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Judgment
M/s. Satyam Cineplexes Limited, the appellant has filed this appeal to assail the order dated 30.11.2015 passed by the Principal Commissioner of Service Tax, Delhi-I, the Principal Commissioner adjudicating the two show cause notices dated 21.04.2014 and 20.04.2015. The total demand that has been confirmed by the impugned order is Rs.19,19,92,658/- and the period of dispute is from October 2008 to March 2014.
The issues that arises for consideration in this appeal relate to:
(i) Demand of service tax under the category of 'renting of immovable property' service for the reason that the appellant is providing service to the film distributors by way of renting its theatre for screening films;
(ii) Demand of service tax on 'convenience charges', 'pouring fees', 'other income', 'lease rent income', 'parking fees', 'service charges' and 'VPF charges';
(iii) Demand of service tax on 'advertisement income' under 'sale of space or time for advertisement income'; and
(iv) Demand of service tax on foreign exchange expenses incurred under 'architect services' under the reverse charge mechanism.
The appellant is the owner of multiplexes, namely, Satyam Cineplex, located at different parts of India and is engaged in the business of exhibiting films in its theatre. The appellant claims that it entered into agreements with the film distributors, whereby the theatrical exhibition rights for exhibition of the film were transferred to the appellant either temporarily (i.e. for specified number of shows and period) or in perpetuity, depending on the agreement between the parties. The appellant further claims that it is in exercise of such rights obtained from the Distributors, that the appellant exhibited the movies in its theatres.
In lieu of obtaining such rights, the appellant agreed to share a specified percentage of Net Box Office Collection3 with the distributors, subject to other conditions specified therein in the agreements. In one agreement dated 10.05.201, NBOC entered into between M/s. Eros International Media Limited and the appellant, the appellant agreed to share 50%/40%/30% of NBOC on week basis with M/s. Eros International Media Limited, subject to a minimum guarantee share of the distributor.
The Department, however, took a stand that the appellant was providing various elements of interconnected services to the Distributors, such as renting/letting/leasing of theatre for exhibition of films; manpower to manage the theatre operations, provision of projector and other related equipments to screen the films; arranging of power supply and providing arrangements to collect the box office collections. As per the Department, the essential character of the bundle of services provided was in the nature of 'renting of immovable property' service defined under section 65(90a) and made taxable under section 65(105)(zzzz) of the Finance Act, 1994, the Finance Act for the period till 30.06.2012 and under section 66E(a) of the Finance Act read with section 66F(3)(b) of the Finance Act for the period from 01.07.2012 to 31.03.2014. This view of the Department was based on an understanding that the copyrights of the movies/films were not transferred/sold by the film distributors, either temporarily or otherwise, to the appellant and hence, the appellant was only letting out its premises for exhibition of films to the distributors. The Department also questioned the service tax liability of the appellant with respect to various income as recorded in the balance sheet.
The investigation carried on by the Department resulted into issuance of the following two show cause notices proposing demands contained in the Table below:
Serial No.
Show Cause Notice dated
Period
Demand Amt. (in Rs.)
1.
21.04.2014
Oct 08 to Mar 13
23,43,68,946/-
2.
20.04.2015
Apr 13 to Mar 14
10,01,48,977/-
Total
Rs. 33,45,17,923/-
The demand proposed in the show cause notice is categorized issue-wise as below:
Serial No.
Nature of Amount
Service Tax demanded in the Show Cause Notices (in Rs.)
1.
Income from hiring charges
289725538/-
2.
Convenience Charges
1717955/-
3.
Pouring Fees
1344150/-
4.
Other Income
1204302/-
5.
Lease Rent Income
1277565/-
6.
Parking Fees
439966/-
7.
Service Charges
1794817/-
8.
Advertisement Income
50064563/-
9.
Foreign Exchange Expenses Incurred
1302142/-
10.
VPF Charges
56120/-
11.
Service tax already paid
(-) 14409194/-
TOTAL
Rs. 33,45,17,923/-
The aforesaid show cause notices were adjudicated upon by the Principal Commissioner by order dated 30.11.2015. Out of the total demand of Rs. 33,45,17,923/- raised in the show cause notices, demand of Rs. 19,19,92,658/- for the period October 2008 to March 2014 was sustained. The computation of the same issue-wise is given in the following Table:
Serial No.
Nature of Amount
Service Tax demanded in the Show Cause Notices (in Rs.)
Service Tax confirmed in the order (in Rs.)
