Sanjiv Agarwal

In relation to advertisements, service tax is levied on two services that of the advertising agency and on space selling (introduced w.e.f. May 1).

The word, `advertisement' is defined in Section 65(2) of the Finance Act, 1994, and includes any notice, circular, label, wrapper, document, hoarding or any other audio or visual representation made by means of light, sound, smoke or gas. According to Section 65(105)(e) of the Finance Act, 1994, "taxable service" means any service provided or to be provided to a client, by an advertising agency in relation to advertisement, in any manner. According to Section 65(2), the scope of services which are included in the tax net extends not only to any service connected with making and/or preparation of advertisements but also any service connected with display or exhibition of advertisements.

According to section 65(3), "advertising agency" means any commercial concern engaged in providing any service connected with the making, preparation, display or exhibition of advertisement and includes an advertising consultant. Thus, any service to a client connected with even any one or more of the four activities would be sufficient to being the commercial concern providing such service, within the ambit of the definition of advertising agency which has also been made clear in Circular No. 341/43/96-TRU dated October 31, 1996 in the context of advertising agency.

Thus, the basic tests of advertising service are:

There must

be an advertisement.

Person providing

service must be a commercial concern.

Services should

relate to making, preparation, display or exhibition of the advertisement.

Services of

advertising consultant are also taxable.

Services must

be provided to a client.

Services must

be in relation to advertisement.

Services may

be provided in any manner.

The Supreme Court judgement in

ICICI Bank vs Municipal Corporation of Greater Bombay

(2006; 5 STT 20; Supreme Court), though not directly related to service tax, has made a comprehensive interpretation of the word `advertisement' (with reference to Section 328 and 328A of the Bombay Municipal Corporation Act, 1888). This interpretation coming from the Apex Court is useful in understanding the meaning of word `advertisement' under service tax too.

In this case, ICICI Bank had caused illuminated signboards installed outside (above) the entry of the bank's ATM centres and extension counters, mainly for identification of location (and not as an advertisement). The Municipal Corporation of Greater Bombay (MCGB) issued notice that the appellant had not taken its permission for displaying at its premises sky-sign, glow-sign, neon-sign/illuminated board.

Attention drawing

The Apex Court interpreted the word `advertisement' as follows: "The word skyline means any word, letter, model, sign, device or representation, balloon, parachute or other similar device which is in the nature of an advertisement, announcement or duration or employed for the purpose of advertisement or announcement or direction. An advertisement is a matter that draws attention of the public or segment of public to a product, service, person, organisation or line of conduct in a manner calculated to promote or oppose directly or indirectly that product, service, person, organisation or line of conduct intended to promote sale or use of product or range of products...

"... In our considered opinion advertisement within the meaning of Section 328A of the Corporation Act must primarily have a commercial purpose and should be indicative of business activity of the displayer with a view to attract the attention of people to its business...

"In the present case the appellant has put up an illuminated ATM board at various sites and as per the appellant it has been put only to tell the existing customers and others about the location of the ATM centres, which in itself is in the interest of public at large account... The fact that there is an ATM centre in the premises tells that the appellant Bank is providing automatic teller machine service there and hence, the service provider is clearly identified. The communication in this is directed to the account holders and also to prospective account holders.

Guiding factor

"The kind of information supplied of the location of the service provided may also be construed of commercial exploitation indirectly, as the signboards may not aim at the existing customers only but they may also affect the decisions of the prospective customers. They tell the prospective customers that the service of the ATM round the clock is being made available by the appellant Bank which would influence the prospective customers to make a decision about which service provider he or she has to choose... If by any communication, the communicator tries to influence the people to buy his product or service or attract towards his product or service then it would be a guiding factor to identify whether a particular communication of the communicator tantamount to be an advertisement.

"From the aforesaid analysis, in all fact situations and circumstances, at the outset it cannot be said that the signboards indicating ATM centres cannot have commercial interest but would only tell about the location of the ATM centres to the existing account holders only. Whether signboard of an ATM centre tantamount to be an advertisement or not would depend upon the facts of each case, depending on the number of ATM centres established by a particular bank in a particular locality or place or even city, to have the flavour of commercial or business interest of the service provider."

This interpretation may also hold good in case of advertisement for the purpose of service tax.

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

(This article was published in the Business Line print edition dated June 3, 2006)
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