The Ever-Evolving Advertising Industry: Is GST Ready For The Same?

• Published date: 03 April 2024
• Subject Matter: Media, Telecoms, IT, Entertainment, Tax, Advertising, Marketing & Branding, Sport, Sales Taxes: VAT, GST
• Law Firm: Lakshmikumaran & Sridharan
• Author: Nupoor Agrawal, Nivedita Agarwal and Vanshika Gupta

Traditionally, advertising primarily relied on conventional mediums such as print, television, radio, etc., which allowed the companies to increase the sales of their products. But, with the passage of time, the advertisement industry has evolved and expanded into many new forms. Companies now heavily rely on digital advertising through the internet, social media and in-mobile apps. A huge surge has also been seen in sports marketing where companies sponsor leagues, display billboards during sports matches or display the logo of the company on the jersey of the players. The last decade has seen heavy spending in sporting events with cricket, kabaddi and other leagues playing a key role in bringing brands and consumers closer. The sponsorship of Indian Premier League, 2024 edition by the Tata group for INR 2500 crore¹ or INR 100 crore incurred by PepsiCo India Ltd. to print the logo of its brand 'Slice' on the jersey of Mumbai Indians² are classic examples of the same.

With the introduction of GST in July 2017, supply of almost every kind of service has been made leviable to GST. Generally, the liability to discharge GST is on the supplier of such services as is the case for 'advertisement services'. However, the recipient of services is liable to pay GST on certain services under reverse charge mechanism. One such scenario is supply of 'sponsorship services'. Further, the supplier of sponsorship service is also required to reverse proportionate ITC pertaining to such sponsorship service on which GST is paid under reverse charge mechanism. In such a case, it becomes pertinent to examine whether sports marketing is in the nature of 'advertisement/sale of advertising space and time' service or sponsorship service.

Let us delve deeper into the activities undertaken as part of sports marketing to determine the relevant classification. In the sports industry, advertising is no longer restricted to in-stadia display of advertisements on billboards/perimeter led loops. Advertisers are increasingly weaving the branding & promotion activity with consumer experiences such as selling signed merchandise of players and arranging meet and greet with players. In certain cases, it is easy to identify the nature of the supply as in the case of display of advertisement on billboards which evidently qualifies as 'sale of advertising space'. Yet in other cases, the nature of the activity continues to remain ambiguous. The scope of sponsorship services has also not been...