Power Play There has been a lot of talk about fevers lately. Some fevers we would prefer not to be infected with but others, which we Indians can never seem to get enough of. Yes, we are indeed referring to the Cricket fever which is rooted so deep in our systems, that we 'Bleed Blue', don't we? The spread of this fever has reached its peak, considering that Indian Premier League...
Power Play
There has been a lot of talk about fevers lately. Some fevers we would prefer not to be infected with but others, which we Indians can never seem to get enough of. Yes, we are indeed referring to the Cricket fever which is rooted so deep in our systems, that we 'Bleed Blue', don't we? The spread of this fever has reached its peak, considering that Indian Premier League (IPL) has commenced.
What is truly endearing is, India has been able to create a niche-breed of die-hard Indian Cricket fans who are not just aware of beginner level trivia such as stats on how many runs Sachin or MSD have scored during their career but trivia as intricate as the fact that Sanath Jayasuriya has more ODI wickets than Shane Warne. No doubt, Cricket is life in India and everything else is just a game.
While being caught up in the frenzy of cricket, one cannot overlook the heartaches associated with it. Sorrow caused by our favorite cricketer retiring or more fittingly, watching our beloveds sitting out matches while suffering from serious injuries, drives fans to despair.
Talking about injuries, Shreyas Iyer has been in the news lately for having dislocated his right shoulder during the ODI series between India and England and has been ruled out from playing for Delhi Capitals (DC) in the upcoming IPL.[1] The breakout of this news has caught the attention of fans not only for the absence of the batsman and skipper in the DC lineup but also because the cricketer is reportedly eligible to be compensated his entire fee ranging around a 7 crore figure, even though he would not step foot on the cricket ground.[2]
What intrigues us as lawyers practicing Goods and Services Tax Law (GST) – Is the compensation paid to Shreyas Iyer, a consideration for a taxable supply of service rendered by the cricketer, even though he would not be playing a single game in the IPL and, if so, is this transaction liable to GST?
Mid Overs
To arrive at an appropriate response to this query, we needed to deep dive into the context behind why cricketers such as Shreyas Iyer are being compensated for missing out on cricket. We understand that the Board of Control for Cricket in India (BCCI) has procured an insurance policy which covers cricket players who are contracted with them and who form part of the National Cricket Team.[3] In terms of this IPL Player Insurance Scheme, the insurance policy obtained by BCCI would compensate players (beneficiaries of the insurance service procured) who are unavailable for the IPL either partially or entirely, as a result of being injured while representing India.[4]
The question that merits analysis is, whether the payout of such compensation under the insurance policy obtained by BCCI, is a consideration for a service rendered by the cricketer who is indisposed from playing for the IPL by virtue of being injured while playing for India and under a contract with BCCI.
Thus, the question leaves us in a corridor of uncertainty as to whether the Department can perceive these amounts paid to players missing out on the IPL, as a consideration for the service of playing for India and running the risk of being injured or refraining from playing in the IPL by virtue of being injured.
Rendezvous with GST : An unexpected Doosra?
The taxable event which triggers the levy of GST is a 'supply'. A supply is any act performed by a person for another under a contract in exchange for consideration in the course or furtherance of their business[5]. A supply must be that of goods or services. The act of agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act is considered as a supply of service by virtue of Schedule II of the Central Goods and Services Tax Act, 2017 (CGST Act).
While this summary of the legal provisions could seem to support the Department in pitching a demand of GST, the authors of this article believe that the same would be off the mark.
At the outset, assuming that the compensation paid by BCCI to a cricketer is towards his service of playing for India, the same will any case be exempt from GST.[6] However, this exemption may not be applicable to a service of tolerating an act or refraining from doing an act. Thus, if the Department raises a demand on the ground that there is a separate supply of tolerating an act or refraining from doing an act, it will require some nuanced legal analysis to rebut such an allegation.
To further understand the interplay between insurance and GST, reference can be made to Goods and Services Tax Ruling 2006/10 issued by the Australian Taxation Office on insurance settlements and entitlement to input tax credits. Afterall, the Indian GST Law also seems to have been coached by the Australian counterpart.
This Ruling clarifies that a payment made by the insurer as a settlement under the insurance policy is not a consideration for any separate supply. Resultantly, it can be inferred that when players are compensated only by virtue of being beneficiaries of the insurance policy obtained by BCCI, such payments made by the insurance company cannot be said to be a consideration for any separate supply rendered by the cricketers to BCCI. The amounts paid out is merely a settlement of the insurance claim.
However, when observed from an alternate perspective, one could contend that the payout of the settlement money by the insurance company is only to BCCI and the remittance of the same to the cricketers (as beneficiaries) concerns a separate transaction between BCCI and the cricketer.
Since the cricketers are under a contract with BCCI to play for India (which presumably provides for compensation in case of injury), it can be inferred that the amount paid as compensation is a result of the obligations flowing out of the said contract and not out of the insurance contract, as cricketers are not a direct party to such contract. While the Department could perceive this obligation to compensate as a consideration for a separate supply rendered by the cricketer, it is pertinent to keep in mind the concept of a condition of contract.
Hon'ble Larger Bench of the Tribunal in the case of Repco Home Finance Limited[7] had held that there is a marked distinction between a condition of a contract and a consideration for the contract. A service provider or recipient may be required to fulfil certain conditions of the contract but that may not necessarily mean that same becomes a consideration and thus, a part of the value of the service.
In this regard, the decision of the Hon'ble Supreme Court in Commissioner of Service Tax v Bhayana Builders (P) Ltd 2018 (10) GSTL 118 SC is also relevant wherein the Hon'ble Supreme Court analysed Section 67 of the erstwhile Finance Act, 1994 and held that any amount charged which has no nexus with the service provided or agreed to be provided will not be a consideration for the Service.
The requirement to indemnify in case of injuries to players is merely a condition of contract and therefore, the amount paid by BCCI to cricketers such as Shreyas Iyer cannot constitute a consideration 'to do an act' or 'to refrain from doing an act' or 'to tolerate an act' as the same is only in the nature of compensation which is paid. The cricketers never agree to be injured or not play the IPL in exchange for being compensated; rather they are contracted to play for India and as a condition of this contract they have been promised an indemnity in case they get injured while playing for the country. Consequently, payments made pursuant to such an indemnity covenant will not give rise to any separate supply of service.
Slog Overs
That said, we have reached the tail end of this article. In cricketing terms, the complexities of the law are sometimes so nuanced and overarching, that a well settled batsman can get out LBW due to a ball lying low or darting back sharply with the batsman not having enough time to react to the situation. Nonetheless, benefit of DRS is always available with the batsman in case an incorrect decision is made by an Umpire!
Views are Personal
The Authors are Principal Associates at Lakshmikumaran and Sridharan Attorneys