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Judgment
R. Banumathi, J.—In these writ petitions, the petitioners, who are all producers or Distributors/sub-distributors/ exhibitors of movie,
challenge the Circular No. 148/17/2011-ST dated 13.12.2011 bearing F. No. 354/27/2011-TRU as illegal and unconstitutional and seek for
issuance of directions to respondents 1 to 3 not to give effect to Circular No. 148/17/2011-ST dated 13.12.2011 issued by the Central Board of
Excise and Customs, Tax Research Unit, New Delhi, which was issued for the purpose of collecting service tax from film distributors/sub-
distributors/theatre owners and seek for a direction not to give effect to the said circular. When service tax was levied on ""intellectual property
services"" with effect from 10.9.2004, copyright was specifically excluded from the definition of intellectual property rights. Normally, a producer of
a movie sells the rights showing the movies in a region to a distributor. The distributor in turn enters into agreement with subscribers/theatre owners
and this agreement can be of different types. By Circular No. 109/03/2009 of Central Board of Excise and Customs bearing F. No.
137/186/2007-CX.4 dated 23.2.2009, it was clarified that the screening of a movie is not a taxable service except that the distributor leases out
the theatre and the theatre owner gets a fixed rent. In such case, the service provided by the theatre owner would be categorised as renting of
immovable property for furtherance of business or commerce and the theatre owner would be liable to pay service tax on the rent received from
the distributor. Insofar as revenue sharing arrangement, the Circular clarified that in such type of arrangement, the two contracting parties act on
principal to principal basis and one does not provide service to another and in such arrangements, the activities are not covered under the service
tax.
With effect from 1.7.2010, business of ""licensing of copyrights"" was brought within the service tax net by making amendments to the definition of
taxable service under Clause (105) of Section 65 by introducing sub-clause (zzzzt). As per Section 65(105) sub-clause (zzzzt), service tax is
leviable on any temporary transfer of copyright or permitting the use or enjoyment of the copyright excepting rights covered under sub-clause (a) of
clause (1) of Section 13.
In Section 65, Clause (104c) of the Finance Act by the Finance Act, 2011, for the words operational assistance for marketing, the words
operational or administrative assistance in any manner were substituted in Clause (104c) of Section 64.
Considering the taxing entry for ""copyright services"" introduced vide Section 65(105)(zzzzt) and also the amendment in Section 65(104c),
Circular No. 148/17/2011-ST dated 13.12.2011 was issued u/s 83 of the Finance Act read with Section 37B of the Central Excise Act issuing
clarification regarding the levy of service tax on distributors/sub-distributors of films and exhibitors of movie. In the said Circular, it was pointed out
that the earlier Circular No. 109/03/2009 dated 23.2.2009 has been misinterpreted to exclude all revenue sharing arrangements from the levy of
service tax. The Circular clarified:
(i) service tax is payable on copyright services when the copyrights are temporarily transferred.
(ii) When movie is being exhibited on behalf of distributor or sub-distributor or area distributor and no copyrights are temporarily transferred,
service tax is payable under Business Support Service/Renting of immovable property, as the case may be.
Arrangement under incorporated partnership/joint/collaboration basis, service provided by each of the person i.e., a new entity/ Theatre owner or
exhibitor/distributor or sub-distributor or area distributor, as the case may be, is liable to service tax under applicable service head.
In these writ petitions, the impugned circular is challenged as ultra vires the Constitution and the statute contending that the circular amounts to
back door legislation and is liable to be struck down. Case of petitioners is that the impugned Circular seeks to overreach the provisions of the Act
for the purpose of levy of sales tax on revenue sharing arrangements entered into by the petitioner and is in patent contravention of Article 265 of
the Constitution in terms of which no tax ought to be levied or collected without the authority of the law. Under the guise of clarifying the scope of
levy of service tax on distributor/ sub-distributor of films and exhibitors of movie, the impugned Circular seeks to introduce the deeming fiction of a
new entity, which supposedly emerges in the case of ""revenue sharing arrangement"" and the concept of such new entry coming into being as a
result of revenue sharing arrangement is not provided for in the Act and the impugned Circular is a clear attempt to lay down a new law. According
to the petitioners, in the revenue sharing, they are already paying entertainment tax at 30% and if any service tax is levied on the share of profits out
of collection from the tickets the same cannot be passed on to the actual user of the theatre since the ticket prices cannot be increased in view of
the ceiling fixed by the State Government. The impugned Circular is without authority of law and is liable to be struck down.
Resisting the Writ Petitions, respondents filed counter stating that the impugned Circular was issued u/s 83 of the Finance Act, 1994 read with
Section 37B of the Central Excise Act. According to the respondents, as per Section 83, certain provisions of the Central Excise Act, 1944 have
been made applicable to the Finance Act and Section 37B of the Central Excise Act is one such provision, which has been made applicable to the
Finance Act and Section 37B enables the 3rd respondent to issue instructions/clarifications to ensure uniformity in levy of service tax. According to
the respondents, owing to the changes in the law and also the representations received seeking clarification on taxability of consideration earned by
distributors/sub-distributors/area distributors in the form of ""revenue sharing"", the Circular dated 13.12.2011 came to be issued and it is only a
clarification in respect of the transactions for levy of service tax and the apprehension expressed by the petitioners is misplaced.
