Arranging celebrities/cricketers for promotion and publicity of goods manufactured by client is Advertising agency Services

By | November 3, 2015

Issue

 Whether services provided by the appellant to M/s. Hero Honda Motors Ltd. through Cricket Celebrities namely Shri. Saurav Ganguly, Shri. Virender Sehwag, Shri. Yuvraj Singh, Shri. Harbhajan Singh and Shri Zaheer Khan is advertising services or otherwise ?

Facts of the Case

In the instant case the Appellant, had a tripartite agreement with M/s Hero Honda Motors Ltd. and the cricket players for the endorsement of the products of M/s Hero Honda Motors Ltd. by cricket players, as Models, in advertisements through various mediums eg television, radio etc. throughout the contract territory during the contract period only.

The Appellant’s contention :-

The services rendered by them were only in the nature of liaison work and not advertising services since they are not involved in making, preparation, display or exhibition of advertisements, as defined under Sec 65(3) of the Act.

Held

The services rendered by them were in no way connected with any liaison work relating to the endorsement rights of the cricket players/Models, as claimed by the Appellant. Contrary to their submissions, the Appellant in having been appointed by M/s Hero Honda in connection with the promotion or sales and publicity of their products they were in fact, involved in the making, preparation, display or exhibition of advertisements, as defined under Sec 65(3) of the Act. The Board Circular No. 341/43/96-TRU, dated 31-10-1996, had clarified that, The expression “advertising agency” has been defined to mean any commercial concern engaged in providing any services connected with the making, preparation, display or exhibition of advertisements and includes an advertising consultant. It would, thus, be noticed that the scope of the service which is included in the tax net extends not only to any service connected with making, preparation of advertisements but also includes any service connected with display or exhibition of advertisement.

Advertising services liable to service tax

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
COURT NO. II

APPEAL NO. ST/289/10-MUM

[Arising out of Order-in-Appeal No. SB(24) 24/STC/2010 dtd. 3/4/2010 passed by the Commissioner of Central Excise (Appeals), Mumbai Zone -1]

For approval and signature:

Honble Mr. P.K. Jain, Member (Technical)
Honble Mr. Ramesh Nair, Member Judicial)

 

M/s. Percept DMark(India) Pvt. Ltd. ……………………..Appellants

VS

Commissioner of Service Tax, Mumbai:…………………Respondent

Appearance

Shri R. Sundaran, Advocate for the Appellants
Shri R.K. Das, Dy. Commissioner (A.R.) for the Respondent

CORAM:

Honble Mr. P.K. Jain, Member (Technical)
Honble Mr. Ramesh Nair, Member (Judicial)

Date of hearing: 8/7/2015
Date of decision /2015

ORDER NO.

Per : Ramesh Nair

This appeal is directed against Order-in- Appeal No. SB(24) 24/STC/2010 dtd. 3/4/2010 passed by the Commissioner of Central Excise (Appeals), Mumbai Zone -1, wherein Ld. Commissioner (Appeals) upheld the Order-in-Original No. 15/STC/AC/08-09 dated 30/12/2008 and rejected appeal filed by the appellant.

2. The facts of the case is that the appellant are holding Service Tax registration and amongst others, providing advertisement services to M/s. Hero Honda Motors Ltd. during 1/4/2000 to 30/6/2003. They had received Rs. 5,26,70,587/- from M/s. Hero Honda Motors Ltd. on account of cricket players namely- Shri Sourav Ganguly, Shri Virender Sehwag, Shri Yuvraj Singh, Shri Harbhajan Singh and Shri Zaheer Khan as per agreements, but had not paid service tax on the taxable value received for advertising services. A show cause notice bearing F. No. V/STS/GR. IX/DN-II/1479/2004 dated 26/10/2004was issued to the appellant on the ground that they had failed to pay service tax of Rs. 27,46,030/- on the taxable value of Rs. 5,26,70,587/- received by them during 1/4/2000 to 30/6/2003 for advertising services. The said show cause notice had been adjudicated vide Order-in-Original dated 30/12/2008 wherein it was held that the tripartite agreements between the appellant, M/s Hero Honda Motors Ltd. and the cricket players was for endorsing the products and brand of M/s. Hero Honda Motors Ltd. by the cricket players as models and advertised by the appellant through various mediums e.g. television, radio, displaying the product on the cricket bats etc. throughout the contract territory during the contract period only. It was also held that the appellant even if they claim they are not known as an Advertising Agency, had provided services connected with display of advertisements during 1/4/2000 to 30/6/2003 as per definition under Section 65(3) of the Act, and not business auxiliary services which became taxable only w.e.f. 1/7/2003. The department was not informed about these services, there is suppression of facts and extended period invoked. The Original Authority thereby confirmed the Service Tax demand amounting to Rs. 27,46,030/- alongwith interest and imposed penalty under Section 76 and Section 78. Aggrieved by the said Order-in-Original dated 30/12/2008, the appellant filed appeal before the Commissioner (Appeals) which was rejected by upholding Order-in-Original. Being aggrieved by the said Order-in-Appeal appellant filed this appeal.

3. Shri R. Sundaran, Ld. Counsel for the appellant submits that appellant is not advertising agency, their role is confined to introduce cricket players to the company, M/s. Hero Honda Motors Ltd., and therefore they are not carrying out any services of advertising. He submits that main object of the contract is to grant endorsement right to use and exploit the players identification therefore as far as services of the appellant, they themselves are not providing any advertising services. He submits that their services were rightly classifiable under Business Auxiliary Services (BAS) which became taxable only w.e.f. 1/7/2003 therefore on the BAS, since there was no tax liability prior to 1/7/2003 no demand can be raised since the services admittedly covered under BAS and they have been paying service tax under such head w.e.f. 1/7/2003, it cannot be said that services prior to 1/7/2003 was covered under advertising services. He submits that advertising agency basically prepares content of the advertising material for publicity as per the requirements of the client. In the present case appellant is not engaged in preparation of any content of advertisement material for publicity. Appellants job is only to introduce or make available the celebrities to the client. Since the appellant is not engaged in preparation of content of the advertisement they cannot be classified as advertising agency. In support of his submission Ld. Counsel relied upon followings:
(a) Zee Telefilms Ltd. Vs. CCE [2006 (4) STR 349 (Tri.Mum)].
(b) Trade Notice No. 99/GL-90/C.E./PRO/CAL-II/99 dated 16/9/1999 of Calcutta Commissionerate.
(c) Board Circular No. 64/13/2003-S.T. dated 28/10/2003
(d) Diebold Systems Pvt. Ltd. Vs. Commissioner of Service Tax [2008(9) STR 546 (Tri. Chennai)]
(e) Glaxo Smithkline Pharmaceutical Ltd. Vs. Commissioner [2006(3) STR 711(Tri.)]

