In a significant case, the Chennai bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) set aside the demand for service tax. It was held that the income received by India Cements from the Board of Control for Cricket in India (BCCI) as a central right which was acquired through a franchise agreement is a revenue-sharing right.
Ms. Radhika Chandrasekar appeared for the appellant and Mr. R. Rajaraman appeared for the respondent.
The appellant is engaged in the manufacture of cement and has manufacturing units in Tamil Nadu, Andhra Pradesh & Maharashtra. The cement manufactured by them is sold under the brand names “Coromandel Cement, ‘Sankar Cement”, “Rasi Cement”, etc. They have Central Excise registration as well as Service Tax registration. The appellant is registered for various taxable services and also registered as Input Service Distributor.
On investigation, it was found that the appellant had not discharged service tax under the category of sale of space for Advertisement, Business Support Service, etc.
The BCCI on Indian Premier League (IP) was proposed to be a Franchise model wherein corporates and sponsors would be allowed to buy and run teams for the conduct of the IPL matches. The appellant selected its franchisee name- “Chennai Super Kings”.
After the finalization of franchisees, BCCI collected a list of agreed contract players to play for each franchisee, which included players of Indian origin and foreign origin. BCCI also fixed the base price for the players under the process of auction conducted on 07.02.2009 and 19.01.2010 in respect of IPL seasons 2 &3. The appellant was successful in bidding for contracted players including foreign origin.
As per the franchise agreement, the BCCI-IPL (Franchisor) owns the Central rights which comprise Media rights, Umpire sponsorship rights, Title sponsorship rights, Official sponsorship rights, right to sell stadium advertising, etc.,
It was noted that BCCI in addition to the Central Right Income each year has to pay to the Franchisee, 87.5% of all Central Licensing Income and BCCI was to retain the balance 12.5% of such income. Again, the Franchisee in addition to the Franchisee payment, in each year shall pay to BCCI-IPL 12.5% of all licensing income, which includes income received by the Franchisee from the sale, license or other grant of rights in respect of franchisee licensed products.
The appellant is liable to pay BCCI-IPL the franchisee consideration after adjustment of the league deposit and performance deposit and is also eligible to earn various incomes including receipt of their share of Central Licence Income and Central Rights Income from BCCI-IPL. The appellant is also liable to pay BCCI-IPL any income earned from Franchisee Licensing.
The Department was of the view that the entire transactions relating to IPL including the conduct of matches is done to promote the business/commercial interest of the franchisees (including the appellant) and therefore the share of Central income and other sums earned by the appellant from BCCI-IPL is the consideration for providing Business Support Services (BSS) to BCCI-IPL.
As the appellant supported the commercial activities of IPL, the amount received by the appellant from BCCI-IPL is taxable under the category of BSS which is defined in Section 64 (104c) of the Finance Act, 1994. The appellant had not discharged the service tax on such receipts from BCCI-IPL.
A Show Cause Notice was issued and confirmed the demand on the misconception of facts and law. Regarding the demand of Service Tax under BSS in respect of the share of central income received from BCCI-IPL, it was submitted by the counsel that the original authority has confirmed the demand of Service Tax on the amount received by the appellant from BCCI-IPL on a revenue sharing basis.
It was evident that there are no conditions specifically attached about the distribution of the income and there are no conditions also qualifying this income.
In the case of KPH Dream Cricket Pvt. Ltd. Vs. Commissioner of Central Excise and Service Tax [2020 (34) GSTL 456] wherein it has been held that “on central rights income no Service Tax is payable as it is only a revenue sharing arrangement.”
A two-member bench comprising Ms Sulekha Beevi C S, Member (Judicial) and Mr M Ajit Kumar, Member (Technical) observed that BCCI being the sole authority to manage the sport of cricket in India cannot be considered involved in business or commerce concerning the activity of developing infrastructure for such sport.
“The income received by the appellant from Central rights is nothing but revenue sharing and not a consideration for services provided to BCCI-IPL.”, the bench held.
While allowing the appeal, the CESTAT set aside the demand for Service Tax.
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