CESTAT Chandigarh Holds Rent Paid For Advertising Walls Includible In Taxable Value Of Advertising Services

The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has partly allowed a batch of appeals filed by Punjab Advertising Co. It held that rent paid for walls used to display advertisements formed part of the taxable value of the advertising services provided by it. At the same time, it held that the value of printed flex material supplied by Sonia Plastics could not be included in the value of the taxable service.

The decision was delivered by a division bench of Judicial Member S. S. Garg and Technical Member P. Anjani Kumar.

“Thus the amount on account of rent fulfils the requirement of Section 67 making it liable to be included in the assessable value.”, the tribunal held.

Punjab Advertising Co. provided advertising services to clients including Hero Cycles Ltd., Usha International Ltd., Majestic Auto Ltd. and Hero Honda Motor Ltd. The services were provided by painting advertisements on walls and displaying advertisements on hoardings.

During an audit, the department alleged that the firm had not included wall rent recovered from clients while discharging service tax liability. It also alleged that the value of printed flex material supplied through Sonia Plastics had been excluded from the taxable value.

The assessee argued that the wall rent represented reimbursable expenditure. It contended that it had acted as a “pure agent” while making payments to wall owners. The assessee also argued that Sonia Plastics was a separate concern and that the value of printed flex material could not be added to the value of advertising services.

Rejecting the assessee's contention on wall rent, the Tribunal held that the wall rent constituted an intrinsic and inseparable component of the taxable advertising activity undertaken by the assessee. It held that the amount could not be excluded from the taxable value.

“We find that in the case the wall rent constituted an intrinsic and inseparable component of the taxable advertising activity undertaken by the appellant.”, it held.

The bench noted that the documents relied upon by the assessee to show arrangements between clients and wall owners were signed only by the wall owners. It held that these documents did not establish the existence of agreements between the clients and the wall owners.

“The so-called 'Agreement Form Cum Receipt' being signed only by wall owners do not suffice for agreement between the clients and wall owners.”

The Tribunal also held that the assessee had failed to establish the requirements necessary to claim exclusion as a “pure agent”.

“In the present case, the appellant has failed to establish existence of any direct contractual arrangement between the clients and wall owners and authorization by clients appointing the appellant merely as an intermediary.”, it held.

On the issue of printed flex material, the Tribunal found that Sonia Plastics and Punjab Advertising Co. maintained separate registrations, books of account and invoices. It also noted that VAT/sales tax had been paid on the printed flex material.

“We find that mere commonality of management or relationship between persons cannot automatically give rise to the conclusion that justify clubbing of turnover or disregard of separate legal identity.”, it noted.

The Bench observed that the department had failed to prove that Sonia Plastics was a dummy concern. It held that the value of printed flex material could not be included in the value of the advertising service merely because the material was used while rendering the service.

“Once the transaction is of sale of goods, the value is separately ascertainable and supplied by someone else than the appellant, the value of such goods cannot be said to be for the service provided and thus, not includible in the value of service to charge Service Tax merely because the goods were utilized in execution of service.”, it noted.

On limitation, the tribunal held that the extended period could not be invoked in relation to the show cause notice dated September 18, 2008. It noted that the notice had been issued following an audit. The Tribunal also held that the Revenue had not established the conditions necessary for invoking the extended period.

“We find that Revenue has not made out any case for invocation of extended period.”, it held.

Accordingly, the Tribunal set aside the entire demand arising from the show cause notice dated September 18, 2008. It upheld the remaining demands only to the extent they related to wall rent. The Tribunal also set aside all penalties imposed in the six appeals.

For Appellant: Advocates Sudhir Malhotra and Kanika Malhotra,

For Respondent: Aniram Meena and Shri Narinder Singh, Authorized Representatives