Kerala H.C : This petition under Art. 226 of the Constitution of India challenges the imposition of service tax on the taxable service of advertising agency by Finance (No. 2), Act 1996.

High Court Of Kerala

Zodiac Advertisers vs. Union Of India

Fact 65(1A), FA 65(16)(d), Art. 14, Art. 19(1)(g)

B.N. Srikrishna, C.J. & M. Ramachandran, J.

O.P. No. 4842 of 1999

31st January, 2002

Counsel Appeared

T. Karunakaran Nambiar, K.T. Shyamkumar & Rajesh Nambiar, for the Petitioner : P.S. Sreedharan Pillai & P. Gopinath, for the Respondent


B.N. Srikrishna, C.J. :

This petition under Art. 226 of the Constitution of India challenges the imposition of service tax on the taxable service of advertising agency by Finance (No. 2), Act 1996. The petitioner is a small scale industrial unit which is engaged in the printing of material for customers—like visiting cards, stickers, banners, posters, etc. Thepetitioner purchases the cloth required for the banner as per the requirements of the customer, and then prints the matter given by the customer on the banner. After completing the printing work, the material is required to the customer. The petitioner claims that it has no idea how the matter is utilised by the customer, that the work undertaken by the petitioner is similar to that of a printing press, and it is not acting as an advertising agency for its customers. Service tax was introduced for the first time by the Finance Act, 1994 on certain categories of service. By the Finance (No. 2), Act 1996, it was extended to the taxable service of ‘advertising agency’. Sec. 65(1A) defines ‘advertising agency’ and s. 65(16)(d) defines the ‘taxable service of advertising agency’. “65(1A). Advertising Agency.—’advertising agency’ means any commercial concern engaged in providing any service connected with the making, preparation, display or exhibition of advertisement and includes an advertising consultant.””65(16)(d). : Taxable service of advertising agency—Taxable service means any service provided to a client, by an advertising agency in relation to advertisement in any manner.” Under s. 67, the value of taxable service shall be the gross amount charged by the service provider for the services provided by him. Explanation to s. 67 provides for certain inclusions and certain exclusions which are not relevant for our purpose.

4. The following contentions are urged in the petition : (1) that the service tax on advertisement agency is violative of Art. 14 of the Constitution of India; (2) that the service tax is violative of Art. 19(1)(g); (3) that the petitioner is not an advertising agency within the meaning of s. 65(1A), and, therefore, not liable for payment of service tax. In any event, the service tax cannot be levied on the cost of materials for which sales-tax is paid or charged. In any event, the authorities have to exclude from the gross receipts of the petitioner the cost of the materials, and the sales-tax paid, before levying the service tax. In our view, none of the contentions has any merit. A fiscal statute cannot be considered to be violative of the fundamental right guaranteed under Art. 19(1)(g) to carry on any profession, occupation, trade or business. By cl. (6) of Art. 19, it is open to the State to make a law imposing reasonable restriction in the exercise of such right, inter alia, in public interest. It cannot be denied that imposition of tax which goes to the public exchequer is certainly in public interest. The tax levied is only five per cent of the gross consideration received and, hence, it cannot be considered to be unreasonable. We are, therefore, of the view that, there is no substance in the contention that the petitioner’s fundamental right guaranteed under Art. 19(1)(g) of the Constitution is violated. The next contention is that imposition of service tax is violative of Art. 14, as there are others who are not similarly taxed by levy of service tax, and that such a tax can be imposed only on large business entities, and large professional rendering service. In our judgment, there is no substance in this contention. Whom the legislature should tax, in what manner, and to what extent, is totally left to the wisdom of the legislature. It is not for the Courts to interfere in such exercise of discretion. Interference with a fiscal statute under Art. 14 must be very seldom and for explicit reasons—Secretary to Government of Madras vs. P.R. Sriramulu (1996) 1 SCC 345 and State of U.P. vs. Kamla Palace (2000) 1 SCC 557.

The last contention that the service rendered by the petitioner does not amount to ‘taxable service’ as defined under the Act requires factual determination. The respondents have filed a counter-affidavit in which they have denied the averments in the original petition. The respondents contend that petitioner renders wide ranging services in the field of advertising and that the name of the petitioner itself suggests that the services rendered by it, even the printing activity involved, is subsidiary to the making of advertisements. The petitioner renders subsidiary services like vinyl stickers, cloth banners, fiber boards, H.T.P. Boards, corrugated light boxes, acrylic light boxes, vehicle tyre, stepney covers, PVC Balloons, Display stands, Cinema slides, PVC Danglers, all intended for the purpose of advertisement. The materials required for the work are purchased by the petitioner in its name after payment of sales-tax, designed, cut to size and supplied to the customers. The petitioner collects designing charges also in some cases from the customers. In these circumstances, the respondents submit that the contention of the petitioner that materials used for printing are supplied by the client is not correct, as the records disclose otherwise. The respondents, therefore, maintain that the business activity carried on the petitioner is fully covered by the definition of “advertising agency” under the Act, and, therefore, petitioner is liable to pay service tax.

8. On the basis of the scant averments, and in the absence of material evidence, it is not possible for us to decide the factual controversy as to the exact nature of the business activity of the petitioner, and whether it would fall within the definition of ‘advertising agency’. It is a matter to be decided by the assessing authority on evidence. If the activity of the petitioner is not exigible to tax, it is at liberty to demonstrate it before the assessing authority by producing material to the satisfaction of the assessing authority. We find the contentions challenging the validity of the Act are without any substance. Hence, the petition isdismissed. No order as to costs.

[Citation : 265 ITR 262]

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