Learned Senior Counsel Mr. P.S. Raman appearing on behalf of the petitioners has raised the following contentions:-
The impugned Circular No. 148/17/2011-ST dated 13.12.2011 in the garb of clarifying the scope of levy of ""service tax on distributors/sub-
distributors of films and exhibitors thereof"", sought to introduce a deeming (legal) fiction of a new entity and the concept of such a new entity
coming into being as a result of revenue sharing arrangement is not provided for in the Act and the impugned Circular is a clear attempt to lay down
a law.
In so far as the concept of joint venture, the impugned Circular refers to New Horizons Limited and Another Vs. Union of India (UOI) and
Others, and the decision in New Horizon case has been re-considered by the Supreme court of India in Faqir Chand Gulati Vs. Uppal Agencies
Pvt. Ltd. and Another, and the impugned Circular is contrary to law laid down by the Supreme Court. The impugned Circular is violative of
proviso to Section 37B of the Central Excise Act as made applicable to Service Tax matters vide Section 83 of the Act. There is complete revamp
of the Service tax regime under which all services will be liable to tax except those which are specifically mentioned in the Negative List and
exemption Notification. In the light of the Negative List, which came in force with effect from 1.7.2012 - Section 66(D)(j) and also the exemption
Notification No. 25/2012 S.T dated 20.6.2012 and also the Notification No. 3/2013- S.T dated 1.3.2013, the impugned Circular is rendered
otiose.
We have heard learned counsel Mr. Vaitheeswaran appearing for some of the writ petitioners. Reiterating the above submissions, learned
counsel Mr. Vaitheeswaran submitted that the 1st respondent travelled beyond the powers of Section 37B and the Circular is more in the nature of
amendment, which was never in contemplation of the Parliament. The learned counsel submitted that by the Circular, new field of taxation is sought
to be brought in and if the Parliament wanted to expand to scope of the activities, the Parliament could have brought out legislation to that effect
and the Circular is a back door entry to levy the tax in the new field.
Taking us through the Circulars, Mr. Sundareswaran, learned counsel for respondents submitted that the Circular is not beyond the scope of
Section 37B of Central Excise Act and owing to the changes in the Law, the circular came to be issued. The learned counsel further submitted that
keeping in view three categories of services, which are taxable, the impugned Circular was issued to ensure uniformity in the levy of service tax.
The learned counsel also submitted that without challenging the vires of taxable copyright services u/s 65(105)(zzzzt) and also Section 65(104c)
the writ petitioners cannot seek for quashing the Circular.
We are to consider whether the impugned Circular seeks to bring in a new field of taxation and whether the impugned circular is beyond the
powers of the Board u/s 37B of Central Excise Act.
In terms of Section 83 of the Finance Act, certain provisions of the Central Excise Act including Section 37B are made applicable to the
provisions of the Finance Act. It has not been disputed before us that the impugned circular has been issued in exercise of the powers conferred
u/s 37B of the Central Excise Act. Section 37B enables the Board to issue directions for the purpose of uniformity in two matters viz.,
(i) classification of excisable goods;
and
(ii) with respect to levy of excise duty on such cases.
The section makes it mandatory for all officers to follow such orders, instructions and directions of the Board. The proviso to the section prohibits
the issuance of orders, instructions and directions which require the Central Excise Officer to make a particular assessment or dispose of a
particular case in a particular manner. The Supreme Court has categorically held that a Circular issued by the Board has to be for giving effect to
the provisions of the Act and not in derogation thereof.
Let us examine (i) whether the impugned Circular was in derogation of the Finance Act; and (ii) whether the Circular requires the Officers to
make a particular assessment or dispose of a particular case in a particular manner.
Copyright service was not taxable in 2009. As per Section 65(104c), prior to amendment (with effect from 1.5.2011), support services of
business or commerce was the services provided in relation to business or commerce and includes... operational assistance for marketing, etc.,.
Service tax leviable on movie theatres were of two categories. (i) Service tax payable on renting of immovable property [Section 65(105) (zzzz)]
and (ii) support services of business or commerce.[Section 65(104c)]
In 2009, a query had been raised by the field formation as to whether the activity of screening of film supplied by a film distributor would fall
under any of the taxable services and accordingly, whether the theatre owners are required to pay service tax on amount received by them from
distributors. In the light of the queries raised, Circular No. 109/03/2009 dated 23.2.2009 was issued clarifying the levy of service tax, where
theatre owner provides taxable service of renting of immovable property for furtherance of business of commerce and accordingly liable to pay
service tax u/s 65(105)(zzzz) . Insofar as revenue sharing arrangement between the distributor and the theatre owner, the Circular stated that in
such type of arrangements two contracting parties act on principal to principal basis and one does not provide service to another. Hence, in such
arrangement the activities are not covered under service tax. The said Circular No. 109/03/2009 dated 23.2.2009 reads as under:
The matter has been examined. Normally a producer of a movie sells the rights of showing the movies in a region to a distributor. The distributor
in turns enters into agreement with theater owners. This agreement can be of different types. Thus it is necessary to examine different types of
arrangements under which a movie is screened, in order to determine whether any tax liability arises on the activities undertaken by a theater owner
and a distributor. Typical types of arrangements normally entered into between a theater owner and a distributor are as under:-
2.1. Under one type of arrangement, the distributor leases out the hall for screening of the movie. Here, the theater owner gets a fixed rent from the
distributor. The profit or loss from exhibiting the film is borne by the distributor. In such a case, the theatre owner provides the taxable service of
Renting of immovable property for furtherance of business or commerce and is accordingly liable to pay service tax.
