Advertising services were brought under the Service Tax net by the Finance (No. 2) Act, 1996, w.e.f. 1-11-1996 vide Notification No. 6/96, dated 31-10-1996. The service shall be taxed, if provided by an Advertising agency to clients.

Rate of Service Tax: The rate of service tax is specified in section 66 of the Act. The Finance (No. 2) Act, 2004 has substituted the charging section 66, and the rate of service tax is enhanced from 8% to 10% ad valorem. The increase in tax rate has come into force from the date of enactment of the Finance (No. 2) Act, 2004 i.e. 10-9-2004. Further, the Finance (No. 2) Act, 2004, w.e.f. 10-9-2004 has also levied an education cess @ 2 % of the service tax. The cess paid on inputs services shall be available as credit for payment of cess on output services. For further discussion in this regard, refer to -'Payment of Service Tax'.

Advertising services refer to any service provided to a client, in relation to advertisement.

(1) An advertisement

The definition of advertisement has been given under clause (2) of section 65. It provides:

"advertisement includes any notice, circular, label, wrapper, document, hoarding or any other audio or visual representation made by means of light, sound, smoke or gas".

The definition given for the advertisement is not exhaustive but inclusive therefore, it is wider in scope. The word 'includes' signifies that the term not only be construed in normal meaning and sense but also includes those things which are specifically mentioned in the definition. As per the aforesaid definition, a service under the advertising service includes

• any notice, circular, label, wrapper, document, hoarding or

• any other audio or visual representation made by means of light, sound, smoke or gas.

(2) 'notice'

The word 'notice' means 'attention, observation, intimation, warning, formal announcement of the termination of an agreement or employment; written or printed information displayed' (reference the Oxford Mini Dictionary). The notice' may be to disseminate information to the larger section of the public through any media or it may be to give notice to a particular person through the media like sometimes the court serves the notice to the party to the case by newspaper advertisement. The 'notice' may be required to be under any Act, for example under the Indian Partnership Act, 1932, public notice is required to be about the retirement of a partner in the firm. Thus, the word 'notice' must be broadly construed and in the context of this service, when a person gives any 'notice' by way of advertisement (in newspaper etc.) through the 'advertising agency' it will fall under the definition of 'advertisement'.

(3) 'circular'

The word 'circular' means 'letter or leaflet etc. sent to a circle of people, (reference the Oxford Mini Dictionary). Thus, 'circular' refers to disseminate detailed information about the products or event to the customers or public in the printed form by a person or a company. Thus, 'circular' in the context of this service means when an 'advertising agency' renders any service in relation to circular like designing, preparation or to circulate, it will be included in the definition of 'advertisement'.

(4) 'label'

The word 'label' means 'note fixed on or besides an object to show its nature, destination etc.' (reference the Oxford Mini Dictionary). Thus in the context of this service, 'label' will be included in the definition of 'advertisement' if in respect of 'label', preparation or designing etc. is done by the 'advertising agency'.

(5) 'wrapper'

The word 'wrapper' means 'cover of paper etc. wrapped around something' (reference the Oxford Mini Dictionary). The wrapper is used to pack the items, articles etc. Thus in the context of this service, the 'wrapper' will include in the definition of 'advertisement' if in respect of 'wrapper', preparation or designing etc. is done by the 'advertising agency'.

(6) 'document'

The word 'document' means 'piece of paper giving information or evidence' (reference the Oxford Mini Dictionary). The word 'document' has been defined as "'document' shall include any matter written, expressed or described upon any substance by means of letters, figures or marks, or by more than one of those means which is intended to be used, or which may be used, for the purpose of recording that matter" [clause (18) of section 3 of The General Clauses Act, 1897]. Thus, in the context of this service, the 'document' will include in the definition of 'advertisement' if any thing in respect of 'document', preparation or designing etc. is done by the 'advertising agency'.

(7) 'hoarding'

The word 'hoarding' means 'fence of boards or often bearing advertisements' (reference the Oxford Mini Dictionary) or 'a screen or boards, esp. for enclosing a place where builders are at work, or for display of bills' (reference the Chambers English Dictionary). Therefore, 'hoarding' denotes to put advertisement on a screen or a board in public place. Thus, in the context of this service, the 'hoarding' will include in the definition of 'advertisement' if any thing in respect of 'hoarding', preparation, designing, installation etc. is done by the 'advertising agency'.

