2020 (12) TMI 534 - AT - Service Tax

Appeal allowed: Brand endorsement fees fall under section 65(105)(zzzzq) and not BAS taxable before 1 July 2010

Sourav Ganguly Versus Commissioner of Service Tax, Kolkata (Now Commissioner of Central Goods & Service Tax & Central Excise, Kolkata South)

CESTAT KOLKATA - AT allowed the appeal and set aside the Commissioner's order. Brand endorsement fees were held classifiable under the newly inserted ... Business Auxiliary Services - service in relation to promotion or marketing or sale of goods produced or provided by or belonging to the client or any service in relation to promotion or marketing of service provided by the client - taxable service or not - SCN mentions that the appellant had rendered his celebrity image as a ‘brand ambassador’ for promotion and marketing/sale of various products, for which he had received remuneration as per the agreements - Extended period of limitation - penalty. Whether the ‘Brand Endorsement’ fees received by the appellant was for providing services relating to promotion or marketing or sale of goods produced or provided by or belonging to the client, so as to make the service taxable under BAS or was for promotion or marketing of a brand of goods for it to be taxable under section 65(105)(zzzzq) of the Finance Act? - HELD THAT:- W hen a product is advertised by using a celebrity, the intention is to create an impression in the minds of customers or users that the product and services of the brand have the level of excellence comparable to that of the celebrity. It is only promotion or marketing or sale of goods produced, provided or belonging to a client and promotion of marketing of services provided by the client that are covered under BAS and they would continue to be covered under BAS. The Instructions further notes that many important companies were associated with a range of activities including production, marketing, sale of goods, provision of services, holding of events, undertaking social activities and if the brand name/house mark is promoted by a celebrity, without reference to any specific product or services, the service would not be classified under BAS, but would be classifiable under the newly added service under section 65(105)(zzzzq) of the Finance Act - there is no manner of doubt that the activity carried out by the appellant would be classifiable under the new taxable service contemplated under section 65(105((zzzzq) of the Finance Act. This issue has been settled by the Bombay High Court in INDIAN NATIONAL SHIPOWNERS' ASSOCIATION VERSUS UNION OF INDIA [2009 (3) TMI 29 - BOMBAY HIGH COURT]. The High Court held that introduction of a new entry and inclusion of certain services in that entry would pre-suppose that there was no earlier entry covering the said service - thus, the activity carried out by the appellant could not have been subjected to levy of service tax under BAS prior to July 1, 2010 and would only be taxable w.e.f July 1, 2010 under section 65(105)(zzzzq) of the Finance Act. Whether anchoring in TV show was a promotional activity for the promotion of service which the TV channel provided so as to make the service taxable under BAS? - HELD THAT:- This contention of learned counsel for the appellant deserves to be accepted for the simple reason that the show cause notice does not make any mention of this demand. It has been held by the Supreme Court in PRECISION RUBBER INDUSTRIES (P) LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, MUMBAI [2016 (4) TMI 841 - SUPREME COURT] that a show cause notice is the foundation in the matter of levy and recovery of duty. Thus, if the show cause notice has not called upon the appellant to submit any reply on this aspect of the demand, the said demand could not have been confirmed. Whether the fees received by the appellant for writing articles was a promotional activity of the services provided by the Organizations with whom the appellant was under a contract, so as to make the service taxable under BAS? - HELD THAT:- The contention of leaned counsel for the appellant is that the demand could not have been confirmed in the absence of any charge relating to this aspect in the show cause notice - This contention of the learned counsel for the appellant also deserves to be accepted. Whether the appellant, apart from playing for KKR, also promoted logos/brands/marks of franchisee/sponsors so as to make the services taxable under BSS? - HELD THAT:- The Commissioner has, in view of the Instructions dated July 26, 2010 issued by CBEC assumed that the amount received was a composite fee and the entire amount was leviable to service tax in terms of the Instructions dated July 26, 2010. The view taken by the Commissioner is not correct. In the first instance, as noted above, the appellant had received the fees for playing cricket only and even otherwise, it is a settled principle of law that if no machinery exists to exclude non-taxable service, a composite contract is not taxable since law must provide a measure or value of the rate to be applied and any vagueness in the legislative scheme makes the levy fatal. Whether the extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act could have been invoked in the facts of the present case and whether penalty under section 78 of the Finance Act could have been imposed? - HELD THAT:- The show cause notice was issued to the appellant on September 26, 2011 in regard to the demand covering the period from May 1, 2006 to June 30, 2010 by invoking the extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act as the limitation contemplated under section 73(1) Finance Act was one year from the relevant date. The allegation made in the show cause notice regarding the applicability of the extended period of time limit - The Commissioner has not dealt with the issue of limitation and only a statement has been made, while dealing with the imposition of penalty under section 78 of the Finance Act, that the issue of limitation was dealt earlier. It would be seen from a perusal of section 73(1) of the Finance Act read with its proviso and section 78 of the Finance Act that the ingredients for applicability of the provision, namely