2.2. Another type of arrangement is where the contract between the theatre owner and the distributor is on revenue sharing basis i.e. a fixed and
pre-determined portion i.e. percentage of revenue earned from selling the tickets goes to the theater owner and the balance goes to the distributor.
In this case, the two contracting parties act on principal-to-principal basis and one does not provide service to another. Hence, in such an
arrangement the activities are not covered under service tax.
2.3. In yet another type of arrangement, the theater owner buys the print/CD of the film on payment of a fixed price and thereafter screens it in his
theater. This transaction is also not subject to service tax being in the nature of sale of goods.
2.4. The arrangement most commonly entered into between a theater owner and a distributor is that the theater owner screens the movie for fixed
number of days under a contract. The proceeds earned through sale of tickets go to the distributor but the theatre owner receives a fixed sum
depending upon the number of days of screening. In this arrangement, the advertisement and display of posters etc. is done by the distributor.
Under this arrangement, the fixed amount contracted is given to the theater owner by the distributor irrespective of the fact whether the movie runs
well or not. However, there is no rental arrangement between the theater owner and the distributor as in the arrangement at paragraph 2.1 above.
A view has been expressed that in this arrangement, the theater owner provides Business Support Service to the distributor and hence is liable to
pay service tax on the fixed amount received by the theater owner.
2.5. The matter has been examined. By definition Business Support Service is a generic service of providing support to the business or commerce
of the service receiver. In other words the principal activity is to be undertaken by the client while assistance or support is provided by the taxable
service provider. In the instant case the theatre owner screens/exhibits a movie that has been provided by the distributor. Such an exhibition is not
a support or assistance activity but is an activity on its own accord. That being the case such an activity cannot fall under Business Support
Service''.
In the light of above, it is clarified that screening of a movie is not a taxable service except where the distributor leases out the theater and the
theater owner get a fixed rent. In such case, the service provided by the theater owner would be categorized as Renting of immovable property for
furtherance of business or commerce and the theater owner would be liable to pay tax on the rent received from the distributor. The facts of each
case and the terms of contract must be examined before a view is taken.
Circular dated 23.02.2009 stated that service tax is payable on ""renting of immovable property"". In the Circular, it was clarified that definition
business support service"" is generic - providing support to the ''business or commerce'' of the service-receiver. It was felt that screening/exhibition
of a movie in a theatre is not support or assistance activity, but is an activity on their own accord and such an activity cannot fall under ""business
support service"".
With effect from 1.7.2010, Business of licensing of copyrights was brought within the service tax net by making amendment to the definition of
taxable service under Clause (105) of Section 65 by introduction (zzzzt). Section 65(105) (zzzzt) defines taxable service as under:
Taxable service"" means any service provided or to be provided to any person, by any other person, for -
(a) transferring temporarily; or
(b) permitting the use or enjoyment of,
any copyright defined in the Copyright Act, 1957, except the rights covered under sub-clause (a) of clause (1) of Section 13 of the said act.
Thus, the first category of copyright i.e., original literary, dramatic, musical and artistic works are out of the service tax.
With effect from 1.5.2011, Section 65(104c) was also amended and the words operational assistance for marketing was substituted by
operational or administrative assistance in any manner. Section 65(104c)(104c) reads as under:-support services of business or commerce means
services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase
orders and fulfillment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship
management services, accounting and processing of transactions, [Operational or administrative assistance in any manner]*, formulation of
customer service and pricing policies, infrastructural support services and other transaction processing.
Explanation. For the purposes of this clause, the expression infrastructural support services includes providing office along with office utilities,
lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and security.
The word includes finds a place not only in the Section, but also in the Explanation, which we would elaborate later.
In the light of the amendments bringing in temporary transfer of copyright within the service tax net, the National Association of Motion
Pictures Exhibitors, New Delhi submitted a letter to the CBEC seeking clarification, stating that the revenue sharing transaction between the
distributor and the exhibitor is not transfer or permitting to use copyright in favour of cinema owner, however, many distributors have been writing
to cinema theatre owners that they will collect service tax on the share received by the distributors from the ticket sales, which according to them,
was wrong. Therefore, the association requested a clarification so that the service tax is collected by the right assesses.
In reply to the request made by the association, the Tax Research Unit (TRU) by clarification dated 28.04.2011 informed the association by
referring to the circular dated 26.02.2010, which stated that both recording of cinematographic film and the accompanied sound track are the
property of the producer, who can temporarily transfer it or permit its use by another person for a consideration and this activity is being taxed
under the service and it would have an impact on royalty payments when producer/ right-holder allows such use to another person say the
distributor.