(8) 'audio or visual representation'

‘audio-visual' means using both sight and sound (reference the Oxford Mini Dictionary) or 'audio-visual' means concerned simultaneously with seeing and hearing (reference the Chambers English Dictionary). The advertisement may be in the form of 'audio or visual representation'. The advertisement in the form of sound as given on radio as well as on audio-cassettes includes in the 'audio representation' an advertisement on television or film etc. Such 'audio or visual representation' may be by means of light, sound, smoke or gas. For example advertisement on the balloons flying in the air is an advertisement by use of gas.

Taxable service

The definition of taxable service provided by an advertising agency has been given under sub-clause (e) of clause (105) of section 65. That is:

any service provided "to a client, by an advertising agency in relation to advertisement, in any manner".

(1) Compilation, printing and publication of telephone directories etc. covered under the taxable services

No, it is clarified, "in case of persons, who are printing and publishing telephone directories, Yellow pages or business directories, their activity is essentially of printing a readymade advertisement from the advertiser and publishing the same in the directory. Their activities are similar to those carried out by newspaper or periodicals. As such, this activity shall not attract service tax. However, if these persons also undertake any activity relating to making or preparation of an advertisement, such as designing, visualizing, conceptualizing, etc. then they will be liable to pay service tax on the charges made thereon" [vide Trade Notice No. 99/GL-90/CE/PRO/Cal-11/99, dated 16-9-1999, Commissioner of Central Excise, Calcutta (appended as Annexure 1)]. In the case of Contract Advertising Agency v CCE (2001) 132 ELT 245 (Tribunal New Delhi), the Tribunal remanded back the matter to the adjudicating authority to decide the case in terms of the above clarification.

(2) Space selling is taxable service

No. A person or agency may be engaged in canvassing for advertisements for which he may get commission from the publishers. The term canvassing may merely involve contacting potential advertisers and persuading them to give advertisement to a particular newspaper/ periodical/ magazine. The making and preparation of the advertisement namely, drafting of the text, preparation of layout is left either to the advertiser or to newspaper/ periodical/ magazine. Such a service is known as 'space selling'. The Government in its Circular No. 64/13/2003, dated 28th October, 2003 (appended as Annexure IV) has clarified that in such cases, since the agency undertakes the job of merely bringing the order for an advertisement and does not undertake any further activity, it would not fall within the definition of advertising agency and will not be subjected to service tax.

(3) Canvassing is a taxable service

The canvassing which is limited to 'space selling' is not a taxable service. However, if a person or agency is approaching a customer, receiving the texts of the advertisement (including photographs, monograms, etc. of the customs), estimating the space that such advertisement would occupy in the newspaper/ periodical/ magazine, negotiating the price, informing the general layout of the advertisement that would finally appear in such newspaper, etc., the Government in its Circular No. 64/13/2003, dated 28th October, 2003 (appended as Annexure IV) has clarified that in such cases the term 'canvassing' would certainly fall within the phrase 'any service provided .... in any manner connected to making, preparing, displaying and exhibiting' and would be taxable service'.

Zodiac Advertisers v UOI 2004 (166) ELT 25 (Ker) - in the instant case, the unit was engaged in printing of materials for customers - like visiting cards, stickers, banners, posters, etc. The unit purchased the cloth required for the banner as per the requirement of the customer, and then printed the matter given by the customer on the banner. After completing the printing work, the material was returned to the customer. The Court held that it is not possible to decide whether above business activity carried on could fall within the definition of "advertising agency", it is a matter to be decided by the assessing authority on evidence.

(4) Charging rent for displaying advertisement is taxable service

The CESTAT in its recent judgement in the case of CCE, Ludhiana v Azad Publications 2004 (167) ELT 59 (Tri. Delhi) held that permitting display of advertisement on its site and raising bills for realizing rental charges is mere sub-letting to an advertising agency without providing services of the nature defined for advertising services, hence "the activity of the respondent will not bring it under the definition of 'advertising agency'.

