BCCI- IPL - SPONSORS Service Tax Triangle- On Revenue Sharing
When the concept of revenue sharing is
questioned in respect of its liability under service tax, the main point to be scrutinized
is the meaning of “revenue”. Ramantha Aiyer[1]
defines it as “The gross inflow of cash receivables
or other consideration arising in the course of ordinary activities of an
enterprise from the sale of goods, from rendering of services and from the use by
others of enterprises resources yielding interest, royalties and dividends”.
And
a similar definition found in Black’s Law dictionary[2] is
“The gross receipts of a business, individual, government or other
reporting entity. The receipts are usually the result of product sales,
services rendered interest earned etc”. All definitions[3]
brings us to the common conclusion that it is the amount collected in the
course of business activities of an organization. Once the term “revenue”
starts to make sense, next step is to understand how any transfer of amount as
a result of an agreement to share the revenue will fall in the purview of
Service Tax Department. Best way for this is to analyze agreements like
agreement between theatre owner and film distributor, agreements between
restaurant owners and other person whereby one is responsible for food
preparation and other for providing space, decoration, furniture, cutlery,
crockery etc. In these agreements, both the parties have their own roles. However
when the revenue is generated, agreement helps them to keep check/determine
their own share in the amount collected.
The recent spot light
on “revenue sharing agreements” is because of the franchisee agreements between
BCCI and team sponsors for conducting IPL tournaments. The legal issue raised
is whether every amount from BCCI to team sponsors will have service tax
liability under Business Support Service/ Business Auxiliary Service. The CBEC Circular
No. 109/3/2009-S.T., dated 23-2-2009 clarifies that in an agreement of revenue
sharing the contracting parties does not render any service and the transaction
is one of principal to principal basis. Due to popular understood concept that
revenue sharing agreement will not fall under service tax liability, another Circular
No. 148/17/2011-S.T., dated 13-12-2011 was issued stating that merits of every
transactions has to be considered while considering revenue sharing agreements.
These circulars where noted while considering two stay matters in relation to Kph
Dream Cricket (P) Ltd[4]
and Espn Software (I) (P) Ltd[5]. In both the matter, in relation to the revenue
sharing issue, complete waiver of pre-deposit and stay granted.
In the recent matter
of India Cement heard by CESTAT Chennai on 7/11/2013, the issue of revenue
sharing between BCCI and India Cements was argued by Senior Advocate Arvind
Datar where he raised the point that no service was rendered by India Cements
to BCCI which can be categorized as Business Support Service [Section 65(104)].
Transaction between the parties is as a result of agreement and not for any
service rendered. The Tribunal also took note of the above mentioned two circulars
and the ESPN decision. The Tribunal held that prima facie case is in favour of
India Cements and waived pre-deposit of balance amount.
However we might have
to wait till final decision in any of these matters to come up to have a better
understanding of the issue. Lets hope the ESPN matter which scheduled to be
heard on third week of November will provide us with enough closure on the
matter.
[1] Ramanatha
Aiyer, 3rd Edition, 2005
[2] Blacks
Law dictionary 6th edition
[3]
Ramanatha Aiyer’s definition, Black Law dictionary definition, Webster definition,
investopedia [http://www.investopedia.com/terms/r/revenue.asp]