Demand dropped by the impugned order (in Rs.)
1.
Income from hiring charges
289725538/-
162445706/-
127279832/-
2.
Convenience Charges
1717955/-
1537373/-
180582/-
3.
Pouring Fees
1344150/-
1211697/-
132453/-
4.
Other Income
1204302/-
844015/-
360287/-
5.
Lease Rent Income
1277565/-
1138120/-
139445/-
6.
Parking Fees
439966/-
393426/-
46540/-
7.
Service Charges
1794817/-
1601939/-
192878/-
8.
Advertisement Income
50064563/-
36915520/-
13149043/-
9.
Foreign Exchange Expenses Incurred
1302142/-
1178754/-
123388/-
10.
VPF Charges
56120/-
49947/-
6173/-
11.
Service tax already paid
(-) 14409194/-
-
(+) 914641/-
TOTAL
Rs. 33,45,17,923/-
Rs.19,19,92,658/-
Rs. 14,25,25,265/-
Shri B.L. Narasimhan, learned counsel appearing for the appellant made the following submissions:
(i) The appellant is not providing 'renting of immovable property' services to the distributors. In support of this contention reliance has been placed on the following decisions of the Tribunal:
a) Moti Talkies vs. Commissioner of Service Tax, Delhi-I, 2020 (6) TMI 87 - CESTAT New Delhi;
b) M/s. The Asian Art Printers (Sheila Theatre) vs. Principal Commissioner of Service Tax, Delhi-I, Delhi-I, 2020 (12) TMI 1012 - CESTAT New Delhi;
c) Shri Vinay Kumar, Proprietor of M/s. Regal Theatre vs. Principal Commissioner of Service Tax, Delhi-I, 2020 (11) TMI 436 - CESTAT New Delhi; and
d) M/s. Golcha Properties Pvt. Ltd. vs. Principal Commissioner of Service Tax, Delhi-I, 2020 (11) TMI 137 - CESTAT New Delhi ;
(ii) Demand of service tax on income under the heads 'convenience charges', 'pouring fees', 'other income', 'lease rent income', 'parking fees', 'VPF charges' and 'service charges' shown in the balance sheet is not sustainable. The impugned order has recorded that the appellant did not submit any reply to the first show cause notice dated 21.04.2014. The appellant had submitted a reply to the first show cause notice on 24.10.2014. The impugned order is, therefore, liable to be set aside on this ground alone;
(iii) In so far as convenience fees, pouring fees, parking fees and service charges are concerned, the demand of service tax was proposed in the show cause notice dated 21.04.2014 under the category of 'renting of immovable property' service. The impugned order has gone beyond the show cause notice by confirming the demand under the category of 'support services of business';
(iv) The demand on amount under lease rent has been confirmed under the category of 'renting of immovable property' service by the impugned order without giving any specific finding on the same. To this extent, the impugned order is a non-speaking and the demand is liable to be set aside on this ground alone;
(v) The demand on the amount under 'other income' has been confirmed for the period 2008-09 to 2012-13 under the category of 'renting of immovable property' service by giving a finding that the appellant did not make any submission on this issue. The said finding in the impugned order is incorrect as the appellant had filed a reply to the first show cause notice dated 21.04.2014, wherein detailed submissions on this issue had been made;
(vi) The demand on VPF charge has been confirmed under the category of 'renting of immovable property' service by the impugned order. The said amount is a subsidy paid by a film distributor towards the purchase of digital cinema projection equipment for use by a film exhibitor in the presentation of first release motion pictures. This is paid in the form of a fee per booking of a movie. The appellant duly deposited the service tax on such charges and the same has been acknowledged at paragraph 10.4 of the impugned order;
(vii) Demand of service tax on income under the head 'advertisement income' shown in the balance sheet is not sustainable. The impugned order has given a finding that the appellant did not make any submission on this issue with respect to the first show cause notice dated 21.04.2014. The said finding is incorrect as the appellant had filed a reply to the first show cause notice dated 21.04.2014 issued for the period 2008-09 to 2012-13 on 21.10.2014, wherein detailed submissions on this issue was made at Ground F. Further, the said demand of Rs. 3,69,15,520/- confirmed in the order includes the service tax on income for the period 01.07.2012 to 31.03.2013, which has been categorically set aside in paragraph 8.3 of the impugned order. To this extent, the demand is required to be set aside. Further, for the period 2008-09 to 30.06.2012, due service tax has been paid by the appellant which fact has been stated in the reply dated 21.10.2014. Hence, service tax demand on the said amount is not sustainable;
(viii) Demand confirmed under reverse charge mechanism is not sustainable. The impugned order has given a finding that the appellant did not make any submission on this issue. The said finding in the impugned order is incorrect as the appellant had filed a reply to the first show cause notice dated 21.04.2014 as is evident from Ground G of the reply; and
(ix) The extended period of limitation could not have been invoked in the present case as the Department failed to point out any positive act of suppression on part of the appellant. Hence, the demand till September 2010 is time barred.
