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In absence of any legal/contractual obligation to pay volume discounts which is purely gratuitous and discretionary on the part of media owners, such receipts are not exigible to service tax.
Facts
The Applicant intends to provide services of an advertising agency providing professional services to the advertisers in relation to placement of advertisements in various media. They propose to follow two business models- viz. placement of advertisement on behalf of the advertiser wherein they would raise an invoice on the advertiser charging service tax on the agency commission and secondly engage in buying and selling of advertising inventory on its own account wherein the applicant charges a consolidated amount which includes the cost to the media owner and their margin. They could also entail incentive/volume discount from the media owners. The question before the authority was whether the incentive/ volume discount received in both the above business models is liable for service tax.
Held
The Authority noted the definition of ‘service’ provided u/s. 65B(44) of the Finance Act, 1994 and stated that there has to be a nexus between activity and consideration. The term “activity for a consideration” involves an element of a contractual relationship which could be express or implied. The revenue has no evidence to indicate that an activity was undertaken resulting in giving volume discount by the media owner especially when the choice of selecting the media owner was of the advertiser. Further it was held 43 that volume discount is gratuitous and there is no legal/ contractual obligation to give such discounts and therefore the incidental receipt of incentives/volume discounts are not liable to service tax.
