Workshop on Service tax – AICAS Advertisement, Broadcasting and Space or Time selling services 9 July 2011

2 Contents 1Advertising Agency’s Services 2Broadcasting Services 3 Sale of Space or Time for Advertisement Services

3 Advertising Agency’s Services (introduced w.e.f. 1 November 1996)

4 Definitions Taxable Service Taxable service means any service provided, or to be provided to any person, by an advertising agency in relation to advertisements, in any manner [Section 65(105)(e)] Advertising Agency Advertising agency means any person engaged in providing any service connected with the making, preparation, display or exhibition of advertisement and includes an advertising consultant [Section 65(3)] Advertisement 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 [Section 65(2)]

5  Cost of market research conducted in relation to advertisement liable to Service tax under this category [TRU letter F. No. 341/43/96-TRU, dated 31 October 1996]  Mere canvassing of advertisements for publishing on commission basis classifiable under the category of ‘Business Auxiliary Services’ and not under this category, provided the activity does not entail other services like making, preparation, display or exhibition of advertisement [Circular No. 96/6/2007-ST, dated 23 August 2007 as amended by Circular No. 98/1/2008-ST, dated 4 January 2008]  In case of persons who are printing and publishing telephone directories, yellow pages or business directories, their activity is essentially of printing 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 advertisement, such as designing, visualizing, conceptualizing, etc., then they will be liable to pay Service tax on the charges made thereon. [TRU letter F. No. 345/4/97-TRU, dated 16 August 1999 – withdrawn w.e.f. 23 August 2007]  Key circulars/ clarifications Key circulars/ clarifications

6  If canvassing involves services like receiving the text of the ad, estimating the space that such ad would occupy in the newspaper/ periodical/ magazine, negotiating the price, forming the general layout of the ad that would finally appear in the newspaper, then such activity would be liable to Service tax under this category [Circular No. 64/13/2003-ST, dated 28 October 2003 – withdrawn w.e.f. 10 May 2007]  Selling of free commercial time allotted to a TV serial producer in lieu of his programmes telecasted by the channel does not fall within the purview of advertisement service since this activity is not connected to making, preparation, display or exhibition of advertisement. This has nothing to do with actual presentation of the advertisement [Circular No. 78/08/2004-ST, dated 23 March 2004 – withdrawn w.e.f. 10 May 2007]  Charges paid by the agency to print media or electronic media as a cost of space or time are not to be included in the value of ‘Advertisement Agency’s Services’. The same are covered the category of ’Sale of Space or Time for Advertisement Services’ w.e.f 1 May 2006 Key circulars/ clarifications (contd.)

7  Mere ad space selling or letting out premises for display of products or advertisements would not get covered under this category [Bhavya Enterprises (Advertisers) vs. CCE, Delhi ( STR-50-Tri.-Del.); CCE, Kolkatta vs. The Incoda ( STR-302-Tri.-Kolkata)] – However, the same are now specifically covered under the category of ’Sale of Space or Time for Advertisement Services’ w.e.f 1 May 2006  The activity of providing/ selling space for display or exhibition of advertisement on website is classifiable as advertisement services [Google Online India Private Limited, In re ( STR-53-AAR)]  Persons who merely manufacture screen printed products as per the directions of the advertiser, cannot be called as an advertisement agency in the absence of any creative activity [Zodiac advertisers vs. CCE Cochin 2006 (3) S.T.R. 538 (Tri. - Bang.)]  Advertisement services provided by an agency to State Government which would be displayed for public interest would be liable to Service tax under ‘Advertisement Agency’s Services’ [Prithvi Associates vs. CCE STT 149 (Mum. CESTAT]  Target incentives received by advertising agency from media not to be included in the value of taxable services [Euro RSCG advertising Ltd. vs. Commissioner of CST, Bangalore ( STR-277-Tri.-Bang.)] Key Case laws/ Advance Rulings