Dr. Radhe Tallo, learned Authorised Representative appearing for the Department has however, supported the impugned order and contended that it does not call for any interference in this appeal. Learned Authorised Representative pointed out that the intention of the parties as per the agreement agreed upon was 'hiring of theatres for screening of films' which will fall under the category of 'renting of immovable property' service. Learned Authorised Representative also submitted that since the appellant has stated that the reply to the show cause notice dated 21.04.2014 was not considered by the Principal Commissioner for the reason that the reply had not been submitted, the matter can be remanded to the Principal Commissioner to examine the reply and pass a fresh order.
The submissions advanced by the learned counsel for the appellant and the learned Authorised Representative appearing for the Department have been considered.
The issue raised under various heads can be considered now.
Renting of immovable property service
According to the appellant, as owner of multiplexes, it exhibits the films for the entertainment of the customers and for getting the films exhibited in its theatre, the appellant entered into agreements with the film distributors under which the film distributors granted copyright license in the form of theatrical exhibition rights to the Appellant. As against the transfer of such rights, the Appellant agreed to pay certain amount to the distributors, generally fixed as a percentage of the NBOC. This has been held by the Principal Commissioner as providing 'renting of immovable property' service to the distributors. This issue has examined again by the Tribunal in Moti Talkies.
This issue also came up for consideration before a Division Bench of the Tribunal in Moti Talkies. It was held that the demand of service tax under 'renting of immovable property' service was not justified for the reason that the Appellant had not provided any service to the distributor, nor the distributor had made any payment to the Appellant as a consideration for the alleged service. The relevant portion of the decision is reproduced below:
"Agreements entered into between distributors and the Appellant, who is an exhibitor for screening pictures, have been considered to be agreements for "renting of immovable property" as defined under section 65(90a) of the Finance Act 1994, the Finance Act by the Department and accordingly, show cause notices have been issued to the Appellant demanding service tax. The demands made in the show cause notices have been confirmed by the Additional Commissioner (Adjudication) and the appeal filed by the Appellant to assail the said order has been dismissed by the Commissioner (Appeals). It is the dismissal of the appeal by the Commissioner (Appeals) by order dated 12 July that has led to the filing of this appeal.
The appellant is the owner of a cinema hall situated at Chandni Chowk, New Delhi and is engaged in the business of exhibiting films in its theatre. The copy right over the films is owned by the distributors. The appellant enters into agreements with the film distributors to obtain such copy rights under which the right to exhibit the films is transferred to the appellant, either temporarily or in perpetuity, depending upon the nature of the agreements between the parties.
xxxx xxxx xxxx
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.
xxxx xxxx xxxx
It is very difficult to even visualize 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.
xxxx xxxx xxxx
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.
xxxx xxxx xxxx
The position in law does not change with effect from 1 July, 2012 because even under section 66B of the Finance Act, service tax is levied on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another. Though, ―renting of immovable property is a declared service under section 66E of the Finance Act, then too under section 67(1) of the Finance Act, the value shall, in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him. The appellant is not receiving any payment from the distributor and, therefore, no service can be said to have been provided by the appellant."
This decision was subsequently followed by the Tribunal in Golcha Properties, Vinay Kumar and The Asian Art Printers.
It is, therefore, not possible to sustain the finding recorded by the Principal Commissioner that 'renting of immovable property' service had been rendered by the Appellant to the film distributors.
Income under 'convenience charges', 'pouring fees', 'other income', 'lease rent income', 'parking fees', 'VPF charges' and 'service charges'.
The appellant has shown income under various heads like 'convenience charges', 'pouring fees', 'other income', 'lease rent income', 'parking fees', 'VPF charges' and 'service charges' in its balance sheet, for the period 2008-09 to 2013-14. The impugned order has confirmed the demand of service tax on the amount shown by the appellant under the aforesaid heads.
