Draft circular on advertisement: Some unanswered questions
While on Board clarifications, here is a write up sent in by a concerned netizen on the Board's recent draft circular.
(1) Is the Govt. trying to bring the print media under Service Tax net?
Earlier, the Board vide its circular F.No. 345/4/97 dt.16.08.1999, while clarifying the matter whether printing of yellow pages would cover in the ambit of advertising services, has used the following wording with regard to print media:
“However, the amount paid, excluding their own commission by the advertising agency for space and time in getting the advertisement published in print media or the electronic media will not be includible or the value of taxable service for the purpose of levy of service tax. The commission received by the advertising agency would, however, be includible in the value of taxable service. In other words, service tax is attracted on advertising agencies, which are providing service to advertisers by conceptualizing, designing, or preparing advertisement. Print or electronic media is excluded from the levy of service tax as they do not provide any service to the advertisers, but are merely selling space of time for the exhibition of advertisements.”
Whereas the present draft circular seeks to recognize the selling of space by print media as service, as per the following wordings used in the draft circular
Para (2) “ Advertising agency means any commercial concern providing any service connected with display or exhibition of advertisement”
Para (4) “ Advertising agency obtains space and time in getting advertisement published in print or electronic media. Such services are used by an advertising agency to provide advertising services to a client in respect of display, or exhibition of advertisement. Such services being an input service, form an integral part of the taxable service provided under Sec.65(105) (e)”
Para (7) “ The services provided by the media is actually received by the advertising agency and used as an input service for providing the taxable service to the client”
“Therefore, the amount paid by the advertising agency to the media for obtaining space for display or exhibition, being in the nature of input service used in providing the taxable service, is liable to be included in the value of the taxable service.”
Thus, the draft circular is a clear departure from the earlier clarification (vide cir . dt. 16/08/1999 ) in treating the selling of space by print media as a service and also viewing it as part of advertising agency service i.e. providing the service of display or exhibition of advertisements. The draft circular clearly seeks to interpret the services of print media as input service.
If that be so, there is a responsibility on the part of the Govt. to state it clearly in the circular, rather than leaving it to interpretation by the field formations.
Further, there is no justification in leaving the print media form the purview of service tax, considering the fact that electronic media are already under service tax net as Broadcasting service providers for selling time slots.
If print media is not brought under service tax net, it will break the Cenvat chain, and Ad. Agencies solely depending on print media will be at a disadvantage.
(2) From which date the clarification through the (draft) circular will be effective?
The draft circular is trying to interpret, the provisions contained in the statute with regards to valuation of advertising services. Considering the fact that there is no major changes in Sec.67 of Finance Act, 94 (with regards to advertising agency services) right from its inception, there is every possibility of interpreting earlier circulars issued in this context are not in line with the provisions of the Act, hence untenable. What if some audit raises this question, and seeks to include the amounts paid to print media for past assessments also
Hence, the Board should clearly state in the circular to the effect that the contents of the circular will be having prospective effect from the date of circular.