By TIOL NEWS SERVICE

KOLKATA, JULY 04, 2016: THE petitioner is a cricketer. He participated in the IPL Cricket tournament held in India as a member of the Kolkata Knight Rider Team. He acted and still acts as brand ambassador for various products. He also acted as anchor in television shows. The petitioner is also engaged in writing articles for Sports Magazines.

The case:

The DGCEI had initiated investigation against the petitioner on 5 November, 2009 by calling upon the petitioner to produce various records and documents relating to the activities of the petitioner. By a letter dated 24 November 2009, the petitioner contended that he was not rendering any Business Auxiliary services and had earned income by playing the game of cricket for the country. Under cover of letters dated 14 December, 2009 and 15 March, 2010, the petitioner submitted all documents sought for by the office of the respondent including the copies of agreements entered into with various companies and corporate entities. The petitioner received a summon dated 12 January, 2011 from the office of the respondent to appear on 19 April, 2011 for making statements and producing documents about the details of income received by the petitioner during the period 1 January, 2010 till 30 September, 2010 as also to produce the balance sheet for the year 2009-10. The petitioner appeared through his authorised representative being his chartered accountant and submitted all documents called for. The petitioner again received a letter dated 4 August, 2011 seeking details of TDS amount deducted in respect of the payments received by the petitioner. By letter dated 20 August, 2011 the petitioner supplied the information sought for.

The respondent issued a show cause-um-demand notice dated 26 September, 2011 to the petitioner demanding service tax of Rs. 1,51,66,500/- on the amount received by the petitioner during the period 1 May, 2006 till 30 June, 2010 by invoking the extended period of limitation of five years under the proviso to Section 73 of the Finance Act, 1994 on the ground of 'suppression of facts with the intent to evade payment of service tax' by the petitioner.

The petitioner filed his reply dated 27 November, 2011 & appeared for a personal hearing. The Commissioner of Service Tax by order dated 12 November, 2012 confirmed the demand of service tax along with the interest and penalty on the petitioner.

The petitioner is before the High Court and seeks quashing of the show cause notice and the order dated 12 November, 2012 as also the Board instruction/circular dated 26 July, 2010.

Many yards of submissions were made by both sides.

The High Court, after considering the same, observed -

Alternative remedy:

+ The rule of exclusion of writ jurisdiction by availability of an alternative remedy is a rule of discretion and not one of compulsion.

+ If it is finally decided that the extended period of limitation was wrongly invoked by the authority in issuing the impugned show cause notice, the logical conclusion that would follow is that the show cause notice was issued without jurisdiction. In that event, this court would be justified in interfering with the show cause notice and the order in which it culminated in the exercise of jurisdiction under Art. 226 of the Constitution of India.

+ The preliminary issue of maintainability of the writ petition is decided in favour of the petitioner. The petition cannot be dismissed in limine.

Limitation:

+ A mechanical reproduction of the language of the proviso to Sec. 73 (1) of the Finance Act, 1994 would not per se justify invocation of the extended period of limitation. A mere bald assertion that the assessee willfully suppressed the material facts with intent to evade payment of service tax is not sufficient. The notice must contain particulars of facts and circumstances in support of such allegation.

+ It would appear that the petitioner was prompt and diligent in responding to all the notices issued by the Department and in his replies, the petitioner clearly explained the nature and scope of his activities. Subsequently, copies of contracts entered into by the petitioner with the corporate entities were also made available to the Department. In my view, there was full and sufficient disclosure of the nature of the petitioner's activities to the Department and it cannot be said that the petitioner suppressed material facts to deceive the Department with intent to evade payment of service tax.

+ There is only a sweeping statement that the petitioner by his 'act of omission and willful suppression of material facts with the intent to evade payment of service tax did not discharge the due service tax liability amounting to Rs. 1,51,66,500/- during the period from 1.05.2006 to 30.06.2010'. There is no whisper in the impugned notice of the facts which have been allegedly suppressed.

+ On a reading of the impugned notice, I am of the view that the Addl. Director General proceeded on the basis that there had been contravention of the provisions of the Finance Act, as a result whereof, service tax that was payable had not been paid. The respondent no. 4 did not address the issue which he was required to do for issuing the show cause notice by invoking the extended period of limitation.

+ In my considered view and in view of the law as discussed above, the impugned show cause notice is hopelessly barred by limitation.

+ Impugned show cause notice and the order dated 12 November, 2012 in which it culminated cannot be sustained.

On merits:

The demand is summarized as under:

+ What activities amount to business auxiliary service have been defined with precision in the Finance Act, 1994. It was not the intention of the legislature that any and every kind of activity which can loosely be termed as 'Business' would attract service tax. It being a taxing provision, the same must be construed strictly and any benefit of doubt in the matter of interpretation of the provision must go in favour of the assessee.

+ The said term or expression 'Support Service of Business or Commerce' has been defined to mean certain activities in relation to business or commerce. The activities mentioned in the definition Section which are perhaps illustrative and not exhaustive, are all meant to enhance some business or commerce. In order to qualify as business support service, in my view, an activity should be one of which primary object is to advance a business or commercial interest.