(5) Selling of Free Commercial Time (FCT) by producer is a taxable service

No. It was reported to the Government that in some jurisdictions service tax is being demanded on the sale of Free Commercial Time (FCT), procured by producer of T.V. serials in lieu of sale of such serial to T.V. Channel, to advertising agencies for showing advertisements under the category of Advertisement Agency Services. The issue was examined by the Central Board of Excise and Customs and Board in its Circular No. 78/08/2004-ST, dated 23rd March, 2004 (appended as Annexure III in the 'Video-tape Production Services') and it has clarified that "in case of FCT, selling the time allotted to a producer does not fall within the purview of "advertisement service" since this activity is not connected to making, preparation, display or exhibition of advertisement. This is akin to providing space in a newspaper or magazine for publishing an advertisement and has nothing to do with actual presentation of the advertisement".

Liable to pay service tax

Service tax is liable to be paid when advertising services are provided by an 'advertising agency'.

(1) 'Advertising agency'

Advertising agency has the meaning assigned to it, that is:

"advertising agency means any commercial concern engaged in providing any service connected with the making, preparation, display or exhibition of advertisement and includes an advertising consultant" [clause (3) of section 65].

The definition of advertising agency is very specific, therefore, an advertising agency must fulfil the following conditions

· it should be a commercial concern;

· it should be engaged in providing any service connected with the making, preparation, display or exhibition of advertisement, and;

· it also includes an advertising consultant.

(2) 'Commercial concern'

The term 'commercial concern' denotes a firm or a business entity or organization, engaged in commercial activities like sale, purchase or providing services for consideration and having profit motive. A charitable institution cannot fall under the category of a 'commercial concern', because it does not have profit motive. The term 'commercial concern' in the context of service tax means the concern engaged in providing services of advertisement.

Therefore, service tax is liable to be paid only when 'commercial concern' is engaged in providing any service connected with the making, preparation, display or exhibition of advertisement.

(3) Directorate of Audio and Visual Publicity (DAVP) is 'commercial concern'

No, in a point raised before the Government - whether Directorate of Audio and Visual Publicity (DAVP) in the Ministry of Information and Broadcasting is liable to pay service tax on services rendered by it to the different Departments of the Central Government in relation to Government advertisements, the Government in its Circular No. 341/43/96-TRU, dated 31-10-1996 (appended as Annexure II) has clarified, "DAVP not being a 1commercial concern' is not liable to pay service tax".

(4) 'making' or 'preparation'

The term 'making' means 'act of forming' and the term 'preparation' means 'the act of preparing: the process or course of being prepared: a preliminary arrangement' (reference the Chambers English Dictionary). Therefore, in the context of this service, 'making' or 'preparation' refers to layout, designing and followed by other steps to convert idea into a full-fledged advertisement.

(5) 'display' or 'exhibition'

The term 'display' means 'to exhibit' (reference the Chambers English Dictionary) or 'show, arrange conspicuously' (reference the Oxford Mini Dictionary) and the term 'exhibition' means 'a public show: presentation to view' (reference the Chambers English Dictionary). The 'display' refers to put the advertisement in the vantage position for the public viewing like putting up hoarding at Railway Station etc. The 'exhibition' may be in the form of placing an advertisement at a place such as in the stadium, trade fair, seminar etc. The manner of 'display' or 'exhibition' of an advertisement could not be restricted or in limited form.

(6) The person manufacturing the sign boards as per requirement of customer is advertising agency

No, in the case of Star Neon Signs v Commissioner of Central Excise, Chandigarh (2002) 141 ELT 770 (Tribunal-Del) it was held that the person who is only writing or preparing the sign boards at the behest of their customer cannot be called as advertising agency. There was no evidence on record to show the relationship between the customers and the appellant is of advertising agent which is necessary for imposition of service tax.

(7) 'advertising consultant'

The definition of 'advertising agency' also includes an 'advertising consultant'. The term 'consultant' means 'one who gives professional advice or information' (reference the Chambers English Dictionary). Therefore, in the context of this service, a person shall also be covered under the ambit of service tax if he provides consultancy in relation to an advertisement even if he is not involved in making, preparation, display or exhibition of advertisement. The 'advertising consultant' is not required to possess any specific qualification, however, he gives advice on the basis of his experience, specialized knowledge in the field of advertisement and creative mind. He may provide advice when, where and how to advertise to make the advertisement successful.

