Explained: Sourav Ganguly's IPL brand promotion tax dispute

In November 2009, an investigation was initiated against cricketer Sourav Ganguly, who also represented Kolkata Knight Riders team, for not discharging his service tax liabilities. Krishnanand Tripathi, Deputy news Editor, ETV Bharat explains the entire tax case against the cricketer.

New Delhi:Former Indian cricket team captain Sourav Ganguly has won a case against the tax authorities who slapped a tax demand of over Rs 1.51 crore and penalty of over Rs 50 lakhs on him 10 years ago. The Kolkata bench of the Customs Excise and Service Tax Appellate Tribunal (CESTAT) ordered the department to refund Rs 1.51 crore service tax and Rs 50 lakh penalty collected from the cricketer with interest in a more than 10-year old tax dispute.

In the order passed on Monday, the tribunal asked the department to return the money to Sourav Ganguly within one month and pay the interest. A 10 per cent interest would be calculated on the tax and penalty collected from the former cricketer in 2014.

"This ruling is a welcome ruling for all the other cases pending in various courts on similar matters,” said Rajat Mohan, a Delhi based chartered accountant and senior partner with AMRG & Associates.

“It will have a bearing on the cases of other artists performing promotion activities for a fee charged in the service tax regime,” Rajat Mohan told ETV Bharat. “It will have a strong persuasive value for similar cases.”

The tax expert, however, clarified that this ruling will not be applicable on providing similar services under the GST as they are well defined under the new law that came into operation from July 2017.

“Definitions used in GST law are quite comprehensive, and thereby it will not impact the taxability of the said fees under GST,” said the tax expert who has written extensively on GST and other indirect taxes.

What is the tax evasion case against Sourav Ganguly

In November 2009, the Directorate General of Central Excise Intelligence, Kolkata initiated an investigation against cricketer Sourav Ganguly, who also represented Kolkata Knight Riders team, for not discharging his service tax liabilities.

Department served a show cause notice to Ganguly in September 2011 for rendering his celebrity image as brand ambassador for promotion, marketing and sale of various products. The department said these services qualify as business auxiliary services and the famous cricketer did not pay the service tax on them.

The tax officials also held that in addition to these services, Ganguly also received money from the IPL franchisee Kolkata Knight Riders for promoting its brand, which was in addition to the money received for his playing skills and this services would also qualify as business support service (BSS) under the finance act.

The department accused Ganguly of suppressing the information and not discharging his service tax liabilities on these two services rendered by him.

In the show cause notice, the department held that though the service tax was largely unpaid on the sponsorship of the IPL events prior to 2010 but IPL sponsorship was not a sports event but an entity of a franchisee and therefore it was taxable, so were sponsorship fees received by a player or a team.

In the show cause notice, the department said Ganguly received Rs 13.56 crores between 2006 and June 2010, over Rs 2.62 crores for brand promotion, Rs 23 lakh for writing articles, Rs 2 crore for anchoring in television programmes and nearly Rs 8.8 crore as a fees from Kolkata Knight Riders for playing cricket. It asked the cricketer to pay over Rs 1.51 crore as the service tax.

“Sourav Ganguly by way of his act of omission and failure, suppression of material facts with the intent to evade payment of service tax, did not discharge the due service tax liability,” said the department in its show cause notice.

Sourav Ganguly, who obtained the service tax registration in August 2010, had started paying the service tax from July 2010 after the changes were made in the finance act of 2010.

Sourav Ganguly rebuts tax fraud allegations

In his response, Ganguly said as an individual he was an absolute owner of brand 'Sourav Ganguly' and except offering the brand 'Sourav Ganguly' as a content for promotion of other brands he did not have an active role, organisation or infrastructure for doing any business or offering any business services.

Ganguly argued that he being the owner of brand 'Sourav Ganguly' cannot be said to offer auxiliary business services to any other main business activity and there has to be a direct link and reasonable degree of regularity in providing the auxiliary service to some primary business activity.

Ganguly also rebutted the charge of providing business support services (BSS) to Kolkata Knight Riders, saying that he just played cricket for the IPL franchise as an international player and had nothing to do with the business carried out by either the IPL or the KKR. The business of the IPL was supported by the KKR and not by the player Sourav Ganguly, said the cricketer in his defence.

CESTAT grants relief to the Skipper

In its order, the tribunal rejected the two service tax demands against the fee received for writing articles and TV anchoring as they were not included in the initial show cause notice issued by the department.

Moreover, the tribunal also clarified that the service tax on brand promotion was not applicable before July 1, 2010 as the section 65 (105) (ZZZZQ) was incorporated in the finance act on that day.

The tricky question before the tribunal was whether the services of brand promotion provided by Sourav Ganguly were taxable under the section 65(105)(ZZB) of the finance act which was in operation earlier or they became taxable under the section 65(105)(ZZZZQ) of the Finance Act that came into operation from July 1, 2010.

The tribunal held that despite the similar wording in both the sub sections, an activity would not be eligible for levy of service tax under a pre-existing category if that activity was brought under the tax net from a later date.

Placing reliance on several judgements by the Supreme Court and High Courts, the tax tribunal also rejected service tax demand on fees received by Ganguly for playing cricket for Kolkata Knight Riders saying that a composite contract is not taxable under the law if no machinery exists to exclude the non-taxable services from the taxable ones.

The tribunal also criticised the commissioner for invoking the extended period of limitation on the charges of suppression of material facts by the cricketer as the commissioner in his show cause notice did not state what was suppressed by Sourav Ganguly.