By TIOL News Service

NEW DELHI, JUNE 11, 2013: THE appellant Hero Motorcorp in an agreement with GMR Sports Pvt. Ltd agreed to sponsor the GMR team called ‘Delhi Daredevils’ in the tournament conducted under auspicious of BCCI/IPL.

The Service Tax department issued a Show Cause Notice to the effect that the appellant is liable to service tax under provision of Section 65(105)(zzzn) of the Act, which bring to charge in service or to be provided to anybody corporate or firm, by any person receiving sponsorship, in relation to such sponsorship, in any manner, but excluding services in relation to sponsorship of sports events.
The Adjudicating Commissioner observed,

++ while T-20 matches being played by various teams under the IPL banner are sporting events, a team cannot be a sporting event;

++ the terms and conditions (in the agreement between GMR and the appellant) clearly show that the appellant made payments not for the T-20 tournament of any cricket match but to GMR for sponsoring GMR’s team, which in itself is not a sports events;

++ GMR could not be called a sports event;

++ though the appellant claims to have obtain sponsorship rights for being designated as official sponsorship of the team which is a participant in the T-20 tournament, the appellant is not entitled to the benefit of the exclusionary clause since BCCI-IPL by itself is not a sports events but is a society registered under the Tamil Nadu Societies Act, 1975;

++ though the use of the expression in relation to indicates the wide sweep and ambit of the exclusionary clause, the expression cannot be extended to cover BCCI/ IPL/ GMR;

++ Delhi Daredevils is not a sporting event; and

++ sponsoring the IPL cannot be said to be a sponsorship in relation to a sports event. Only a proximate connections though not a direct connection with a sporting event is contemplated by the exclusionary clause.

And confirmed the demand.

The Tribunal found the reasons recorded by the adjudicating authority are misconceived and unsustainable and observed, "Under the agreement with GMR the appellant had sponsored (for the relevant period) the Delhi Daredevils team which was owned by GMR (under a franchise agreement with BCCI/IPL Delhi Daredevils team was sponsored in the context of the participation of this team in the T-20 league matches. The several rights accruing to the appellant under the sponsorship agreement (adverted to above) clearly indicate that sponsorship was neither of BCCI - IPL; nor GMR, the sponsorship was clearly of the GMR owned Delhi Daredevils team in relation to participation of such team in the IPL T-20 cricket tournament. The enumerated bouquet of benefits accruing to the appellant under the agreement such as printing; player’s appearances; motorcycle display; merchandise; motorcycle for promotion; and participative rights in prize presentation; championship tournaments; celebrity events; website/ blog entitlement; and marketing plans by GMR, clearly establish that the sponsorship is of the GMR owned Delhi Daredevils team in relation to its participation in the T-20 tournament."

The Tribunal noted that it was not the case of Revenue that the sponsorship agreement was entered into with GMR either to sponsor GMR or to sponsor BCCI/ IPL without reference to the T-20 fixtures. The Tribunal was not persuaded by any material on record that a huge amount of Rs. 4,80,00,000/- (for three years) was expended by appellant for deriving any commercial benefit out of its association with either GMR or BCCI/ IPL alone. It was also not persuaded to infer that GMR and/ or BCCI -IPL by themselves and unrelated to the T-20 cricket tournament/ event would have any audience/ viewership interest or footfall as to have any commercial utility whatsoever to the appellant. The sponsorship agreement is thus for sponsoring the T-20 sports event and not for sponsoring the owner of the Delhi Daredevils owner or the BCCI - IPL.

The Tribunal found that the conclusion recorded by the adjudicating authority was based on a fundamental misconception of the purpose of the sponsorship agreement. The conclusion that under the agreement appellant sponsored GMR, by predicating this inference on the singular circumstance that GMR was other party to the agreement, overlooking the terms and conditions of the agreement, constitutes a fatal infirmity of analysis, which invalidates the adjudication order.

The Tribunal concluded, "The agreement in issue (between GMR and the appellant) clearly constitutes sponsorship. That is also the admitted position, since that is the basis for initiation of proceedings leading to the assessment of the appellant’s liability to service tax under provisions of Section 65(105) (zzzn). Since the sponsorship agreement, in our considered view falls within the exclusionary clause i.e. the clause which excludes sponsorship services in relation to sports events, the appellant is clearly immune to the charge of service tax."

(See 2013-TIOL-873-CESTAT-DEL)