(8) Producers of documentary film for advertisement liable to service tax

The Government in its Circular No. 341/43/96-TRU, dated 31-10-1996 (appended as Annexure 11) has clarified that in some cases the advertising agency gets a documentary or film prepared by an independent film producer on behalf of clients. In such case the film producer is not liable to service tax but the advertising agency will be liable for service tax. The Government has further clarified, "it goes without saying that if the film producer chooses to charge the client directly for the film or documentary produced by him then the film producer is to be regarded as having rendered service to the client in relation to advertisement and he will therefore, be liable to pay service tax accordingly".

(9) Service tax has to be paid even if not paid by the client

In a point raised before the Government - whether service tax becomes payable even if the client does not make payment to the advertisement agency, the Government in its Circular No. 341/43/96-TRU, dated 31-10-1996 (appended as Annexure 11) has clarified, "the advertising agency is legally bound to collect and pay service tax. However, if the advertising agency fails to collect the service tax, the responsibility for payment of tax lies on the advertising agency. The advertising agency, therefore, cannot claim any exemption from payment of service tax on the ground that the same was not paid by the client". The reader may note the under mentioned changes in the provisions of service tax that were made after the issue of aforesaid circular

As per sub-section (1) of section 68, that stood prior to 16-10-1998, "every person providing taxable service to any person shall Collect the service tax". Further as per sub-section (3) of section 68 "any person, responsible for collecting the service tax, who fails to collect the tax in accordance with the provisions of sub-section (1), shall, notwithstanding such failure, be liable to pay the tax to the credit of the Central Government". As per amended sub-section (1) of section 68, w.e.f. 16.10.1998 11every person providing taxable service to any person shall PU the service tax" Effect of aforesaid changes is that after the amendment in sub-section (1) of section 68 the word 'collect' has been substituted with the word 'pay'.

(10) The person engaged in Space Selling is advertising agency

No. The term 'Space Selling' involves contacting potential advertisers and persuading them to give advertisement to a particular newspaper/ periodical/ magazine, the making and preparation of the advertisement namely, drafting of the text, preparation of layout is either left to the advertiser or to the newspaper/ periodical/ magazine. The Government has clarified in its Circular No. 64/13/2003, dated 28th October, 2003 (appended as Annexure IV) that in such cases since the agency undertakes the job of merely bringing the order for an advertisement and does not take any further activity, it would not fall within the definition of advertising agency and will not be subjected to service tax.

(11) Can Cinema theatres be treated as Advertisement Agency

No. The CBEC in answer to question no. 6.1 of the 'Frequently asked questions on Service Tax' issued in October 2003 has stated, "The Cinema theaters cannot be treated as advertisement agencies as they project advertisements only on behest of advertising agencies".

Advertising services charged to tax

Advertising services liable to be charged to service tax when provided to

§ a client;

§ in any manner,

§ in relation to advertisement.

(1) Client

Services are liable to be charged to tax only when it is provided to a 'client'. The word 'client' as per the dictionary meaning means "a person who employs a lawyer or professional adviser; a customer" (reference the Chambers English Dictionary) or "a person using the services of a professional person; customer" (reference the Oxford Mini Dictionary).

Therefore, the 'client' is necessarily an external person who hires or uses the services of another person for consideration. Service tax will attract only if services are rendered to a client, not to the other department within the same concern. In other words, services must be provided to the separate entity or external person. When services are provided to the charitable institution for which no fee is charged it is not a client. Therefore, there is no question of service tax unless services are provided to a client on payment basis.

(2) Meaning of 'in any manner'

Services are subject to tax when provided 'in any manner'. The words 'in any manner' signify 'directly or indirectly'. Sometimes, it may be possible that service provider may not alone be able to execute the work and take the help of other person or concern by employing them on sub-contract basis for the execution of work. In other words, services need not be rendered personally by the advertising consultant or commercial concern itself, they can render the service of advertisement by employing the services of other persons and concerns. In this case, even if service provider gets the part of the service done by employing the services of other person or concern, it will be treated that services are provided by the original service provider and tax would be charged on the entire services.