8  Sale of Telecast rights – The same is not liable to Service tax under ‘Advertisement Agency’s Services’ since there is no advertisement and also there are no services rendered by the holder of the right [BCCI vs. CST STT 399 (Mum. CESTAT)] – However the same is liable to Service tax under the category of ‘Broadcasting Services’ w.e.f 16 July 2001  Display of logo and sponsorship money not liable to Service tax under ‘Advertisment Agency’s Services’ as there is no service being provided [BCCI vs. CST STT 399 (Mum. CESTAT)] – However the same is liable to Service tax under the category of ’Sale of Space or Time for Advertisement Services’ w.e.f 1 May 2006  Discounts/ Commission received by advertising agency from media, when:  passed on by the advertising agency to its clients, not to be included in the value of taxable services [Euro RSCG advertising Ltd. vs. Commissioner of CST, Bangalore ( STR-277-Tri.-Bang.)]  not passed on by the advertising agency to its clients, to be included in the value of taxable services [Adwise Advertising Pvt. Ltd vs. UOI ( ELT-529-Mad.)]  Services of installation and display of advertisement in addition to manufacture of signage covered under ‘Advertisement Agency’s Services’  Mere making of Neon sign boards, painter/ writer of sign boards/ preparation of hoardings not covered under ‘Advertisement Agency’s Services’ Key Case laws/ Advance Rulings (contd.)

9  Where the advertiser is located outside India, whether services provided by Indian advertising agency in relation to advertisement of its products in India would qualify as ‘export’ in terms of the Export Rules – Recently the CBEC has clarified [vide Circular No141/10/2011-TRU, Dated: May 13, 2011] that for Advertising services to qualify as Export (prior to 27 February 2010), the ‘accrual of benefit’ of such services should be outside India and such accrual is not restricted to mere impact on the bottom-line of the person who pays for the service. It was further clarified that: “The effective use and enjoyment of the service will of course depend on the nature of the service. For example effective use of advertising services shall be the place where the advertising material is disseminated to the audience though actually the benefit may finally accrue to the buyer who is located at another place. “  Classification, valuation and recovery of Service tax (charged by the media) when:  Media buying is being done by the advertising agency on P to P basis  Media buying is being done by the advertising agency on P to A basis  Where ad space on print media is procured by advertising agency (on P to P basis) for its clients, the whole amount recovered from the client (including its commission) may be liable to Service tax under the category of advertisement services (while sale of ad space in print media per se has been excluded from the purview of Service tax) Key Issues

10 Broadcasting Service (introduced w.e.f. 16 July 2001)

11 Definitions Taxable Service T Taxable service means any service provided, or to be provided to any person, by a broadcasting agency or organization in relation to broadcasting in any manner [Section 65(105)(zk)] and,  in the case of a broadcasting agency or organization, having its head office situated in any place outside India, includes service provided by its branch office or subsidiary or representative in India or any agent appointed in India or by any person who acts on its behalf in any manner engaged in the activity of –selling of time slots for broadcasting of any programme or –obtaining sponsorships for programme or –collecting the broadcasting charges or –permitting the rights to receive any form of communication like sign, signal, writing, picture, image and sounds of all kinds by transmission of electro-magnetic waves through space or through cables, direct to home signals or by any other means to cable operator, including multi-system operator or any other person on behalf of the said agency or organization Explanation - For the removal of doubts, it is hereby declared that so long as the radio or television programme broadcast is received in India and intended for listening or viewing, as the case may be, by the public, such service shall be a taxable service in relation to broadcasting, even if the encryption of signals or beaming thereof through the satellite might have taken place outside India.

12 Definitions (contd.) Broadcasting agency Broadcasting agency or organization means any agency or organization engaged in providing service in relation to broadcasting in any manner and, in the case of a broadcasting agency or organization, having its head office situated in any place outside India, includes… [Section 65(16)] Broadcasting Broadcasting has the meaning assigned to it in clause (c) of Section 2 of the Prasar Bharati (Broadcasting Corporation of India) Act, 1990 (25 of1990) and also includes programme selection, scheduling or presentation of sound or visual matter on a radio or a television channel that is intended for public listening or viewing, as the case may be; and in the case of a broadcasting agency or organization having its head office situated in any place outside India, includes… [Section 65(15)]

13 Definitions (contd.) As per Section 2(c) of the Prasar Bharati Act, Broadcasting means dissemination of any form of communication like signs, signals, writing, pictures, images and sounds of all kinds by transmission of electro-magnetic waves through space or through cables intended to be received by the general public either directly or indirectly through the medium of relay stations and all its grammatical variations and cognate expression shall be construed accordingly. Broadcasting

