By TIOL News Service

MUMBAI, MAY 24, 2007 : OUR cricketers may not be doing all that well, but the richest sports body in the world, the BCCI is doing fine. It has just won a Rs 30 Cr case.

Both BCCI and Revenue are in appeal. BBCI appeals against the Order-in-Appeal dt. 30.06.05, passed by Commissioner (Appeals) confirming the demand of service tax of Rs. 11,19,61,602 (Rs. Eleven Crores, Nineteen Lakhs, sixty one thousand, six hundred and two only) in respect of amount received by the appellants towards sale of television rights, sponsorship money, and logo money holding that the same is covered by the definition of taxable service provided by the advertising agency. In addition, penalty of Rs.22,39,00,000/- (Rs.Twenty two crores, thirty nine lakhs only) was imposed apart from other penalties and interest.

Revenue's appeal is against Order-in-Original dt.24.11.05 passed by Commissioner of Service Tax, dropping the proceedings raised against BCCI on identical issue for the subsequent period.

The appellant BCCI submitted that

1.BCCI is a registered society with the main object of promotion of the game of cricket throughout India.

2.For the said purpose, they undertake various activities like organizing test matches, one day-international and other tournaments and enters into agreement with similar organizations of other countries for holding the matches etc

3.During such activities, it received amount from sponsorer of the tournaments/matches, by permitting putting of logo of the organization on clothing and clothing accessories of the players and for sale of telecast rights to any channel.

The disputed activities are:-

i)sale of telecast right of cricket matches.

ii)Permitting sponsors to use space for putting up of advertisement in stadium, and

iii)Permitting logos on clothing and clothing accessories of players.

Definitions:

"Taxable Services" -any service provided to a client, by an any advertising agency in relation to advertisement, in any manner.

"advertising agency" means any commercial concern engaged in providing any service connected with the making, preparation, display or exhibition of advertisements and includes an advertising consultant.

"Advertising" includes any notice, circular, label, wrapper, document, hoarding or any other audio or visual representation made by means of light, sound, smoke or gas".

The Tribunal observed that:-

1.One of the main criteria of definition of Advertising Agency is that the same should be a commercial concern. The expression 'Commercial Concern' does not stand defined under the Act. As such, for understanding the scope of the above expression, help has to be taken from other sources.

2.BCCI is ordinarily known as an organization for controlling and promoting the cricket in India and not as an advertising agency.

3.Ordinary meaning of the term advertising agency is an office which plans, designs and manages advertising for other companies and an organization acting as an agent for a producer of goods or services (an advertiser) devoted to the developing and placing advertising, in order to further the acceptance of a brand product, service or idea,.

4.CBEC vide their circular issued by F.No.345/4/97-TRU, dt. 16.8.99, while dealing with the issue as to whether the activity of printing and publishing telephone directory, yellow pages, business directories would attract service tax under the category of advertisement has observed that the above activity would not attract service tax unless the person concerned also undertakes any activity relating to the making or preparation of an advertisement such as designing, visualizing, conceptualizing.

5.Similarly, vide circular No.64/13/2003-ST, dt.28.10.03, it has been clarified that any person engaged in canvassing for advertising, would not be covered by the expression advertisement if the said person is not undertaking any activity of advertisement.

6.The definition of advertising agency can not be read in isolation and out of context. Even if the services provided by the appellant is broadly covered by the expression "exhibiting" or "displaying" of advertisement, but when viewed in the context, would not convert BCCI into an advertising agency.

7.If literal meaning is applied to the definition, the same may lead to absurd results in as much as the cinema hall flashing an advertisement or the newspaper/magazine publishing an advertisement will become an advertising agency on account of display or exhibiting the advertisement.

8.It can not be held that BCCI is an advertising agency. In the case of M/s ZEE Telefilms Ltd. & M/s Star India Ltd. Vs. CCE Mumbai, Tribunal has observed that the definition of advertising agency can not be read literally and out of context, if that is done, every person in some way or the other connected with advertisement will be an advertising agency. Any interpretation leading to absurdity has to be avoided.

