13 December 2010
During the course of audit of one of my client (Purely Manufacturing concern)- it is seen that in bills from advertising agencies, these agencies get some work done from outside sub-agencies which charge service tax on the services rendered by these sub-agencies to the main advertising agency. The main advertising agency raises bill to the company and charges service tax on the same. I understand that the main advertising agency must be claiming the cenvat credit for service tax charged by sub-agencies. This, in effect, reduces the burden of service tax on the main agency. However the main agency charges the service tax from us. Although the company gets cenvat credit for the service tax charged by the main agency, we feel that still it increases the cost to the company. This issue may be checked as to whether the company is suffering any revenue loss on this account.
16 December 2010
Section 67 of the Finance Act, 1994 defines Advertising Agency Services as "The value of taxable services in relation to service provided by an advertising agency to a client shall be the gross amount charged by such agency for services rendered in relation to advertisements."
The Ministry of Finance's TRU has clarified vide F.No.341/43/96-TRU dt.31.10.1996 as follows:
"The above value, includes 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 as well as the commission received by the agency. However, the amount paid excluding their own commission by the advertising agency, for space and time in getting the advertisements published in the print media (i.e. newspapers, periodicals, etc.) or in its Broadcasting will not be includible in the value of taxable service.
The value includes the charges on account of travel, transportation and hotel stay.
If the market Survey / Research relates to the advertisement, all expenses that are charged from the client on account of Market Survey/Research relating to advertisement are includible in the value of taxable service.
The amount charged by foreign TV channels directly to their clients in foreign currency is not includible as these amounts are not charged by the Advertising Agency from the clients."
As per these guidelines, The above value, includes 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 as well as the commission received by the agency. However, the amount paid excluding their own commission by the advertising agency, for space and time in getting the advertisements published in the print media (i.e. newspapers, periodicals, etc.) or in its Broadcasting will not be includible in the value of taxable service.
The value includes the charges on account of travel, transportation and hotel stay.
If the market Survey / Research relates to the advertisement, all expenses that are charged from the client on account of Market Survey/Research relating to advertisement are includible in the value of taxable service. the amount charged by foreign TV channels directly to their clients in foreign currency is not includible as these amounts are not charged by the Advertising Agency from the clients.
Service Tax would be payable on the gross amount charged by the Advertising Agency from the Clients. The exclusion of cost of paper and printing is not permissible, as it constitutes a component of service provided.
Hence, if the Advertisng Agency has billed your client Rs.100,000, the service tax thereon would be 10.3% thereof or Rs.10,300, irrespective of the input availed of by the main advertising agency. Hence, apparently, your client is not suffering any revenue loss on this account.
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