The clarification dated 28.04.2011, stated that what was taxed under the new levy was temporary transfer or permission to use the
cinematographic film and the accompanying sound track, since the members of the association of exhibitors are not purchasing the rights from the
producer, they will not be covered under the said levy. However for any different arrangement other than those mentioned in the letter of the
association, may be covered under any other service classified u/s 65(105) of the Finance Act as amended.
Therefore, the clarification dated 28.04.2011, made it clear that the exhibitors who do not purchase rights from the producer will not be
subjected to service tax under the head ''copyright service''. Any other different arrangement was not kept out of the purview of the service tax net
and it was clarified that they may be covered under any other service. The impugned clarification thus revolves around the question relating to the
levy of service tax on distributors/sub-distributors of films and exhibitors of movie.
Owing to the amendment (w.e.f. 1.7.2010) bringing in the temporary transfer of copyright within the service tax net, by inserting Section
65(105)(zzzzt) and also the amendment in Section 65(104c) - ""Support Services of business commerce"", the impugned Circular No.
148/17/2011-ST dated 13.12.2011 came to be issued. In the light of the changes made in the law, there were three activities attracting levy of
service tax. (i) exhibiting movie by hiring cinema theatre for which service tax is leviable u/s 65(105)(zzzz) - renting of immovable property (ii)
Business Support Services, as amended by Section 65(104c); (iii) on the temporary transfer of copyrights or permitting or use or enjoyment of the
Copyrights (Section 65(105)(zzzzt). Representations were received requesting clarification on taxability of consideration earned by the
distributors/sub-distributors/area distributors of Indian & Foreign films in the form of ''revenue share'' from the exhibitors of the movie, and on
revenue retained as percentage by the exhibitors of the movie from the sale of tickets have been received from certain sections of service
providers.
The Circular No. 148/17/2011-ST dated 13.12.2011 clarifies levy of service tax on distributors/sub- distributors of films and exhibitors of
movie. The Circular reads as under:
These representations have been examined. Subsequent to issuance of CBEC Circular No. 109/03/2009 dated 23.02.2009 significant changes
in the law have taken place. Temporary transfer or permitting the use or enjoyment of, any copyright defined in the Copyright Act, 1957 (14 of
1957), except the rights covered under sub-clause (a) of clause (1) of Section 13 of the said Act were made taxable w.e.f. 01.07.2010 under the
sub-clause (zzzzt) of Sec 65(105) by the Finance Act of 2010. Also, for the words operational assistance for marketing, the words operational or
administrative assistance in any manner were substituted in the clause (104c) of Sec 64 of the Act by the Finance Act, 2011, w.e.f. 01.05.2011.
The normal business practice in the industry is that the producer of the film, who owns the intellectual property rights of the film, temporarily
transfers the rights to a person [normally distributor or any other person] who directly or indirectly enters into an agreement with the exhibitor
[normally theater owner] for screening of the film. There are also other variant modes of transaction in the industry.
In cases where distributor transfers the rights to sub-distributor, area distributor, exhibitor or theatre owner, the distributor is liable to collect the
service tax under copyright service & deposit it with the government exchequer. Similarly when the sub-distributor or area distributor etc further
transfers the rights to any person, he is also liable to collect the service tax under copyright service & deposit it with the government exchequer.
In cases where no such copyrights are transferred by the distributor or sub-distributor or area distributor to the exhibitor or theatre owner, the
same is not chargeable to service tax under Copyright Services. However the business transaction needs to be examined for leviability of service
tax under other heads. Depending upon the arrangement whether the theatre owner has merely let out its premises to the distributor or is also
involved in giving support services for the business of the distributor, there can be a case of leviability of service tax on the remuneration retained
by such theatre owner under Business Support service or Renting of Immovable Property. The definition of Business Support service has been
amended in Budget 2011 to include operational or administrative assistance in any manner in its definition.
It is being represented that in certain situation the distributor and the theatre owner conduct business together and hence no service tax is
leviable. Arrangement amongst two or more entities can either be on principal-to-principal basis or on partnership/joint/collaboration basis. In the
former, the constituent members are independent of each other and do not share any risk/revenue/profit/loss/liability of the other while in latter the
constituent members join hands for mutuality of interest and share common risk/profit together.
7 to 9...
To sum-up the above, the arrangements entered into by the distributor or sub-distributor or area distributor etc and the exhibitor or theatre
owner etc in exhibiting the film produced by the producer, the original copyright holder, the arrangements and their respective service tax
classification is tabulated as under:
It is understood that the Circular dated 23.02.2009 has been misinterpreted to exclude all revenue sharing arrangements from the levy of
service tax. Remuneration or payment arrangements on basis of fixed or revenue sharing or profit sharing or hybrid versions of these may exist.
However, the nature of transaction determines the leviability of service tax. Each case may be looked into on its merits and decision be taken on
case to case basis...
