There are two ways of operation in course of the business done by the Advertising Agencies. The same is discussed as under-
1. The Advertising Agency acts as an "AGENT" of 'Print Media' to provide business to the 'Print Media' say - "THE HIINDU".
(a) In this case, "THE HINDU" pays certain amount of COMMISSION in respect of the service received from the 'Advertising Agency'. (The rate of Commission may be a percentage of the earnings made by the 'Print Media' or may be a specifiic amount as the case may be).
(b) The service provided by the 'Advertising Agency' is covered under the taxable services of "Business Auxilliary Service" and the COMMISSION so earned by the 'Advertising Agency' is chargeable to Service Tax.
(c) "The Hindu" being the "Service Receiver" deducts the TDS (under Income Tax Act) outof the COMMISSION payable to the "Advertisiing Agency" who is the Service provider in the said operations.
(d) The 'Advertising Agency' has to comply with all the stipulations of 'PURE AGENT' defined under the Service Tax Valuation Rules. (Mainly, the compliance should be that the Payments are directly made by the Customer to the "THE HINDU" without any margin of profits for the 'Advertising Agency')
(e) In the aforesaid scenario, the 'Print Media' i.e, "THE HINDU" is exempted from the levy of Service Tax for the service (selling of space in Newspapaer for Advertisement) rendered to the CUSTOMER. In this case, out of the total amount payable, the TDS (under Income Tax Act) is deducted by the Customer (Service Receiver) on behalf of "THE HINDU".
(f) Thus, the conclusion is that the 'Advertising Agency' provides taxable service of 'Business Auxilliary service' to the 'Print Media' i.e, "THE HIINDU". The 'Advertising Agency' has to pay the service tax on the gross amount of COMMISSION so received from the "THE HINDU". Here, the "THE HINDU" has to deduct the TDS (under the Income Tax Act) from the amount payable to the 'Advertising agency'.
2. The 'Advertising Agency' enters into the contract with the Customer to get the Advertisng done in the 'Print Media'. In lieu of such service provided by the 'Advertising Agency' to the Customer, the 'Advertising Agency' charges certain amount as consideration.
(g) In this scenario, the "Advertising Agency" undertakes to do all the requisites(as required by the Customer) such as developing, articulating, the 'matter' (which needs to be advertised iin the "Print Media" i.e, the "THE HINDU" ) and canvassing with the "print Media" for purchase of space in the News Papers to get the the said matter advertised.
(h) The aforesaid act is a contract between two entities performing on Principal to Principal basis. Here the "Advertising Agency" does perform independently and is not working as the Agent of the Customer.
(i) The Customer is not concerned as to what is the margin of profit being earned or is available to the "Advertising Agency". In other words, the Customer does not deal with the 'Print Media' rather, it is the "Advertising Agency" which is dealing with the "print Media".
(j) Here the 'Advertising Agency' is the Service Provider of the taxable service of "Advertiisng agency service" classified under Section 65(105) (e) of the Finance Act, 1994 and the Customer is the Service Receiver of such taxable service.
(k) The consideration or the gross amount received by the 'Advertising Agency' from the Customer(service receiver of 'Advertising agency service') is the value on which the Service tax is leviable. (Whether, the 'advertisng agency' receives any discount as a margin of profit from the "Print Media", is not relevant to the service tax payable on the "Advertising agency service"). The terms 'consideration' and 'gross amount' has been defined under Section 67 of the Fiinance Act, 1994.
(l) The vital aspect to be seen here is that, the Customer is deducting the TDS(under the Income Tax Act) from the payout made to the "Advertising Agency" towards the taxable service of "Advertising agency service" received by the Customer.
(m) The vital point here is that if, the "advertising agency" is ahowing the payments received from the Customer (seeking advertisement) as an INCOME in its Books of Accounts, there is no way the Advertising Agency can term the said consideration received to be the "amount of reimbursement" for getting the advertising done in the "Print Media". The reimbursement of expenses are not tobe shown in the "books of Accounts" as an Income from Business undertaken. Thus the "pure agent" concept is also not available for the 'advertiising agency' to seek any exemption from the levy of Service Tax on the "advertising agency service".
(n) The Conclusion is that the 'Advertising Agency' has to pay Service tax on the full amount of consideratiion received from the Customer. The 'Advertisng agency does not get any cushion of abatement or exemption from the payment of service tax on the full amount so recieved by it.
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