With regard to limitation he submits that show cause notice for the period 1/4/2000 to 30/6/2003 has been issued on 26/10/2004 i.e. after more than one year, therefore show cause notice is time bar. He submits that appellant was already registered under the head of Event Management Servcie way back in 2002 and the BAS was included in the registration and they started paying service tax from 1/7/2003 therefore appellant was very much registered and the activity was known to the department. Therefore there is no suppression of facts on the part of the appellant; hence extended period could not have been invoked. In this support he placed reliance on following judgments:
(a )Essel Packaging Ltd. Vs. CCE[2000(117) ELT 466(Tri)]
(b) Polymers & Transmission Products Vs. CCE [2000(117) ELT 119(Tri.)]
He further submits that the issue in the present case involves interpretation of law, therefore the penalties imposed under Section 76 and 78 are not correct. In support of this submission he placed reliance on following judgments:
(a) Century Cement Vs. CCE [2002(150) ELT 1065(Tri)]
(b) Biolwara Spinners Ltd. Vs. CCE [2001(135) ELT 719 (Tri)]
(c) Haryana Roadways Engg. Vs. CCE [2001(131) ELT 662(Tri)]
(d) Hindustan Steel Ltd. Vs. State of Orissa [1978(2) ELT (J159)(S.C)}

4. Shri R.K. Das, Ld. Dy. Commissioner (A.R.) appearing on behalf of the Revenue reiterates the findings of the impugned order. He submits that appellant is engaged in providing advertising services through eminent cricket players namely Shri Saurav Ganguly, Shri Virender Sehwag, Shri Yuvraj Singh, Shri Harbhajan Singh and Shri Zaheer Khan to M/s. Hero Honda Motors Ltd. for publicising the product/brand of M/s. Hero Honda Motors Ltd. by displaying on the Cricket bat or by appearance on television and other electronics media. The contention of the appellant that they are not providing advertising agency and they are only arranging or introducing aforesaid celebrities to M/s. Hero Honda Motors Ltd. which does not fall under the advertising Agency which is not correct for the reason that it is composite contract under tripartite agreement between appellant, M/s. Hero Honda Motors Ltd. and above named cricket players. Under contract the ultimate services which is provided through cricket celebrity is to promote and publicise the brand of M/s. Hero Honda Motors Ltd., therefore it involves advertising services only and nothing else. He submits, in terms of the agreements also it is very clear that the services of celebrities made available by the appellant to M/s. Hero Honda Motors Ltd. is for promotion of the products and brand of M/s. Hero Honda Motors Ltd., therefore it is clearly the services of advertising.

5. We have carefully considered the submissions made by both sides.

6. The issue to be decided by us is that services provided by the appellant to M/s. Hero Honda Motors Ltd. through Cricket Celebrities namely Shri. Saurav Ganguly, Shri. Virender Sehwag, Shri. Yuvraj Singh, Shri. Harbhajan Singh and Shri Zaheer Khan is advertising services or otherwise. The definition of advertising services is as under:
Advertising Agency means a commercial concern engaged in providing any service connected with the making, preparation, display or exhibition of advertisement and includes an advertising concern.
Taxable Service means any service provided,-
(a)—
(b)—
(ba)
(c)
(d) to a client, by an advertising agency in relation to advertisement in any manner.

In the instant case to conclude whether the service of advertising services or otherwise, it is necessary to go through the relevant clauses of the tripartite agreements between appellant, M/s. Hero Honda Motors Ltd. and Cricket players. Relevant paras of said agreements are extracted below:
Agreement of Shri Sourav Ganguly
This agreement made this day of 21st June, 2002 at New Delhi between
M/s. Hero Honda Motors Limited, a company incorporated under the Companies Act, 1956 and having its registered office at 34 Basant Lok, Vasant Vihar, New Delhi (hereinafter as Hero Honda, which expression shall, unless repugnant to the context or meaning thereof, be deemed to include its successors and assigns) of the first part.
And
M/s. PERCEPT DMARK (INDIA) PRIVATE LIMITED, a company incorporated under the Companies Act 1956 and having its registered office at Percept House, 22, Raghuvanshi Estate, 11/12, Senapati Bhapat Marg, Mumbai 400013(hereinafter referred as Percept, which expression shall, unless repugnant to the context or meaning thereof, be deemed to include its successors and assigns) of the Second part.
And
SOURAV GANGULY, an individual residing at 2/6, Biren Roy Road, Barsha (East), Kolkata- 700008(West Bengal).( Herein after referred as SOURAV) of the Third Part.
WHEREAS
(A) SOURAV is an outstanding cricketer of the world repute;
(B) Percept has necessary authority to represent SOURAV in matters which are the subject matter of this Agreement;
(C) ICC is the governing World body, monitoring the game of Cricket, known as the International Cricket Council.
(D) Hero Honda is desirous of engaging the services of SOURAV through Percept and has agreed to provide such services and licensed to promote Hero Honda brand name on Cricket Bat as per ICC regulations.
(E) SOURAV has agreed to provide certain services to Hero Honda through Percept and has agreed to execute this Agreement, subject to such terms and conditions appearing hereunder.
1. SCOPE OF SERVICES: SOURAV shall render his services to Hero Honda by using Hero Honda logo on the bat for every match/series and perform his obligations under this agreement as provided for by Hero Honda as per ICC regulations. SOURAV shall make himself available and render his Services and perform obligations mentioned in this agreement subject to any other prior bonafide professional commitments of SOURAV and provided that SOURAV shall endeavor to co-operate with Hero Honda in the co-ordination of his schedule with Hero Hondas need for his services.
4. RETAINER FEES: In consideration of the services to be rendered by SOURAV through Percept and the obligations undertaken by SOURAV as set out hereunder. However, Hero Honda will not be liable to pay any amount in eventually of termination of agreement between SOURAV and Percept/authority given by SOURAV to Percept.
5. TAXES: All payments to be made under the provisions of the Agreement shall be made in India Rupees and shall be subject to service tax and all other taxes applicable and also the deduction of Income under the Indian Income Tax Act, 1961. Each payment shall be made in favour of Percept DMark (India) Pvt. Ltd..
Agreement of Shri Virender Sehwag
This agreement is made on March 5th, 2002 by and between
M/s. PERCEPT DMARK (INDIA) PRIVATE LIMITED, a company incorporated under the Companies Act 1956 and having its registered office at Percept House, 22, Raghuvanshi Estate, 11/12, Senapati Bhapat Marg, Mumbai 400013 (hereinafter referred as Percept DMark, which expression shall, unless repugnant to the context or meaning thereof, be deemed to include its successors and assigns) of the First Part.
Mr. Virender Sehwag, residing at RZ-145, Laxmi Garden Nazafgarh, New Delhi-43 (hereinafter referred to as the Model) of the Second Part.
M/s. Hero Honda Motors Ltd., a company incorporated under the Companies Act, 1956 and having its registered office at 34 Basant Lok, Vasant Vihar, New Delhi, 110057 ( hereinafter as reffered to as Client, which expression shall, unless repugnant to the context or meaning thereof, be deemed to include its successors and assigns) of the THIRD PART. And
Collage Sports Management, partnership firm and having its office at 56, Community Centre, East of Kailash, New Delhi-1100065 (hereinafter referred as Collage Sports Management which expression shall include its successors and assigns) of the FOURTH PART.
WHEREAS Percept DMark has been appointed by the Client as the agency in connection with the promotion of the products which includes motorcycles, scooter and mopeds;
AND WHEREAS Collage Sports Management India, interalia, carriers on the business of Sports Management and is representing the Model with respect to marketing and other commercial activities, for and on behalf of the Model;
AND WHEREAS the model has agreed with Percept DMark to act as a model in connection with the promotion of the Products (as defined herein) on terms and conditions hereinafter appearing.
NOW IT IS HEREBY AGREED as follows:
In this Agreement, the following words shall have the following meanings:
(a) Players Identifications shall mean any words and/or symbols and/or photographic and/or graphic representations, which identify the Player and/or his name and likeness, in connection with the Product.
(b) Product shall mean two wheelers, which includes motorcycles, mopeds and scooters under the Hero Honda brand, which will be advertised or promoted in connection with the Player Identification.

