Recent press release by the Hyderabad GST Commissionerate that, Tollywood super star Mahesh Babu has not paid the service tax and so they have “attached” the bank accounts of the star came as a shocker to many. The news was widely reported across media channels. Later Mahesh Babu’s legal team came up with a statement and accused of lapses on part of GST Commissionerate in this case. Who is right and what kind of verdicts are pronounced in similar cases previously. Let’s see.
GST commissionerate’s argument
GST commissionerate gave a press statement as below –
“Sri Mahesh Babu has not paid Service tax during the period 2007-08 for the taxable services provided by him as brand ambassador/ appearance / money/ and advertising for promotion of products etc. The total tax due from him was 18.5 lakhs. Today, the GST department has attached his bank accounts in Axis Bank and ICICI Bank for an amount of 73.5 lakhs which includes Tax, interest and Penalty”.
Mahesh legal team’s response:
Mahesh Babu’s legal team responded on this row and issued a press statement, which says, “The GST Commissionerate Hyderabad has attached the bank accounts for a disputed tax demand of Rs 18.5 lakhs claiming Rs 73.5 lakhs towards Tax interest and penalty for brand ambassador services rendered in FY 2007-08 which was not taxable service.The brand ambassador services was brought in the statute by insertion of section 65(105)(zzzzq) with effect from 1-7-2010. The GST Commissionerate Hyderabad has carried out the attachment without notice when several judicial pronouncements on this issue is in favor of the taxpayer and more so when the dispute is pending before the High Court”
Observations :
Mahesh’s legal team while agreeing his bank accounts are attached , put forward below two questions:
- GST commissionerate attached Mahesh’s bank accounts without proper notices.
- Brand ambassador services do not fall under taxable service until July’2010. So Mahesh need not pay this tax at all
Fact Finding :
Mahesh Babu lost case at Tax Appellate Tribunal in June 2018
Did GST commissionerate really NOT serve notices to Mahesh Babu? To answer this, we need to see the background of the case. If we see the chronology, the case started in 2010 itself. Officials first served notice to Mahesh Babu in 2010 regarding this Tax. But Mahesh Babu challenged and approached the Central Excise Service Tax Appellate Tribunal.
But MAHESH LOST THIS CASE AT TRIBUNAL IN JUNE 2018.
After winning case at tribunal in June’ 2018, GST commissioner has right to recover the amount and so, attaching the bank accounts by them is completely justified.
However, Mahesh moved to High court in September’ 2018
Mahesh Babu filed a petition before the Hyderabad High Court in September 2018. That’s why Mahesh’s legal team is questioning GST team, how can they attach accounts when dispute is pending before the High Court. Mahesh’s team is also saying – “several judicial pronouncements on this issue is in favor of the taxpayer “. Now, what does than mean – does Mahesh have a chance of winning this case in HC?
Cricketer Karn Sharma faced similar case and won
Cricketer Karn Sharma was playing for Royal Challengers Bangalore and he received the fee for playing IPL in the year 2009-10. However , The service tax department took a view that the Karn Sharma was promoting activities of the franchise by wearing franchisee’s official cricket clothing etc.The tax The department said that the services/promotional activities of Karn were covered under the category of ‘Business Support Service’ under Section 65(104c) of Finance Act, 1994 and wanted him to pay the taxes. But court opined that this actually falls under newly defined taxable service under sub clause(zzzzq) of clause (105) of section 65 that came into existence on July1, 2010. So, the court clearly said, brand promotion services were made taxable by 2010 budget and being implemented from 1st July 2010.
Bottomline :
Overall we can say, there is nothing wrong in GST commissionerate attaching Mahesh Babu’s accounts as they did so only after winning case in tax tribunal. Of course Mahesh moved to HC but tax authorities but won’t wait until the verdict. In case HC favors Mahesh, they will have to pay back that amount. Also, it seems Mahesh has chances of winning the case by seeing Karn Sharma’s case but it depends on many other technical factors.
