Sponsorship Services - GST Implications

Sponsorship is a key strategy for businesses looking to boost visibility and brand association at events. The expenditure incurred on marketing of business constitutes a significant portion of sponsorship services. Since the sponsorship is one of the major expenses incurred by the company, it is necessary to know about GST implications on said sponsorship services.

The term Sponsorship has not been defined anywhere in GST Act but that was defined in Service Tax Act. As per section 65 (99a) of Service Tax Act;

“Sponsorship includes:-

(a) naming an event after the sponsor,        

(b) displaying the sponsor’s company logo or trading name,

(c) giving the sponsor exclusive or priority booking rights,

(d) sponsoring prizes or trophies for competition;

but does not include any financial or other support in the form of donations or gifts, given by the donors subject to the condition that the service provider is under no obligation to provide anything in return to such donors”.

The donations and gifts are excluded from the definition of sponsorship, as these are provided out of natural love and affection. However, if donations and gifts have been provided with a profit motive in future, then in such case, donations and gifts would not be covered by such exclusion.

As we know that under GST, normally the suppliers are liable to pay GST on the supply of goods or services i.e., under Forward Charge Mechanism (FCM). However in certain cases, the recipient becomes liable to pay GST under the Reverse Charge Mechanism (RCM). The Notification No. 13/2017 CT (R) contains the list of services on which tax is to be paid by the recipient of service under RCM. The serial number 4 of Notification No. 13/2017-CTax (R) is laid down as follows;

Thus as per above serial number 4 the supply of sponsorship services by any person to any Body corporate or partnership firm located in the taxable territory is chargeable to GST under RCM.

Let us understand the term Body Corporate. The clause (b) of Explanation to Notification No. 13/2017 CT (R) states that "Body Corporate" has the same meaning as assigned to it in clause (11) of section 2 of the Companies Act, 2013.

The section 2(11) of the Companies Act, 2013 states that the term “body corporate” or “corporation” includes a company incorporated outside India, but does not include-

(i) a co-operative society registered under any law relating to co-operative societies; and

(ii) any other body corporate (not being a company as defined in this Act), which the Central Government may, by notification, specify in this behalf;

With respect to some sponsorship services there is an exemption provided under serial number 53 of Notification No. 12/2017 CT(R). The said serial number 53 is as follows;

Thus from the above it is clear that no GST would be applicable on certain sporting events organised by the sponsorship services.

With respect to sponsorship services, it is necessary to understand that it is different from brand promotion services. In this regard, the Gujarat Authority for Advance Ruling in case of M/s. Indian Society of Critical Care Medicine [2022(05)LCX0055(AAR)] is relevant which is summarised as below;

“The applicant (ISCCM) is organizing trade fair and exhibition. The exhibitors will be allowed to display their products at a specified location in the trade fair venue, advertise their brand and products, distribute pamphlets or brochures etc. The applicant raised a question about the nature of such service and classification.

In this respect the advance ruling authority held that a suitable place for any entity to promote itself is at sponsored events such as trade fairs, exhibitions and events such as subject Criticare conference. These companies pay consideration to ISCCM and in return get their name/ logo/ brand on stage Backdrop, Standy, Taxi, E-Rickshaw, Chair Head, Rest Cover, Itinerary, Bottle Wrapper, Logo in media, Stationery etc.; Display of their brand in a souvenir for the event (space will be allotted in the souvenir); Presentation (for a specific time slot) and DVD Display. The essence of this service is Sponsorship Service, which are classifiable under SAC 998397 under the category of ‘Sponsorship services and brand promotion services”.

Thus, from the above detailed discussion about the sponsorship services and their GST impacts. We can conclude that;

Conclusion: RCM would be applicable on the sponsorship services provided to any body corporate or partnership firm. However, the sponsorship services of sporting events organised by specified entities are exempt from GST.

Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.