2. GRANT OF ENDORSEMENT RIGHTS.
The model grants to the Client, subject to and on the terms of this Agreement, the right and license to use and exploit the Player Identification throughout the Contract Territory during the Contract Period in connection with the advertisement and promotion of the product, including but not limited to, by way of television, radio, posters, hoarding, newspapers, magazines and other form of printed or visual material, including Player Identification in connection with advertisement on the internet.

3. PAYMENT
In consideration for the grant of the rights by the Model, the Client/Percept DMark shall pay to the Model, retainer fees as set out hereunder:-

(b) All payments under this Agreement will be made in Indian Rupees and subject to the deduction of taxes as required under law, from time to time. Payments made under this Agreement or pursuant thereto shall be made by Percept DMark/the client to Collage Sports Management by Demand Draft drawn on such Indian bank account as may be designated by Collage Sports Management/ Model in the manner and at the times set forth herein, and as stipulated in clause 3& 4 of this Agreement. Time is of the essence in relation to all payments under this Agreement.

5. SERVICES OF THE MODEL
The Model agrees to be available for Ten(10) days during the Contract Period for the purpose of conceptualizing, creating and producing advertising campaigns covering Television, Prizes, Outdoor and Point of Purchase Material in relation to the Products, Public appearances, Celebrity dinners, Trade promotions, Consumer promotions, Plant Visits, staff motivation seminars in relation to the Products and to perform his obligations under this Agreement as set out in schedule hereto (the Services).Services to be provided by the Model will take place on mutually convenient dates and in mutually convenient locations to be agreed in the light of the Models professional and other commitments, provided the Model shall co-operate with the Client to in the co-ordination of his schedule with the Clients need for his Services, and subject to the Client provided for all travel, meal and accommodation expenses, including business class airfare and five star accommodation/suitable accommodation wherein facility is not available for the Model. It is clarified for the avoidance of doubt, that days of availability of the Model shall be exclusive of travel time and one full shooting day shall mean a maximum ten (10) hours at the destination city where the shooting shall take place, i.e. from the time of arrival to the time of departure.

6. CREATIVE APPROVAL
The Model has the right of reasonable approval of all commercials and films in storyboard form and the copy of all print advertisements, provided however, that such approval, shall be limited to depictions of the Model and to words spoken by or attributes to him, and provided further that The Model shall not unreasonable withhold his approval. Percept DMark shall send two (2) copies of the storyboard in print form for approval to Collage Sports Management/the Model and if Percept DMark does not receive any disapprovals in writing within seven (7) days after the receipt of these materials by Collage Sports Management/the Model, they will deem to have been approved by the Model.

7. LABELS/SIGNATURE LINE
The Model shall for the promotion of the Products of the Client and on any depiction of the Model inextricably advertised, associated, added or depicted (in part or whole or in any combination) as part of the services, endorse his signature or initials, it being understood that the signature line shall be engraved on the services to be promoted and marketed[ and the Company may affix or attach the Player Identification in any manner to the Products themselves or to the associated packaging or any promotional material in relation thereto)
(d) Upon expiry or sooner termination of this Agreement, Percept DMark/the Client shall immediately cease to advertise, promote, distribute or sell any item whatsoever in connection with the use name, likeness, design, logo, trademark or trade name of the Player Endorsement. Furthermore Percept DMark/The Client undertakes to ensure that all Point-of- Sale Material, billboards, hoardings, etc. shall be removed from their place of display upon termination or expiry of this Agreement.

13. IDEMNITY
Percept DMark/The Client agrees to protect, indemnify and save harmless The Model from and against any and all damages, claims, suits, actions, judgments and costs and expenses whatsoever, (including reasonable legal fees) arising out of, or in any way connected with (i) acts or omissions of the Client in relation to the advertisement, promotion or sale of the Products (ii) loss of damage to property, personal injury or, death resulting from the use of the Products (including, but not limited to Percept DMark/ The Clients breach of clause 3 above) or (iii) advertising or promotional material provided by or on behalf of Percept DMark/ The Client in relation to the advertisement or promotion of the Products.