Learned counsel for the appellant submitted that though the impugned order mentions that the appellant had not submitted any reply to the first show cause notice dated 21.04.2014, but the appellant had submitted a reply to the show cause notice on 24.10.2014. In this connection, learned counsel placed the copy of the reply, which is at page 499 of the Appeal Memo.
The endorsement contained in the reply at page 499 does show it was received on 21.10.2014. It is also seen that additional written submissions were filed by the appellant to the show cause notice dated 21.04.2014 and in paragraph J.1 it was specifically stated that a reply to the said show cause notice dated 21.04.2014 was filed by the appellant on 21.10.2014 and filing of the additional written submissions to the first show cause notice dated 21.04.2014 has been acknowledged in the impugned order. It is, therefore, clear that the appellant had submitted a reply to the show cause notice dated 21.04.2014 on 21.10.2014, but the Principal Commissioner failed to consider it. The impugned order, therefore, for this reason alone, in so far as the demand raised in the first show cause notice is concerned, deserves to be set aside.
Learned Authorised Representative of the Department submitted that the matter may be remanded to the Principal Commissioner to pass a fresh order after considering the reply. However, as learned Counsel for the appellant and learned Authorised Representative have made submissions on merit, it would be appropriate to examine the same.
Learned counsel for the appellant made detailed submissions under the various heads.
In regard to convenience fees, pouring fees, parking fees and service charges, it was submitted that though the demand of service tax proposed in the show cause notice dated 21.04.2014 was under the category of 'renting of immovable property' services, the impugned order has confirmed the demand under the category of 'support services of business'. It was, therefore, submitted that the impugned order has gone beyond the show cause notice. In this connection, reliance was placed on a Division Bench decision of the Tribunal in M/s. Delhi Duty Free Services Pvt. Ltd. Vs. Commissioner CGST Division, Delhi South Commissionerate, 2019 (8) TMI 1489- CESTAT New Delhi.
This submission advanced by the learned counsel for the appellant deserves to be accepted. It is apparent from a perusal of the show cause notice dated 21.04.2014 that demands were made under the category of 'renting of immovable property' service but the demands have been confirmed under the category of 'support services of business'. In Delhi Duty Free Services, the Tribunal held that the order of the adjudicating authority or the appellate authority cannot go beyond the show cause notice and the observations are:
"16. The issue as to whether the Adjudicating Authority or the Appellate Authority can go beyond the issue raised in the show cause notice has been examined time and again.
In Ballarpur Industries Ltd., the Supreme Court observed that it was well settled that a show cause notice is the foundation in the matter of levy and recovery of duty, penalty and interest and if there was no invocation of Rule 7 of the Valuation Rules, 1975 in the show causes notice, it would not be open to the Commissioner to invoke the said Rule. The same view was reiterated by the Supreme Court in Brindavan Beverages.
In Nestor Pharmaceuticals Ltd. a Division Bench of the Tribunal observed that the Commissioner (Appeals) cannot go beyond the scope of the show cause notice and that no matter can be decided on a ground other than the grounds raised in the show cause notice and for this reason the impugned order was set aside. In Tata Johnson Controls Automotive a Division Bench of the Mumbai Tribunal observed that it was not open to the Commissioner (Appeals) to make out a new case in the order passed by the Commissioner and, therefore, the Order passed by the Commissioner (Appeals) deserved to be set aside on this ground alone."
Learned counsel for the appellant also submitted that the finding contained in the impugned order that the appellant had not made any submission on these issues is factually incorrect as the appellant had made detail submissions as to why service tax could not be demanded under this head.
A perusal of the reply to the show cause notice filed by the appellant as also the additional written submissions clearly show that the appellant had made detailed submissions an each of these heads.
The impugned order, to the extent it has confirmed the demand of service tax under these four heads is, therefore, liable to be set aside.
In regard to the service tax confirmed under the head 'lease rent', learned counsel for the appellant submitted that the demand has been confirmed without giving any specific finding even though detail submissions were made by the appellant in paragraphs B.53 to B.57 of the submissions dated 21.10.2014. Learned counsel also submitted that the amount received from M/s. Superior Films is in the nature of share towards the business rights granted by the appellant and cannot be considered towards provision of any 'renting of immovable property' service. Learned Counsel also pointed out that the appellant had deposited service tax on the amount received in lieu of space given to vendors under the 'renting of immovable property' service and this fact was stated in the reply filed to the show cause notice.
