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Judgment
Dr. Rachna Gupta, Member (J)
The appellant in the present appeal is registered with the Service Tax Department for rendering services as that of “Selling of Space or time slots for Advertisements” and “Security/Detective Agency Services”. Department got an information about appellant to not have discharged its service tax liability properly. Certain documents were called from the appellant by Superintendent Service Tax, Range -1 Division, Dehradun. From the perusal thereof it was observed that the appellant is an operator of individual or multiple cinemas screen at multiple complexes as owner/lessee having ownership/lease hold rights, as the case maybe. With respect to such screens under the brand name of “Silver Cities Cinema”. Thus, the appellant is engaged in providing the services of screening of film supplied by the film distributor. Department relied upon the Board Circular No. 109/03/2009 dated 23.02.2009 wherein it has been clarified that the activity of screening of film supplied by a film distributor would fall under the taxable category either of “Renting of immovable property” or “Business Support Services” depending upon the arrangement between the film distributor and the theatre owner. The Circular applies even to the arrangements being Principle to Principle basis.
Based upon the Agreement executed by the appellant with the distributor, department formed an opinion that the appellant is engaged in providing Renting of Immovable Property Service to the distributors and has received total amount of Rs. 24,29,45,450/- from them as shown in their profit and loss account. Resultantly, vide Show Cause Notice No. 48/2015 dated 09.02.2016, Service Tax amounting to Rs. 1,57,55,155/- alongwith proportionate interest and appropriate penalties is proposed to be recovered from the appellant. The said proposal has confirmed vide Order-In-Original No. 29/2017 dated 23.03.2017 imposing penalty to the extent of 50% of the amount of tax confirmed, however, with an option for it to be reduced to the extent of 25% if paid within 30 days of the receipt of the order. Additional Penalty of Rs. 10,000/- was imposed under Section 77 of the Finance Act, 1994. The appeal against the said order has been allowed by Commissioner (Appeals) vide Order-in-Appeal No. 77/2017-18 dated 27.03.2018 by setting aside the aforesaid order-in-original. Being aggrieved, the Department is before this Tribunal.
We have heard Shri S. K. Meena, Authorized Representative for the Department and Shri Darmesh Srivastava, Chartered Accountant for the Respondent.
Learned Authorized Representative has mentioned that the period of dispute in the impugned show cause notice is pre as well as post negative list which came into effect from 01.07.2012. It is mentioned that for the period prior 01.07.2012, the Board Circular No. 109/03/2009 dated 23.02.2009 and subsequent Circular No. 148/17/2011 dated 13.12.2011, have clarified that the activity of screening of films supplied by the film distributors would fall under the taxable category either of “Renting of Immovable Property” or of “Business Support Service”,however, depending upon the arrangement between the film distributor and the theatre owner. The circular clarifies that even in case of principle to principle arrangement where no copyrights were temporarily transferred, the service tax implication under “Business Support Service” shall be applicable qua the theatre owner. For the post negative list regime, Learned Authorized Representative submitted that the activity is not covered under the negative list mentioned in 66D of the Finance Act, 1994, therefore, it was a taxable service. Hence, the demand of service tax was rightly confirmed by the original adjudicating authority. The Commissioner (Appeals) has failed to take into consideration the said Circulars and also the fact that the activity of screening of film supplied by film distributor undertaken even on Revenue sharing basis with the film distributors would fall under the “Business Support Service” itself.
Therefore, the appellant is liable to pay service tax on the amount of Revenue share retained by them, as a percentage of net “Box Office Collection from sale of tickets”.
Learned Authorized Representative has relied upon the decision of Hon”ble Madras High Court in the case of Ages Entertainment Pvt. Ltd. vs. Union of India 2013 (32) STR 129 (Mad.). With these submissions, the order under challenge is prayed to be set-aside and the appeal of the Department is prayed to be allowed.
