2017 (6) TMI 1194 - AT - Service Tax

Tribunal overturns Service Tax demand on foreign sponsorship payments, ruling they were for sponsorship rights.

The Tribunal allowed the appeal, setting aside the Service Tax demand on sponsorship payments made in foreign exchange, holding that the payments were for ... Reverse Charge Mechanism - import of service - Advertisement Agency Service - sponsoring sports bodies located outside India - whether the appellant-assessee, a manufacturer of Electronic & Electrical goods who have incurred expenditure in foreign exchange in sponsoring sports bodies located outside India, is liable to pay Service Tax on reverse charge basis under the classification “Advertisement Agency Service” defined under Sub-clause (e) of Clause 105 of Section 65 read with Section 65 Clause (2 & 3) of the Finance Act, 1994? Case of Revenue is also that the appeals cannot be disposed of when only stay applications were listed - Held that: - no statutory provision was brought to our notice to the effect that appeals could not be disposed of on the day when stay applications were listed even if both sides consented for final disposal of appeals themselves. Advertisement Agency Service or Sponsorship of Sporting Events? - Held that: - A perusal of the rights granted to the appellant under the sponsorship agreements reveals that these are agreements for sponsorship of various sports events and not for receiving advertising agency service - Merely because there is a mention of expression ‘advertising material’ and the same is defined in the agreement, it cannot be said that GCC has provided advertising agency service to the appellant. Further, Schedule 4 to the said agreement deals extensively about the global partnership rights granted to the appellant by GCC. Various rights that have been granted under the global partnership rights include (i) right to use official status, (ii) advertising and promotional rights before and at each event, (iii) rights regarding the marks, (iv) rights regarding footage, photographs and player attributes, tickets and corporate hospitality etc. None of these rights constitute advertising agency service. What the appellant paid to various bodies abroad was the consideration for various sponsorship rights that were granted to it and not for advertising agency service. It is pertinent to note that ‘sale of space or time for advertisement and sponsorship services’ was introduced with effect from 1-5-2006 without any amendment to the definition of advertisement agency or advertising agency service and therefore in the given circumstances, it cannot be asserted that it was part of the advertisement agency service prior to 1-5-2006 and was carved out of the scope thereof. The issue contained in this appeal is squarely covered by the ruling of this Tribunal in the case of Hero Motocorp Ltd. [2015 (11) TMI 227 - CESTAT NEW DELHI], where it was held that the service received is not taxable under the head “Advertising Agency Services”. Appeal allowed - decided in favor of appellant. Issues Involved:1. Liability of Service Tax on the appellant-assessee under the classification 'Advertisement Agency Service' for sponsorship payments made in foreign exchange.2. Classification of services received from foreign entities as 'Advertisement Agency Service' or 'Sponsorship of Sporting Events.'3. Applicability of extended period of limitation for Service Tax demand.4. Validity of penalties imposed under Sections 76, 77, and 78 of the Finance Act, 1994.Issue-wise Detailed Analysis:1. Liability of Service Tax on the appellant-assessee under the classification 'Advertisement Agency Service' for sponsorship payments made in foreign exchange:The appellant, a manufacturer of Electronic & Electrical goods, incurred expenditure in foreign exchange for sponsoring sports bodies located outside India. The Revenue argued that these payments were for advertising services and thus liable to Service Tax on a reverse charge basis under 'Advertisement Agency Service' as defined under Sub-clause (e) of Clause 105 of Section 65 read with Section 65 Clauses (2 & 3) of the Finance Act, 1994. The Show Cause Notice dated 22/10/2010 alleged that the appellant did not pay Service Tax for advertising services received from M/s Global Cricket Corporation PTE Ltd. and other entities for various cricket matches and tournaments.2. Classification of services received from foreign entities as 'Advertisement Agency Service' or 'Sponsorship of Sporting Events':The Revenue contended that the payments made to M/s GCC PTE Ltd. should be classified under 'Advertising Services' rather than 'Sponsorship of Sporting Events.' The Global Partnership Agreement detailed various advertising rights, such as ground level perimeter advertising, outfield mats, and electronic screen advertisements, which were intended for television exposure. The appellant argued that these payments were for sponsorship rights, not advertising services. The Tribunal referred to a similar case, Hero Motocorp Ltd. vs. Commissioner of Service Tax, Delhi, where it was held that such agreements were for sponsorship and not for receiving advertising agency services.3. Applicability of extended period of limitation for Service Tax demand:The appellant argued that the extended period of limitation was not applicable as an earlier Show Cause Notice dated 11/01/2007 had been issued on similar facts and transactions for the period April 2002 to March 2005. The Tribunal's Final Order No. ST/340/11 dated 06/07/2011 in Appeal No. ST/111/2008 had set aside the demand for that period, following the ruling of the Apex Court in the case of Indian National Ship Owners Association vs. Union of India, which held that no demand could be raised on a reverse charge basis prior to 18/04/2006.4. Validity of penalties imposed under Sections 76, 77, and 78 of the Finance Act, 1994:The Show Cause Notice proposed penalties under Sections 76, 77, and 78 of the Finance Act, 1994. The adjudicating authority confirmed an amount of Rs. 4,62,90,682/- and appropriated Rs. 68,30,139/- already deposited, imposing an equal amount of penalty under Section 78 and a further penalty of Rs. 10,000/- under Section 77. The appellant contested these penalties, arguing that the issue was not clear-cut and had been previously adjudicated in their favor.Tribunal's Decision:The Tribunal found that the issue was squarely covered by the ruling in Hero Motocorp Ltd. vs. Commissioner of Service Tax, Delhi, where similar agreements with the same entities were held not to constitute 'Advertising Agency Services.' The Tribunal allowed the appeal on merits, setting aside the impugned order and granting consequential benefits to the appellant in accordance with the law. The penalties under Sections 76, 77, and 78 were also set aside.