The Truth Beneath the Glitter - Decoding Sponsorship Services Under GST

Introduction

Sponsorship - a glamorous term that often appears more dazzling than it truly is when viewed through the GST perspective. In this clever yet profoundly insightful discussion, CA Raj Jaggi and his team strip away the shine to uncover the real essence of Sponsorship Services under GST.

With humour, practical wisdom, and over two decades of experience in indirect taxation, Raj unpacks how brand promotion differs from event logistics, how the 2025 RCM-FCM amendment changes the compliance map, and why misclassification of venue rentals as sponsorship can invite Section 74A proceedings.

More than a technical discussion, this piece is a reality check - reminding professionals that while agreements may glitter, only substance determines taxability.

Scene:

A bright Monday morning. The aroma of coffee blends with the buzz of compliance. Three colleagues - CA Amit, CA Pooja, and CA Rohit - are huddled over a client file.Enter CA Raj Jaggi, smiling, calm, and ready to simplify another complex GST puzzle.

CA Amit:

Raj, we've got a tricky case. Our client, M/s XYZ Ltd., organises corporate events. They've signed a "Sponsorship Agreement" with ABC Ltd. - covering everything from event setup to venue booking. They say the whole thing is "sponsorship" and taxable. Is that valid?

CA Raj Jaggi (smiling): Ah, Sponsorship! The most glittering word in GST these days. Everyone wants to hide under its shine. But remember - not all that glitters is sponsorship!

Let's decode this carefully. What's the real essence of sponsorship?

CA Pooja: Someone provides financial support for an event and gets publicity, such as a logo on banners or stage displays.

CA Raj Jaggi: Exactly! Sponsorship is a commercial promotion arrangement - a sponsor pays to promote its brand, not to manage logistics or rent a venue.So, sponsorship is purely about visibility, association, and brand recall - or in simple words, naam bhi aaye, kaam bhi aaye!

Further, GST borrowed much of its DNA from the Service Tax regime, and that's where we find clarity.

Under Section 65(99a) of the Finance Act, 1994,

"Sponsorship service means providing sponsorship, in relation to such sports events or any other event, in return for displaying the name or logo of the sponsor or for promoting the sponsor's brand."

And as per CBEC Circular No. 334/1/2007-TRU (28.02.2007):

"Mere organisation of events, renting of premises, or facilitation services do not amount to sponsorship."

So, the law has always been clear - sponsorship is about brand promotion, not logistics.

CA Raj Jaggi (pulling out a paper): Look, here's how I explain it in seminars -

So, even if these services support an event, they can never be classified as "sponsorship." Each stands on its own taxable footing.

A Real-Life Twist - The Multi-State Dilemma

CA Amit: Raj, what if the event is in one State but the client and supplier are in others?

CA Raj Jaggi (leaning forward): Good question, Amit! Let's take a practical example.

Suppose your client,ABC Ltd. (the service recipient), is registered in Delhi,The venue supplier is based in Haryana, the event will be held in Punjab.

Now here's the key -If the venue supplier in Punjab's taxable turnover exceeds ₹20 lakh, he must obtain registration in Punjab.If it's a one-time event, he must register as a Casual Taxable Person under Section 27 of the CGST Act, 2017. Once registered, he will issue an invoice charging CGST + Punjab SGST on the agreed rent.

And here's the catch -The service recipient in Delhi cannot avail of the ITC of Punjab GST, since the credit of State tax is confined to that State.

Top of Form

CA Pooja: So, if it's a business expense for the Delhi entity, do they lose the credit?

CA Raj Jaggi: Exactly! That's where reality bites.And now imagine the temptation - both supplier and recipient might "repackage" the whole arrangement as sponsorship services to shift tax liability and avoid State registration.But this collusive structuring is risky and legally indefensible.

Because think of it - if the Department examines the matter, the first question will be:

"How did the service recipient conduct an event in Punjab without separately availing venue services?"That alone exposes the entire arrangement.

Raj Jaggi's Warning: Don't Play Hide-and-Seek with Classifications

CA Raj Jaggi: You see, the biggest mistake taxpayers make is chasing convenience over compliance.Sponsorship and venue booking are like chalk and cheese - both white, but not the same!

The Substance-over-Form Principle

"A rose called by any other name smells as sweet,But in taxation, if you call a cactus a rose, it still pricks."

CA Amit (seriously): Raj Ji, suppose ABC Ltd. and XYZ Ltd. go ahead with this arrangement and bill everything as "Sponsorship Services." What exactly would the Department do in such a case?

CA Raj Jaggi (smiling, but with a knowing tone): Ah, the Department may not be as amused as we are! They're likely to raise three pointed questions - straight and sharp:

1."How did ABC Ltd. manage events at different locations without utilising any venue-related services?"

2."Did ABC Ltd. and XYZ Ltd. misclassify or conceal some of the supplies to dodge GST on venue rentals?"

3. "Is part of the payment actually for 'Renting of Immovable Property Services'?"