The value of taxable services for charging tax

The value of taxable services in relation to services provided by the advertising agency shall be the gross amount charged by an advertising agency from the client for services provided in relation to advertisements [section 67].

An Explanation has also been added to section 67, which provides that, for the removal of doubt, in respect of only certain specific services, it is declared that certain amount shall be the part of value of taxable services and certain amount shall not be the part of the value of taxable services, but nothing has been specified in respect of advertising services.

(1) Cost of materials supplied by the client to be includible in the taxable value

No, as per section 67, the taxable value is the gross amount charged by the advertising agency from the client. When client supplies certain materials like cloth for banner, paint etc. for the advertisement, in such case, the cost of such materials shall not be included in the value of taxable services.

(2) There is service tax on the cost of material sold to the client

No, the Government has issued Notification No. 12/2003-ST, dated 20-62003, w.e.f. 1-7-2003 (appended as Annexure IV and discussed in detail in 'Payment of Service Tax') by giving a general exemption from part of the value of all taxable services from service tax which represents the cost of goods or material sold by the service provider to the receiver of such services during the course of providing taxable service. Therefore, when an advertising agency bills to its client in respect of any material like banner, paint, etc. then value of such material shall not be part of value of taxable service provided it has been quantified and shown separately in the invoice. The aforesaid Notification No. 12/2003 has been amended w.e.f. 10-9-2004, vide Notification No. 12/2004-ST, dated 10-9-2004, and now, w.e.f. 10-9-2004 the abatement under the aforesaid Notification shall be available if no credit of duty paid on such goods and materials sold, has been taken under the provisions of the CENVAT Credit Rules, 2004 (which has been discussed in the 'Credit of service tax and excise duty') or where such credit has been taken by the service provider on such goods and materials, such service provider as paid the amount equal to such credit availed before the sale of such goods and materials.

(3) Commission received by the advertising agency is part of taxable value

Yes, sometimes, an advertising agency gets an extra commission from print media etc. for booking an advertisement for their client. The Government in its Circular No. 341/43/96-TRU, dated 31-10-1996 (appended as Annexure 11) has clarified that, "the commission received by the advertising agency would, however, be included in the value of taxable service". In the case of Adwise Advertising Private Limited v Union of India (2001) 131 ELT 529 (Mad), the said proposition of the aforesaid Circular was upheld as it is neither contrary to nor enlarges the scope of value of taxable services, hence not ultra vires. The Court held that any commission earned by the agency even from the advertising media, if it forms a part of the gross amount charged by such agency from the clients in relation to that advertisement could be included in the value of the taxable service.

It may be noted that if the advertising agency passes on part of such commission to its client then no deduction shall be given in respect of commission so passed on to the client, therefore, the entire amount of commission shall be included in the value of taxable services.

(4) Amount paid for booking of space and time for advertisement to be included in value of taxable services

No, the Government in its Circular No. 341/43/96-TRU, dated 31-10-1996 (appended as Annexure II) has clarified, "the amount paid by the advertising agency for space and time in getting the advertisement published in the print media (i.e. newspapers, periodicals, etc.) or the electronic media (Doordarshan, private T.V. Channels, All India Radio etc.) will not be includible in the value of taxable service for the purpose of levy of service tax".

(5) Expenses on travel, hotel, transportation etc., to be excluded from the value of taxable services

No, in a question raised before the Government - whether any expenses incurred by the advertising agency on account of travel, transportation and stay in hotels etc. is to be excluded for computing the value of taxable services, the Government in its Circular No. 341/43/96-TRU, dated 31-10-1996 (appended as Annexure II) has clarified that value of taxable services is gross amount charged from the client in relation to advertising services, therefore, the charges on account of travel, transportation and stay in hotels etc. are clearly includible in the value of taxable services.

In the case of Advertising Club, Chennai v Central Board of Excise and Customs, New Delhi (2001) 131 ELT 35 (Mad) it was challenged that in the matter of calculation of tax, the actual expenses were not excluded and the tax was charged on the gross amount charged by the advertising agency from their clients while in case of other services such expenditure was allowed and permitted to be deducted from the gross amount charged. In this case the Division Bench of the Madras High Court held that on this ground challenge cannot be made particularly relying on Article 14 of the Constitution. The Court recorded a finding that no fault can be found with the taxing provision with reference to the measure of the tax. It was accepted on behalf of the respondent that as to which would be and what would be the deductible amount would essentially depend upon the words of the statute and that it would be open for the tax payer to prove on the basis of the evidence that the amount charged would not come within the gross amount charged or any amount charged would be actually separate and independent of gross amount charged and not in relation to services provided. It would be the discretion of the concerned authority to decide as to what are the deductible amounts and which are the others.