In terms of Section 83 of the Finance Act certain provisions of the Central Excise Act including Section 37B are made applicable to the
provisions of the Finance Act. It has not been disputed before us that the impugned circular has been issued in exercise of the power conferred u/s
37B of the Central Excise Act. The petitioners contend that the impugned circular is violative of the proviso to Section 37B of the Central Excise
Act, which provides that no orders, instructions, and directions shall be issued so as to require any Central Excise Officer to make a particular
assessment or to dispose of a particular case in a particular manner or so as to interfere with the discretion of the appellate authority.
We have to now examine as to whether the impugned circular is beyond the powers conferred u/s 37B of the Central Excise Act and
therefore, illegal. The contention of the petitioners is that there is no discretion left with the assessing authority, as the impugned circular seeks to
create a new entity and has made the transaction between the new entity, theatre owner, distributor or producer and made them liable to service
tax. Further, it is stated that though in paragraph 11 of the Circular, it has been stated that each case may be looked into on its merits and decision
be taken on case to case basis, the assessing authority is bound by what is contained in the remaining part of the circular which in effect holds all
transaction in which there is revenue sharing to be a joint venture. Therefore, petitioners challenge the reasons or the observations made in the
impugned circular.
The Circular has examined different types of arrangements between distributor/sub-distributor or exhibitor of the movie. To ensure uniformity
in levy of service tax, the Circular only clarifies the types of transactions; arrangements and service tax leviable. It only seeks to clarify the types of
transactions and levy of service tax. We have now to examine as to whether any discretion still vest with the assessing authority to examine
arrangements on case to case basis or he shall blindly proceed to levy service tax on all revenue sharing arrangements.
The impugned circular is a clarification on levy of service tax on distributors/sub-distributors of films and exhibitors of movie. This is in
contradistinction to the circular dated 23.02.2009, which pertains to service tax on movie theatres alone. When, we examine the circular it comes
to light that the need for issuing circular was on account of representations requesting clarification on taxability of consideration earned by
distributors/sub-distributors/area-distributors of Indian and Foreign films in the form of revenue share from the exhibitors of the movie and on
revenue retained as percentage by the exhibitors of the movie from the sale of tickets in the light of the change in the law and the misinterpretation
of earlier circular dated 23.02.2009.
It is to be pointed out that the types of arrangements referred to in both the circulars i.e., 23.02.2009 and the impugned circular are only
illustrative and not exhaustive. Therefore, the observations contained in the impugned circular for the purpose of issuing a clarification can at best
be understood as a sample arrangement, which has come to the knowledge of the CBEC, which formed the basis for issuance of the clarification.
It should be noted that the clarification was not suo-moto, but on account of request made by the association of exhibitors. The circular makes
this aspect abundantly clear, since it states that there are also other varied modes of transaction in the industry. Furthermore, it is explicitly
mentioned that business transactions need to be examined for leviability of service tax under other heads, which depends upon the arrangement
whether the theatre owner has merely given his premises to the distributor or is also involved in giving support services for the business of the
distributor. In which case, it is stated that the arrangement is leviable to service tax under business support service or renting of immovable
property.
The Circular No. 148/17/2011-ST dated 13.12.2011 recognises arrangement under unincorporated partnership/joint/ collaboration basis. For
recognition of such joint venture as a new entity, the Circular refers to New Horizons Limited and Another Vs. Union of India (UOI) and Others, .
In the Circular, recognition of unincorporated joint venture as a new entity and reference to New Horizons Limited and Another Vs. Union of India
(UOI) and Others, , reads as under:
Unincorporated joint venture, not operating on principal-to-principal basis, will exist only if the arrangement entered into between the two
independent persons is also recognized as a person. It may be noted that the word person has not been defined in the Finance Act, 1994. As per
Sec 3(42) of General Clauses Act, 1897 person shall include any company or association or body of individuals, whether incorporated or not. In
this regard attention is invited to explanation to Sec 65 of the Finance Act, 1994 wherein the taxable service includes any taxable service provided
or to be provided by any unincorporated association or body of persons to a member thereof.
Such a joint venture is also recognized as a legal & juristic entity in the nature of a partnership of the constituent companies by the hon''ble
Supreme Court of India in the case of New Horizons [1995 SCC (1) 478; 1994 -TMI 83686] wherein it was held that the expression joint
venture connotes a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit or an
association of persons or companies jointly undertaking some commercial enterprise wherein all contribute assets and share risks. It requires a
community of interest in the performance of the subject-matter, a right to direct and govern the policy in connection therewith, and duty, which may
be altered by agreement, to share both in profit and losses. The independence of joint venture as a separate legal entity, away from its constituent
members, has further been fortified in the case of Gammon India Ltd. Vs. Commissioner of Customs, Mumbai, wherein the hon''ble Supreme
Court categorically denied the benefit of exemption to the JV as the impugned goods were directly imported by constituent member.
Thus, where the distributor or sub-distributor or area distributor enters into an arrangement with the exhibitor or theatre owner, with the
understanding to share revenue/profits and not provide the service on principal-to-principal basis, a new entity emerges, distinct from its
constituents. As the new entity acquires the character of a person, the transactions between it and the other independent entities namely the
distributor / sub-distributor / area distributor and the exhibitor etc will be a taxable service. Whereas, in cases the character of a person is not
acquired in the business transaction and the transaction is as on principal-to-principal basis, the tax is leviable on either of the constituent members
based on the nature of the transaction and as per rules of classification of service as embodied under Sec 65A of Finance Act, 1994.