Agreement of Shri Yuvraj Singh
This agreement made this day of 1st Sep, 2002 at New Delhi between
M/s. Hero Honda Motors Limited, a company incorporated under the Companies Act, 1956 and having its registered office at 34 Basant Lok, Vasant Vihar, New Delhi-110057 (hereinafter as {Hero Honda, which expression shall, unless repugnant to the context or meaning thereof, be deemed to include its successors and assigns) of the first part.
And
M/s. Percept Dmark (India) Private Limited, a company incorporated under the Companies Act 1956 and having its registered office at Percept House, 22, Raghuvanshi Estate, 11/12, Senapati Bhapat Marg, Mumbai 400013 (hereinafter referred as Percept, which expression shall, unless repugnant to the context or meaning thereof, be deemed to include its successors and assigns) of the Second part.
And
Mr. Yuvraj Singh, an individual residing at 5904, Duplex Houses, Modern Housing Complex, Mani Majra, Chandigarh- 160101 (Herein after referred as SOURAV) of the Third Part.
WHEREAS
(a) Yuvraj is an outstanding cricketer of the world repute;
(b) PERCEPT has necessary authority to represent YUVRAJ in matters which are the subject matter of this Agreement;
(c) ICC is the governing World body, monitoring the game of Cricket, known as the International Cricket Council.
(d) Hero Honda is desirous of engaging the services of YUVRAJ through Percept and has agreed to provide such services and licensed to promote Hero Honda brand name on Cricket Bat as per ICC regulations.
(e) YUVRAJ has agreed to provide certain services to Hero Honda through Percept and has agreed to execute this Agreement, subject to such terms and conditions appearing hereunder.

1. SCOPE OF SERVICES: YUVRAJ shall render his services to Hero Honda by using Hero Honda logo on the bat for every match/series and perform his obligations under this agreement as provided for by Hero Honda as per ICC regulations. YUVRAJ shall make himself available and render his Services and perform obligations mentioned in this agreement subject to any other prior bonafide professional commitments of YUVRAJ and provided that YUVRAJ shall endeavor to co-operate with Hero Honda in the co-ordination of his schedule with Hero Hondas need for his services.

4. RETAINER FEES: In consideration of the services to be rendered by YUVRAJ through Percept and the obligations undertaken by YUVRAJ as set out hereunder. However, Hero Honda will not be liable to pay any amount in eventually of termination of agreement between YUVRAJ and Percept/authority given by YUVRAJ to Percept.
Subject to other terms & conditions in this agreement, the above fee is payable to PERCEPT on behalf of YUVRAJ from the date of this contract irrespective of Hero Honda getting the ICC permission.

5. TAXES: All payments to be made under the provisions of the Agreement shall be made in India Rupees and shall be subject to service tax and all other taxes applicable and also the deduction of Income under the Indian Income Tax Act, 1961. Each payment shall be made in favour of  Percept DMark (India) Pvt. Ltd..

Agreement of Shri Yuvraj Singh
This agreement is made on 1st September, 2002 by and between
M/s. PERCEPT DMARK (INDIA) PRIVATE LIMITED, a company incorporated under the Companies Act 1956 and having its registered office at Percept House, 22, Raghuvanshi Estate, 11/12, Senapati Bhapat Marg, Mumbai 400013 (hereinafter referred as PDM, which expression include its successors and assigns) of the First Part.
And
Mr. Yuvraj Singh, an individual residing at 5904, Duplex Houses, Modern Housing Complex, Mani Majra, Chandigarh- 160101 (hereinafter referred to as The Model) of the Second Part.
And
M/s. Hero Honda Motors Ltd, a company incorporated under the Companies Act, 1956 and having its registered office at 34 Basant Lok, Vasant Vihar, New Delhi, 110057 ( hereinafter as referred to as Client) of the THIRD PART.
WHEREAS PDM has been appointed by the Client as one of the agencies, the agency in connection with the promotion or sales and publicity of their products namely Hero Honda motorcycles.
AND WHEREAS the model has agreed to act as a model in connection with the promotion of the Products of The Client as defined herein on terms and conditions hereinafter appearing.
NOW IT IS HEREBY AGREED as follows:
In this Agreement, the following words shall have the following meanings:
(a) The Model Identifications shall mean any words and/or symbols and/or photographic and/or graphic representations, which identify the the Model and/or his name and likeness, in connection with the Product.
(b) Product shall mean any model of two wheelers manufactured by The Client.
(c) Endorsed Products shall mean the Product of The Client, which is advertised or promoted in connection with the Model Identification.
(d) Contract Territory shall mean India.
(e) Contract Period shall mean a period of (12) months commencing from 1st September, 2002 and concluding on 31st August, 2003 or on such earlier date as this Agreement may be terminated in accordance with the terms here of.
(f) Contract Year shall mean the period of twelve successive months commencing on 1st September, 2002 during the contract period.

2. GRANT OF ENDORSEMENT RIGHTS.
The model grants to the Client, subject to and on the terms of this Agreement, the right and license to use and exploit the Player Identification throughout the Contract Territory during the Contract Period in connection with the advertisement and promotion of the product, including but not limited to, by way of television, radio, posters, hoarding, newspapers, magazines and other form of printed or visual material, including Player Identification in connection with advertisement on the internet.

3. RATAINER FEES.
In consideration for the grant of the rights by the Model, the Client shall pay to the Model, a total retainer fees to the tune of Rs. 15.00 lacs as set out hereunder:

5. TAXES
All payments to be made under the provisions of this Agreement shall be subject to deduction of Income Tax under the Indian Income Tax Act, 1961 and all other applicable laws.
6. PAYMENT
Payments to be made under the provisions of this agreement will be made in Indian Rupees, and will be paid to PDM on behalf of The Model by Demand Draft favoring Percept DMark (India) Pvt. Ltd or any other name as may be advised by The Model from time ot time, and drawn on such Indian Bank account as may be designated by PDM or any other party in whose favour the DD will be made, as the case may be, in the manner and at the times set forth herein, and as stipulated in clause 3& 4 of this Agreement. Time is of the essence in relation to all payments under this Agreement.