(6) Expenses incurred on 'market research' for the client by the advertising agency are to be excluded from the value of taxable services

No, in a question raised before the Government - whether expenses incurred on 'market research' for the client by the advertising agency are to be excluded from the value of taxable services, the Government in its Circular No. 341/43/96-TRU, dated 31-10-1996 (appended as Annexure 11) has clarified that if the 'market research' relates to advertisement then the 'market research' forms part of the service in relation to advertisement and all expenses charged from the client on this account are includible in the value of taxable services. For instance, the expenses incurred to find out the popular time slot on T.V. for giving advertisement, studying consumers buying preference etc. may be treated as expenses in respect of market research. The reader may note that 'market research agencies services' has been brought under the service tax net w.e.f. 16-10-1998, therefore, for more detailed discussion and further Government clarification in this regard, refer to 'market research agencies services' of this book.

The reader may note that the Finance Act, 2003, w.e.f. 14-5-2003 has extended the service tax credit facilities across all services to give credit of service tax paid on the services consumed or duties paid or deemed to have been paid on goods used for providing taxable services, even if the input and the final services fall under different categories, the detail about it has been given in the separate 'Credit of Service Tax Paid'. Therefore, now, in the given case, the assessee shall be able to get credit on the service tax paid on input service as per the Rules which have been discussed.

(7) Amount directly charged by the foreign TV Channels includible in the value of taxable services

No, the Government in its Circular No. 341/43/96-TRU, dated 31-10-1996 (appended as Annexure 11) has clarified that if the amounts have been paid by the client directly to the foreign TV Channels in foreign currency; such amount shall not be includible in the value of taxable services as these amounts are not charged by the advertising agency from the clients.

(8) Charges for documentary film are part of value of taxable services

The Government in its Circular No. 341/43/96-TRU, dated 31-10-1996 (appended as Annexure II) has clarified that in some cases the advertising agency gets a documentary or film prepared by an independent film producer on behalf of clients and the advertising agency charges the client for the amount paid to the film producer. In such case, the film producer is not liable to service tax but the advertising agency will include the aforesaid in the value of taxable services. Therefore, in case of advertising services, the value of taxable services shall be the gross amount charged by the service provider for such services rendered by him without claiming any abatements towards administrative/ office expenses incurred for rendering such services. In other words, 'gross amount' here indicates that no deduction shall be allowed in respect of any expenditure incurred by the service provider which has proximate connection in rendering the services by him.

Exempted advertisement services

(A) Advertisement services provided to diplomatic mission

The Government has exempted all the taxable services provided by the advertising agency to the specified diplomatic missions or members from the whole of the service tax (vide Notification No. 44/98-ST GSR 47(E) [F. No. 137/14/97-CX.4], dated 22-1-1998 (appended as Annexure III).

(B) General Exemption

The Government has granted exemption from the whole of Service Tax in respect of all taxable services, for services provided to United Nations or an International Organisation. Similarly, the exemption, subject to certain conditions, has also been granted for taxable service provided to a developer or units of Special Economic Zone (SEZ). The Government, w.e.f. 20 November, 2003 has restored the exemption, as an interim measure, from the whole of service tax when payment is received in convertible foreign exchange for the taxable services rendered in India provided it was not repatriated from or sent outside India, such exemption was earlier withdrawn w.e.f. 1-3-2003. The reader may note that detailed discussion about aforesaid exemptions along with relevant notifications have been given in the 'Exemption from whole of Service Tax - Some Cases'.

N.B. The readers may note that provisions, procedures and other related discussion related to registration, payments of service tax, filing of return, interest and penalty, assessment procedure, appeal, refund of tax, etc., which are same, as applicable in respect of other taxable services, have been given in separate.