The petitioners would vehemently contend that the Finance Act does not contemplate any such joint venture and the circular attempts to create
an artificial person, when the nature of arrangement between a distributor and an exhibitor is on a principal to principal basis. They would further
contend that the reliance placed on, Section 65(104c) defining support services of business or commerce is thoroughly misconceived, as the said
provision deals with services, which are outsourced and this is explicit from the budget speech of the Hon''ble Finance Minister while introducing
the Finance Bill 2011. Contention of Petitioners is that screening of films by an exhibitor is a primary activity and not a support service.
Furthermore, it was contended that the circular has based its conclusion by relying upon the decision of the Hon''ble Supreme Court in case of
New Horizons Limited and Another Vs. Union of India (UOI) and Others, which has been considered in a subsequent judgment in Faqir Chand
Gulati Vs. Uppal Agencies Pvt. Ltd. and Another, , in which it has been held that in case of a true joint venture, the co-adventurer in the joint
venture is not a service provider. Therefore, it is submitted that the impugned circular is wholly untenable.
The case in Faqir Chand Gulati, arose out of an order passed by the National Consumer Disputes Redress Commission and it related to the
question whether a land owner who enters into an agreement with the builder for construction of an apartment building and for sharing of the
constructed area is a consumer entitled to maintain a complaint against the builder as a service provider under the Consumer Protection Act, 1996.
The Hon''ble Supreme Court while considering the facts of that case and the agreement termed as a joint venture entered into by the parties therein
found that it is not a true joint venture, as the land owner had no control in the activities of the builder and termed it as a pseudo joint venture and
therefore, held that the builder was a service provider and the complaint under the Consumer Protection Act was maintainable. The ratio laid down
in the case of Faqir Chand Gulati cannot be of any assistance to the petitioners to buttress their contention.
The circular relies upon the judgment in New Horizons Ltd. to explain the expression joint venture. In fact the decision in New Horizons Ltd.,
has been relied on in the case of Faqir Chand Gulati. Therefore, we are not inclined to accept the contention that the decision in New Horizons
Ltd., has been set at naught to hold that joint venture partners do not provide service to each other. As noted above, in the case of Faqir Chand
Gulati, the Hon''ble Supreme Court found that though the nomenclature of the agreement was a joint venture, it was not a joint venture in the true
sense. Thus, it boils down to the proposition that each case has to be examined individually on its facts to ascertain the true intent and conduct of
the parties.
The circular at best could be taken to have examined one type of arrangement, where the exhibitors apart from letting out its premises is also
giving support services for the business of the distributors. In such an event, the arrangement between the parties acquires a distinctive character.
To explain it further, the exhibitor provides the theatre to the distributor for exhibiting the film, the distributor by taking the premises exhibits the
film. In addition to this transaction, if the exhibitor provides other services for the distributor for the purpose of exhibiting the film for which there is
revenue sharing or some arrangement is made, then such service rendered by the exhibitor cannot be stated to be an arrangement simpliciter, as
owner of a theatre. By virtue of the exhibitor being owner of the theatre, he offers the premises in which he is licenced by the State Government
and other authorities to screen films. Any other service rendered by the exhibitor beyond the scope of his rights as owner of the theatre should
definitely be distinguishable from his right as an exhibitor. This nature of transaction is explained in the circular as a joint venture/new entity, which is
distinct from its constituents.
If we arrive at a such conclusion, it has to be seen as to whether such service rendered by the new entity would fall within any of the entries for
levy of service tax. The revenue rests their case on clause (104c) of Section 65 as amended by Finance Act, 2011, w.e.f., 01.05.2011. The said
clause defines support services of business or commerce. The petitioners would state that the said clause commences with expression means and
also uses the word includes.
Prior to the amendment to Section 65(104c), since it was ''operational assistance for marketing'' it was felt that ''exhibition of a cinema'' is not a
''support or assistance activity for marketing'', but an activity on its own accord. The amendment to clause (104c) of Section 65 by Finance Act
2011, may be very crucial for this case, as by the said amendment, the words operational assistance for marketing was substituted with the words
operational or administrative assistance in any manner. Thus, the substitution brought about by Finance Act 2011, in clause (104c) appears to have
expanded the scope of support services to bring under its net all administrative assistance. Even prior to the amendment infrastructural support
services was also covered. In the explanation, infrastructural support service was defined to include to provide varied services.
By a reading of Section 65(104c), we find that the word ""includes"" occurs in the Section as well as in the Explanation. The word ""includes
occurring in Section 65(104c) is very significant that the Section does not restrict to ""business or commerce"", but also includes ""evaluation of
prospective customers, telemarketing, processing of purchase orders and fulfillment services, information and tracking of delivery schedules,
managing distribution and logistics,... operational or administrative assistance in any manner.