While rebutting these submissions, Learned Counsel for the Respondent-Assessee has mentioned that the show cause notice as well as the order-in-original has no discussion about the nature of impugned activity done by the appellant nor there is any mention of reasons of taxability of the appellant”s activity under “Business Support Service”. The show cause notice itself is therefore vague. The findings based thereupon have rightly been set-aside. It is mentioned that the appellant has recorded its revenue from exhibition of film under heading “Sale of Cinema Tickets (Audi Receipts)” and the amount paid to the film distributor has been shown as purchases of traded goods under sub-head “Film Purchases Account”. It is clear to show that the appellant is earning revenue from its audience against activities of exhibition of movies for them in return of a fee which is not subject to service tax. The activity was wrongly alleged as the Business Support Service vide the impugned show cause notice and was wrongly confirmed vide Oder-in-Original dated 23.03.2017. Hence, Commissioner (Appeals) has committed no error while setting-aside those findings.
It is further submitted that the activity of the appellant is otherwise an entertainment event. Sub-clause-J of Section 66D is a specific entry for exempting the activity of the appellant. The same has rightly been considered by the Commissioner (Appeals) to set-aside the confirmation of impugned demand. With these submissions and impressing upon no infirmity in the order-in-appeal under challenge, the Assessee-Respondent has prayed for Revenue”s Appeal to be dismissed.
Having heard the rival submissions and perusing the case records, we opine that the following clause of the agreement executed between the appellant and its distributor is relevant:-
“Term 5 provides as under-
The exhibitor shall retain the distributor's share in trust and after adjustment of the refundable advance or non-refundable minimum guarantee, pay the distributor's share that may accrue to the distributor within ten (10) days of completion of every week to which it pertains, whether or not the bill pertaining to the exhibition is received by the exhibitor, failing which the exhibitor shall pay the distributor's share along with interest at the rate of 18% p.a. computed on thedelayed payment commencing from the stipulated date of payment till the actual date of payment or realization. It is further agreed that the provision of interest shall not mean or entitle the exhibitor to detain the due amount of distributor's share. However, in the event of default by the Exhibitor in payment, the Distributor shall be entitled to recover all dues including (principal amount and interest) through the association of the concerned circuit. Payment is essence of the agreement.'
Agreement for the year 2012-13 with M/s UTV Software Communications Limited provides as under-'1-The distributor hereby grants the license to exhibit the theatrical exhibition rights of the film till the end of the first run of the film in the licensed theatre(s) only at the Location (and not outside) as mentioned above or as per details in Annexure-1, only in relation to the above mentioned Film. No other rights whatsoever shall be deemed to be licensed hereunder. Runs of the film shall commence from the first run the exhibitor commences the exhibition of the film till the end of the first run which shall be continuous.
The distributor's share in mentioned in Column 2 in the first para of the agreement which is generally a percentage of the NBOC (Net Box Office Collection).”
The bare perusal, makes it clear that there is no service as such which has been provided by the appellant to the distributors. The appellant has agreed for exhibiting the distributor”s film without any interference of the said distributors. The distributors had actually granted licence to exhibit the theatrical exihibition rights of the film in the lincesed theatre.
As far as the time and number of shows are concerned, the distributor has agreed for getting share in the Revenue collected from the sale of the tickets that to within 10 days of completion of every week to which it pertains. The agreement clarifies that it is the transfer of copyright by the distributor in favour of the appellant to the exclusion of all including the owner of the said copyright.
The issue is otherwise no more res-integra. Following decisions have clarified that Revenue sharing arrangement in itself does not necessarily imply provision of service, unless service provider and service recipient relationship is established.
• Mormugao Port Trust v. Commissioner of Customs, Central Excise & Service Tax, Goa-(Vice-Versa) B [2016 (11) TMI 520-CESTAT Mumbai 2017 (48) ST.R. 69 (Tri. - Mum.)]:
• M/s Old World Hospitality Limited v. CST, New Delhi (2017 (2) TMI 1176-CESTAT New Delhi 2017 (3) G.STL 178 (Tri. - Del.)]; and
• Delhi International Airport P. Ltd. v. Union of India & Ors. [W.P. (C) 2516/2008 & C.M. No. 15832/2011, dated 14-2-2017] [2017 50) S.T.R. 275 (Del.);
As already discussed above, there is otherwise nothing on record to establish the said relationship.
