2026-VIL-1163-MAD-ST
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SERVICE TAX High Court Cases

Service Tax - Taxability of CSR contributions as sponsorship service - Appellant made payments to various organizations for activities such as construction of toilets, school buildings and temple towers, claiming them to be donations for charitable purposes - Department treated them as sponsorships and confirmed the demand of service tax under Section 65(99a) of the Finance Act, 1994, which the Tribunal upheld - Whether the payments made by the Appellant are sponsorship services within the meaning of Section 65(99a) and chargeable to service tax - HELD - The Appellant is not seeking exemption from the levy. It is the Revenue which seeks to bring the transactions within the service tax net, and therefore the onus is on the Revenue to establish the true character of the transaction - If the appellant takes the stand that there was no agreement with the donee, the Revenue cannot assume that there was one and that it was not being produced. The Revenue is at liberty to address the donee and ask for particulars - Under Section 65(99a), service tax is leviable where the event is named after the sponsor, the sponsor's logo or trading name is displayed, exclusive or priority booking rights are given, or prizes or trophies are sponsored in the sponsor's name. Financial support in the form of donations or gifts does not constitute sponsorship if the donee is under no obligation to provide anything in return. The key word is "obliged", and a transaction is sponsorship only when the payment is subject to a condition that the recipient has to do something in return - Merely because the records of the contributor or the recipient refer to the transaction as sponsorship, or the donee on its own acknowledges the contribution, the transaction does not become taxable. The requirement to display the logo was found in only two transactions, as stipulated in the Board resolution itself, and these alone were sponsorship. The other transactions were brought under the tax net on stereotyped reasons, namely non-production of original documents, absence of documentary proof and display of the logo at the event. These reasons are unsustainable since it was not the case of the Revenue that the Appellant was withholding any material or that the donee was obliged to display the logo. The Revenue has not discharged its onus - The question of law is answered in favour of the Appellant, the order of the Tribunal is set aside and the appeal is allowed - Invocation of extended period of limitation on sponsorship transactions - Proceedings were initiated against the Appellant after the expiry of the normal limitation period, and the Revenue justified the invocation of the extended period by relying on the proviso to Section 73(1) of the Finance Act, 1994 - Whether the extended period of limitation was invokable in respect of the two transactions held to be sponsorship - HELD - The proviso to Section 73(1) could have been invoked only if circumstances such as fraud, collusion, willful misstatement or suppression of facts had been present. The Department had not placed any credible material to show that the Appellant was guilty of such misconduct. Hence, even in respect of the two transactions found to be sponsorship, the proceedings could not have been initiated since they were time-barred - The extended period of limitation was wrongly invoked, the order of the Tribunal is set aside and the appeal is allowed.
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