Facts of the Case

The respondent, Nexus Alliance Advertising and Marketing Pvt. Ltd., is engaged in providing advertising agency services, including booking advertisement space and time slots in print and electronic media for its clients. An investigation was conducted by the Directorate General of GST Intelligence, during which agreements entered into by the respondent with media houses were examined. Based on these agreements and a statement recorded on 24.09.2018 from the respondent’s Manager (Finance), the Department alleged that incentives received by the respondent from media houses for achieving revenue targets constituted consideration for rendering business auxiliary services. A show cause notice dated 17.10.2018 was issued proposing recovery of service tax, interest, and penalties on the incentive amounts.

Issues Involved

Whether incentives received by an advertising agency from media houses for achieving revenue targets constitute consideration for a declared service under Section 66E(e) of the Finance Act, 1994, whether such incentives are liable to service tax as business auxiliary services, and whether any substantial question of law arose from the concurrent findings of the adjudicating authority and the CESTAT.

Petitioner’s Arguments

The Revenue contended that the respondent had entered into agreements with media houses to achieve specific revenue targets and that incentives were paid only upon achieving such targets. It was argued that the respondent had agreed to perform an act for the media houses and that the incentives constituted consideration for a declared service under Section 66E(e) of the Finance Act, 1994. Reliance was placed on the statement of the respondent’s Manager (Finance) to support the contention that incentives were earned pursuant to contractual obligations.

Respondent’s Arguments

The respondent submitted that it rendered services exclusively to its clients, namely the advertisers, and not to the media houses. It was argued that the respondent had no obligation towards the media houses to achieve any targets and that incentives were merely trade discounts or performance-based incentives, incidental to the main advertising services already rendered. The respondent contended that no separate or additional service was rendered to the media houses and therefore the incentives were not taxable.

Court Order / Findings

The Delhi High Court held that the respondent acted as an advertising agent for its clients and merely facilitated booking of advertisement space and time slots with media houses. The Court observed that achieving revenue targets was part of the normal course of business and did not involve rendering any additional service to the media houses. The Court further held that for a service to fall within Section 66E(e) of the Finance Act, 1994, there must be a clear contractual obligation to refrain from an act, tolerate an act, or perform an act, coupled with consideration. In the present case, no such independent contractual obligation existed between the respondent and the media houses. The Court also relied on Circular No. 214/1/2023-Service Tax dated 28.02.2023 and earlier judicial precedents to hold that the incentives were not liable to service tax. The concurrent findings of the adjudicating authority and the CESTAT were upheld, and it was held that no substantial question of law arose for consideration.

Important Clarification

The Court clarified that incentives or performance-based discounts received in the ordinary course of business do not automatically constitute consideration for a declared service under Section 66E(e). A taxable declared service requires an independent contractual obligation and a direct nexus between the activity and the consideration, which was absent in the present case.

Final Outcome

The appeal filed by the Revenue was dismissed. The order of the CESTAT holding that incentives received by the respondent were not liable to service tax under the Finance Act, 1994 was upheld, and the proceedings against the respondent stood conclusively dropped.

Source Link- https://delhihighcourt.nic.in/app/showFileJudgment/75405122025SERTA362025_114528.pdf

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