Case nº Ruling No. AAR/ST/11/2016 in Application No. AAR/44/ST/31/2013 of AAR Cases, April 22, 2016 (case AKQA Media India Private Ltd. Vs Commissioner of Service Tax-VI)
|Judge:||For Appellant: Prakash D. Shah, Advocate and For Respondents: Amresh Jain, (AR)|
|President:||V.S. Sirpurkar, J. (Chairman), S.S. Rana and R.S. Shukla, Members|
|Defense:||Finance Act, 1994 - Sections 65B, 66E, 66E (e), 66E(e)|
|Resolution Date:||April 22, 2016|
|Issuing Organization:||AAR Cases|
M/s. AKQA Media India Pvt. Ltd. (hereinafter also referred to as applicant) intends to carry out the activity of an advertising agency, whereby it shall provide professional services to its clients (i.e. Advertisers) in relation to placement of advertisements on various medium. Further, the applicant intends to charge commission from such clients as a consideration for provision of its services. While the applicant shall provide services only to Advertisers, depending on the quantum of its advertisements placed by the applicant on various medium, the applicant could be entailed to an incentive/volume discount from the Media Owners. Applicant submits that they propose to undertake two business models, which are as under;
Proposed Business Model 1- Placement of advertisement in traditional media on behalf of the advertiser
Step 1- Client Contract:
The Advertisers (the clients) enters into contract with the Advertising Agency (like the applicant) to advise them for placements of advertisements in various media such as radio, print, television, internet, hoardings etc., and procurement of the approved media inventory from the media owners on behalf of the Advertiser.
Step 2- Preparation of Media Plan:
Advertiser briefs the Advertising Agency on the requirements to be considered for preparation of the media campaign such as target audience, budget, etc. Based on the parameters provided by the Advertiser, Advertising Agency prepares a media plan. The media plan generally consists of various media options available, various estimated rates for advertisement slots on different media, estimated agency commission amount and service tax leviable on the agency commission.
Step 3-Approval of the Media Plan:
Advertiser evaluates the media plan from a perspective of its efficiencies, expenditure, etc. Upon the evaluation, the Advertiser may make such amendments to the media plan as may be deemed appropriate. Post incorporation of the amendment required in the media plan, Advertiser finalises and approves the media plan prepared and submitted by the Advertising Agency.
Step-4 Issuance of Estimate by Advertising Agency
Based on the approved media plan, the Advertising Agency issues an estimate to the Advertiser for the placement of advertisements. Vide the estimates, the Advertiser authorizes the Advertising Agency to place the advertisement on various media on behalf of the Advertiser.
Step 5- Issuance of Release Order by Advertising Agency:
Based on the approved estimate, Advertising Agency issues a release order on various Media Owner, on behalf of the Advertiser for placement of the advertisement and costs of the advertisement is generally received by the Advertising Agency in advance.
Step-6 Monitoring of campaign:
Advertising Agency monitors the display of the advertisement on the various media in order to ensure that the media campaign is being executed as per the approved media plan, estimate and release order. Advertising Agency points out any deviation in the display of the advertisement to the Media Owner and the Advertiser.
Step-7 Receipt of invoice from media vendor:
The Media Owner raises its invoices for the cost of the media inventory sold on the advertiser and hands over the said invoice to the Advertising Agency. The invoice typically proves the following details:
a) Name of the Advertiser
b) Details of the advertisement displayed
c) Name of the Advertising Agency involved
d) Costs of advertisement placed (less agency commission)
e) Service Tax(including cess, if any) on the cost of advertisement placed (other than non-taxable media such as print media)
Advertising Agency makes the payment for the media inventory to the Media Owners on behalf of the Advertiser after retaining its commission. The Media Owner pays the service tax (including cess, if any) on the invoice value (less commission of Advertising Agency).
Step 8- Raising of invoice by Advertising Agency:
Advertising Agency further raises an invoice on the Advertiser for its fee/agency commission plus applicable service tax (including cess, if any) thereon (the same is agreed in the approved media plan and the estimate). Advertising Agency adjusts the payment made to the Media Owner from and out of advance or seeks reimbursement of costs of advertisement plus applicable taxes (including cess, if any) charged by the media owner. The Advertising Agency pays the service tax (including cess, if any) on the agency commission charged by it to the Advertiser. The Advertiser takes credit of service tax paid by the Media Owner on the cost of the media inventory, based on the taxable invoice issued in the name of the Advertiser. Further, Advertiser takes credit of service tax paid by the Advertising Agency on the agency commission, based on the taxable invoice issued in the name of the Advertiser by the Advertising Agency.
Step 9- Receipt of volume discount:
Post the completion of the transaction, at the year end, Media Owners, suo moto, at their sole discretion, may give incentives/volume discounts to the applicant (i.e. Advertising Agency). The parameters for providing such incentives/volume discount are decided by the Media Owner unilaterally. The payment is purely gratuitous. There is no contract executed by the Advertising Agency with Media Owners.
Proposed Business Model 2 - Buying and selling of advertisement inventory in non-traditional...
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