+ Writing articles for newspapers or sports magazines or for any other form of media cannot by any stretch of imagination be said to be amounting to rendering business auxiliary service within the meaning of Sec. 65(19) or business support service under Sec. 65(104c) of the Finance Act, 1994. Writing article for publication in a media is for the benefit of the readers who have interest in the concerned topic. The petitioner wrote articles for media, primarily for the sports lovers. It would be preposterous to suggest that in writing such articles the object of the petitioner was to advance any business or commercial venture. The articles were meant for information and even entertainment of the general public interested in sports. An article written by a celebrity in an issue of a magazine may to some extent boost the sale of that issue but I do not think it can be said that the object of the author in writing the article or permitting publication thereof was to promote circulation of the concerned magazine. That might be an incidental effect but the same cannot foist service tax liability on the author of the article. Hence, in my view, the remuneration received by the petitioner for writing articles would not attract service tax.

+ For similar reasons, the remuneration received by the petitioner for anchoring TV shows cannot be brought within the service tax net. Television shows are meant for entertainment of the viewers. In contemporary world watching television is a primary form of recreation. It would be absurd to say that anchoring TV shows amounts to rendering business auxiliary service or business support service. By anchoring a TV show, a celebrity or for that matter any other person does not render service with the object of enhancing any business or commercial interest. No reasonable authority with proper application of mind could classify anchoring of TV show as business auxiliary service or business support service. Hence, in my view, the remuneration received by the petitioner for anchoring TV shows does not attract service tax.

Brand endorsement -

+ The intended impression that is created in the mind of customers or users is that the products and services of that brand have the level of excellence comparable to that of the celebrity. The difference between business auxiliary service (effective from 1 July, 2003) and the newly introduced service of brand promotion (effective from 1 July, 2010) is that the latter has a wide coverage since mere promotion of brand would attract tax under this service head even if such promotion cannot be directly linked to promotion of a particular product or service. If the brand name/house mark is promoted by a celebrity without reference to any specific product or service, it is difficult to classify it under business auxiliary service. Such activities like establishing goodwill or adding value to a brand would fall under the newly introduced service head of Brand Promotion.

+ The demand raised for brand endorsement for the period 1 May, 2006 till 30 June, 2010 under the head of 'Business Auxiliary Service' is illegal and without jurisdiction. If brand endorsement was covered under business auxiliary service, it would not have been necessary for Parliament to introduce a new category of 'Brand Endorsement' by way of amendment. If by making a substantive amendment to a taxing statute, a new levy is imposed, it implies that there was no such levy in existence prior thereto.

+ Since brand endorsement was not a taxable service during the period of time for which the tax demand has been raised, such demand cannot be sustained. Such service rendered by the petitioner could not be taxed under the head of business auxiliary service as has been sought to be done.

Remuneration received for playing IPL cricket:

+ The taxable head of brand promotion was not in existence prior to 1 July, 2010, hence, reliance on that head for levying tax on the amount received by the petitioner from the IPL franchisee is misplaced and misconceived. This is sufficient to vitiate the order.

+ From the contract entered into by the petitioner with the IPL franchisee it is evident that the petitioner was engaged as a professional cricketer for which the franchisee was to provide fee to the petitioner. The petitioner was under full control of the franchisee and had to act in the manner instructed by the franchisee. The apparel that he had to wear was team clothing and the same could not exhibit any badge, logo, mark, trade name etc. The petitioner was not providing any service as an independent individual worker. His status was that of an employee rather than an independent worker or contractor or consultant. In my opinion, it cannot be said that the petitioner was rendering any service which could be classified as business support service. He was simply a purchased member of a team serving and performing under KKR and was not providing any service to KKR as an individual.

Letter/instruction dated 26 July, 2010 issued by the CBEC:

+ The Board of Central Excise and Customs in its administrative capacity is not entitled to impose its views on its various subordinate authorities exercising quasi-judicial functions to interpret a particular provision of a statute in a particular manner. A circular/instruction/letter cannot create tax liability.

+ The statutory provisions relating to service tax do not provide that the fees received by an IPL player would attract service tax. This is admitted by the Department even in the said circular which states, inter alia, that charges for playing matches will fall outside the purview of taxable service. If the statute does not provide for levying service tax on fee received for playing matches, such a liability cannot be created by issuing a letter/instruction/circular.

+ A circular cannot travel beyond the statute. The statute does not provide that if a player receives a composite amount for playing matches and promotional activities and the segregation of the two elements is not possible, then the composite entire amount may be taxed. Such an act on the part of the Department will be de hors the statute and without jurisdiction or authority of law. It will also be in contravention of Art. 265 of the Constitution of India. The Central Board of Excise and Customs cannot seek to legislate by issuing circulars/instructions.

+ The impugned circular/instruction dated 26 July 2010 is quashed to the extent it states that if composite fee received for playing matches and for participating in promotional activities cannot be segregated, then service tax should be levied on the total composite amount.

+ The remuneration received by the petitioner from the IPL franchisee could not be taxed under business support service.

Conclusion:

++ The show cause notice impugned is without jurisdiction as being time barred. The demand made in the show cause notice is barred by limitation. The order of the respondent no. 3 is consequently also without jurisdiction and ex facie illegal.

++ Even on merits, the claim of the Department is not sustainable. Both the show cause notice and the said order are set aside.

++ The impugned letter dated 26 July, 2010 issued by the Central Board of Excise and Customs is also set aside.

++ The petitioner is entitled to refund of the sum of Rs. 1,51,66,500/- and the sum of Rs. 50,00,000/- that he has deposited in terms of this Court's order along with interest at the rate of 10 per cent per annum from the date of deposit till the date of payment. Such refund is to be made to the petitioner within a period of four weeks from date.

The Writ Petition was allowed.

(See 2016-TIOL-1283-HC-KOL-ST)