Annexure I

Compilation, printing and publishing of Telephone Directories, yellow pages and business directories covered under the definition of 'advertising agency' and liability to pay Service Tax

[Commissioner of Central Excise, Calcutta, Trade Notice No. 99/GL-90/CE/PRO/

Cal-II/99, dated 16-9-1999]

Attention of the Trade and Field Formations are invited to the fact that doubts have been raised as to whether persons engaged in the activity of compilation, printing and publishing of telephone directories, Yellow pages and business directories are covered under the definition of 'advertising agency' and accordingly liable to pay service tax.

2. The matter has been examined by the Ministry of Finance, Department of Revenue (Tax Research Unit). It has been decided that in the case of persons, who are printing and publishing telephone directories, Yellow pages or business directories, their activity is essentially of printing a readymade advertisements from the advertisers and publishing the same in the directory. Their activities are similar to those carried out by newspapers or periodicals. As such, this activity shall not attract service tax. However, if these persons also undertake any activity relating to making or preparation of an advertisement, such as designing, visualising, conceptualising, etc. then they will be liable to pay service tax on the charges made thereon.

[Authority: Circular Ministry of Finance F. No. 345/4/97-TRU., dated 16-8-1999]

Annexure II

Imposition of service tax on advertising

[Circular F. No. 341/43/96-TRU, dated 31-10-1996, relevant extracts]

3. Advertising Agencies. -The expression "advertising agency" has been defined to mean any commercial concern engaged in providing any services connected with the making, preparation, display or exhibition of advertisements and includes an advertising consultant. It would, thus, be noticed that the scope of the service which is included in the tax net extends not only to any service connected with making, preparation of advertisements but also includes any service connected with display or exhibition of advertisements.

4. It is further to be clarified that in relation to advertising agency, the service tax is to be computed on the gross amount charged by the advertising agency from the client for services in relation to advertisements. This would, no doubt, include the gross amount charged by the agency from the client for making or preparing the advertisement material, irrespective of the fact that the advertising agency directly undertakes the making or preparation of advertisement or gets it done through another person. However, the amount paid, excluding their own commission, by the advertising agency for space and time in getting the advertisement published in the print media (i.e. newspapers, periodicals, etc.) or the electronic media (Doordarshan, private TV channels, AIR, etc.) will not be includible in 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.

5. A question has been raised whether any expenses incurred by the advertising agency on account of travel, transportation and stay in hotels, etc. is to be excluded for computing the value of taxable service. The answer to this question lies in the negative. As explained above, the value of taxable service is the gross amount charged by the advertising agency in relation to the services rendered to his client. The charges aforesaid are thus clearly includible in the value of taxable service.

6. It has been represented that in some cases the advertising agency do market research for the client and a question has been raised whether the expenses incurred on market research by the advertising agency are to be excluded from the value of taxable service. In this context, it is clarified that if the market research relates to advertisement then the market research forms part of the service in relation to advertisement and all expenses charged from the client on this account are includible in the value of taxable service.

7. It has been mentioned that in the case of foreign TV channels certain amount is charged directly to the clients by the foreign TV channels in foreign currency. As regards the inclusion of such payments in the value of taxable service, such amounts paid directly by the client in foreign currency are not includible as these amounts are not charged by the advertising agency from the clients.

8. It has been represented that in many cases the advertising agency gets a documentary or film prepared by an independent film producer on behalf of the client. In such cases, the film producer deals with the advertising agency and the payment to him is also made by the advertising agency and not by the client directly. Ultimately, however, the advertising agency charges the client for the amount paid to the film producer. Under these circumstances a question has been raised whether the film producer is also liable to pay service tax on the documentary or film prepared by him in relation to an advertisement. In this connection, it is relevant to note tiiat taxable service is a service provided to a client by an advertising agency in relation to advertisement in any manner. Client is the advertiser. Therefore, in this case the advertising agency cannot be considered as a client when the definition of taxable service in relation to advertisement is interpreted in proper context. Accordingly, it is clarified that a film producer in this case is not liable to service tax. However, the advertising agency will no doubt include the expenses incurred on getting the film or documentary produced on behalf of the client in the gross amount charged from the client on which service tax will be collected by the agency. It goes without saying that if the film producer chooses to charge the client directly for the film or documentary produced by him then the film producer is to be regarded as having rendered service to the client in relation to advertisement and he will, therefore, be liable to pay service tax accordingly.

