In the absence of a clear definition of service, it appears to be only a matter of time before some of the activities of the BCCI are brought under the tax net.
Glamorous events never miss the attention of the eagle-eyed taxman. Some years back, one could have expected a notice from the authorities if one splurged on a wedding. Celebrities endorsing brands were questioned for service tax liability some time back. Its now time for the razzmatazz Indian Premier League (IPL) to attract the departments attention. Field authorities have been asked to make reports on the complicated agreements entered into by all participa nts in the IPL to ascertain any liability to service tax since the very nature of the show is a new one.
The Board of Control for Cricket in India (BCCI) earns from the IPL season in four ways:
Sale of media rights for the matches;
Title sponsorship, and so on, of the tournament;
Amounts bid by the franchisees;
Revenues generated by the franchisee rights.
From the sale of media rights, IPL will keep 20 per cent for itself, give out 8 per cent as prize money for the tournament and distribute the remaining 72 per cent evenly between the eight franchisees. The title sponsorship of the tournament and other such revenues will be shared between IPL, the franchisees and as prize money in the ratio 40:54:6.
From the revenues generated by the franchisee rights, 20 per cent is given to BCCI. Its another matter that some time back the BCCI won a case about the sale of telecast rights of cricket matches, permitting sponsors to use space for putting up advertisements in stadiums and permitting logos on clothing and accessories of players, not being eligible to service tax.
It is to be seen whether the BCCI would rely on that judgment to fortify the fact that it is not eligible to a tax on services. Earlier, Google forced the Government to amend the law when it got an Advance Ruling that sale of time and space would not amount to advertising service.
Advertising services have been in the spotlight in a host of tax disputes. For instance, in Lintas India (P) Ltd vs CST, Delhi (2008-TIOL-441-CESTAT-DEL), the Government demanded service tax on the discount that the advertising agency earned for placement of advertisements in the print media. This, however, was turned down.
Since the revenue from most of the activities that IPL indulges in are shared, an argument could be raised that there are multiple service providers and one cannot pin liability of service tax on one entity. In the absence of a clear definition of service, it appears to be only a matter of time before some of the activities of the BCCI are brought under the tax net under the loosely-defined business auxiliary service.
The BCCI does some work when it sells media rights for the matches, as it has to choose among the many bids to whom the media rights are to be sold.
In a recent case (2006-TIOL-385-CESTAT-Mum), RPG Enterprises was held to be liable to service tax on services rendered to group companies as per agreements mutually entered into. It was opined that a service element was loaded into these agreements.
The Supreme Court, in CCE, Pune vs. Dai Ichi Karkaria Ltd (2002-TIOL-79-SC-CX), held that judgments relating to income-tax or other statutes have no relevance while considering a provision in an excise statute. It would make one wonder as to the course of action to be taken in case there is no clear definition under the Finance Act, 1994.
Although the BCCI can tout the commercial concern argument to defer the payment of tax, there could be other parties as per the agreements who are not commercial concerns which would make them exigible to the tax.
The ideal solution would be to levy VAT on all sales of goods and a service tax on all services which would then morph into the Goods and Service Tax (GST). A negative list for not taxing both goods and services would complete the picture perfectly.
Mohan R. Lavi (The author is a Hyderabad-based chartered accountant.)