The cash-rich Board of Control for Cricket in India (BCCI) has just become richer. It has just won a major service tax case. The litigation occurred about the sale of telecast right of cricket matches, permitting sponsors to use space for putting up advertisements in stadium, and permitting logos on clothing and accessories of players which was sought to be taxed by the Commissioner (Appeals). Amounts involved were Rs 11.19 crore by way of service tax and Rs 22.39 crore as penalty.
The BCCI stressed that it is a registered society and thereby not a commercial concern as required by the definition of an advertising agency to levy the tax. The CESTAT bought this argument by relying on judicial precedents in Zee Telef ilms Ltd and Star India Ltd vs CCE Mumbai, wherein it was observed that the definition of advertising agency cannot be read literally and out of context. If that is done, every person in some way or the other connected with advertisement will be an advertising agency. Circular Nos F.No.345/4/97-TRU, dated August 16, 1999 and No.64/13/2003-ST, dated October 28, 2003 also came to the aid of the CESTAT wherein it was held that activity of printing and publishing telephone directory, yellow pages, business directories would attract service tax as would any person engaged in canvassing for advertising, would not be covered by the expression advertisement.
Not satisfied closing the case at this stage, the CESTAT went on to analyse the cases and ruled that the BCCI is the owner of the rights in the cricket match and by selling these rights for telecasting, no service can be said to have been provided by the BCCI to any client. Similarly, it was held that providing of space, without any connection with the work relating to the designing or preparation of advertisement would not bring them under the service tax net.
The Tribunal found strength in the fact that another head of Sale of space or time for advertisement and sponsorship services was created for the purposes of service tax with effect from May 1, 2006 and ruled that a subsequent entry having been enacted covering the activity without any change of the existing entry, has to be interpreted as if the earlier entry did not cover the subsequently created one. If the subsequent entry was covered by the earlier entry, there was no reason or scope to create the present entry especially when the rate of tax in respect of both the entries remains unchanged.
The BCCI appears to have escaped from the service tax net only because the legislation for sale of space and time was made effective from May 1, 2006, and the fact that it was not a commercial concern. Just as in accounting standards, if the word commercial concern was replaced by entity, the BCCI may have lost the case and overall service tax collections would increase even further.
Advertising agency has been defined to mean any commercial concern engaged in providing any service connected with the making, preparation, display or exhibition of advertisements and includes an advertising consultant.
Mohan R. Lavi (The author is a Hyderabad-based chartered accountant.)