MUMBAI: Zee Telefilms has announced its intention to file an appeal in the CEGAT (Customs, Excise and Gold (Control) Appellate Tribunal) Tribunal against an order issued by the Deputy Commissioner of Central Excise (Appeals) (DCCE).

The office DCCE (Appeals) had sent a show cause cum demand notice to Zee Telefilms asking to pay an amount of Rs 147.5 million and a penalty of the same amount for suppression of information about its activities from the service tax authorities.

A medianet press release issued by Zee Telefilms (ZTL) claims that the company is the exclusive advertisement collection agent for both Asia Today Limited (ATL) and Expand Fast Holdings Limited (EFHL). Both these companies are wholly owned subsidiaries of ZTL and earn up to 15 per cent commission on advertising revenue collected on the channels operated by these companies, says the release.

The DCCE (Appeals) has contended that ZTL has acted as an advertising agent and is liable to pay service tax on the above collection commission it received from ATL and EFHL.

In separate cases, Star India Pvt Ltd and Mukta Arts have been asked to pay Rs 76.6 million and Rs 167.5 million respectively for allegedly the same reasons. Star India will also have to pay a penalty of Rs 76.6 million.

A press note from the service tax cell of the central excise commissionerate IV said these companies had failed to reveal their advertisement revenue, which attracts service tax. The investigations by the cell also revealed that these companies were advertising agencies and had thus provided a service to clients between 1999 and 2001.

The companies had appealed against the adjudication orders. The commissioner (Appeals), by an interim order on 13 August, refused to grant a stay and asked the companies to pay up.

While Star and Zee have been asked to pay another Rs 200 per day as penalties on delayed payment and penalties for failure to obtain registration and filing of returns, Mukta Arts has been penalised with Rs 100 per day.

Meanwhile, the ZTL press release has stated that the contention of DCCE that ZTL is liable to pay service tax on commission it has earned from ATL and EFHL as the exclusive collection agent is not accurate.

The release refers to the fact that till a few years back, the government of India did not allow private satellite channels to be uplinked from India. As a result, broadcasting operations were conducted by companies that were based outside India and channels were uplinked from outside the country. These companies in turn appointed Indian companies as exclusive collection agents for their advertising income.

The release says that ATL and EFHL had appointed ZTL as the exclusive advertisement collection agent for all the channels being broadcast by them. ZTL was earning upto 15 per cent commission for this work. From the gross advertising revenues, EFHL and ATL also settled the 15 per cent commission payable to advertising agencies, for providing advertising services to their clients (advertisers).

The release adds that the services rendered by advertising agencies were brought within the ambit of service tax levy w.e.f. November 1996. Consequently, Government has been collecting 5 per cent service tax from the advertising agencies, on the 15 per cent commission earned by them. Now, says the release, it is the contention of DCCE that the commission earned by ZTL from ATL and EFHL is also liable to service tax, since ZTL also acted as an advertising agent of ATL and EFHL.

The ZTL release says that it is very clear that the service tax was applicable to advertising agencies on the advertising commission earned by them and since ZTL never provided advertising services, nor was an advertising agent, service tax is not applicable.

Referring to the present scenario, ZTL release says it is in the process of filing an appeal in the CEGAT Tribunal against this order, and is confident of proving its case.