Performance Incentives Earned By Advertising Agency From Media Firms Not Taxable: Delhi High Court
The Delhi High Court has made it clear that the incentives received by an advertising agency from media firms for achieving benchmark targets is not susceptible to levy of service tax.A division bench of Justices Prathiba M. Singh and Shail Jain observed,“An advertising agency primarily books slots on electronic media and books space in the print media on behalf of its clients. The...
The Delhi High Court has made it clear that the incentives received by an advertising agency from media firms for achieving benchmark targets is not susceptible to levy of service tax.
A division bench of Justices Prathiba M. Singh and Shail Jain observed,
“An advertising agency primarily books slots on electronic media and books space in the print media on behalf of its clients. The advertising plans are negotiated with the media houses, with the help of the advertising agency and are finally approved by the clients. The advertising agency merely renders service as per the advertising plans which are approved by its clients and does not render any additional service to the media house.”
It added,
“achieving targets or revenue benchmarks are part of the service that is already being rendered and since there is no additional service to the media house, it cannot be held that the incentives which are given by the media houses would be liable to service tax as it constitutes a 'business auxiliary service'.”
For context, the Respondent company is engaged in providing advertising agency services. The Director General of GST Intelligence, upon investigation, came across certain agreements which Respondent had entered into with media houses to receive performance incentives upon achieving a particular target.
As per Section 66D (g) of the Finance Act, 1994, the activity of 'selling of space slots for advertisements in print media' is non-taxable.
However, DGGI argued that the incentive received by the Respondent translated to performing business promotion of media owners and constituted 'business auxiliary service', taxable in terms of Section 66E(e) of the Act.
Though a Show Cause Notice was issued to the Respondent, the proceedings were dropped by the GST Commissionerate on the ground that no service is being rendered by the Respondent to the media houses in respect of the said incentives.
The Department argued that once a specific revenue target of advertisement was achieved, only then the incentives were given and hence this would constitute an additional service.
Disagreeing, the High Court held that to constitute auxiliary service under Section 66 E(e), three components ought to be established:
i. Agreeing to refrain from an act;
ii. Agreeing to tolerate an act or a situation;
iii. Agreeing to do an act.
However in the present case, it observed, the advertising agency is neither carrying out any specific act nor is refraining from any specific act. Primarily, the advertising agency is rendering service on behalf of its clients to book the slots and space with the media houses.
“All the three components require a contract. In the present case, the contract though executed by the Respondent with the media house, is for and on behalf of the client. The Respondent is rendering services to its client and not to the media house,” the Court held.
As such, the Department's appeal was dismissed.
Appearance: Mr. Aditya Singla, SSC, CBIC with Ms. Arya Suresh Nair, Adv. for Appellant
Case title: Principal Commissioner Of Cgst And Central Excise Delhi Iv Cgst Delhi South Commissionerate v. M/S Nexus Alliance Advertising And Marketing Pvt Ltd
Case no.: SERTA 36/2025