Row delays service tax on ad space

Conflicting postures adopted by the Indian Newspaper Society and advertising agencies is delaying a final decision by the revenue department on the imposition of service tax on the amount paid by advertising agencies for obtaining ad space.

The draft circular was issued in October this year, but the department has so far neither withdrawn the circular nor issued a final circular.

"It is not our intention to tax the print media if the relationship with the advertising agency is that of an agent," a revenue department official told Business Standard.

While the Indian Newspaper Society says the relationship with advertising agencies is on a principal-to-principal basis, ad agencies maintain that the relationship is in the nature of an agent. "We have asked both sides to clarify the actual position," an official said.

"Our relationship with the advertising agencies is not that of a client and service provider. It is on a principal-to-principal basis. We do not provide any service or value addition. We sell ad space as a commodity by way of a standard measure - square centimetres," said Indian Newspaper Society Secretary General Deepak Raja.

"The department is examining the present nature of transactions regarding ad space booking. A new category of media firms have now come into play. They interact with newspapers on behalf of their clients and hire ad agencies only to conceptualise ads," officials said.

In a draft circular issued in October, the CBEC had said the amount paid by advertising agencies to the media for obtaining space for display or exhibition, being in the nature of input service used in providing the taxable service, was liable to be included in the value of the taxable service.

At present, only the 15 per cent commission given to advertising agencies by the media is liable to service tax. However, if the present draft becomes a reality, all payments made to advertising agencies by their clients will attract service tax.