7. SERVICES OF THE MODEL
(a) The Model agrees to be available for Six(6) days during the Contract Period for the purpose of conceptualizing, creating and producing advertising campaigns covering Television, Outdoor and Point of Purchase Material in relation to the Products, Public appearances, Celebrity dinners, Trade promotions, Consumer promotions, Plant Visits, staff motivation seminars in relation to the Products.
(b) These Services to be provided by the Model will take place on mutually convenient dates and in mutually convenient locations to be agreed in the light of the Models professional and other commitments and subject to the Client provided for all travel, meal and accommodation expenses, including business class airfare and five star accommodation/suitable accommodation wherein facility is not available for The Model.

8. CREATIVE APPROVAL
The Model has the right of reasonable approval of all commercials and films in storyboard form and the copy of all print advertisements, provided however, that such approval, shall be limited to depictions of The Model and to words spoken by or attributes to him, and provided further that The Model shall not unreasonable withhold his approval. PDM shall send two (2) copies of the storyboard in print form for approval to The Model and if PDM does not receive any disapprovals in writing within seven (7) days after the receipt of these materials by The Model, they will deem to have been approved by the Model.

9. LABELS/SIGNATURE LINE
It is agreed that The client has the right to create a signature line or to affix or attach the Model Identification in any manner or to endorse products themselves or to the associated packaging. As a part of the goods and services of The Client, The Model shall engrave his signature/initials, it being understood that the signature line shall be engraved on the actual goods and services to be promoted and marketed. The Model shall have the right of approval of the use of his signature and depiction on the signature line of goods or services, such approval not to be unreasonably withheld.

Agreement of Shri Harbhajan Singh
This agreement is made on October28, 2002 by and between
M/s. Hero Honda Motors Ltd, a company incorporated under the Companies Act, 1956 and having its registered office at 34 Basant Lok, Vasant Vihar, New Delhi, 110057 ( hereinafter as referred to as Client) of the FIRST PART.
And
Mr. Harbhajan Singh, Son of Shri. Sardev Singh Plaha residing at Plot No. 22, Daulatpuri behind Railway Goodshed, Jhalander City, Punjab (hereinafter referred to as the Model) of SECOND PART.

And
Sporting Frontier Pvt. Limited, a company incorporated under the Companies Act, 1956 and having its Registered Office New Bridge Business Centre, No. 40 Ulsoor Road, Banglore-40 (hereinafter referred to as the Agent which expression shall unless repugnant to the context or meaning thereof, be deemed to include its successors) of the THIRD PART.
And
M/s. PERCEPT DMARK (INDIA) PRIVATE LIMITED, a company incorporated under the Companies Act 1956 and having its registered office at Percept House, 22, Raghuvanshi Estate, 11/12, Senapati Bhapat Marg, Mumbai 400013(hereinafter referred as PDM, which expression include its successors and assigns) of the FOURTH PART.
WHEREAS PDM has been appointed by the Client as one of the agencies the agency in connection with the promotion or sales and publicity of their products namely Hero Honda motorcycles.
AND WHEREAS the model through the agent has agreed to act as a model in connection with the promotion of the Endorsed Products (as defined herein below) on terms and conditions hereinafter appearing.
NOW IT IS HEREBY AGREED as follows:
1. DEFINITIONS:
In this Agreement the following words shall have the following meanings:
(a) The Model Identifications shall mean any words and/or symbols and/or photographic and/or graphic representations, which identify the the Model and/or his name and likeness, in connection with the Endorsed Product, and shall include, without limitation, audio recordings, visual recordings, image, caricature, sobriquet, autograph, lieness, portrait, voice, silhouette of the Model.
(b) Product shall mean any model of two wheelers manufactured by The Client.
(c) Endorsed Products shall mean the Product of The Client, which is advertised or promoted in connection with the Model Identification.
(d) Contract Territory shall mean the Republic of India.
(e) Contract Period shall mean a period of (12) months commencing from 28/10/2002 and concluding on 27/10/2003.
(f)  Promotional Period shall mean the material, based on the Model Identification Rights, created and/or coming into existence pursuant to the Model rendering Services as contemplated under this Agreement and shall include without limitation his photographs, audio recording, visual recordings, films, illustrations, line drawing, internet sites, websites and all other advertising and sales promotional materials used in connection with the exhibition of the Endorsed Product through mass media advertising consisting, inter alia, of various form of packaging and merchandising, including, but without limitation, television, radio, internet, website and press commercials in the Contract Territory during the Contract Period.

2. GRANT OF ENDORSEMENT RIGHTS.
(a) The model through the Agent grants to the Client, subject to and on the terms of this Agreement, the right and license to use and exploit the Player Identification throughout the Contract Territory during the Contract Period in connection with the advertisement and promotion of the Endorsed product, including but not limited to, by way of Promotional Material television, radio, internet, posters and other forms of printed material.

3. PAYMENT
In consideration for the grant of the rights by the Model and in consideration of the services to be rendered by the model under this agreement, the client shall pay to PDM a total sum of Rs. 12,50,000/- (Rupees Twelve Lacs Fifty thousand only) subject to the diction of taxes as required under law, who in turn shall pay such amount, to the Agent for and on behalf of the Model as retainer fees at the times set out herein below and in the manner set out in the Clause 5 herein below. The service tax as applicable shall be paid by The Client.

5. MODE OF PAYMENT
Payment of the amounts payable by the Client under Clauses 3 and 4 of this Agreement shall be made in Indian Rupees in the manner provided hereunder. Payments under this Agreement or pursuant thereto shall be made by the Client to PDM by Demand Draft favouring Percept D Mark (India) Ltd. or in any other names as may be advised by PDM from time to time and drawn on such Indian—– the DD will be made, as the case may be the manner and at the times set form herein, and as stipulated in Clauses 3 and 4 of this Agreement. PDM shall, within fifteen days from receipt of payment from the client as provided in Clauses 3 and 4 hereinabove, make payment of the said amounts to the Agent on behalf of the Model by way of Demand Draft drawn in favour of Sporting Frontier[ ] Limited or in any other name as may be advised by the Agent/Model from the time to time, and drawn on such Indian bank account as may be designated by the Agent/Model or any other party in whose favour the DD will be made. Time is of the essence in relation to all payments under this Agreement.

