Sports sponsorship taxability turns on service date, not payment date, with pre-notice tax and interest payments defeating penalty.

Sponsorship of IPL-related activities was treated as sponsorship of a sports event and, for the period before 01.07.2010, remained outside the taxable scope of sponsorship service; tax demand for that period was therefore unsustainable. Where services were rendered before 01.07.2010 but consideration was received later, tax did not arise merely because payment was delayed, as liability depended on the period of service. For the post-01.07.2010 demand, tax and interest paid before the show-cause notice supported deletion of penalty, though the underlying tax liability for that period was sustained.

---

---

Issues: (i) Whether sponsorship amounts paid for IPL-related activities rendered prior to 01.07.2010 were taxable under the sponsorship services category; (ii) Whether service tax and penalty were sustainable in respect of services rendered prior to 01.07.2010 where consideration was received after that date and in respect of the post-01.07.2010 demand where tax and interest had already been paid before issuance of the show-cause notice.

Issue (i): Whether sponsorship amounts paid for IPL-related activities rendered prior to 01.07.2010 were taxable under the sponsorship services category.

Analysis: The definition of sponsorship services under Section 65(105)(zzzn) of the Finance Act, 1994, as it stood prior to 01.07.2010, specifically excluded services in relation to sponsorship of sports events. The sponsorship arrangement related to IPL teams and was therefore treated as sponsorship of a sports event. The exclusion applied to the activity itself, and the date of rendering of the service, not the later date of payment, determined taxability.

Conclusion: The demand for sponsorship services rendered prior to 01.07.2010 was not sustainable and was in favour of the assessee.

Issue (ii): Whether service tax and penalty were sustainable in respect of services rendered prior to 01.07.2010 where consideration was received after that date and in respect of the post-01.07.2010 demand where tax and interest had already been paid before issuance of the show-cause notice.

Analysis: Under the second proviso to Rule 6(1) of the Service Tax Rules, 1994, no service tax is payable on the part of the value attributable to services provided during a period when such services were not taxable, even if payment is received later. For the post-01.07.2010 demand, the liability was otherwise attracted, but the record showed payment of tax and interest before the show-cause notice, which rendered the penalty unsustainable.

Conclusion: The demands linked to services rendered before 01.07.2010 but paid later were not sustainable, and the penalty on the post-01.07.2010 demand was not sustainable; the issue was partly in favour of the assessee.

Final Conclusion: The appeal succeeded in part, with pre-01.07.2010 sponsorship demands set aside and the penalty deleted, while the post-01.07.2010 tax liability remained confirmed.

Ratio Decidendi: Sponsorship of a sports event falls within the statutory exclusion from sponsorship service tax for the period when that exclusion operated, and receipt of consideration after the taxable regime changes does not create liability for services rendered during a non-taxable period; penalty is not justified where tax and interest are paid before issuance of notice.

---