If they conclude that misclassification or suppression occurred, they can easily reclassify the transaction and initiate demand and recovery proceedings under Section 74A of the CGST Act.

CA Rohit (scribbling notes): So even a cleverly drafted "sponsorship agreement" won't really fool the Department for long?

CA Raj Jaggi (grinning): Exactly, Rohit! GST officers are like seasoned auditors - they look beyond the invoice title to the transaction's soul. If the soul says "renting", calling it "sponsorship" won't help!

CA Pooja (leaning forward): Raj, you mentioned Section 74A. Can you explain what exactly happens if the Department invokes it?

CA Raj Jaggi (nodding): Sure, Pooja. Section 74A - which came into force from 1 November 2024 - is the new one-stop provision for determination, demand, and recovery of tax in cases of fraud, wilful misstatement, or suppression of facts.

If such an arrangement between ABC Ltd. and XYZ Ltd. is investigated, here's how exposure could unfold:

CA Amit: That's quite serious. And all this to avoid registration or split invoicing?

CA Raj Jaggi: Yes, Amit - and the irony is that the penalty itself often exceeds the so-called "savings."Remember, GST compliance may look tedious, but non-compliance is always more expensive.

CA Pooja: Raj Sir. Since XYZ Ltd. is the supplier in this case, could ABC Ltd., as the event organiser and recipient, also be exposed to risk?

CA Raj Jaggi (with emphasis):

Of course, Pooja - and that's where many recipients go wrong.Even if ABC Ltd. is not directly issuing the invoices, it's still the organiser and beneficiary of the entire arrangement.If it silently accepts a single composite invoice labelled "Sponsorship Services," the Department may well say -

"You knew what was happening and you chose not to disclose."

That opens the door to scrutiny for:

• Non-recording of venue-related inward supplies, and
• Possible abetment in misclassification under Section 122 of the CGST Act.

CA Rohit: So, even silence can be treated as complicity?

CA Raj Jaggi highlights that under GST, claiming ignorance isn't an acceptable excuse and can result in penalties. He cautions that if ABC Ltd. does not distinctly separate and disclose costs related to the venue, it might be accused of incomplete reporting during audits or investigations. Moreover, such misreporting affects compliance and causes Punjab to lose its rightful GST revenue from venue rentals. Hence, this malpractice is both procedural and unjust to the State that benefits from the venue.

CA Amit (reflectively): That's a powerful point, Raj Ji. So, apart from the legal consequences, it's also a matter of fiscal ethics - ensuring the right State gets its rightful revenue.

CA Raj Jaggi (smiling): Exactly, Amit. GST is built on fairness - the tax follows the destination of supply.If we start bending it for convenience, we weaken the very foundation of the system.

CA Pooja: Raj, you mentioned a significant change from 16 January 2025. Can you clarify what exactly has changed in the GST treatment of sponsorship services?

CA Raj Jaggi:

Certainly, Pooja. Until 15 January 2025, GST on sponsorship services provided to a body corporate or a partnership was payable by the recipient under the Reverse Charge Mechanism (RCM), as per Notification No. 13/2017-CT (Rate) dated 28.06.2017. However, starting from 16 January 2025, the government amended this through Notification No. 01/2025-CT (Rate) issued on 16.01.2025. Now, when sponsorship services are offered to a body corporate, the supplier is responsible for paying GST under the Forward Charge Mechanism (FCM). In such cases, the responsibility for paying tax has shifted from the recipient to the supplier.

CA Amit: That's a significant change! Can you summarise the position for different types of sponsors?

CA Raj Jaggi: Of course. Here's the updated picture ata glance:

GST Position on Sponsorship Services (Post-Amendment effective 16 January 2025)

CA Raj Jaggi (adding): So, if you're providing sponsorship to a body corporate, you must raise a tax invoice charging GST and pay it yourself.But if your sponsor is a partnership firm or an LLP, the invoice should clearly state: "Tax Payable under Reverse Charge Mechanism."

This simple change has far-reaching compliance implications - it affects billing, liability recognition, and even credit flow between the parties.

Raj Jaggi's Closing Summary

• Misclassification can trigger Section 74A - tax, interest & 100% penalty.
• Both supplier and recipient can face scrutiny.
• Silence = complicity when invoices hide venue charges.
• Collusion deprives the event State of its GST share.
• Substance always prevails over the glitter of form.

Final Reflection by CA Raj Jaggi

"After more than two decades of walking through the maze of indirect taxation, I've realised one simple truth - the law may change, the logic may twist, but the substance always stays constant.

In GST, what glitters on the surface - big words, fancy agreements, clever drafting - often fades when exposed to the substance's light. Because taxation isn't about how elegantly a clause is written. worded; it's about what the transaction truly conveys.When sponsorship hides venue rent, when convenience overshadows compliance, or when glitter blinds the ground truth, the law steps in, quietly but firmly, to restore balance.So, let's never chase the shine of shortcuts. Let's stand by the truth beneath the glitter - the substance that sustains both compliance and conscience."