Pranav B Prem

In a significant ruling, the Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has quashed the service tax demand against JSW GMR Cricket Pvt. Ltd., an IPL franchise, on the Central Rights Income derived from the franchise agreement. This decision provides relief to IPL franchises, emphasizing that revenue-sharing under the franchise agreement does not constitute a 'business support service' liable for service tax.

Background of the Case

The appellant, JSW GMR Cricket Pvt. Ltd., is engaged in sports-related activities such as providing sports infrastructure, consultancy, organizing sports events, and managing cricket teams. As one of the franchises participating in the Indian Premier League (IPL), the appellant entered into a franchise agreement with the Board of Control for Cricket in India (BCCI) on April 10, 2008. Under this agreement, the appellant formed a cricket team and participated in the IPL. As part of its operations, the franchise received Central Rights Income, participation fees from the Champions League Twenty20 (CLT20), and player transfer fees. During an audit, the tax department alleged non-payment of service tax on these incomes and issued a Show Cause Notice proposing a service tax demand of Rs. 22,17,01,026/-. The Commissioner of CGST, Delhi, confirmed the demand through an order dated February 26, 2021. This prompted the appellant to file an appeal before CESTAT.

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Key Issues in the Dispute

1. The primary dispute centered on whether the revenue received by the franchise from Central Rights, including media rights, umpire sponsorship, and title sponsorship, qualifies as 'business support service' under Section 65(104c) of the Finance Act, 1994.

2. The tax authority argued that fees paid to overseas players and cricket boards constituted a taxable service under the 'business support service' category.

3. The department contended that the player transfer fees received by the franchise from other IPL teams should be taxed under 'manpower recruitment or supply agency services.'

4. The department further alleged that the appellant suppressed material facts, justifying the extended period for issuing the show cause notice.

CESTAT's Observations and Findings

Central Rights Income Is Not 'Business Support Service': The tribunal relied on the decision in KPH Dream Cricket Pvt. Ltd. v. CCE & ST, Chandigarh and held that revenue shared under a joint venture agreement cannot be categorized as a business support service. It was observed: "In case of joint venture contract, there is neither an intention to render a service to the other partner(s) nor is there any fixed consideration quid pro quo for any particular service of a partner. It has further been held that a contractor-contractee or the principal-client relationship, which is the essential element of any taxable service, is absent in the case of the partners or co-venturers in a joint venture agreement." Since the income from Central Rights arose from the franchise agreement between the BCCI and the franchise, and there was no provision of service between them, the tribunal concluded that no service tax was payable on such income.

 

Payments to Overseas Players Are Not Taxable under RCM: The tribunal ruled that the fees paid to overseas cricket boards for engaging foreign players were solely for playing cricket and did not constitute business support services. Citing the decision in Sourav Ganguly v. Commissioner of Service Tax, Kolkata, the bench held: "The players had received the fees for the purpose of playing cricket only and even otherwise, it is a settled principle of law that if no machinery provision exists to exclude non-taxable service (playing cricket) from a composite contract, the same is not taxable." The tribunal further clarified that payments made to overseas cricket boards cannot be classified under 'Manpower Recruitment or Supply Agency Service.'

 

Player Transfer Fee Not Liable to Service Tax:  On the issue of player transfer fees, the tribunal found that the franchise was not engaged in the business of manpower recruitment or supply. Referring to KPH Dream Cricket Pvt. Ltd., the bench noted: "As the main activity of the appellant is to play cricket, no service tax is payable under the category of 'Manpower Recruitment or Supply Agency Service' for transfer of player fee." The tribunal emphasized that the permanent transfer of players under BCCI regulations does not amount to the supply of manpower.

 

No Suppression of Facts; Demand Barred by Limitation: CESTAT rejected the department's claim that the appellant suppressed facts to evade tax liability. The bench highlighted that the appellant had consistently disclosed its revenue sources and tax payments through various correspondences and audits since 2008. Given these disclosures, the tribunal concluded that the extended period of limitation under Section 73 of the Finance Act, 1994, was inapplicable: "A perusal of the facts reveals that the appellant had disclosed all relevant facts and the Department was well aware of the receipts, on which the appellant was not paying service tax and the reasons for the same."

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Based on these findings, CESTAT set aside the service tax demand of Rs. 22,17,01,026/- against JSW GMR Cricket Pvt. Ltd.

Appearance

Shri Sparsh Bhargava, Ms. Vanshika Taneja, Advocate for the Appellant

Ms. Jayakumari, Authorized Representative for the Respondent

Cause Title: JSW GMR Cricket Pvt Ltd. vs Commissioner of Central Goods, Service tax, New Delhi

Case No: Service Tax Appeal No. 50918 of 2021

Coram: Hon’ble Dr. Rachna Gupta [Member (Judicial)], Hon’ble Ms. Hemambika R. Priya [Member (Technical)]

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