6. SERVICES OF THE MODEL
(a) The Model agrees to be available for Eight (8) days during the Contract Period for the purpose of conceptualizing, creating and producing advertising campaigns covering Television, Outdoor and Point of Purchase Material in relation to the Products, Public appearances, Celebrity dinners, Trade promotions, Consumer promotions, Plant Visits, staff motivation seminars in relation to the Products.
(b) These Services to be provided by the Model will take place on mutually convenient dates and in mutually convenient locations to be agreed in the light of the Models professional and other commitments and subject to the Client provided for all travel, meal and accommodation expenses, including business class airfare and five star accommodation/suitable accommodation wherein facility is not available for The Model and a PDM representative. One full day shall mean a shift of eight (8) hours and shall be exclusive of travel time.
(c) The Model shall endeavour to make best efforts and co-operate in every way with The client and in public appearance use his judgment in choice of language and general demeanor to create an atmosphere, which would be conducive to appearance effort.
(d) That The Model will make sure that the bat logo is neat and clean in appearance on the from and back of the bat and that the requirement will be informed to the Client/PDM for fresh/replenishment of stickers well in advance.

8. LABELS/SIGNATURE LINE
It is agreed that The client has the right to create a signature line or to affix or attach the Model Identification in any manner or to endorse products themselves or to the associated packaging. As a part of the goods and services of The Client, Model shall engrave his signature/initials, it being understood that the signature line shall be engraved on the actual goods and services to be promoted and marketed. The Model shall have the right of approval of the use of his signature and depiction on the signature line of goods or services, such approval not to be unreasonably withheld.

Agreement of Shri Zaheer Khan
This agreement is made on September 23rd , 2002 by and between
M/s. PERCEPT DMARK (INDIA) PRIVATE LIMITED, a company incorporated under the Companies Act 1956 and having its registered office at Percept House, 22, Raghuvanshi Estate, 11/12, Senapati Bhapat Marg, Mumbai 400013 (hereinafter referred as PDM, which expression include its successors and assigns) of the First Part.
And
Mr. Zaheer Khan, Son of Mr. Bakhitar Khan residing at 46, Revenue Colony, Shrirampur – 413709, District Ahemed-nagar, Maharashtra (hereinafter referred to as The Model) of the Second Part.
And
M/s. Hero Honda Motors Ltd, a company incorporated under the Companies Act, 1956 and having its registered office at 34 Basant Lok, Vasant Vihar, New Delhi, 110057 (hereinafter as referred to as Client) of the THIRD PART.
AND WHEREAS The Model has agreed to act as a model in connection with the promotion of the Products of The Client as defined herein on terms and conditions hereinafter appearing.
NOW IT IS HEREBY AGREED as follows:
In this Agreement, the following words shall have the following meanings:
(a) The Model Identifications shall mean any words and/or symbols and/or photographic and/or graphic representations, which identify the the Model and/or his name and likeness, in connection with the Product.
(b) Product shall mean any model of two wheelers manufactured by The Client.
(c) Endorsed Products shall mean the Product of The Client, which is advertised or promoted in connection with the Model Identification.
(d) Contract Territory shall mean India.
(e) Contract Period shall mean a period of (12) months commencing from 23rd September, 2002 and concluding on 22nd September, 2003 or on such earlier date as this Agreement may be terminated in accordance with the terms here of.
(f) Contract Year shall mean the period of twelve successive months commencing on 23rd September, 2002 during the contract period.

2. GRANT OF ENDORSEMENT RIGHTS.
The Model grants to The Client, subject to and on the terms of this Agreement, the right and license to use and exploit the Player Identification throughout the Contract Territory during the Contract Period in connection with the advertisement and promotion of the product, including but not limited to, by way of television, radio, posters, and form of audio-video and printed material. However, it is clarified that The Client shall also be entitled to use the Modeldentification in connection with advertisement on the internet.
3. RATAINER FEES.
In consideration for the grant of the rights by the Model, the Client shall pay to the Model, a total retainer fees to the tune of Rs. 12,50,000/-(Rs. Twelve Lakhs and Fifty Thousand Only) as set out hereunder:
(a) Rs. 6,25,000 payable on the signing of this Agreement.
(b) The balance sum of Rs. 6,25,000 payable after 6 months from singing of the agreement.

5. TAXES
All payments to be made under the provisions of this Agreement shall be subject to deduction of Income Tax under the Indian Income Tax Act, 1961 and all other applicable laws.

6. PAYMENT
Payments to be made under the provisions of this agreement will be made in Indian Rupees, and will be paid to PDM on behalf of The Model by Demand Draft favoring Percept DMark (India) Pvt. Ltd or any other name as may be advised by The Model from time ot time, and drawn on such Indian Bank account as may be designated by PDM or any other party in whose favour the DD will be made, as the case may be, in the manner and at the times set forth herein, and as stipulated in clause 3& 4 of this Agreement. Time is of the essence in relation to all payments under this Agreement.

7. SERVICES OF THE MODEL
(a) The Model agrees to be available for Six(6) days during the Contract Period for the purpose of conceptualizing, creating and producing advertising campaigns covering Television, Outdoor and Point of Purchase Material in relation to the Products, Public appearances, Celebrity dinners, Trade promotions, Consumer promotions, Plant Visits, staff motivation seminars in relation to the Products.
(b) These Services to be provided by the Model will take place on mutually convenient dates and in mutually convenient locations to be agreed in the light of the Models professional and other commitments and subject to the Client provided for all travel, meal and accommodation expenses, including business class airfare and five star accommodation/suitable accommodation wherein facility is not available for The Model.
(c) The Model shall endeavor to make best efforts and co-operate in every way The Client and in the public appearance use of his judgment in choice of language and demeanor to create and atmosphere, which would be conclusive to appearance effort.
(d) That The Model will make sure that the bat logo is neat and clean in appearance on the from and back of the bat and that the requirement will be informed to The Client/PDM for fresh /replenishment of the stickers well in advance.

8. CREATIVE APPROVAL
The Model has the right of reasonable approval of all commercials and films in storyboard form and the copy of all print advertisements, provided however, that such approval, shall be limited to depictions of The Model and to words spoken by or attributes to him, and provided further that The Model shall not unreasonable withhold his approval. PDM shall send two (2) copies of the storyboard in print form for approval to The Model and if PDM does not receive any disapprovals in writing within seven (7) days after the receipt of these materials by The Model, they will deem to have been approved by the Model.

