Service Tax Case Study on DLF – BCCI (IPL)

As per Section 65(99a), sponsorship includes naming an event after the sponsor, displaying the sponsor’s company logo or trading name, giving the sponsor exclusive or priority booking rights, sponsoring prizes or trophies for competition; but does not include any financial or other support in the form of donations or gifts, given by the donors subject to the condition that the service provider is under no obligation to provide anything in return to such donors;

As per Section 65(105)(zzzn), any service provided to be provided to any person, by any other person receiving sponsorship, in relation to such sponsorship, in any manner is taxable under sponsorship service category

It is important to note that prior to Finance Act, 2010 it was read as “to any body corporate or firm, by any person receiving sponsorship, in relation to such sponsorship, in any manner, but does not include services in relation to sponsorship of sports events” 

Agreement between DLF and BCCI-IPL 
DLF Limited entered into an agreement with BCCI-IPL dated 13.02.2008 and for title sponsor agreement wherein it was appointed as exclusive title sponsor of the League for the Cricket IPL 20-20 matches at a consideration of Rs. 40 crores.

Crucially, the taxability of this service shall be governed by finance Act prior to amendment made by Finance Act, 2010 which excludes sports event explicitly from taxability of sponsorship service.

Why Revenue Taxed 

As per Revenue, the agreement entered into between DLF and BCCI cannot be held to be for sports events. For the above purposes, they have relied upon the instructions issued by the Board from Dy.No.42/Comm (ST)/2008, dt. 26.7.10. For better appreciation, the said instructions are being reproduced below:-

“Prior to Finance Act, 2010 sponsorship service did not include “services in relation to sponsorship of sports events”. On the basis of this exclusion service tax has largely not been paid on sponsorships that have been done under IPL. The standard argument is that the sponsorships contract falls within the exclusion clause. Show cause Notices have been issued in a few Commissionerate’s. These notices seek to exclude sponsorship of a team from the scope of the exclusion clause. The argument taken is that the exclusion clause can be invoked only for sponsorship of “sports events” – a term which naturally encompasses within its ambit sponsorship of games, matches or tournaments. At team in itself is not a “sports event”. A team is an entity while “sports event” is an activity and so team sponsorship would fall outside the orbit of the exclusion clause.

It is felt that sponsorship of IPL, is not sponsorship of any sport event, since IPL in itself is not a sports event but an entity of franchisee teams and or a Team would be independent of sport event and hence taxable.”

As Contended ,departmental officers were bound to follow instructions/circular/ clarifications issued from time to time by the CBEC. The sponsorship fee paid by the DLF to the BCCI-IPL, a society registered under the Societies Act cannot be termed as sponsorship of any sports event but clearly is in the nature of obtaining sponsorship rights for being designated as exclusive “Title Sponsor of the League” by BCCI-IPL. Accordingly, the exclusion clause for sports event under sponsorship service is not available to the notice.
Commissioner (Appeals) – Upheld Revenue

Commissioner (Appeals) upheld revenue by simply following the Board’s circular reproduced above without examining the matter independently. 

Why Assessee Feels Aggrieved and Seeked Judicial Remedy 

Assessee (Appellant) believes that the circular issued by the Board bind the officers only when they act in their administrative capacity. Such circular cannot interfere with quasi-judicial powers of the assessing officers and judiciary.

A) They have sponsored the entire sport event, without sponsoring any individual team hence above circular not applicable. 

B) Appellant believe that “in relation to” is very wide and would cover sponsorship of the League.
Delhi CESTAT – Decisions 

C) Appellate authority is not bound by the Boards directions 

According to the thrust of the judicial dictates, the quasi-judicial authorities, especially the appellate authority is not bound by the Boards directions issued under section 37. A circular which is contrary to the statutory provisions has really no existence in law. (Cases Referred – Popular Packings (P.) Ltd. v. Union of India – 2004 (175) ELT 33 (Raj.) (para 11), Madura Coats Ltd. v. C.B.E.S.C – 2004 (163) ELT 164 (Mad.) (para 11) and CCE v. Ratan Melting & Wire Industries – 2008 (231) ELT 22 (SC) (para 12).)

D) Sponsorship of Team is different from sponsorship of match/league

If IPL team is one of the teams, as observed by circular, where is other team of the match? The appellant has not provided sponsorship of the IPL but has obtained rights of sponsorship, rights for sponsoring the League, which is nothing but sport event of 20-20 cricket match between various teams. This is basically and primarily for sponsoring the sport event conducted by the BCCI-IPL. IPL was considered a cricket tournament, as is clearly shown in the official website of IPL and as such, has to be considered as sport event. Wherein official website of IPL refers to tournament as sport event and the same has even made it to fourth sport of the Forbes list of the World’s hottest sporting properties. As such, prima facie, we agree with the appellant that the League is nothing but sport event organized by the BCCI-IPL and IPL is nothing but name of sport event.

E) “In relation” to is very Wide term 

The expression ‘in relation to’ has been the subject-matter of the various decisions of the judicial as also quasi-judicial authority and has been held to be of wide connotation. As such, anything related to sport event is required to be considered as sport event and sponsorship of the same would get excluded from the definition of the sponsorship.

Decision 

Prima facie, the existing provisions of Finance Act provide an exclusion of said cricket match etc. from ambit of service tax and legislative intent is there to amend the same so as to bring the same into service tax net. Hence no service tax.

Source: 

{Interim Order} 

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