By TIOL News Service

MUMBAI, DEC 27, 2013: THE appellant is a member of the Board of Control for Cricket in India (BCCI). From the income proceeds of BCCI, the members were given reimbursement under various categories such as, TV Rights subsidy, Tournament receipts, IPL subsidy players' expenses reimbursements and subsidy for international matches. These amounts are given to promote the game of cricket and also to undertake construction of infrastructure for playing cricket within the jurisdiction of the members.

The CCE & ST, Nagpur was of the view that the amounts received from BCCI by the appellant is for providing infrastructure support to BCCI for conducting tournaments and, therefore, the same is classifiable under the category of 'Business Support Services'.

A Service Tax demand of more than Rs.21 crores was raised under two SCNs on the consideration received by the appellant during the period 2006-07 to 2009-10 and 2010-11.

Incidentally, these notices also included service tax demands raised under the category of 'Club or Association and Advertising Services', 'Mandap Keeper Services', 'Renting of Immovable Property Services' and "Sale of space or time for advertising'.

Before the CESTAT with a Stay application, the appellant submitted that bulk of demand is under the category of 'Business Support Services' and the amount of ST demanded under other categories is approximately Rs.1.8 crores against which they have already made a pre-deposit of Rs.1.63 crores.

As for the bulk of the Service Tax demand under BSS, it was submitted that they are not providing any services to BCCI and they are affiliated to BCCI; that from the BCCI's income they are given grant/subsidy for promoting cricket within the region and, therefore, the question of levy of Service tax would not arise at all; that similar proceedings were initiated against the Gujarat Cricket Association and the Saurashtra Cricket Association by the Commissioner of Service Tax, Ahmedabad proposing to demand Service Tax under the category of 'Event Management Services' on the amounts received from the BCCI and these proceedings were dropped by the jurisdictional Commissioner by Order No. STC/06/COMMR/AHD/2007 dated 24.9.2007 and No. 05/COMMR/2009 dated 27.3.2009; that in the case of Maharashtra Cricket Association, the Commissioner of Central Excise, Pune vide Order No. P-III/BBP/119/05 dated 28.7.2005, dropped the demand on the said assessee in a similar transaction under the category of 'Event Management Services'; that in the present case, the only difference is that the demand of Service Tax is raised under the category of 'Business Support Services'.

The Bench had waived pre-deposit and granted a Stay in the matter (2013-TIOL-808-CESTAT-MUM).

The appeals were heard by the Division Bench and the Member’s differed in their findings.

So, the following points were placed before the President for reference to the Third Member.

i) Whether the appellant, M/s. Vidarbha Cricket Association is liable to service tax on the services rendered to its members under ‘Club or Association Service' as held by the Member (Technical) on the ground that the appellant is not rendering any public service nor are they a charitable organization and the provisions of Income Tax Act, 1961 are not parimateria with Chapter V of the Finance Act, 1994

OR

The appellant, M/s. Vidarbha Cricket Association is not liable to service tax under ‘Club or Association Service' as held by Member (Judicial) on the ground that the appellant is treated as a charitable organization under the Income Tax act, 1961

ii) Whether the appellant is liable to penalties under Sections 76, 77 and 78 of the Finance Act, 1994 in cases where the service tax demands have been confirmed invoking the extended period of time as held by Member (Technical)

OR

The appellant is not liable to penalty under the above provisions on the ground that there is no contumacious conduct on the part of the appellant and the disputes had arisen as a matter of interpretation of the tax provisions, as held by Member (Judicial).

iii) Is there any inherent contradiction in the waiver of penalty by Member (Judicial) inasmuch as he has upheld the confirmation of demand of service tax invoking the extended period of time and the same pre-supposes suppression of facts on the part of the appellant whereas while waiving of the penalty, the learned Member (Judicial) has held that there is no contumacious conduct on the part of the appellant. Further for imposition of penalty under Sections 76 and 77 no mensrea is required and mere contravention of the statutory provisions would suffice.

