JUNE 15, 2017

By S Sivakumar, LL.B., FCA, FCS, ACSI, MBA, Advocate

IN terms of the current Mega Exemption Notification No. 25/2012-ST dated 20-6-2012 the following activity covered by Sl. No. 8 is exempted from levy of service tax, viz.

"Services by way of training or coaching in recreational activities relating to arts, culture or sports".

However, under Sl. No. 61 of the exemption list of services under GST, the following activity is exempted from levy of tax, viz.

Services by way of training or coaching in recreational activities relating to,-

(i) arts or culture. or

(ii) sports by charitable entities registered under section 12AA of Income tax Act, 1961;

Under the existing law, exemption from the levy of service tax in respect of services related to arts or culture or sports is available to all service providers, irrespective of whether they are registered under Section 12AA of the Income Tax Act, 1961 or not. Now, under the GST law, exemption from the levy of tax would be available only to entities that are registered under Section 12AA of the Income Tax Act, 1961, at least, insofar as sports is concerned. As a student of tax laws, I presume that, going by the manner in which this exemption entry under Sl. No. 61 is worded, the requirement related to registration under Section 12AA of the Income tax Act, is applicable only to training or coaching in recreational activities related to sports (and not to arts or culture).

Be that as it may…Section 12AA of the Income Tax Act deals with entities that are registered as religious or charitable trusts. While one can understand some connection between religious/charitable trusts and arts/cultural activities, one completely fails to understand the connection between sports and religious/charitable trusts.

Under the current service tax law, exemption is available to sports related activities carried out by commercial training institutes and sports clubs who are not registered under Section 12AA of the Income tax Act. In a cosmopolitan city like Bangalore, one can find umpteen establishments that train youngsters in sports like cricket, badminton, table tennis, football, etc. Now, all of these establishments will have to charge tax under GST, to the utter detriment of the sports fraternity.

I wonder if the Sports Ministry is aware of this dangerous development related to sports, under GST. To restrict the exemption related to sports under GST, to religious or charitable trusts seems completely bereft of logic. One does hope that the Central Government amends Entry No. 61 of the exemption list under GST to delete reference to Section 12AA of the Income tax Act, to ensure that the benefit of exemption that is currently available to all players is not restricted to religious or charitable trusts.

Interestingly, the Tabulation notifying the list of services which are exempted carries the caption "Service Tax Exemptions to be continued in GST as decided by GST Council".

The usage of the word "continued" would presuppose that the services that were exempted earlier under the FA, 1994 continue to be exempted under the GST regime. But as highlighted in the preceding paragraphs, the addition of the words "by charitable entities registered under section 12AA of Income tax Act, 1961" makes the exemption go topsy-turvy.

If this is an unintended gaffe, which it seems to be, it would be in the interest of all concerned to rectify it quickly.

Incidentally, the full-stop/period appearing in the clause (i) of Sl. No. 61 (supra) also appears to be a typographical error.

Are we going to carry the legacy of such unbridled errors from the earlier taxation regime into the metamorphosed one? Hopefully, not!