14  Up-linking agencies are not broadcasting agencies and are not liable to Service tax in respect of such service [CBEC letter F. No. B.II/I/2000-TRU, dated 9 July 2001]  Multi-System Operators (“MSO”) are also not broadcasting agencies to the extent it merely retransmits signals. However, in case the MSO operates a local cable channel such as Spectranet, Siticable, Incable, Sumangali, etc. and broadcasts a programme or serial or advertisement on his own, he would be liable to pay Service tax on the amount he charges for the service rendered to his clients in relation to broadcasting of such programmes [CBEC letter F. No. B.II/I/2000-TRU, dated 9 July 2001]  Service tax leviable on the amount received by the broadcaster net of advertising agency’s commission. However, such abatement is allowed only when the same is specifically indicated in the invoice raised by the broadcaster. [CBEC letter F. No. 341/43/2001-TRU, dated 18 October 2001]  Broadcasting is a composite activity which includes dissemination, communication through electromagnetic waves, and receiving of such signals disseminated. Thus even where all the receivers of a particular place stop receiving the due to electrical fault in that place, it cannot be said that there has been no ‘broadcasting’ during that period. Key circulars/ clarifications

15  Services provided by the digital cinema service provider to the producer/ distributor in relation to delivery of content of cinema in digital form after encryption electronically has been exempted from Service tax [Notification No. 12/2007-Service Tax, dated 1 March 2007] Key Notifications

16  Activity of broadcasting not over or complete until the signals are received by the intending public. Thus, where the encryption of signals happen from outside India but the same are received in India, the activity would be said to be completed in India and hence would be liable to Service tax [Zee Telefilms Limited vs. CCE, Mumbai ( STR-252-Tri.-Del)]  Inclusive part of definition of 'broadcasting' (that covers sale of time slots) would be attracted only when, inter alia, the entity selling time slots in India has any office outside India [Vijay Television (P.) Ltd. vs. CST, Chennai ( STR-39-Tri.-Chennai)]  Broadcasting services provided directly from the broadcaster to the end customer covered under the category of ‘Broadcasting Services’ as post the amendment to the definition of ‘broadcasting’ w.e.f. 16 June 2005, where in the clause ‘services to cable operators including MSO or any other person on behalf of the said agency’ was inserted. After the amendment services provided directly from the broadcaster to the end customer would also get covered under the said category [CC,CE &ST vs. World Space India (P) Limited STT 275 (Bang. CESTAT)] Key Case laws

17  Scope of the term ‘services in relation to broadcasting in any manner’ – whether it includes:  Grant of distribution rights in relation to channels  Sale of time slots by a broadcasting agency not having head office situated outside India  Where the encryption of signals happen from India but the same are received outside India, whether the same would qualify as export or would be construed as a non taxable service (in light of the definition of this category) Key Issues

18 Sale of Space or Time for Advertisement Service (introduced w.e.f. 1 May 2006)

19 Definitions Taxable Service Taxable service means any service provided or to be provided to any person, by any other person, in relation to sale of space or airtime for advertisement, in any manner; but does not include sale of space for advertisement in print media and sale of time slots by a broadcasting agency or organization. [Section 65(105)(zzzm)] Explanation 1 - For the purposes of this sub-clause, “sale of space or time for advertisement” includes: (i) providing space or time, as the case may be, for display, advertising, showcasing of any product or service in video programmes, television programmes or motion pictures or music albums, or on billboards, public places, buildings, conveyances, cell phones, automated teller machines, internet; (ii) selling of time slots on radio or television by a person, other than a broadcasting agency or organisation; and (iii) aerial advertising Explanation 2 - For the purposes of this sub-clause, ‘‘print media’’ means: (i) ‘‘newspaper’’ as defined in sub- section (1) of Section 1 of the Press and Registration of Books Act, 1867; (ii) ‘‘book’’ as defined in Section 1(1) of the Press and Registration of Books Act, 1867, but does not include business directories, yellow pages and trade catalogues which are primarily meant for commercial purposes

20  Distinction between this category and ‘Renting of Immovable Property Services’ - Provision of space in a shopping mall for installing television monitors for displaying advertisements Key Issues

21 Presenter’s contact details Abhinav Srivastava KPMG Phone number: The views in this presentation are personal views of the Presenter. Further, the information contained is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although, the endeavor is to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such / this information without appropriate professional advice which is possible only after a thorough examination of facts / particular situation. The views in this presentation are personal views of the Presenter. Further, the information contained is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although, the endeavour is to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such / this information without appropriate professional advice which is possible only after a thorough examination of facts / particular situation. THANK YOU