fraud, collusion, wilful mis-statement, suppression of facts or contravention of any other provisions of the Act are similar - It was imperative for the Commissioner to have recorded a finding on the issue of limitation, for it is only where any service tax has not been paid that the Central Excise Officer can within one year from the relevant date serve notice on the person chargeable with the service tax which has not been paid. The proviso to section 73(1) of the Finance Act, however, permits the notice to be served within five years but the conditions stipulated therein have to be satisfied - even when an assessee has suppressed facts, the extended period of limitation can be invoked only when “suppression’ is wilful with an intent to evade payment of service tax. Whether the appellant is entitled to interest on the amount deposited from the date of deposit to the date the amount was transferred to the account of the Registrar General of the Calcutta High Court? - HELD THAT:- As the appeal filed by the appellant is being allowed and the demand confirmed by the Commissioner is being set aside, there is no reason why the appellant should not be granted interest on the amount of (₹ 1,51,66,500 and 50,00,000) deposited with the Government from the date of deposit of the amount upto the date of transfer of the said amount to the Registrar General of the High Court. The impugned order dated November 12, 2012 passed by the Commissioner is set aside and the appeal is allowed - The appellant shall also be entitled to interest on the amount of ₹ 1,51,66,500/- and ₹ 50,00,000/- from the date of deposit of the amount with the Government upto the date the amount was transferred to the Registrar General of the Calcutta High Court at the rate of ten percent per annum. Issues Involved:1. Classification of 'Brand Endorsement' fees under Business Auxiliary Service (BAS) or section 65(105)(zzzzq) of the Finance Act.2. Taxability of fees received for anchoring TV shows under BAS.3. Taxability of fees received for writing articles under BAS.4. Classification of remuneration received from IPL franchisee under Business Support Service (BSS).5. Applicability of the extended period of limitation under section 73(1) of the Finance Act.6. Entitlement to interest on the amount deposited by the appellant.Detailed Analysis:First Issue: Classification of 'Brand Endorsement' FeesThe appellant argued that brand endorsement services were made taxable only from July 1, 2010, under section 65(105)(zzzzq) of the Finance Act, and thus, no demand could be made for the period before this date under BAS. The Tribunal accepted this argument, noting that the activities performed by the appellant, such as acting as a brand ambassador and promoting brands, were indeed taxable only from July 1, 2010, under the new provision. The Tribunal referred to the Bombay High Court's decision in Indian National Shipowners’ Association and the Tribunal's decision in Shriya Saran, which clarified that the introduction of a new taxable service presupposes that the service was not covered under any earlier entry.Second Issue: Taxability of Fees for Anchoring TV ShowsThe Commissioner had held that anchoring TV shows was a promotional activity taxable under BAS. However, the Tribunal found that the show cause notice did not contain any allegations regarding this aspect. Citing the Supreme Court's decision in Precision Rubber Industries, the Tribunal concluded that the demand could not be confirmed as it was beyond the scope of the show cause notice.Third Issue: Taxability of Fees for Writing ArticlesSimilarly, the Commissioner had confirmed the demand for fees received for writing articles under BAS. The Tribunal found that the show cause notice did not mention this aspect, and thus, the demand could not be confirmed for the same reasons as in the second issue.Fourth Issue: Classification of Remuneration from IPL FranchiseeThe show cause notice alleged that the appellant received remuneration from the IPL franchisee (KKR) for promotional activities in addition to playing cricket, classifiable under BSS. The Tribunal noted that the appellant had categorically stated that the amount received was only for playing cricket. Even otherwise, the Tribunal found that the service would be taxable under section 65(105)(zzzzq) from July 1, 2010, and not under BAS or BSS before this date. The Tribunal also rejected the Commissioner's reliance on the CBEC Instructions dated July 26, 2010, which assumed the amount received was a composite fee.Fifth Issue: Applicability of the Extended Period of LimitationThe show cause notice invoked the extended period of limitation under the proviso to section 73(1) of the Finance Act, alleging suppression of facts. The Tribunal found that the show cause notice merely reproduced statutory language without providing specific factual details. The Tribunal referred to several Supreme Court decisions, including Pushpam Pharmaceutical Co., Anand Nishikawa Company Ltd., and Uniworth Textile Limited, which held that suppression of facts must be deliberate and with intent to evade payment of duty. The Tribunal concluded that the extended period of limitation could not be invoked in this case.Sixth Issue: Entitlement to Interest on Deposited AmountThe appellant claimed interest on the amount deposited with the Government from the date of deposit until the date it was transferred to the Registrar General of the Calcutta High Court. The Tribunal noted that the appellant had deposited the amount in compliance with an interim order of the Calcutta High Court and that the High Court had directed the amount to be refunded with interest. Since the appeal was allowed and the demand set aside, the Tribunal held that the appellant was entitled to interest on the deposited amount from the date of deposit to the date of transfer to the Registrar General.Conclusion:The Tribunal set aside the impugned order dated November 12, 2012, passed by the Commissioner and allowed the appeal. The appellant was also entitled to interest on the deposited amounts at the rate of ten percent per annum from the date of deposit until the date of transfer to the Registrar General of the Calcutta High Court.