2023 (1) TMI 938 - AT - Service Tax

Team apparel sponsorship displays and athlete promotional appearances-whether they are 'Business Support Service'; service tax demand set aside

Service tax demand on professional sportspersons was examined on whether wearing team apparel bearing sponsors' marks and attending promotional/public ... Business Support Service - employer-employee relationship - brand promotion service - classification beyond show cause noticeBusiness Support Service - brand promotion service - classification beyond show cause notice - Whether the fees paid to the appellants for playing in IPL and related activities are taxable as Business Support Service (or alternatively as Brand Promotion Service) under the Finance Act. - HELD THAT: - The Tribunal examined the definition of Business Support Service and found that no specific entry in that definition was shown to cover the activities performed by the players. The wearing of team clothing bearing sponsors' marks and the limited promotional obligations under the playing contract did not amount to independent business-support or marketing services of the franchisee or sponsors. The contractual terms (including clauses identified in the agreement) recognise the assessee first as a professional player engaged by the franchisee, and the Tribunal accepted that the contract creates an employer-employee relationship, with playing cricket as the primary obligation and promotional/ancillary activities incidental to that employment. The Tribunal also noted the settled position in the cited precedents that services rendered by an employee under the control of the employer are not separately taxable as services provided by the employee. Further, reliance on a different taxable head at the appellate stage (brand promotion) when the show cause notice and adjudication proceeded on Business Support Service was impermissible; the classification cannot be altered to fit a different taxable head beyond the case made in the show cause notice. Applying these principles to the contractual provisions and the record, the Tribunal concluded that the activities and fees in dispute are not taxable as Business Support Service (nor could they be reclassified as Brand Promotion Service at the appellate stage when proceedings were initiated under BSS). [Paras 5, 6]Demands of service tax under Business Support Service (and consequentially under Brand Promotion Service as pleaded later) are not sustainable; the confirmed demands are set aside.Final Conclusion: The appeals are allowed; the service-tax demands confirmed by the authorities are set aside and the appellants are not liable to service tax on the fees received under the playing contracts, with consequential relief as per law. Issues Involved:1. Classification of services provided by appellants under 'Business Support Service.'2. Determination of employer-employee relationship.3. Applicability of service tax on fees received by appellants.4. Interpretation of contractual obligations and promotional activities.Issue-wise Detailed Analysis:1. Classification of Services Provided by Appellants under 'Business Support Service':The core issue was whether the activities carried out by the appellants could be classified as taxable services under 'Business Support Service' (BSS). The appellants were international cricket players contracted to play for IPL teams, and the fees paid to them were deemed liable to service tax under BSS. The adjudicating authority and the Commissioner (Appeals) upheld this view, asserting that the players' activities, such as wearing team clothing with sponsor logos and participating in promotional events, constituted BSS. However, the Tribunal found that the definition of BSS did not specifically cover the activities performed by the appellants. The Tribunal noted that the appellants were not providing any service as independent individuals and were not promoting any particular brand, product, or service. Therefore, it concluded that the activities did not fall under BSS.2. Determination of Employer-Employee Relationship:The appellants argued that their contracts with the franchisees established an employer-employee relationship, making them employees rather than independent service providers. The Tribunal examined the contractual clauses and found that the agreements indeed created an employer-employee relationship. The contracts explicitly stated that the franchisees engaged the players as professional cricketers, and the players were under the full control of the franchisees. The Tribunal referenced several precedents where similar agreements were interpreted to establish an employer-employee relationship, thus exempting the players from service tax liabilities.3. Applicability of Service Tax on Fees Received by Appellants:The Tribunal addressed whether the fees received by the appellants for playing cricket and participating in promotional activities were subject to service tax. The Tribunal found that the primary purpose of the contracts was for the players to play cricket, with promotional activities being ancillary. It emphasized that the appellants were employed to play cricket, and the promotional activities were incidental to their main role. The Tribunal cited numerous cases where it was held that no service tax was leviable on player fees received for participating in IPL, as the promotional events were merely incidental.4. Interpretation of Contractual Obligations and Promotional Activities:The Tribunal scrutinized the contractual obligations of the appellants, particularly the clauses related to wearing team clothing and participating in promotional events. It found that these obligations were part of the employment agreement and did not constitute independent promotional activities. The Tribunal noted that the right to use the players' identities for promotional purposes was granted to the franchisees, but this did not imply individual endorsement by the players. The Tribunal concluded that the primary activity was playing cricket, and the promotional activities were ancillary, reinforcing the employer-employee relationship.Conclusion:The Tribunal concluded that the demands for service tax under 'Business Support Service' were not sustainable. It held that the appellants were in an employer-employee relationship with the franchisees and were not independent service providers. Consequently, the fees received by the appellants were not subject to service tax under BSS. The Tribunal set aside the demands confirmed by the adjudicating authority and allowed the appeals filed by the appellants, providing consequential relief as per law.