04 January 2010
In an advertising agency what would be the value of taxable service if 1.the advertisement is given in the newspaper 2. the advertisement is though electronic media like T.V. 3. the advertisement is in the form of display of hoardings
In all the above cases, the agency is acting as a mediator and getting commission.
What will be the amount on which the service tax is to be chaged to the customer?
67 - Valuation of Taxable Services for charging service tax
(1) Subject to the provisions of this chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall,-
(i) In a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;
(ii) In a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax charged, is equivalent to the consideration;
(iii) In a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner.
(2) Where the gross amount charged by a service provider, for this service provider or to be provided is inclusive of service tax payable, the value of such tax payable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged.
(3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.
(4) Subject to the provisions of sub-sections (1), (2) & (3), the value shall be determined in such manner as may be prescribed.
Explanation.- for the purposes of this section, -
(a) "Consideration" includes any amount that is payable for the taxable services provided or to be provided;
(b) "Money" includes any currency, cheque, promissory note, letter of credit, draft, pay order, travelers cheque, money order, postal remittance, and other similar instruments but does not include currency that is held for its numismatic value;
(c) "Gross amount charged" includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and 2[book adjustment, and any amount credited or debited, as the case may be, to any account, whether called “Suspense account†or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise].
Notes:
1.This section was substituted by the Finance Act, 2006 w.e.f. 18/04/2006.
2. The words "book adjustment, and any amount credited or debited, as the case may be, to any account, whether called “Suspense account†or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise." were substituted for the words "book adjustment" vide Notification No. 18/2008 (Finance Act, 2008) dated 10/05/2008 with effect from 16/05/2008.
04 January 2010
SERVICE TAX (DETERMINATION OF VALUE) RULES, 2006
RULE 05
05. Inclusion in or exclusion from value of certain expenditure or costs
(1) Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service.
(2) Subject to the provisions of sub-rule (1), the expenditure or costs incurred by the service provider as a pure agent of the recipient of service, shall be excluded from the value of the taxable service if all the following conditions are satisfied, namely:-
(i) the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured;
(ii) the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service;
(iii) the recipient of service is liable to make payment to the third party;
(iv) the recipient of service authorises the service provider to make payment on his behalf;
(v) the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party;
(vi) the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service;
(vii) the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and
(viii) the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.
Explanation 1.– For the purposes of sub- rule (2), “pure agent†means a person who
(a) enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service;
(b) neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service;
(c) does not use such goods or services so procured; and
(d) receives only the actual amount incurred to procure such goods or services.
Explanation 2. – For the removal of doubts it is clarified that the value of the taxable service is the total amount of consideration consisting of all components of the taxable service and it is immaterial that the details of individual components of the total consideration is indicated separately in the invoice.
Illustration 1. – X contracts with Y, a real estate agent to sell his house and thereupon Y gives an advertisement in television. Y billed X including charges for Television advertisement and paid service tax on the total consideration billed. In such a case, consideration for the service provided is what X pays to Y. Y does not act as an agent behalf of X when obtaining the television advertisement even if the cost of television advertisement is mentioned separately in the invoice issued by X. Advertising service is an input service for the estate agent in order to enable or facilitate him to perform his services as an estate agent
Illustration 2. – In the course of providing a taxable service, a service provider incurs costs such as traveling expenses, postage, telephone, etc., and may indicate these items separately on the invoice issued to the recipient of service. In such a case, the service provider is not acting as an agent of the recipient of service but procures such inputs or input service on his own account for providing the taxable service. Such expenses do not become reimbursable expenditure merely because they are indicated separately in the invoice issued by the service provider to the recipient of service.
Illustration 3. – A contracts with B, an architect for building a house. During the course of providing the taxable service, B incurs expenses such as telephone charges, air travel tickets, hotel accommodation, etc., to enable him to effectively perform the provision of services to A. In such a case, in whatever form B recovers such expenditure from A, whether as a separately itemised expense or as part of an inclusive overall fee, service tax is payable on the total amount charged by B. Value of the taxable service for charging service tax is what A pays to B.
Illustration 4. – Company X provides a taxable service of rent-a-cab by providing chauffeur-driven cars for overseas visitors. The chauffeur is given a lump sum amount to cover his food and overnight accommodation and any other incidental expenses such as parking fees by the Company X during the tour. At the end of the tour, the chauffeur returns the balance of the amount with a statement of his expenses and the relevant bills. Company X charges these amounts from the recipients of service. The cost incurred by the chauffeur and billed to the recipient of service constitutes part of gross amount charged for the provision of services by the company X.
04 January 2010
Dear Sneha leave behind these cut and paste of the valuation provisions, In brief, please note that in all cases, the service tax is payable by the advertise agency on the commission received from its client. Though the service tax born on obtaining space in TV Channel, News Paper or otherwise would be adjustable as input credit.
For further query, feel free to write sanjayinfbd@yahoo.com (M-09350048731) or visit, HNO. 2489/8,Faridabad(Haryana).
04 January 2010
To the best of my knowledge, there would not be liability of sales tax and on the direct taxation front, the firm shall be liable to income tax.
04 January 2010
I have received different opinion from our tax consultant. As per him the total amount is chargeable under service tax. Ex : The agency has spent Rs.500/- for news paper advertisement and collected Rs. 650/- from the Customer, Rs. 650/- is chargeable and not Rs.500/-
04 January 2010
Dear Sneha leave behind these cut and paste provisions, In brief, please note that in all cases, the service tax is payable by the advertise agency on the commission received from its client. Though the service tax born on obtaining space in TV Channel, News Paper or otherwise would be adjustable as input credit.
Dear Sneha, try to understand as the commission amount comprised of the expenses made for providing service, so the whole commission amount would be liable to tax. In such facts the tax would be on whole commission amount of Rs. 650.00.
Though service tax suffered on services used by the Agency for providing output service i.e. advertisement service, shall be available as credit.
CAclubindia
