1. Introduction
In this article we will be deliberating on all aspects regarding the payment of GST under reverse charge mechanism (RCM) on sponsorship services.
As per Section 2(98) of the CGST Act, 2017 ‘reverse charge’ means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or sub-section (4) of section 5 of IGST Act, 2017.
Generally it is the responsibility of the supplier to pay GST to the Government (though he can collect same from customer) which is apparent from section 9(1) of CGST Act / section 5(1) of IGST Act, 2017 wherein the taxable person viz supplier is liable to pay tax. However such liability for payment of tax is shifted onto the recipient where Government believes it would be administratively efficient and will ensure recovery of taxes and such payment by the recipient is referred to as payment under reverse charge mechanism.
In accordance to the powers conferred under section 9(3) of CGST Act, 2017 and under section 5(3) of IGST Act, 2017, Notification No. 13/2017-Central Tax (Rate) dated 28-6-2017 and Notification No. 10/2017-Integrated Tax (Rate) dated 28-6-2017 (hereinafter referred to as RCM Notifications) were issued by Central Government, notifying the situations wherein certain supply of services would be covered under ambit of reverse charge mechanism. As on date 22 services are under ambit of reverse charge mechanism vide above cited notifications.
Supply of sponsorship Services by any person to a body corporate or partnership firm is amongst the notified services wherein the tax is required to be paid by the recipient of such services. It is not new that sponsorship services have been brought under levy of reverse charge as same was within ambit of reverse charge under Service Tax regime as well.
2. Situations where reverse charge mechanism will apply on sponsorship services
The sponsorship services would be covered under the ambit of reverse charge mechanism, if and only if all the following four conditions are satisfied.
a. Sponsorship Services are supplied
The expression “sponsorship” has not been defined under GST law. Thus we may seek guidance from the erstwhile Service Tax law, wherein same was defined under Section 65(99a) of the Finance Act, 1994 as under:-
“sponsorship” includes naming an event after the sponsor, displaying the sponsor’s company logo or trading name, giving the sponsor exclusive or priority booking rights, 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.
Sponsorship service is an alternate form of advertisement. However under sponsorship the consideration is normally paid in return for naming of the event after the sponsor or displaying the sponsoring company’s logo or trading name or giving the sponsor exclusive or priority booking rights.
But it should be noted that normal advertising is not covered within ambit of reverse charge mechanism.
When gift or donation is not subject to GST
It has been clarified by CBIC vide Circular No. 116/35/2019-GST dated 11.10.2019 that where all three conditions are satisfied namely the gift or donation is made to a charitable organisation, the payment has the character of gift or donation and the purpose is philanthropic (i.e. it leads to no commercial gain) and not advertisement, GST is not leviable.
Some examples of cases where there would be no taxable supply are as follows:
- “Good wishes from Mr Rajesh” printed underneath a digital blackboard donated by Mr Rajesh to a charitable yoga institution.
- “Donated by Smt Malati Devi in the memory of her father” written on the door or floor of the room or any part of the temple complex which was constructed from such donation.
b. Sponsorship Services are supplied by any person
Sponsorship services can be provided by “any person”. The expression “person” is defined under Section 2(84) of the CGST Act, 2017 in very wide manner and virtually covers all types of entities including individuals. The definition is reproduced as under;-
(84) “person” includes—
(a) an individual; (b) a Hindu Undivided Family; (c) a company; (d) a firm; (e) a Limited Liability Partnership; (f) an association of persons or a body of individuals, whether incorporated or not, in India or outside India; (g) any corporation established by or under any Central Act, State Act or Provincial Act or a Government company as defined in clause (45) of section 2 of the Companies Act, 2013; (h) any body corporate incorporated by or under the laws of a country outside India; (i) a co-operative society registered under any law relating to co-operative societies; (j) a local authority; (k) Central Government or a State Government; (l) society as defined under the Societies Registration Act, 1860; (m) trust; and (n) every artificial juridical person, not falling within any of the above;
c. Sponsorship Services should be supplied to specified recipients located in taxable territory
As per reverse charge notification(s) in order to trigger the requirement of payment of tax under reverse charge mechanism the sponsorship services should have been received by the following recipients located in taxable territory i.e. whole of India.
(a) any body corporate; or
(b) partnership firm.
Accordingly in case any individual or HUF who may be GST registered or not, obtains sponsorship services from any person, RCM will not be applicable and rather in such cases forward charge may apply based upon aggregate turnover and registration status of supplier of such service.
Meaning of body corporate
As per Explanation (b) of the RCM notification(s) “Body Corporate” has the same meaning as assigned to it in clause (11) of section 2 of the Companies Act, 2013.
Based on above definition, the body corporate includes private company, public company, one person company, small company, limited liability partnership , foreign company etc . However it does not include a co-operative society or any other body corporate (not being a company), which the Central Govt may, by notification, specify in this behalf.
LLP to be considered as partnership firm
As per Explanation (e) of the RCM notification(s) a Limited Liability Partnership “LLP” formed and registered under the provisions of LLP Act, 2008 shall also be considered as partnership firm of firm.
d. Sponsorship services should not be exempt from tax
As per Entry No. 53 of the exemption Notification No. 12/2017- Central Tax (Rate) dated 28-06-2017 the following sponsorship services are exempt from GST.
