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Monday, October 1, 2012

Pathan brothers - CESTAT and tax notice..... slippery ground

Heard of CESTAT ?  -  it is the  Customs, Excise and Service Tax Appellate Tribunal* (CESTAT) was formerly known as Customs, Excise & Gold (Control) Appellate Tribunal (in short CEGAT), constituted on the 11th October 1982.  Service tax is a part of Central Excise in India. It is a tax levied on services provided in India, except the State of Jammu and Kashmir. Service tax is, as the name suggests, a tax on Services. It is a tax levied on the transaction of certain services specified by the Central Government under the  Finance Act, 1994. It is an indirect tax (akin to Excise Duty or Sales Tax) which means that normally,   the service provider pays the tax and recovers the amount from the recipient of taxable service.

pathan brothers - Yusuf and Irfan

Irfan Pathan was once thought to be a great all rounder – much promoted by Greg Chappell perhaps part of sinister effort to irritate Sachin Tendulkar, Sehwag, Ganguly and more Indians.  He peaked with a Test hat-trick, slowly lost his pace and became pedestrian. Now suddenly the Indian Team management is trying to make him a batsman – he opened against England and was all at sea – there have been reports that he may be persisted with, at the expense of the swashbuckling Virender Sehwag……..   Irfan faded after Greg Chappell’s tenure; Irfan did make a comeback and was part of the victorious side that won the ICC T20 inaugural WC in Sept 2007 – Yusuf Pathan opened in the finals, if you remember.  Yusuf was part of the 2011 World Cup winning team too.

When the IPL  5 auctions got underway, host of names -   James Anderson, Tamim Iqbal, Adrian Barath, Sarwan, Darren Bravo, Ian Bell, Owais Shah, Upul Taranga, VVS Laxman, Matt Prior, Brendan Taylor, Mark Boucher, Kemp, Marlon Samuels, Ravi Bopara, Doug Bracewell, Luke Wright, Kevin O Brien, Dwayne Smith, Tsotsobe, VRV Singh, Vernon Philander, Fidel Edwards, Ravi Rampaul, Peter Siddle, Tim Southee, Greame Swann, Rangana Herath, Ajantha Mendis, Xavier Doherty – went without any bid at all. 

In that mad scramble, Ravindra Jadeja was the highest pick.  The next pick was little known [at that time] -  Sunil Narine, an off spinner, 23 year old from Trinidad has played just 3 one dayers.   He was bought at $700000. (Rs.3.40 crore)  from a base price of $ 50000 (24 lakhs) .  It was not the intrinsic value but the demand for the property on sale that determined the price in  that Auction.  The family of Pathans’ benefitted lot in that deal – Irfan Pathan was contracted by Delhi Daredevils @ $ 1,900,000  while his younger brother Yusuf  Pathan walloped $ 2,100,000 from KKR.

In the 2012 IPL season, Irfan Pathan made 176 runs in 17 matches at an average of 25 and took 8 wickets at an average of 58.12 with an economy of 7.75;  In the same season, the big hitting Yusuf made  a little more – 194 runs at an average of 19 and took 4 wickets at an average of 45.25 and economy of 8.16.  That they performed rather ordinarily is not the subject matter of this post – this is not about the perceived swing bowling of Irfan or the big hitting capabilities of Yusuf but something related to Service Tax and the notice from authorities. 

Tax India Online reports that the brothers have been served with service tax demand by Central Excise & Customs, Vadodara.  They have been part of Indian Premier League alongside other foreign and Indian players – contracted by franchisees.   The fees paid to  the players  have been held to be liable to service tax under the service category of "Business Support Service" on the ground that appellants wear the team clothing which bear the brand/marks of various sponsors and they are also required to participate in promotional/public events of the franchisee.

According to reports, Irfan had a higher demand of Rs.1.21 crores while that of Yusuf was much lower at Rs.65.50 lakhs.  The  Commissioner of Central Excise, Vadodara  had reportedly imposed equivalent penalty and also interest and that the matter went up before the appellate tribunal called -  CESTAT. The CESTAT took up both the appeals together not because they are brothers but because they were fighting a similar battle.

On behalf of the cricketers, it was argued that the relationship between the appellants and the franchisee is one of the employee-employer and, therefore, it cannot be said, that they are providing Business Support Service.  They were not required to undertake any promotional activity per se for the sponsors of the franchisees nor do they receive any amounts from them.  While the other contention was that the contract was for playing the game and they are liable to pay service tax. 

There reportedly hae been similar cases before Tribunals in respect of Franchisee - Royal Challengers Sports Pvt. Ltd. – and another but there it was service tax being  demanded from the franchisees in respect of fee paid to foreign players by invoking reverse charge mechanism for recovering the service tax since the players involved were foreigners.   There are reports that the Tribunal has directed the Pathan brothers to deposit 20% of the liability before end Oct 2012. 

Difficult times away from the ground also for these cricketers…

With regards – S. Sampathkumar.

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