9. A doubt has been raised whether service tax becomes payable even if the client does not make the payment to the advertising agency. In this context, it is clarified that the advertising agency is legally bound to collect and pay service tax. However, if the advertising agency fails to collect the service tax, the responsibility for payment of tax lies on the advertising agency. The advertising agency, therefore, cannot claim any exemption from payment of service tax on the ground that the same was not paid by the client.

10. A point has been raised whether Directorate of Audio and Visual Publicity (DAVP) in the Ministry of Information and Broadcasting is liable to pay service tax on services rendered by it to the different Departments of the Central Government in relation to Government advertisements. It is clarified that DAVP not being a "commercial concern" is not liable to pay service tax.

Annexure III

Exemption to advertising and courier agencies from service tax on services rendered to Diplomatic Missions

Notification No. 44/98-ST GSR 47(E) [F. No. 137/14/97-CX.4], dated 22-1-1998, as amended by Notification No. 47/98-ST [GSR 165(E)], dated 1-4-1998 and Notification No. 6/2002-ST, dated 8-5-2002]

In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services provided by any advertising agency or courier agency to the Diplomatic Missions specified in column (2) of the Schedule hereto annexed from the whole of service tax leviable thereon under section 66 of the said Act.

Schedule

SI. No.

Name of Diplomatic Mission

SI. No.

Name of Diplomatic Mission

Algeria

Argentina

Australia

Austria

Bahrain

Belarus

Belgium

Bhutan

Botswana

Cambodia

Canada

Cyprus

Colombia

Croatia

Cuba

Czech. Republic

China

Greece

Hungary

Iraq

Israel

Iran

Japan

Kenya

Korea (DPR)

Kuwait

Kyrghstan

Kazakhstan

Laos

Morocco

Mozambique

Mangolia

Nepal

1 [66

Netherland

Namibia

Mexico

Oman

Philippines

Poland

Panama

Qatar

Singapore

Spain

Sri Lanka

Senegal

Switzerland

Syria

Slovak. Republic

Tunisia

Turkmenistan

Uganda

Ukraine

Uzebkistan

Venezuela

Zambia

Maldives

Bulgaria

Lebanon

Palestine

Saudi Arabia

United States of America

Holy Sea

Sahrawi Arab Democratic Republic

Brunei

Finland

Armenia]

Annexure IV

Service Tax on Advertising Agencies

Circular No. 64/13/2003-ST [F. No. 168/01/2003-CX.4], dated 28-10-2003

The representations have been received in this office with regard to the leviability of Service Tax under the category of Advertising Agency Services in respect of persons/ agencies engaged in canvassing for advertisements for which they get commission from the publishers. The persons involved do not provide any service like making, preparing, displaying and exhibiting and only undertake canvassing for the advertising.

2. The term canvassing may merely involve contacting potential advertisers and persuading them to give advertisement to a particular newspaper/ periodical/ magazine. The making and preparation of the advertisement namely, drafting of the text, preparation of layout is left either to the advertiser or to newspaper/ periodical/ magazine. Such a service is known as 'space selling'. In such cases, since the agency undertakes the job of merely bringing the order for an advertisement and does not undertake any further activity, it would not fall within the definition of advertising agency and will not be subjected to service tax.

3. On the other hand, 'canvassing' may involve such agency approaching a customer, receiving the texts of the advertisement (including photographs, monograms, etc. of the customs), estimating the space that such advertisement would occupy in the newspaper/ periodical/ magazine, negotiating the price, informing the general layout of the advertisement that would finally appear in such newspaper, etc. In such cases the term 'canvassing' would certainly fall within the phrase 'any service provided in any manner connected to making, preparing, displaying and exhibiting' and would be taxable service'.

4. In view of above, I have been directed to say that if the canvassing is limited to space selling then such services would not be liable to any service tax. However, if canvassing is involving receiving the text of advertisement, estimating the space that such advertisement would occupy in the newspaper/ periodical/ magazine, negotiating the price, forming the general layout of the advertisement that would finally appear in the newspaper then such-activity would be liable to service tax under the category of Advertising Agency Services.