We had while reporting this order (2013-TIOL-1404-CESTAT-MUM) mentioned -

In passing: It may be pertinent to note that the amounts received from BCCI by the appellant by way of subsidies were also sought to be subject to Service Tax under the head 'Business Support Services' but the Member(T) has set aside the same on the ground that the service, if at all any, rendered by the appellant is not in relation to any business or commerce and, therefore, there is no service tax liability on the said activity under section 65 (104c) read with 65(105)(zzzq) of the Finance Act, 1994. It appears from the order that the Member (Judicial) is not averse with this portion of the order. Incidentally, out of the total demand of more than Rs.21 crores, bulk of the demand is under the category of 'Business Support Services' and the amount under other categories is approximately Rs. 1.80crores against which the appellant has already made a pre-deposit of Rs. 1.63 crores.

The reference matter was heard by the third Member(Technical) and the following view is taken by him -

Whether the appellant is a charitable organization for claiming exclusion as ‘Club or Association’ -

++ Public utility services are generally taken to mean services relating to education, hospital, sanitation, cleaning etc. I am, therefore, of the view that promoting a particular game or sport is not a public service. (It may be in public interest). Further, the purpose of the Income Tax Act and that of the Service Tax Act is different and the two Acts operate entirely indifferent fields. The purpose of the Income Tax Act is to collect tax on incomes of individuals and other legal/artificial bodies and is a direct tax. Granting exemption to certain organisations would help those organizations in making available more funds for their activities….Thus, in my view, with reference to Service Tax, ‘public service’ and ‘charitable nature’ would imply that the public services provided by the service provider organizations are at nil or highly subsidized rate and are for the poor and needy. I find the object of the appellants is to promote the game of cricket which cannot be considered as service to poor and needy and therefore cannot be considered as charitable in nature….In fact, club and Association Service provided by the appellant is not utilized by the poor and needy but by the people who have social status and are financially well off….I am therefore of the view that the appellants are not providing public service and that of ‘charitable nature’...the appellants are liable to service tax on the services rendered to its members under the ‘club or association service’.

Penalty -

++ The fact that the appellant is run by an elected body, the office bearers work on honorary basis and keep changing periodically is not relevant for determining penalties under Sections 76, 77 and 78. Penalties proposed are not on office bearers but on the Association. Penalties under the Taxation Laws are generally for failure of a citizen to meet the obligation under the law. Penalty under Section 76 is on failure to pay tax. The reason for failure is immaterial. Similarly, Section 78 provides the circumstances under which penalties can be imposed under that Section.

++ The circumstances under which the penalties are to be imposed under Sections 76, 77 and 78 of the Finance Act are elaborated in the Sections. Only in Section 78 certain clauses require intent to evade or willful suppression. None of these Sections stipulate contumacious conduct on the part of the appellants. In fact, scheme of Service Tax Law is self-determination/assessment of tax and payment in the bank. There is no requirement to interact with authority. In the present case ‘club or association service’ was introduced in 2005. Being a leading Club, it was expected that they would take steps to at least find out whether there is a tax liability on them. There is no evidence whatsoever that they have taken any steps to even find out whether the tax is payable by them. The appellant has not challenged the levy and cannot form bona fide belief from 2005 onwards based upon a High Court judgment in2013.

++ For imposing penalty under Sections 76 and 77, no mensrea is required. In Section 78, the requirements are exactly same as in Section 73 for invoking extended period. Thus if in a case, extended period is invokable, penalty under Section 78 will also be imposable.

++ The penalties can be waived (u/s 80) only if the assessee proves that there was a reasonable cause of the said failure. No such cause has been advanced, leave alone proving. Thus penalty cannot be waived in the present case.

So, the Majority order is -

a) the confirmation of service tax demands under the taxable service category of Mandap Keeper Service, Club and Association service, Renting of Immovable property service and Sale of space for advertisement service is sustainable in law. In the case of Club & Association service, the tax demand has to be recomputed excluding the bar-sales subject to the appellant producing satisfactory evidence in this regard.

b) the appellant is liable to pay interest on the above service tax demands in accordance with law.

c) the appellant is liable to penalty under Section 76 and 77 of the Finance Act, 1994.

d) the appellant is also liable to penalty under Section 78 of the said Finance Act except in the case of Renting of Immovable property service.

e) the demand of service tax under the category of Business Support Services is unsustainable in law and the same is set aside. Consequently, there will be no interest and penal liability on account of this demand.

(See 2013-TIOL-1915-CESTAT-MUM)