So the Tribunal held that BCCI cannot be held to be a commercial concern, the same would not be covered by definition of advertising agency. If that be so, any service provided by them would not be termed as a taxable service covered under the net of advertisement and on the short grounds itself, the appellant's liability to pay service tax on the activities undertaken by them cannot be upheld.

The end

Not really! Even after holding that BCCI was not liable to pay the Service Tax, the Tribunal went on to analyse each of the individual services.

The Revenue has sought to tax the sale of telecast rights of cricket matches conducted by the appellant to various broadcasting agencies.

The Tribunal asked a question to itself.

By selling the television rights to various channels which service relatable to advertisement is being provided by the appellant?

And went on to answer…

Firstly, there is no advertisement involved and secondly there are no services "rendered" by BCCI to the broadcasters. Admittedly, BCCI is the owner of the rights in the cricket match and by selling these rights for telecasting, no service can be said to have been provided by BCCI to any client. Taxable service, as defined in clause 105 (e) of Section 65 means any service provided to a client by an advertising agency in relation to advertisement, (emphasis provided). There is no advertisement when the performance rights of the match vested in BCCI is being sold for viewership of million of peoples and there is no client to which such service in relation to advertisement is being provided.

At the most, the rights in the cricket match owned by BCCI can be said to have been sold by them to the broadcasting agency and BCCI and television channel, at best, be termed as seller and buyer of rights.

By taking a common example from recent time, coverage of marriage rites between celebrity couple Arun Nair and Elizabeth Hurley are reported to be exclusively sold to "Hello" magazine and similarly there are rumours of sale of "marriage function" of leading movie actor AbhishekBachhan with Aishwarya Rai to a particular channel for broadcasting. Will such sale of performance rights coverage would convert the seller into an advertising agency, providing any service in relation to advertisement to a client. The answer is emphatic 'No'.

Sponsorship and logo money

The Tribunal observed thatproviding of space, without any connection with the work relating to the designing or preparation of advertisement would not bring them under the service tax net. In support of above submission, reliance has been placed on the trade notice No.1/96-ST, dt.31.10.03, No.54/301/C3-ST, dt.28.10.03, and Ministry's Letter No. 345 /4/97-TR, dt. 16.8.99, clarifying that canvassing with client to sponsor the event and persuade them to give advertisement in particular newspaper/periodical/magazine would not amount to rendering of services in connection with advertisement.

As such, it is clear that what is being taxed is planning and expertise involved in making, preparing display or exhibiting the advertisement and not simply providing of a place or space to the advertiser. The expression "display" or "exhibit" does not mean the physical act of display and exhibit, but relates to the services rendered, as an expert body, to the client, for the purposes of display or exhibit. The same may involve the expertise of the provider of the services to advise the client as to in which manner, the advertisement should be displayed i.e. whether in the newspaper or on TV channel or by way of hoardings or a audio/video advertisement in air or any other medium on at what point of time the same should be exhibited.

The Tribunal found strength in the fact that another head of "sale of space or time for advertisement and sponsorship services" was created for the purposes of service tax w.e.f. 1.5.06.

The Tribunal held that a subsequent entry having been enacted covering the activity without any change of the existing entry, has to be interpreted as if the earlier existing entry did not cover the subsequently created entry.

If the subsequent entry was covered by the earlier entry, there was no reason or scope to create the present entry especially when the rate of tax in respect of both the entries remains unchanged. Certainly, creation of new entries was not by way of bifurcation of the earlier entry in as much as the earlier entry relating to advertisement remains unchanged without any change in the tax rate. As such, the introduction of new tariff entry do imply that the coverage in the new tariff for the purposes of tax was an area not covered by the earlier entry. If it is held that the activity of sponsorship and sale of space were covered under the earlier heading of advertising agency, the same would lead to the redundancy of new legislation and would defeat the legislative intent.

So the Tribunal emphatically allowed the Cricket appeal and dismissed the Revenue appeal.

(See 2007-TIOL-684-CESTAT-MUM in 'Service Tax' + 2007-TIOL-684-CESTAT-MUM in 'Legal Corner')