The Hindu Business Line : They also serve who just give space

THERE is a saying that "America is the land of opportunity. Everybody can become a taxpayer." With the introduction of service tax in India, this saying may hold good here too. Circular No F. No.341/43/2005-TRU issued by the service tax department has stunned advertisers.

It states that letting of space will also be considered a taxable service. The recent decision of the Authority for Advance Ruling in Google Online Pvt Ltd only confirmed the latest thinking of the department.

The Board of Control for Cricket in India (BCCI) was also recently involved in a decision regarding service tax. The issue was whether the following activities of the BCCI would be taxable service:

i) sale of telecast rights of cricket matches;

ii) permitting sponsors to use space for putting up advertisement in the stadia; and

iii) permitting logos on clothing and clothing accessories of players.

The departmental authorities held these activities to be covered under the taxable service of advertising agency. BCCI's argument was that it was not a commercial concern and was not engaged in making, designing or preparation of any advertisement.

It held that merely selling of broadcasting rights or selling of space for advertising did not bring it under the service tax net.

The lower appellate authority passed the following judgement:

"The perusal of the terms and conditions of the agreements entered between the agencies and the appellants during the course of conducting matches reveals that the appellant received income by way of sponsorship money, logo money and sale of TV rights on the basis of agreements entered into by them with various companies. These companies were allowed to exhibit the name of their company and their products both on the cup and in the stadium while the matches were in progress.

"Logos were allowed to be embossed on the dresses of the players and on their kit bags, etc. The TV channels, which have the rights for telecast of matches, also exhibit advertisement of various products. All these are allowed by appellants for commercial consideration.

"Thus, the services rendered by the appellants are in connection with the selling of space; the advertising; display or exhibit these advertisement on TV channel; the duties and responsibilities of appellant also include control relating to advertisers wanting to advertise their products and convey with such details and information to them to enable them to do advertisement and sponsorship... ."

Looking at this judgment, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) was of the view that the matter is open to argument and that the appellants did not have a prima facie case in their favour for complete waiver of pre-deposit.

The CESTAT came out with an innovative logic to prove that BCCI would need to make a pre-deposit of duty.

As such, it directed the BCCI to pre-deposit Rs 3 crore in cash and another Rs 3 crore in bank guarantee.

These decisions only confirm the fear that anything remotely concerned with the activities of an advertising agency would be taxable service irrespective of their nature.

(The author is a Hyderabd-based chartered accountant.)