Vodafone Idea Limited Vs Commissioner of Central Excise (CESTAT Chennai)
CESTAT Chennai held that the provisions made in the books of account by the appellant as per the GAAP towards sharing the expenditure on account of receipt of sponsorship services cannot be subjected to tax.
Facts-M/s. Vodafone Idea Limited (formerly known as ‘M/s. Vodafone Cellular Ltd.’), passed by the Commissioner of Central Excise, Customs and Service Tax, Coimbatore confirming the demand of Service Tax of Rs.59,12,035/- under proviso to Section 73(1) of the Finance Act, 1994 along with recovery of appropriate interest u/s. 75 of the Finance Act, 1994, imposing penalty u/s. 77(2) for not filing S.T.-3 returns within the appropriate time and equal penalty u/s. 78 of the Finance Act, 1994.
The appellant is a telecommunication network provider rendering telecommunication services in Tamil Nadu (except Chennai), Maharashtra (except Mumbai) and the State of Kerala. The appellant is a subsidiary of M/s. Vodafone India Limited carries on pan India operations through other group concerns such as M/s. Vodafone Digilink Limited, M/s. Vodafone Essar Limited, etc., for providing network services within specially demarcated telecommunication circles.
The Revenue noticed that the appellant had incurred an expenditure of Rs.5,19,49,020/- on sponsorship services during the period from 01.05.2006 to 31.03.2010. Scrutiny of the S.T.-3 returns filed by the appellant for the relevant period indicated that appropriate Service Tax was not paid by the appellant in respect of the sponsorship service received by them, leading to the issuance of a Show Cause Notice vide SCN which came to be adjudicated demanding Service Tax and imposing penalties.
Conclusion- We find that the issue is no longer res integra and is settled in favour of the appellant. In many decisions of the Tribunal, it has been held that no Service Tax is payable on sponsorship of IPL and ICC cricket tournaments during the impugned period.
In the case of M/s. Hero Motorcorp Limited v. Commissioner of Service Tax, Delhi, the Tribunal, Delhi has held that the expression “in relation to” has a very wide connotation and the assessee’s activity of sponsorship was in relation to sports events and so, not liable to Service Tax.
Held that the provisions made in the books of account by the appellant as per the GAAP towards sharing the expenditure on account of receipt of sponsorship services cannot be subjected to tax as the ingredients for levy of tax are not fulfilled in the absence of any provision of service and when payments were made only in relation to sponsorship of the IPL Cricket tournament.
FULL TEXT OF THE CESTAT CHENNAI ORDER
M/s. Vodafone Idea Limited (formerly known as ‘M/s. Vodafone Cellular Ltd.’), Coimbatore, have filed this appeal against the Order-in-Original Sl. No. 06/2013-Commr. dated 29.03.2013 passed by the Commissioner of Central Excise, Customs and Service Tax, Coimbatore confirming the demand of Service Tax of Rs.59,12,035/-under proviso to Section 73(1) of the Finance Act, 1994 along with recovery of appropriate interest under Section 75 of the Finance Act, 1994, imposing penalty under Section 77(2) for not filing S.T.-3 returns within appropriate time and equal penalty under Section 78 of the Finance Act, 1994.
2.1 The appellant are a telecommunication network provider rendering telecommunication services in Tamil Nadu (except Chennai), Maharashtra (except Mumbai) and State of Kerala. The appellant is a subsidiary of M/s. Vodafone India Limited, which carries on pan India operations through other group concerns such as M/s. Vodafone Digilink Limited, M/s. Vodafone Essar Limited, etc., for providing network services within specially demarcated telecommunication circles.
2.2 On a perusal of the books of accounts of the appellant, the Revenue noticed that the appellant had incurred an expenditure of Rs.5,19,49,020/- on sponsorship services during the period from 01.05.2006 to 31.03.2010. Scrutiny of the S.T.-3 returns filed by the appellant for the relevant period indicated that appropriate Service Tax was not paid by the appellant in respect of the sponsorship service received by them, leading to the issuance of a Show Cause Notice vide SCN Sl.No.:07/2011-Commr. dated 22.09.2011, which came to be adjudicated demanding Service Tax and imposing penalties, as indicated at paragraph 1 of this order.
3.1 The Ld. adjudicating authority has held that the appellant received the services under the category of “sponsorship services” as defined under Section 65(99a) of the Finance Act, 1994, which has not been disputed by them. The points of dispute are regarding the provisions created as well as the taxability of certain portions of services received in view of the provisions of Section 65(105)(zzzn) of the Act, which read as under prior to 01.07.2010: –
“taxable service means any service provided or to be provided 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”
3.2 The Ld. adjudicating authority, after examining a copy of the Official Partner Agreement entered into between the Board of Control for Cricket in India (BCCI) and M/s. Vodafone Essar Limited and seven other Vodafone group companies including the appellant herein, came to the conclusion that ‘league’ is a composition of the teams which play the Twenty20 matches and as such, sponsorship of the league is confined to sponsoring of the teams which are its intrinsic components and so, sponsorship of the Twenty20 Cricket League could not be equated to the sponsoring of a sports event. To arrive at this conclusion, the Ld. adjudicating authority has relied on the Board’s letter in Dy.No.42/Comm(ST)/2008 dated 26.07.2010, the relevant portion of which is extracted below for ready reference: –
“1. Sponsorship Service: Prior to the 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 been not paid on the sponsorships that have been done under IPL. The standard argument is that the sponsorship contract falls within 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. A team by 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 the sponsorship of IPL is not sponsorship of any sports event, since IPL in itself not sports event but an entity of franchisee teams and therefore it is taxable….
….”
3.3 He has further held that: –
(i) Twenty20 Cricket League which has been established by the BCCI-IPL, is not a cricketing event and as such, the services received by the appellant would be covered under the ambit of taxable service under the category of “sponsorship service”.
(ii) No evidence has been submitted by the appellant for having sponsored the ICC Cricket World Cup and as such, taxability of services received could not be examined.
(iii) The principal company had agreed to sponsor and also made the payment and it is they who received the service and thus the liability to pay as per Rule 2(1)(d)(viii) of the Service Tax Rules, 1994 is not on the group company though they are the beneficiaries of the brand. The principal company and the appellant are all separate legal entities and so, are required to maintain separate books of accounts under the law and also that the principal company would have indicated the above expenses in their books of account and would have also paid the appropriate Service Tax thereupon; in the fitness of things, it was for VECL (appellant) to take CENVAT Credit in case they are the beneficiaries.
3.4 M/s. Vodafone India Limited, Mumbai, M/s. Vodafone Cellular Limited, Pune had paid the sponsorship amounts on behalf of VECL/appellant, as given in the table below, and for reimbursement of the same, debit notes have been raised:
