Traditionally, advertising primarily relied on conventional mediums such as print, television, radio, etc., which allowed the companies to increase the sales of their products. But, with the passage of time, the advertisement industry has evolved and expanded into many new forms. Companies now heavily rely on digital advertising through the internet, social media and in-mobile apps. A huge surge has also been seen in sports marketing where companies sponsor leagues, display billboards during sports matches or display the logo of the company on the jersey of the players. The last decade has seen heavy spending in sporting events with cricket, kabaddi and other leagues playing a key role in bringing brands and consumers closer. The sponsorship of Indian Premier League, 2024 edition by the Tata group for INR 2500 crore[1] or INR 100 crore incurred by PepsiCo India Ltd. to print the logo of its brand ‘Slice’ on the jersey of Mumbai Indians[2] are classic examples of the same.
With the introduction of GST in July 2017, supply of almost every kind of service has been made leviable to GST. Generally, the liability to discharge GST is on the supplier of such services as is the case for ‘advertisement services’. However, the recipient of services is liable to pay GST on certain services under reverse charge mechanism. One such scenario is supply of ‘sponsorship services’. Further, the supplier of sponsorship service is also required to reverse proportionate ITC pertaining to such sponsorship service on which GST is paid under reverse charge mechanism. In such a case, it becomes pertinent to examine whether sports marketing is in the nature of ‘advertisement/sale of advertising space and time’ service or sponsorship service.
Let us delve deeper into the activities undertaken as part of sports marketing to determine the relevant classification. In the sports industry, advertising is no longer restricted to in-stadia display of advertisements on billboards/perimeter led loops. Advertisers are increasingly weaving the branding & promotion activity with consumer experiences such as selling signed merchandise of players and arranging meet and greet with players. In certain cases, it is easy to identify the nature of the supply as in the case of display of advertisement on billboards which evidently qualifies as ‘sale of advertising space’. Yet in other cases, the nature of the activity continues to remain ambiguous. The scope of sponsorship services has also not been defined under GST. Resultantly, identifying the true nature of such services becomes a hair-splitting and onerous task for all players involved.
Even though GST was introduced with an objective to make it a seamless and simple tax regime, it seems that the overhang of the erstwhile service tax regime continues to persist as far as taxing sponsorship service under reverse charge mechanism is concerned. Taxing sponsorship under reverse charge at the time of its introduction in 2006 was understandable given the fact that the organisations receiving sponsorship were much smaller players than the sponsor and could escape the tax net. However, given the present landscape, the organisations receiving sponsorship have a prominent presence and incur significant expenditure for providing sponsorship service. In such a scenario, taxing sponsorship under reverse charge is detrimental to their interests as it involves reversal of huge amount of credits.
Considering the overlapping nature of advertisement and sponsorship service, taxing advertisement under forward charge and allowing full input tax credit of the expenses incurred and taxing sponsorship under reverse charge thereby disallowing credit of GST on expenses incurred is creating an artificial discrimination. Accordingly, in the context of changing business scenarios, a re-look is needed. In any case, the government needs to clarify the scope of both kinds of services.
Additionally, under GST, as part of rationalisation measures it is seen that the Government in the past has shifted certain service from mandatory reverse charge mechanism to an optional scheme, i.e. supplier of service can opt to pay tax under forward charge. If the supplier has not opted, the recipient is liable to pay tax under reverse charge mechanism. In certain other cases where liability to pay tax was cast on the e-commerce operator, it has been seen that the Government has shifted the liability to pay taxes on the supplier in case the supplier belongs to the organised sector. Keeping such a trend in mind, the Government should also consider making a similar change in the case of sponsorship services which will allow the bigger players to pay tax under forward charge and retain the credits of the expenses incurred.
[The authors are Partner, Associate Partner and Associate, respectively, in the Indirect Tax Advisory practice at Lakshmikumaran & Sridharan Attorneys, Mumbai]
[1] Tata to pay record-breaking Rs 2,500 crore for IPL title sponsorship rights (20.1.2024), The Economic Times, here.
[2] Gaurav Laghate, Mumbai Indians signs fintech brand Slice as principal sponsor in biggest ever deal (21.1.2024), The Economic Times, here.
