2024 (4) TMI 471 - AT - Service Tax

Sponsorship agreements for boxes and stands not taxable as advertisement space sales under service tax

M/s. Tamilnadu Cricket Association Versus The Commissioner of CGST & Central Excise Chennai North Commissionerate

CESTAT Chennai held that agreements for sponsorship with a company did not constitute sale of space and time for advertisement service. The Tribunal ... Classification of service - sale of space and time for advertisement service or not - agreement for sponsorship with M/s.SPIC Ltd. - HELD THAT:- The very same issue was considered by the Tribunal in the case of appellant in THE TAMILNADU CRICKET ASSOCIATION VERSUS COMMISSIONER OF SERVICE TAX, CHENNAI [2018 (2) TMI 235 - CESTAT CHENNAI], the Tribunal had analyzed the facts of the case and came to the conclusion that the activity does not fall under the category of ‘sale of space or time for advertisement’ and there is advertisement carried out. The agreements are more akin to sponsorship service. During the relevant period the sponsorship services for sports was excluded from the levy of service. The Tribunal after appreciating the facts had held that the amount received as per sponsorship agreements for boxes and stands are not leviable to tax under Sale of Space for Advertisement and requires to be set aside. The demand cannot sustain and requires to be set aside - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether amounts received for granting use of pavilion boxes/stands and permitting display of sponsor's name-board constitute 'Sale of Space or Time for Advertisement' within the meaning of the Finance Act, or are properly classifiable as 'Sponsorship' services. 2. Whether services classifiable as 'Sponsorship' in relation to sports events were liable to service tax for the relevant period under the statutory exclusions then in force. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Classification: 'Sale of Space or Time for Advertisement' v. 'Sponsorship' Legal framework: The relevant statutory definitions are (a) 'Sale of Space & Time for Advertisement' as defined in sub-clause (zzzm) of section 65(105) - any service in relation to sale of space or time for advertisement (with specified exclusions); and (b) 'Sponsorship' as defined in section 65(99a) and the exclusion of sponsorship of sports events under section 65(105)(zzzn) (definitional and exclusionary provisions defining taxable sponsorship). Precedent treatment: The Tribunal had previously considered identical factual arrangements and held that where the sponsor is permitted only to have its name displayed (naming rights) and to use the box to witness matches (with exclusive/priority booking rights) but is not granted rights to display products or advertisements, the arrangement is more akin to sponsorship than sale of advertising space. That approach was followed in the present decision. Interpretation and reasoning: The Court examined the sponsorship agreements and the factual matrix: boxes/stands were to be used for witnessing matches; sponsors were permitted to display a name-board on top of the box facing the ground; no contractual right was granted to display product advertising or other advertisements on boxes/stands; sponsors received priority booking/ticketing privileges. On that basis the Tribunal reasoned that the contractual rights conveyed were naming and other sponsorship-type privileges rather than grant of advertisement space/time. The essential element of 'sale of space or time for advertisement' - a contractual right to display advertising content - was absent. Ratio vs. Obiter: Ratio - where a contract confers only naming/identity display and privileges to witness events but not rights to display advertisements or products, the consideration received is for sponsorship services and not sale of space/time for advertisement. Obiter - any peripheral observations about commercial distinctions between sponsorship and advertising not necessary for the decision. Conclusion: The amount received for the boxes/stands and name-board display is properly classifiable as consideration for sponsorship services, not sale of space or time for advertisement; therefore the demand under the latter category cannot be sustained. Issue 2 - Taxability of Sponsorship Services in Relation to Sports for the Relevant Period Legal framework: Sectional provisions exclude 'services in relation to sponsorship of sports events' from taxable sponsorship services (section 65(105)(zzzn)); sponsorship services are otherwise taxable from a specified date. The relevant temporal legislative regime must be applied to the period under scrutiny. Precedent treatment: The Tribunal's earlier analysis in a similar factual context concluded that sponsorship services in relation to sports events were not taxable during the relevant period because the statutory exclusion applied. The present decision follows that earlier conclusion after perusal of the sponsorship agreements and facts. Interpretation and reasoning: Having classified the consideration as sponsorship, the Tribunal looked to the statutory exclusion and the date from which sponsorship services became taxable. Since sponsorship of sports events was excluded during the relevant period under the statute, amounts received for such sponsorships did not attract service tax. The Tribunal applied the exclusion in light of the agreement terms that tied the services to sporting events (use of boxes to witness matches, naming rights facing the ground, ticketing privileges linked to matches). Ratio vs. Obiter: Ratio - where contractual services are sponsorship of sports events and the statutory regime excludes such sponsorship from tax for the relevant period, consideration received is not leviable to service tax for that period. Obiter - commentary on the proper drafting or commercial practices of sponsorship agreements not essential to the holding. Conclusion: Sponsorship services relating to the sporting events in question fell within the statutory exclusion for the relevant period and were not subject to service tax; the impugned demand based on sale of advertising space is therefore set aside. Cross-References and Connected Reasoning 1. The classification analysis (Issue 1) is determinative of taxability (Issue 2): only after concluding the arrangements constituted sponsorship (not sale of advertising space) does the statutory exclusion apply. 2. Factual contract terms (limited right to name-board, absence of product/advertisement display rights, ticketing/priority privileges, exclusive priority booking) were central to classification and thus to the application of the exclusion. Disposition The Tribunal set aside the demand for service tax (and related interest/penalties) raised under the head 'Sale of Space or Time for Advertisement' and allowed the appeal with consequential relief, applying the classification and statutory exclusion as the basis for the decision.