CBEC had issued draft Circular No. 341/43/2005-TRU on 10-10-2005 clarifying that amount paid by the advertising agency to the print or electronic media for display or exhibition of advertisement included in the total consideration paid by the client to the advertising agency is chargeable to service tax. In other words, in view of CBEC consideration for sell of space by the print or electronic media is also subject matter of service tax.

The draft Circular appeared to be inconsistent to the Parliamentary powers of levying tax on advertisement in print or electronic media inasmuch as it sought to levy tax on the advertisement and not on the advertising agency’s services. The Hon’ble Madras High Court in case of Advertising Club of India, upholding the Constitutional validity of service tax on Advertising Agency’s Services, had held that imposition of tax so far as not being levied on advertisement or selling of space in print or electronic media was not devoid of the Parliamentary powers to levy tax under the Constitution.

Due to hue and cry raised on the draft Circular and in view of not being within the framework of the law, the saner counsel has finally prevailed and the CBEC has decided to withdraw the said Circular. The withdrawal letter of the Finance Ministry is reproduced below:–

F.No. 341/43/2005-TRU

Government of India
Ministry of Finance
Department of Revenue
Tax Research Unit

Attention is invited to F. No. 341/43/2005-TRU dated 10-10-2005 soliciting views/comments/ suggestions on the draft circular under consideration put up on the CBEC website on
10-10-2005.

I am directed to state that the matter has been examined and it has been decided not to pursue further action on the said draft circular.

R. Sriram
Deputy Secretary to the Govt of India