The submission made by the learned counsel for the appellant on this issue need to be accepted. Apart from the fact that the Principal Commissioner has not given any reason for sustaining the demand proposed in the show cause notice under this head, the appellant had also deposited service tax on the amount received in lieu of space given to vendors under 'renting of immovable property' service. Thus, the demand confirmed under this head cannot be sustained.
In regard to the confirmation of demand under 'other income' for the period 2008-09 to 2012-13 under the category of 'renting of immovable property' service, learned counsel for the appellant submitted that the finding recorded by the Principal Commissioner in the impugned order that the appellant had not made any submissions on this issue is factually incorrect as the appellant had explained in detail the factual position in the reply and the additional written submissions filed in response to the first show cause notice.
This submissions advanced by the learned counsel for the appellant also deserves to be accepted. It is seen that submissions had in fact been made by the appellant. This apart, it is also a fact that demand on similar income for the period 2013-14 had been dropped by the Principal Commissioner, which fact is clear from paragraph 12.3.2 of the order.
In regard to VPF charges, learned counsel for the appellant submitted that this amount is a subsidy paid by a film distributor towards the purchase of digital cinema projection equipment for use by a film distributor in the presentation of first release motion pictures and this is paid in the form of a fee per booking of a movie. Learned counsel pointed out that service tax on this amount was deposited and the same has also been acknowledged in paragraph 10.4 of the impugned order.
The service tax has been deposited on the income generated under this head. The demand, therefore, could not have been confirmed on an assumption that service tax had not been paid.
Advertisement Income
The impugned order records that the appellant did not make any submission on this issue with regard to the first show cause notice dated 21.04.2014.
The submission of learned counsel for the appellant is that detail submissions were made in the reply filed to the show cause notice in Ground F, but they have not been considered. Learned counsel also pointed out that service tax for the period 01.07.2012 to 31.03.2013 has been set aside in paragraph 8.3 of the impugned order and for the period 2008-09 to 30.06.2012, service tax was paid by the appellant. This fact was stated in the reply to the show cause notice.
The period-wise demand and whether service tax was paid or not is given below in the following tabular form:
Financial Year/Income head
Advertisement Income
Taxable Income after cum-tax benefit
Rate of service tax
Amount of service tax
Service Tax paid/not paid
2008-09
1,97,53,869
17580873
12.36%
2172996
The total service tax to be paid comes to Rs. 2,78,23,614/-, However, the Appellant has discharged service tax on advertisement income to the tune of Rs. 2,78,52,905/-, which is more than the required amount.
2009-10
6,80,54,595
61699542
10.3%
6355053
2010-11
9,81,47,422
88982250
10.3%
9165171
2011-12
9,41,60,498
85367632
10.3%
8792866
2012-13 (till 30.06.2012)
1,21,58,951
10821423
12.36%
1337528
2012-13 (from 01.07.2012)
8,39,88,537
-
-
-
Not taxable in terms of Section 66D(g) of the Finance Act, 1994; Demand has also been dropped in the impugned order (paragraph 8.3)
2013-14
7,35,20,504
-
-
-
Not taxable in terms of Section 66D(g) of the Finance Act. Demand has been dropped in the impugned order (paragraph 8.3).
It is, therefore, clear from the aforesaid chart that the Principal Commissioner committed an error in confirming the demand under this head.
Reverse Charge
The demand of service tax on 'foreign expenditure incurred' has been confirmed by the impugned order under 'reverse charge' holding that the appellant did not make any submission on this issue.
Learned counsel for the appellant submitted that in the reply filed to the show cause notice dated 21.04.2014, detail submissions were made in Ground G. Learned counsel for the appellant also submitted that the appellant had paid service tax, which fact was stated in the reply to the show cause notice.
This submission made by the learned counsel for the appellant deserves to be accepted. Not only has the Principal Commissioner ignored the submission made on behalf of the appellant, but has also failed to take into consideration the fact that service tax had been paid by the appellant. The confirmation of demand under this head, therefore, cannot be sustained.
It is, therefore, clear from the aforesaid discussion that the confirmation of demands under the impugned order cannot be sustained.
It would, therefore, not be necessary to examine the remaining issues raised by learned counsel for the appellant relating to invocation of the extended period of limitation or imposition of penalty.
Thus, for all the reasons stated above, the impugned order dated 21.04.2014 is set aside and as the appeal is allowed.
(Order pronounced on 27.08.2021)