The word ""includes"" has been judicially interpreted in number of judgments. Interpreting the word ""includes"" and observing that generally word
includes"" should be given wide interpretation and by employing such, legislature intends to bring in, by legal fiction, something within accepted
connotation of substantive part, in Ramala Sahkari Chini Mills Ltd., U.P. Vs. Commissioner Central Excise, Meerut-I, , it was held as under:
Similarly, in Regional Director, Employees'' State Insurance Corporation Vs. High Land Coffee Works of P.F.X. Saldanha and Sons and
Another, , another three-Judge Bench of this Court had observed that: (SCC pp. 619-20, para 7)
7... The amendment is in the nature of expansion of the original definition as it is clear from the use of the words include a factory. The amendment
does not restrict the original definition of seasonal factory but makes addition thereto by inclusion. The word include in the statutory definition is
generally used to enlarge the meaning of the preceding words and it is by way of extension, and not with restriction. The word include is very
generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so
used, these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import but also
those things which the interpretation clause declares that they shall include.
Therefore, it is trite that generally the word include should be given a wide interpretation as by employing the said word, the legislature intends
to bring in, by legal fiction, something within the accepted connotation of the substantive part. (Also see Commissioner of Income Tax, Andhra
Pradesh Vs. Taj Mahal Hotel, Secunderabad, ; Indian Drugs and Pharmaceuticals Ltd. and Others Vs. Employees'' State Insurance Corporation
and Others, and Tamil Nadu Kalyana Mandapmam am Assn. Vs. Union of India (UOI) and Others, It is also well settled that in order to
determine whether the word includes has that enlarging effect, regard must be had to the context in which the said word appears. [See The South
Gujarat Roofing Tiles Manufacturers Association and Another Vs. The State of Gujarat and Another, ; R.D. Goyal and Another Vs. Reliance
Industries Ltd., and Philips Medical Systems (Cleveland) Inc. Vs. Indian MRI Diagnostic and Research Ltd. and Another, .
Thus, as already stated above, having regard to the language of Rule 2(g) of the 2002 Rules, and the analysis of the aforenoted decisions, it
appears that by employing the phrase and includes, legislature did not intend to impart a restricted meaning to the definition of inputs and therefore,
the interpretation of the said term in Maruti Suzuki Ltd. Vs. Commissioner of Central Excise, Delhi-III, may require reconsideration by a larger
Bench.
As held by the Hon''ble Supreme Court when the word includes is used, it enlarges the meaning of the expression defined so as to comprehend
not only such things as they signify according to their natural import, but also those things which the clause declares that they shall include.
Therefore, the expressions services provided in relation to business or commerce operational or administrative assistance in any manner and
infrastructural support services as contained in clause (104c) of Section 65 has expanded the definition of support services and this has given rise
to certain doubts in the minds of the assesses as well as the field officer which has been eventually clarified in the impugned circular.
Mr. K. Vaitheeswaran learned counsel places reliance on the decision of the Hon''ble Supreme Court in P. Kasilingam and others Vs. P.S.G.
College of Technology and others, to contend that the use of the word means the definition is a hard and fast definition and no other meaning can
be assigned to the expression than it is put down in the definition. The word includes when used, enlarges the meaning of the expression defined so
as to comprehend not only such things as they signify according to their natural import, but also those things which the clause declares that they
shall include. The words means and includes on the other hand indicates an exhaustive explanation of the meaning which for the purpose of the Act
must invariably be attached to these words or expression.
These observations were made by the Hon''ble Supreme Court while considering the expression college as defined under Rule 2(b) of the
Tamil Nadu Private Colleges (Regulation) Rules, 1976 which defines college to mean and include Arts and Science college, Teachers training
college, Physical education college etc. In contradistinction to the said definition clause college which was considered in the decision of the Hon''ble
Supreme Court, clause (104c) of Section 64 uses the expression support services of business or commerce means services provider in relation to
business or commerce and includes evaluation of prospective customers etc. Therefore, the expression means and includes are not used in
conjunction and there is a clear distinction as support services of business or commerce means services provided in relation to business or
commerce and includes other categories some of which appear to be support services.
Further it is seen that there was a misunderstanding while interpreting the earlier circular dated 23.02.2009, even after the insertion of Section
65(105)(zzzzt) and the substitution in clause (104c) of Section 65. Since all revenue sharing arrangements irrespective of the nature of arrangement
were interpreted to fall outside the service tax net. Therefore, the CBEC clarified, there may be various types of arrangements and there may be
hybrid versions of arrangements that may exist and therefore a clarification was necessary. Even in the impugned circular, the department has
unequivocally accepted that the nature of transaction determines the leviability of service tax. Therefore, each case has to be looked into on its
merits and decision be taken on case to case basis. As observed earlier, the arrangements referred to in the impugned circular can at best be taken
as an illustration and it cannot be termed as an exhaustive or a comprehensive list of arrangements. The nature of transaction is a question of fact,
which the exhibitor/distributor/ producer has to place before the department and such arrangement to be examined on its merits. The apprehension
of the petitioners that the assessing authority shall mechanically proceed to levy service tax is without any basis. The answer lies in the impugned
circular, which clearly spells out that the nature of transaction is a determinative factor and that each case may be looked into on its own merits and
decision taken on case to case basis. Therefore, the revenue is right in contending that the writ petitions are pre-mature.
