principle, the Tribunal found that the appellant's role was limited to providing space for display of advertisements and did not involve any creative or preparatory activity.

The Bench further observed that prior to 1 May 2006, even the activity of sale of advertising space was not taxable, and therefore the demand for the earlier period was unsustainable.

The Tribunal further held that the activity undertaken by the appellant did not qualify as “advertising agency service,” and set aside the demand of service tax along with interest and penalties.

Accordingly, it allowed the appeal with consequential relief.

For Appellant: J. Shankarraman, Advocate

For Respondent: Anandalakshmi Ganeshram, Authorised Representative