CSK moves Madras HC challenging two provisions of CGST Act & a show cause notice

Says, Govt will end up collecting more tax if input tax credit is denied under reverse charge mechanism

Chennai Super Kings (CSK) Cricket Limited has moved Madras High Court to declare two provisions of Central Goods and Services Tax Act of 2017 as manifestly arbitrary and unconstitutional. It also insisted on quashing a show cause notice issued by Ludhiana zonal unit of Directorate General of Goods and Services Tax Intelligence on November 2.

The petitioner had challenged Sections 17(2) and 17(3) of the CGST Act on the ground that denial of input tax credit under reverse charge mechanism (tax paid by recepient of certain goods and services) would lead to the government collecting 25% more tax than what it would collect under forward charge mechanism (tax paid by supplier of goods and services) .

Justices R. Mahadevan and Mohammed Shaffiq on Tuesday directed V. Sundareswaran, senior standing counsel for GST Council, to ensure that counter affidavits were filed by December 20. The judges also asked him to instruct the officials concerned to not take any coercive action until the court hears the matter at length and passes appropriate orders.

Representing the writ petitioner, senior counsel Arvind P. Datar said it owns a cricket team in the Indian Premier League in the name and style of CSK. Under a contract entered into by the petitioner with Board of Control for Cricket in India (BCCI), the team participates in IPL cricket tournaments played within the country and sometimes outside India too.

In Chennai, the matches are played at M.A. Chidambaram Stadium which the petitioner hires for the duration of the tournament every year. As the owner of CSK, the petitioner was entitled to require its players and allow its assets and properties to carry advertisements and branding of products, brands, names and logos of interested advertisers.

Accordingly, the petitioner permits such advertisements on CSK players’ apparel, media campaigns and at match venue. Pointing out that neither ‘sponsorship services’ nor ‘brand promotion services’ had been defined under the CGST Act, the petitioner said, in such circumstances, the ordinary commercial meaning should be given to those terms while dealing with them under the law.

However, the Ludhiana zonal unit of DGGSTI had attempted to re-classify all brand promotion services from July 1, 2017 to March 31, 2021 as sponsorship services, the petitioner complained. “This is patently illegal and Respondent 3 (DGGSTI) has no power under the CGST Act to reclassify commercial contracts,” the affidavit filed on behalf of CSK Cricket Limited read.

It further stated that generally, suppliers of goods or services were liable to pay GST. However, in specified cases such as imports and other notified supplies, the liability could be cast on the recepient of the goods or services under reverse charge mechanism. Reverse charge means the liability to pay tax was on the recepient in respect of notified categories of supply.

Since sponsorship services fell under the reverse charge mechanism, the officials were denying the benefit of input tax credit to the petitioner, it said and referred to the FAQs on GST which categorically state that input tax credit would be made available for discharging the CGST liability on the output at every stage.

The petitioner also questioned the territorial jurisdiction of Ludhiana zonal unit having issued the show cause notice to the petitioner located in Tamil Nadu.

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