(1.) LEAVE granted.
(2.) WHETHER the charges collected towards the services for evolution of prototype conceptual design (i. e. creation of concept), on which service tax had been paid under the Finance act, 1994 as amended from time to time is liable to tax under the Karnataka Value Added tax Act, 2003 (the Act) is the question involved in this appeal which arises out of a judgment and order dated 29. 11. 2006 passed by a Division Bench of the Karnataka High court in STA No. 7 of 2006.
Appellant is an advertising agency. It provides for advertisement services. It creates original concept and design advertising material for their clients and design brochures, annual reports etc. The contrast between the appellant and their clients does not appear to have been entered into in writing as no written contract as such has been placed before us.
We may notice a purchase order and the invoice which have been produced before us and the authenticity whereof is not in question:
(3.) THEY filed their returns both under the Finance Act, 1994 as also the Act. An order of assessment was passed by the Assessing Authority in terms of Section 12 of the Karnataka Sales Tax Act and Rule 3 of the Karnataka Sales Tax Rules, material portion whereof reads as under: "in view of the above discussions, I hereby complete the assessment for the year 2003-2004 under section 12 (3) of the KST Act 1957 by confirming the turnovers proposed in the proposition notice.
After passing of the order of assessment, a raid was conducted. A criminal proceeding was initiated against the appellant-company. An application was filed by it before the appropriate authority under Section 60 of the act for classification and advance rulings. By reason of the order dated 30th September, 2005, it was held :
"the issue is examined in detail and it is seen that in the sale of the advertisement material, the background activity such as conceptualization is no doubt an idea but creation of advertisement is a comprehensive activity leading to creation of goods in question. Even when any other goods are produced there is some idea and thought regarding the shape and size etc. Therefore, to separate design and concept taking the sale value of merely the advertisement material as brochure etc. is improper. It is further seen that in the bills there is separate charge made as content development concept, design, photography scanning and other charges such as system charges including colour sketch pen or computer used design software etc. , Ultimately, the brochures come out. Considering the entire ambit of activity of the dealer it is seen that it is a comprehensive contract or supply of printed material developed by the company. The bills also indicate the entire activity though separated is a comprehensive work. Such creation of activity tantamounts to making indivisible contract in a divisible contract. Therefore, this Authority rules that entire sale value including the creation of concept etc. done by the company forms a part of the value of sale of such brochures and liable to tax at 4% on the entire proceeds received including those relating to concept charges, system charges etc. In short, this Authority rules that the sale of printed material with a background of providing the concept is an indivisible activity liable to tax at 4% as a whole. "