FACTS OF THE CASE

The appellant Principal Commissioner of CGST & Central Excise, Delhi IV CGST Delhi South Commissionerate filed the appeal under Section 35G of the Central Excise Act, 1944 against the order of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) dated 17 April 2025 in Service Tax Appeal No. 51901 of 2019.

The respondent M/s Nexus Alliance Advertising & Marketing Pvt. Ltd. is an advertising agency engaged in booking and selling advertisement space and time slots for clients in print and electronic media. The Director General of GST Intelligence alleged that the respondent received performance‑linked incentives from media houses for achieving business targets and that such incentives were taxable as “business auxiliary service” under Section 66E(e) of the Finance Act, 1994.

A show cause notice was issued on 17 October 2018 proposing service tax demand on incentives. The adjudicating authority dropped the proceedings by OIO dated 1 March 2019, holding that no separate taxable service was rendered to media houses. The Revenue appealed to the CESTAT, which upheld the OIO, and the Revenue filed this statutory appeal.

ISSUES INVOLVED

  1. Whether performance‑linked incentives from media houses amount to a taxable service under Section 66E(e) of the Finance Act, 1994?
  2. Whether the incentives constitute a separate “declared service” distinct from the core advertising agency services?

PETITIONER’S ARGUMENTS (REVENUE)

• The Revenue argued that incentives were paid only upon meeting certain revenue targets and represented additional consideration for performing obligations towards media houses, hence taxable as declared service under Section 66E(e).

• Statement of respondent’s manager was relied upon to show existence of agreements with media houses involving revenue targets and achievement conditions, implying an obligation and additional service performed. 

RESPONDENT’S ARGUMENTS

• The respondent contended that it provides services solely to its clients and the booking of advertisement slots for clients did not constitute any separate service to media houses.

• Incentives were part of commercial arrangement and incidental to core agency services, not consideration for a distinct service or obligation to media houses. 

COURT ORDER / FINDINGS

  1. No Separate Service to Media Houses:
    The Court observed that the advertising agency’s role is to book and plan media for its clients, and incentives received for achieving revenue targets are incidental to that service, not a separate service to media houses.
  2. No Contractual Obligation under Section 66E(e):
    There was no independent contractual obligation between the respondent and media houses to perform or refrain from any act. Therefore, the condition for a “declared service” under Section 66E(e) was not satisfied.
  3. Concurrent Findings Upheld:
    The High Court upheld the concurrent findings of the adjudicating authority and CESTAT that no service tax liability arises on incentives received by the respondent.     

Important Clarification:

The Court referred to Circular No. 214/1/2023 – Service Tax clarifying that a declared service under Section 66E(e) requires a clear contractual agreement and sufficient nexus between the act agreed and the consideration, which was absent in this case.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/75405122025SERTA362025_114528.pdf

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