9. LABELS/SIGNATURE LINE
It is agreed that The client has the right to create a signature line or to affix or attach the Model Identification in any manner or to endorse products themselves or to the associated packaging. As a part of the goods and services of The Client, The Model shall engrave his signature/initials, it being understood that the signature line shall be engraved on the actual goods and services to be promoted and marketed. The Model shall have the right of approval of the use of his signature and depiction on the signature line of goods or services, such approval not to be unreasonably withheld.

From the above tripartite agreements, it clearly shows that all the cricket players are engaged through the appellant in providing advertisement and promotion of the product of M/s. Hero Honda Motors Ltd. The appellant are paid the consideration towards advertisement performed by the celebrities. It is also undisputed that the payment consideration towards advertisement performed by the celebrities are received by the appellant, therefore appellant is legally liable for payment of service tax under the category of advertising services during the period involved in the present case. As regard the contention of the appellant that the services are of promotion of sale of goods of M/s. Hero Honda Motors Ltd. and therefore the same is classified as Business Auxiliary Service which became taxable only from 1/7/2003, we do not agree with this contention for the reason that services of celebrities are nothing to do with the promotion of the sale whether sale is promoted or not, the service of celebrities is confined to display of brand and advertise the product of M/s. Hero Honda Motors Ltd. therefore services are clearly of advertising services and not of BAS.
6.1. We observed that considering the facts and terms of agreement Ld. Commissioner (Appeals) has rightly held that service of celebrities to M/s. Hero Honda Motors Ltd. through appellant is advertising services and accordingly rightly upheld the order-in original. The findings of the Ld. Commissioner (Appeals) are reproduced below:
07. I have gone through all the records of the case including the written and oral submissions made by the Appellant at the time of personal hearing.
08. The issue involved in this Appeal is, whether the Appellant had rendered taxable advertising services, during 01.04.2000 to 30.06.2003.
09. In the instant case the Appellant, had a tripartite agreement with M/s Hero Honda Motors Ltd. and the cricket players for the endorsement of the products of M/s Hero Honda Motors Ltd. by cricket players, as Models, in advertisements through various mediums eg television, radio etc. throughout the contract territory during the contract period only. The Appellant’s contention is that the services rendered by them were only in the nature of liaison work and not advertising services since they are not involved in making, preparation, display or exhibition of advertisements, as defined under Sec 65(3) of the Act.
10. From the copies of tripartite agreements signed with various cricketers, and submitted by the Appellant, it is seen that as per these agreements, (a) Appellant has been appointed by Hero Honda in connection with the promotion or sales and publicity of their products (b) The cricket player, through his agent, has agreed with the Appellant to act as Model ‘ in advertisements, for the promotion of the endorsed products of Hero Honda, through television, radio, internet and other printed material (c) The Model shall be available for the purpose of conceptualizing, creating, and producing advertising campaigns in relation to endorsed products (d) Hero Honda to provide for business class travel and five star accommodation for the Model and the Appellant (e) Appellant shall have the right/responsibiliy., as well as duty to get all approval of all materials provided, relating to depiction of Hero Honda and any product/models/programme under the Hero Honda umbrella (f) All payments under this agreement shall be made to the Appellant in Indian rupees and shall be subject to service tax (g) upon expiry of this agreement, Hero Honda shall cease to use the Model identification promotional material to advertise their endorsed products (h) The Appellant/Hero Honda shall indemnify the Model for any damages rising out of any act of the Appellant/Hero Honda in relation to advertisement, promotion or sale of the endorsed products.
1 1 . As per Sec 65(3) of the Act, “Advertising Agency” means any person engaged in for providing any service connected with the making, preparation, display or exhibition of advertisement and includes an advertising consultant. And as per Sec 65(105) (e) “taxable service” means any service provided, to any person, by an advertising agency in relation to advertisement, in any manner.
12. (i) As per, the tripartite agreements, vide para 10 above, the Appellant had been appointed by M/s Hero Honda in connection with the promotion or sales and publicity of their products and, as per the said agreement, the cricket players, were required to act as ‘Models and work with the Appellant, in conceptualizing, creating, and producing advertising campaigns for the promotion of the endorsed products of Hero Honda, through television, radio, internet and other printed material, for which M/s Hero Honda were to provide for business class travel and five star accommodation for both the Model and the Appellant. The Appellant had the right/responsibility as well as duty to get all approval of all materials provided, relating to depiction of Hero Honda and any producjmodels/programme under the Hero Honda umbrella. All the payments made under the agreement were to be made to the Appellant in Indian rupees and were subject to service tax The Appilllant/Hero Honda were also to indemnify the Models for any damages rising out of any act of the Appellant/Hero Honda in relation to the advertisement, promotion or sale of the endorsed products. Further, upon expiry of these agreements, M/s Hero Honda would cease to use the Model identification promotional material to advertise their endorsed products.
(ii) As per each of these tripartite agreements, all the individual cricket players had their own agents for approval of advertising materials and receiving payments. Only in the case of Sourav Ganguly, the Appellant were also his agents, the rest of the agreements being the same.
13. From these above referred details of the said tripartite agreements, the services rendered by them were in no way connected with any liaison work relating to the endorsement rights of the cricket players/Models, as claimed by the Appellant. Contrary to their submissions, the Appellant in having been appointed by M/s Hero Honda in connection with the promotion or sales and publicity of their products they were in fact, involved in the making, preparation, display or exhibition of advertisements, as defined under Sec 65(3) of the Act. The Board Circular No. 341/43/96-TRU, dated 31-10-1996, had clarified that, The expression “advertising agency” has been defined to mean any commercial concern engaged in providing any services connected with the making, preparation, display or exhibition of advertisements and includes an advertising consultant. It would, thus, be noticed that the scope of the service which is included in the tax net extends not only to any service connected with making, preparation of advertisements but also includes any service connected with display or exhibition of advertisements. The Tribunal decision in the Zee Telefilms Ltd [2006 (4) STR 3491 relating to a caterer or lawyer or cinema hall who are merely associated with a advertisement film, cited by the Appellant, is not relevant to the facts of their case, since they were not merely associated but were, in fact, involved with conceptualizing, creating, and producing advertising campaigns, with the Models, in relation to the endorsed products, as per the said tripartite agreements.
14. The Appellant, in their submissions, have stated that their case was covered under the Board’s clarification, vide circular No 64/13/2003-ST dt 28.10.03, that any person engaged in canvassing for advertising will not be covered by the expression ‘advertisement’, if he is not undertaking any activity of advertisement. However the said circular had also clarified that if canvassing is involving receiving the text of advertisement, estimating the space that such advertisement would occupy in the newspaper/periodical/magazine, negotiating the price, forming the general layout of the advertisement that would finally appear in the newspaper then such activity would be liable to service tax under the category of Advertising Agency Services, The Madras High Court, in the case of M/s ADWISE ADVERTISING PVT. LTD [2001 (131) E.L.T. 111 529 (Mad.)], has held that, “selection of a particular print media or a particular electronic media would also be a part of the services because the advertising agency would be expected to advise its clients as regards the media through which such advertisements should be flashed. Thus; locating or selecting a particular media would be a “Service”, by the advertising agency “in relation to the advertisements”. This applies to the Appellant’s case since, as per the said tripartite agreements, they had been appointed by M/s Hero Honda in connection with the promotion or sales and publicity of their products and were involved in conceptualizing, creating, and producing advertising campaigns, with the Models, in relation to the endorsed products.
15. (i) As per the tripartite agreements, all the payments made under the agreement were to be made to the Appellant, by M/s Hero Honda, in Indian rupees and were subject to service tax or subject to deduction of all taxes required under the law and that service tax shall be paid by Hero Honda. Therefore, the submissions of the Appellant that, in their case there was no consideration and the question of payment of service tax did not arise, is neither based on facts nor as per the requirements of service tax law.
(ii) During the relevant period, as per Sec 67 of the Act, read with Rule 6(1) of the Service Tax Rules, 1994, the value of any taxable service shall be the gross amount charged by the service provider of such service rendered by him and the service tax on the value of taxable services, received during any calendar month, shall be paid to the credit of the Central Government by the 25th of the month immediately following the said calendar month. The Board has also clarified, vide Circular No. 341/43/96-TRU, dated 31-10-1996, that the advertising agency is legally bound to collect and pay service tax. However, if the advertising agency fails to collect the service tax, the responsibility for payment of tax lies on the advertising agency. The advertising agency, therefore, cannot claim any exemption from payment of service tax on the ground that the same was not paid by the client.
(iii) In having received payments from M/s Hero Honda, for rendering advertising services, as per the tripartite agreements, it was the responsibility of the. Appellant for paying the service tax, as per Sec 67 of the Act, read with Rule 6(1) of the Service Tax Rules, 1994. M/s Hero Honda, a manufacturer of two wheelers, was not liable to pay service tax on behalf of the service provider. Appellant, as the service provider, were legally bound to collect and pay service tax, and a clause in the agreement cannot absolve the Appellant of their responsibility for paying the service tax on the taxable advertising services, rendered by them during 01.04.2000 to 30.06.2003.
16. (i) The Appellant’s submission that they are paying service tax w.e.f. 01.07.03. under ‘business auxiliary services’, in relation to promotion or marketing of goods or services of clients, as per definition under Sec 65(19) of the Act, and that the Tribunal in the case of M/s Diebold Systems Pvt Ltd [2008 (9) STR 546] and M/s Glaxo Smithkline Pharma Ltd. [2006 (3) STR 711] have held that introduction of a new entry presupposes non coverage by pre-existing entries, is not relevant to the facts of the instant case relating to the taxable advertising services, rendered by them during 01.04.2000 to 30.06.2003.
(ii) Further, their contention that they were registered with Service Tax under ‘Event Management services’ since 2002, and therefore there is no suppression and that , when interpretation of law is involved, penalty cannot be imposed, is not acceptable since the issue involved in the instant case is suppression of facts relating to the taxable advertising services, rendered by them. ‘Event Management services’ and ‘Advertising services’ are two distinct services and a person providing both these services has to pay service tax separately on both the services rendered by him, as per service tax law. The instant case is based on facts and not on interpretation of law. Contrary to facts, based on the tripartite agreements, the Appellant by stating that, in their case there was no consideration and the question of payment of service tax did not arise, have admitted that they had suppressed facts relating to the taxable advertising services. rendered by them. 17. As regards penalty imposed on them under. Sec 76 and sec 78 of the Act, in the M/s Krishna Poduval case, [(2006) 1 STR 185] the Hon’ble Kerala High Court has held that under Sections 76 and 78 of Finance Act, 1994, incidents of imposition of penalty are distinct and separate under the two provisions and even if offences are committed in course of same transaction or arise out of same act, penalty imposable for ingredients of both offences and that person who is guilty of suppression deserve no sympathy. This decision of the Hon’ble Kerala High Court squarely applies to the facts of the Appellant’s case since, despite providing taxable advertising services, during the period 01.04.2000 to 30.06.2003, they had suppressed the fact that the amount realized by them was for the said taxable services provided by them during the relevant period.

