Cricketer Ishant Sharma not liable for Service Tax on activities during 2008 IPL contract with KKR: CESTAT

Cricketer Ishant Sharma not liable for Service Tax on activities during 2008 IPL contract with KKR: CESTAT

His actions were part of an employment contract and not a ‘service’ attracting tax

The New Delhi bench of the Central Excise and Service Tax Appellate Tribunal (CESTAT) has held that Indian cricketer Ishant Sharma’s activities related to his Indian Premier League (IPL) contract with Knight Riders Sports Private Limited do not attract service tax.

A Coram of Justice Dilip Gupta (President) and P Anjani Kumar (Technical Member) granted relief to Sharma in this context for the Assessment Years 2008-2009, 2010-2011, and 2012-2013. They agreed with the cricketer’s stance that his activities were part of an employment contract and not a ‘service’ attracting tax.

The tribunal held, “It clearly transpires from the agreement that the appellant (Ishant Sharma) has been employed by the Knight Riders to play cricket in the IPL tournaments. The appellant is under the control of Knight Riders and has to act in the manner instructed by them. The activity undertaken by the appellant pursuant to the contract of employment would, therefore, not be a ‘service’ and, therefore, not leviable to service tax.”

The CESTAT also disagreed with a decision to invoke Section 73(1) of the Finance Act, 1994 to confirm the service tax demand by extending the period of limitation. It noted that the limitation period could be extended only if there was willful suppression of information by the assessee.

The CESTAT stated, “The entire demand has been confirmed by invoking the extended period of limitation. As the extended period of limitation could not have been invoked, the demand deserves to be set aside.”

The dispute arose from two show-cause notices issued to Sharma by the tax authorities in 2012 and 2014. The authorities claimed that Sharma owed service taxes for providing ‘business support services’ and ‘brand promotion services’ as part of his 2008 IPL contract to play for and represent the Kolkata Knight Riders.

However, Sharma contested the demand before the Commissioner of Central Excise and Service Tax.

In 2015, the Commissioner confirmed a part of the service tax demand by invoking the extended period of limitation under Section 73(1) of the Finance Act.

He stated that regarding the service tax demand before July 2012, Sharma was liable to pay a tax only for 20 percent of the money received for his IPL contract, as only that was related to the ‘services’ rendered by him. The other 80 percent was for playing cricket and not for rendering ‘services’.

Thereafter, both Sharma and the tax authorities filed appeals against the 2015 ruling.

Sharma maintained that he was under an employment contract and therefore, not liable to pay any service tax for such activity. On the other hand, the department questioned the decision to drop 80 percent of the service tax demand.

The CESTAT ruled in Sharma’s favour noting that earlier similar decisions were rendered in cases concerning cricketers Yusuf Pathan and Irfan Pathan.

It reasoned, “The player’s fee in the agreement is a fixed amount, not linked to or subject to change pursuant to any alleged promotional activities to be performed. The fee is payable to the appellant for participating in the matches organized in the tournament regardless of whether he does or does not undertake any promotional activity. This clearly indicates that the consideration paid under the contract is for playing cricket and not for any promotional activity.”

Ishant Sharma was represented by advocates Reena Khair, Shreya Dahiya, Vrinda Bagaria, and Subham Jaiswal from Kochhar & Co. They were supported by advocate Samarth Kashyap from Kashyap and Patil Legal.

The tax department was represented by Dr. Radhe Tallo.