2026 (3) TMI 1204 - AT - Service Tax

Cost-sharing for joint promotion is not sponsorship service when payments cover shared advertising expenses rather than service consideration.

Amounts contributed under a Co-Op Partner Agreement for joint gold jewellery promotion are described as shared advertising rather than consideration for ... Taxability of service - promotional advertising of gold jewelry - classifiable under ‘Sponsorship Service’ vide section 65 (99a) of the Finance Act 1994 read with section 65 (105) (zzzn) - definition of sponsorship service - demand of service tax along with appropriate interest and imposing penalty under section 78 - Whether the appellant can be said to be receiving sponsorship from WGC and thus providing taxable service in relation to such sponsorship. Sponsorship service - consideration for taxable service - The Co Op Partner arrangement between the appellant and the World Gold Council does not constitute a taxable sponsorship service and the amounts received are cost sharing reimbursements, not consideration for a service. - HELD THAT:- The Tribunal examined the agreement and the advertisements and found an understanding to collaborate and jointly promote sale of jewellery, with media expenses shared (WGC contributing a specified percentage) and the appellant required to produce vendor invoices before WGC paid its share. The presence of the WGC logo and conditions imposed by WGC did not, on the admitted facts, convert the transaction into one where the appellant provided a sponsorship service to WGC for consideration. The arrangement reflected a joint promotional effort with reimbursement of a share of third party advertising costs rather than a service provided by the appellant to WGC; consequently the essential elements of an identifiable service provider service receiver relationship and consideration for a taxable service were absent. The Tribunal relied on the reasoning in Hindustan Construction Company Ltd [2023 (1) TMI 1470 - CESTAT MUMBAI] and the Supreme Court affirmation to support that reimbursements in such cost sharing arrangements are not consideration for taxable services. [Paras 13, 14, 15, 16] The appellant did not render sponsorship services to WGC and the sums received were cost sharing reimbursements, not taxable consideration. Final Conclusion: The impugned order upholding service tax demand on the ground of sponsorship service was set aside; the appeal is allowed because the amounts received were reimbursements in a joint promotional cost sharing arrangement and not consideration for a sponsorship service. Issues: Whether the amounts received by the appellant under the Co-Op Partner Agreement with World Gold Council constitute consideration for providing sponsorship services (taxable service) or are merely reimbursement/cost sharing and hence not taxable as sponsorship.Analysis: The agreement between the parties records a joint collaboration to promote 22 karat gold jewellery by media advertising, with WGC agreeing to contribute 25% of total media spends and a nonexclusive right granted to the appellant to use WGC marks. The departmental case rested on incorporation of the WGC logo/name in advertisements and the contractual conditions requiring conformity with WGC branding. Examination of the records shows that the appellant engaged third-party vendors for advertising and was required to submit vendor invoices for WGC to release its contribution. The arrangement reflects a shared expense structure for a joint promotional activity benefiting both parties rather than a transaction where the appellant provides a service to WGC for consideration. The statutory definitions in Section 65(99a) and Section 65(105)(zzzn) of the Finance Act, 1994 require an identifiable service provider and recipient and a consideration for the service; these elements are not satisfied where funds are contributed as a share of common expenditure. The Tribunal relied on precedent holding that reimbursement or cost-sharing of expenses is not taxable consideration for services and distinguished authorities cited by the department on facts. The appellants were not rendering sponsorship services to WGC but were jointly incurring promotional expenses, with WGC's contribution being a share of such expenses.Conclusion: The appeal is allowed and the demand of service tax and penalty insofar as based on classification of the transaction as sponsorship service is set aside; decision is in favour of the assessee.