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Legal pulse: Brand promotion without reference to offering not service taxable

Economic Laws Practice (ELP) has won a Rs 257 crore service tax reprieve for clients Jetlite before the Custom Excise & Service Tax Appellate Tribunal (CESTAT) which held that brand promotion without reference to services offered under business auxiliary services (BAS) category is not taxable.

The appellate tribunal also decreed that construction of immovable property and its sale per se didn’t fall within the ambit of services rendered and were therefore not taxable even if such activities were promoted by Jetlite.

ELP partner Tarun Gulati and associate Kishore Kunal along with senior advocate S K Bagaria argued for Jetlite on the questions of merit and limitation in the final hearing of the matter on 20 December.

The firm had challenged a show cause notice demanding service tax on displaying of Sahara logo on Jetlite’s aircrafts, its boarding passes, baggage tags etc when the airline was owned by the Sahara Group.

Case Background

ELP stated: “The issue relates to a period when the airline was owned by the Sahara Group. Sahara Airlines had entered into an Agreement with the flagship company of the Sahara Group, Sahara India Housing Ltd., which was, inter alia, engaged in developing real estate projects. The Agreement provided for various activities to be carried on by Sahara Airlines including the printing of the ‘SAHARA’ logo on the Aircraft, boarding passes, baggage tags, etc. Sahara Airlines was paid on a per ticket basis for this activity under the Agreement.

“A Show Cause Notice was issued seeking to charge service tax under the taxable service of BAS for the period of July, 2003 to January, 2007, presumably on the basis that the activities amounted to ‘service in relation to promotion or marketing of service provided by the client’. The Show Cause Notice was defended on various grounds on merits as well as on limitation.”

CESTAT Decision

  • The adjudication order went beyond the Show Cause Notice in conforming the demand by referring to various activities that the Sahara Group carried on which were not alleged in the Show Cause Notice;
  • The mere printing of logo or the promotion of a brand without reference to any particular service provided by the client is not covered under BAS;
  • Construction of Immovable property on its own behalf and its sale does not constitute a service and therefore, even if such activities were promoted, it did not amount to “promotion or marketing of service provided by the client”;
  • Brand Promotion is a service which has been brought in as a separate taxable service under Section 65(105)(zzzzq) by the Finance Act, 2010 and before the effective date of this service coming into force, brand promotion activities were not taxable under BAS;
  • The onus to establish classification and taxability is on the department which has not been discharged; and
  • · As the issue has been decided in favour of the assessee on merits, the issues of limitation, penalty etc are not required to be decided separately.
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