Further, we observe that this Tribunal in the case of Inox Leisure Ltd. vs. Commissioner of Service Tax, Hyderabad 2022 (60) GSTL 326 (Tri.-Hyd.) has held as follows:-
“11. It would be seen from the agreement that the SPE Films is a producer/distributor engaged in the business of production and distribution of films, while the appellant is an exhibitor engaged in the business of exhibition of films and owns/operates a chain of multiplex theatres under the brand name "Inox". The exhibitor decides which screens would play the motion picture, the numbers of shows, the show timings and the ticket pricing including the right to decide on a week to week basis, whether or not to continue to exhibit the motion picture. The distributor/producer had granted the exhibitor the non- exclusive license to exploit the theatrical rights of a motion picture and each party was entitled to conduct its business in its absolute and sole discretion. It was further made clear in the Agreement that either of the party shall not interfere or otherwise absolute influence any decision of the other party in respect of the conduct of its business.
Such an arrangement between a distributor/producer and an exhibitor of films was examined by a Division Bench of the Tribunal in Moti Talkies. The Department alleged that the agreement was for 'renting of immovable property as defined under Section 65(90a) of the Finance Act. This contention was not accepted by the Tribunal and it was observed that the appellant did not provide any service to the distributors nor the distributors made any payments to the appellant as consideration for the alleged service. In fact, it was the appellant who had paid money to the distributors for the screening the rights conferred upon the appellant. The observations of the Bench are as follows:
"11. It is more than apparent from a bare perusal of the aforesaid agreements that they have been entered into between the appellant as an exhibitor and the distributors for screening of the films on the terms and conditions mentioned therein. The payments contemplated under the terms and conditions either require the exhibitor to pay a fixed amount or a certain percentage, subject to minimum exhibitor share or theatre share of effective shows in a week.
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It is very difficult to even visualise that the appellant is providing any service to the distributor by renting of immovable property or even any other service in relation to such renting. The agreements that have been executed between the appellant and the distributors confer rights upon the appellant to screen the film for which the appellant is making payment to the distributors. The distributors are not making any payment to the appellant. Thus, no consideration flows from the distributors to the appellant for the alleged service.
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It is not possible to accept the reasonings given by the Commissioner (Appeals) for confirming the demand of service tax under "renting of immovable property for the simple reason that the appellant has not provided any service to the distributors nor the distributors have made any payment to the appellant as consideration for the alleged service. In fact, the appellant who has paid money to the distributors for the screening rights conferred upon the appellant. The Commissioner (Appeals) completely misread the agreements entered into between the appellant as an exhibitor of the films and the distributors to arrive at a conclusion that the appellant was providing the service of "renting of immovable property."
(Emphasis supplied)
Similar views were expressed by Division Benches of the Tribunal in The Asian Art Printers, Shri Vinay Kumar,Ms Golcha Properties and Satyam Cineplexes Ltd.
What also needs to be noticed is that if the appellant was providing such a service, it would be the producers/distributors who would be making payments to the appellant, but what comes out from a perusal of clause 5.1 of the Agreement is that in consideration for the distributor agreeing to grant to the appellant the license to exploit the theatrical rights of a motion picture, the appellant would have to pay such revenue share to the distributor as provided for in the said clause. In fact, clause 3.1 of the Agreement provides that distributor agreed to grant to the Appellant the non-exclusive license to exploitthe theatrical rights of a motion picture during the term.
This issue had come up for consideration before a Division Bench of the Tribunal in PVS Multiplex India. The Bench observed that as the appellant was screening films on revenue sharing basis, the appellant was not liable to pay service tax on the payments made to the distributors for screening the films.
“7. Having considered contentions and on the facts on record, we are satisfied that there is no dispute of fact that the appellant have been screening films in their multiplex on Revenue Sharing basis, which is undisputed finding recorded by the Ld. Commissioner in the impugned order. Accordingly, we hold that the appellant is not liable to pay service tax for screening of Films and payments to distributors in their theatre.”
Similar are the facts of the present case, resultantly we are of the opinion that the decision of Ages Entertainment Pvt. Ltd. (supra) as relied upon by the appellant is not applicable to the given set of facts and circumstances.
Resultantly, we do not find any reason to differ with the findings arrived at in the Order-in-Appeal, the same is accordingly upheld.
Consequent thereto, the Department”s Appeal is dismissed.