Services by way of sponsorship of sporting events organised –
(a) by a national sports federation, or its affiliated federations, where the participating teams or individuals represent any district, State, zone or Country;
(b) by Association of Indian Universities, Inter-University Sports Board, School Games Federation of India, All India Sports Council for the Deaf, Paralympic Committee of India or Special Olympics Bharat;
(c) by the Central Civil Services Cultural and Sports Board;
(d) as part of national games, by the Indian Olympic Association; or
(e) under the Panchayat Yuva Kreeda Aur Khel Abhiyaan Scheme.
The above entry should be kept in mind while discharging obligations under reverse charge. In case sponsoship service being received falls under any of the above exemptions, the same shall be exempt and accordingly no payment will be required to be made under reverse charge mechanism.
3. Which tax / how much tax is to be paid under reverse charge mechanism
The tax viz CGST + SGST / UTGST or IGST that is required to be paid under reverse charge mechanism on sponsorship services would depend upon as to whether the supply is an inter-State supply of intra-State supply.
As per Section 7 and 8 of the IGST Act, a supply is regarded as inter-State supply wherein the location of supplier as well as place of supply, are in same State / UT. In case these are in different State / UT, same is treated as Inter-State supply.
Location of Supplier of sponsorship service
The supplier of sponsorship service may be registered or not. As per Sec 2(71) of the CGST Act, 2017 the location of supplier would be the location of registered place of business or fixed establishment elsewhere (which is not registered) from where supply is made. Thus the location of supplier of sponsorship service would generally be where the premises / office of such supplier is located.
It may be noted here that the event which has been sponsored may be held in a State other than where the supplier has its office ,but the location of supplier would always be the registered place of business / fixed establishment (not registered) from where supply is made.
Place of Supply of sponsorship Services
Considering the supplier as well as the recipient are located in India, the place of supply of sponsorship services would be the location of the recipient (registered person) as per Section 12(2)(a) of the IGST Act, 2017. The place where the event which was sponsored has been held is not relevant.
In case the supply is inter-State supply, IGST shall be applicable else CGST + SGST / UTGST shall apply, which needs to be paid by recipient under reverse charge mechanism and the gross rate of tax in both cases would be 18%.
Let us understand this with help of following example.
Illustration:
X Ltd a Company registered under GST law in Delhi sponsored an event to be organised by Y Ltd also registered in Delhi. The event is being held in Haryana.
In this case the location of supplier is Delhi (place of business which is registered) and the place of supply is also Delhi viz location of the registered recipient and thus X Ltd will be required to pay CGST + SGST @ 9% a piece i.e. total 18% on the sponsorship services received.
4. When tax under RCM is to be paid on Sponsorship Services
The liability for payment of tax in this case will be determined as per Section 13(3) of the CGST Act, 2017 wherein provisions regarding determination of time of supply of services covered under RCM are mandated.
According to provisions of Section 13(3), the time of supply for purposes of payment of tax under RCM, would be earlier of:
| Date of payment i.e. entry in books of debit in bank account, whichever is earlier OR |
| 61st day from the date of invoice (or any other document) relating to sponsorship services, raised by supplier. |
Illustration:
| Description | Date |
| Date of issue of invoice by supplier of sponsorship services | 07-04-20XX |
| Date of Payment – Case 1 | 10-05-20XX |
| Date of Payment – Case 2 | 10-07-20XX |
The time of supply is computed as under:
Case 1:
Time of supply will be date of payment i.e. 10-05-20XX or 61st day from the date of invoice i.e. 07-06-20XX, whichever is earlier i.e. 10-05-20XX. Accordingly tax in this case would be required to be paid by 20th/22nd/24th of June, 20XX with filing of GSTR-3B in case of normal assessees.
Case 2:
Time of supply will be date of payment i.e. 10-07-20XX or 61st day from the date of invoice i.e. 07-06-20XX, whichever is earlier i.e. 07-06-20XX. Accordingly tax in this case would be required to be paid by 20th/22nd/24th of June, 20XX with filing of GSTR-3B in case of normal assessees.
5. Availing of Input Tax Credit of tax paid under RCM on sponsorship services
Thus input tax credit in respect of tax paid @18% under RCM on sponsorship services can be availed as per Section 16 of the CGST Act, 2017 if such services are obtained for business purposes / taxable supplies.
However it is important to note that if sponsorship services are obtained from an unregistered supplier, a self invoice as mandated under Section 31(3)(f) of the CGST Act,2017 will have be raised by the recipient on receipt of the sponsorship services and input tax credit can only be availed on basis of such an invoice, subject to payment of tax.
6. Concluding remarks
Sponsorship services have been under ambit of reverse charge mechanism since times of Service tax regime. Under GST law, RCM will be applicable on sponsorship service, only of they are received by a body corporate and partnership firm. Further while discharging RCM obligations it should be ensured that such sponsorship services are not exempt, as in such cases the liability to pay tax under RCM also gets extinguished.
Further for purpose of availing ITC, on GST paid under RCM on sponsorship services it should be ensured that self invoice as mandated under section 31(3)(f) of the CGST Act,2017 is issued by the recipient in cases where sponsorship services have been received from unregistered supplier. Further time of supply as discussed should also be taken care of by recipient, in order to make timely payment of tax and avoid levy of any interest.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