ORDER
18. In view of the above findings, I uphold the impugned Order-in-Original No. 15/STC/AC/08-09 dt 30.12.08, and accordingly reject the appeal filed by the Appellant.

From the detailed above findings of the Ld. Commissioner (Appeals) we do not find any infirmity therein. As regard invocation of extended period of demand, we find that appellant has not disclosed the advertising services to the department and despite possessing the registration they have not disclosed to the department, the provisions of services and collection of amount there against. In such a situation it is clear case of suppression of facts on the part of the appellant. Moreover in some of the agreements, the clause related to payment terms contains the liability of payment of Service Tax. Therefore the larger period of demand was rightly invoked. Since there is suppression of facts, the appellant was legally liable for penalties under Section 76 and 78. We have gone through various judgments cited by the appellant and also circular. However from the fact of nature of service provided by the appellant to their client M/s. Hero Honda Motors Ltd., it is clear that services in the present case is Advertising Service. The facts of relied upon judgments are not identical to the facts of the present case therefore judgments cited by the appellant are not applicable. In view of our above discussions, the impugned order does not require any interference, hence the same is maintained. Appeal is dismissed.

(Order pronounced in court on_______________)

P.K. Jain
Member (Technical)
Ramesh Nair
Member (Judicial)

sk
33
ST/289/10-MUM

Category: Uncategorized

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