CESTAT: Not Liable to Pay Service Tax as Promotional Activities Undertaken by Cricketers Not Included Under Business Support Service

CESTAT: Not Liable to Pay Service Tax as Promotional Activities Undertaken by Cricketers Not Included Under Business Support Service

The Ahmedabad bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT), while quashing the demand for service tax observed that the apparel worn by cricketers- Yusufkhan M Pathan and Irfankhan Pathan was team clothing, which bore the brand names and marks of various sponsors and were not providing any service as independent individuals, hence, the same could not be classified as business support services.

In the present case both the appellants are international cricket players and they had entered into contract with the cricket team owners (known as franchisee) whereby they were employed/ engaged to play cricket for the respective teams in terms of the contracts for IPL seasons. The fees paid to the appellants held to be liable to service tax under the service category of "Business Support Service."

This view had been taken on the ground that appellants wore team clothing which bore the brands/ marks of various sponsors and were also required to participate in promotional /public events of the franchisee thus they are providing Business Support Service. Based on such reasoning show cause notices were issued to the appellants for demand of service tax.

After considering the reply, the Adjudicating Authority confirmed the service tax demand along with interest and imposed the penalties on appellants. Being aggrieved, an appeal was filed before the Commissioner (Appeals) who vide impugned order-in-appeal rejected the appeal of appellant and upheld the order of the adjudicating authority. Hence, the present appeals were filed before the CESTAT.

The appellants submitted that the agreement between the appellants and franchisee was an agreement of "employment," and the same actually creates the relationship of "employer – employee." In addition to this, wearing the franchisee's colors and design of cricket clothing, including marks and logos, was also part of employment agreement and it could not be construed as promotional activities. The appellants asserted that it is a settled legal position that services provided by an employee, for the activities undertaken by the employer, for and under the instruction of the employer, cannot be termed as service provided by the employee.

Per contra, the Department contended that that there does not exist an employer-employee relationship as there was no contract of employment as the appellants are cricketers by profession. No proof of salary or remuneration payment is produced in Form 26AS or its tax deduction under the salary heading.

The issue that arose for consideration was whether the activity carried out by the appellants would be taxable to service tax under Business support service.

'Support services of business or commerce' has been defined in sub-section (104c) of Section 65 of the Finance Act.

The Appellate Tribunal found that though in the impugned order the appellants were made liable to pay service tax under the business support service but as, no specific entry as mentioned in definition of "Business Support service" was shown to be applicable to levy service tax.

The division bench comprising of Mr. Ramesh Nair (Judicial Member) and Mr. Raju (Technical Member) opined that, "the apparel that they had to wear was team clothing, which bears the brand/marks of various sponsors. The appellants were not providing any service as an independent individual. In our opinion, it cannot be said that the appellants were rendering any services which could be classified as business support services. Appellants are not promoting any particular brand or product or service and also not taking part in any business activity of promoting the sale of any product or service of any entity."

Further, the bench pointed out that the entry for "Business Support Service" envisages taxing activities which are needed for doing business activities almost in the nature of outsourcing of activities connected with business. The Tribunal found that the definition of "Business Support Service" does not specifically cover the activity done by appellants.

Further, the CESTAT on perusal of the agreement title "Indian Premiere League Playing Contract" stated that it is the appellant who was recognized as player first. Clause -2 of the agreement stated that the franchisee was engaging players as professional cricketer who shall be employed by the franchisee.

The Appellate Tribunal observed that, "it is abundantly clear that a person who has earned the reputation and recognition as a player is employed by the franchisee and it is not the other way round. The revenue while referring to clause -5 of the contract wants to impress that by virtue of the dress code, a player is obligated to his franchisee. Ongoing through the clauses 5.2.,5.3,5.4 which prohibits commercial usage of supplied clothing. Therefore, if the same is considered as a binding condition, then it's all the more strengthens the employer –employee relationship and we do not see anything wrong with employer prescribing uniform code with his employee."

The CESTAT noted that there was no doubt that appellant had been appointed/ engaged by the respective Franchisee under the agreement of 'employment.' The agreement created a relationship of "employer-employee."

The bench held that the appellants were not liable to service tax under the 'Business Support Service' and the demands of service tax were not sustainable against the appellants, while allowing the appeals.