Petitioners then contended that in the light of the sweeping changes brought in service tax regime, and in view of operation of Negative List and
Section 66D(j) exempting ""admission to entertainment events or access to amusement facilitates"" and also the mega notification No. 25/2012 dated
20.06.2012, exhibition of film in cinema theatre is exempted from levy of service tax and therefore the impugned Circular No. 148/17/2011-ST
alone becomes otiose and in this context the impugned circular is liable to be quashed.
The Finance Act, 2012 has completely revamped the service tax regime. Under the new service tax regime, as per Section 66D, all services
will be liable to tax except those which are specifically mentioned in the exemption notification and the Negative List. Section 66B of the Act levies
tax on all services other than those services specified in the Negative List. Section 66D of the Finance Act 1994 sets out the various services that
are not liable to be taxed in the sense that they do not fall under the charging Section 66B. As per Section 66D(j), ""admission to entertainment
events or access to amusement facilitates"", are exempted from service tax. Section 65B(24) defines ""entertainment event"" as under:-
�entertainment event"" means an event or a performance which is intended to provide recreation, pastime, fun or enjoyment, by way of exhibition
of cinematographic film, circus, concerts, sporting event, pageants, award functions, dance, musical or theatrical performances including drama,
ballets or any such event or programme.
Section 65B(9) defines ""amusement facility"" as under:
amusement facility"" means a facility where fun or recreation is provided by means of rides, gaming devices or bowling alleys in amusement parks,
amusement arcades, water parks, theme parks or such other places but does not include a place within such facility where other services are
provided.
As pointed out earlier, according to Section 66D(j), ""admission to entertainment event or access to amusement facilities"" are non-taxable
Negative List services. What is not taxable is ""tax on admission to entertainment events or access to amusement facilities"", the reason, being, ""tax
on admission or entry of such events is covered in the State List, which is subjected to Entertainment Tax.
The Central Government has issued Mega exemption Notification No. 25/2012-S.T dated 20.06.2012. As pointed out earlier, from 2012, the
basis of levying service tax was changed from ""service specific levy"" to ""levying tax on all services except services specified in Negative List and
the Exemption Notification."" The exemption Notification No. 25/2012-S.T dated 20.6.2012 becomes operative with effect from 1.7.2012. As per
Entry 15 in Notification No. 25/2012-S.T dated 20.06.2012, levy of service tax on ""temporary transfer or permitting the use or enjoyment of a
copyright"" was exempted. Entry No. 15 reads as under:
Temporary transfer or permitting the use or enjoyment of a copyright covered under clauses (a) or (b) of sub-section (1) of Section 13 of the
Indian Copyright Act, 1957 (14 of 1957), relating to original literary, dramatic, musical, artistic works or cinematograph films.
Under Notification No. 3/2013-S.T dated 1.3.2013, Entry No. 15 in the earlier Notification No. 25/2012-S.T dated 20.06.2012 was
substituted as under:-
Services provided by way of temporary transfer or permitting the use or enjoyment of a copyright, -
(a) covered under clause (a) of sub-section (1) of Section 13 of the Copyright Act, 1957 (14 of 1957), relating to original literary, dramatic,
musical or artistic works; or
(b) of cinematograph films for exhibition in a cinema hall or cinema theatre.
By a combined reading of Section 66D(j), Notification Nos. 25/2012-S.T dated 20.06.2012 and 3/2013-S.T. Dated 1.3.2013, it is clear that
what is exempted is only an admission to entertainment events or access to amusement facilities or exhibition of cinema in a theatre. The variant
modes of transaction between the distributor/sub-distributors of films and exhibitors of movie and the revenue sharing arrangement between them
are neither in the ""Negative List Services"" nor exempted.
As we pointed out in W.P. No. 29398 of 2010 etc., batch, with more multiplexes and single theaters on rise right from cities to moffusil, there
is a huge rise in business over all. The source of concept of service tax lies in economics. Huge money is involved in film industry, coupled with host
of commercial activities right from the Box Office to theatrical exhibition. Having regard to the variant modes of arrangements between the
distributors/sub-distributors of films and exhibitors of movie, CBEC was justified in issuing the Circular clarifying the transactions between the
distributor/sub-distributor and owners of the theatres and levy of service tax and that the nature of transaction determines the leviability of service
tax and decision to be taken on case to case basis. The impugned Circular No. 148/17/2011-ST dated 13.12.2011 cannot be said to be beyond
the powers of Central Board of Excise and Customs. The Circular does not restrict the powers of the officials to decide a particular dispute in a
particular manner and the impugned circular is not violative of Section 37B . All the writ petitions are liable to be dismissed. In the result, all the
writ petitions are dismissed. Consequently, the connected miscellaneous petitions are closed. Interim stay granted in the various writ petitions
stands vacated. However, there is no order as to costs.
(*Substituted for ""operational assistance for marketing"" by the Finance Act, 2011 w.e.f. 1.5.2011)