2019 (4) TMI 2043 - AT - Service Tax

Classification of services - Business Support Service or not - agreements with the distributors/sub distributors such as Mukta Arts Limited, PVR Pictures Ltd, UTV Software Communications Ltd, Reliance Big Entertainment Pvt Ltd etc. for display of the films/movies at the multiplex cinema screens - agreements are for revenue sharing with the distributors/ sub distributors - HELD THAT - The appellant has been screening various films in their multiplex on behalf of the film distributors such as Mukta Arts Limited, PVR Pictures Ltd, UTV Software Communications Ltd, Reliance Big Entertainment Pvt Ltd etc. As per the agreement entered into by the appellant and the various distributors/ sub distributors, the revenue generated from the selling of the tickets of movies was shared between the appellant and the various distributors in percentage terms - All the revenue receipts have duly been reflected in the books of accounts of the appellants. At the same time the revenue which has been paid by the appellant to the distributors/ sub distributors has been reflected and expenditure towards purchase of film rights for screening of the movies have also been reflected in the books of accounts. As per the agreement entered into between the appellant and the distributors/ sub distributors, both the parties have mutually agreed to work together, wherein the appellant being the owner of the theatre is exhibiting the movies provided by the distributors/ sub distributors. However, the copy rights of the film are retained by the distributors themselves. The appellant provides the theatre and other facilities such as arrangement of projector and other related equipments to screen the film. It is found that under this arrangement, both the parties are working for mutual benefit of each other. They are not providing any service to any other party whereas they are providing services to self. Also, the revenue generated by the appellant which is shared by the appellant and the distributors is from the sale of movie tickets to the customers and from this revenue he is also making payment to the distributors in spite of the fact that copy right of exhibiting the movie has not been passed on to him. This purely reflect that a partnership between the distributor and the appellant exist to display the movie in the appellants theater - in such a situation the element of service from appellant to the distributor does not exist and rather we find that it is a service to himself. The issue is no longer res integra as it has been already decided by this Tribunal in the case of M/S PVS MULTIPLEX INDIA PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, MEERUT-I 2017 (11) TMI 156 - CESTAT ALLAHABAD where it was held 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 - the facts of the present matter are identical to the above mentioned decision, therefore, the above decision is very much applicable to the present matter also. The activity undertaken by the appellant is not classifiable under service tax category of the Business Support Service‟ and therefore, not taxable - there is no merit in the impugned order-in original - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Classification of services under "Business Support Service."
2. Applicability of service tax on revenue sharing agreements.
3. Invocation of extended time for demanding tax.
4. Relevance of Circular No. 148/17/2011-ST and Circular No. 109/3/2009.
5. Precedent judgments and their applicability.

Issue-Wise Detailed Analysis:

1. Classification of Services under "Business Support Service":
The primary issue was whether the appellant's activity of screening movies in their multiplex constituted a "Business Support Service" under Section 65(105)(zzzq) of the Finance Act, 1994. The department contended that the appellant provided such services to movie distributors and thus was liable for service tax. However, the appellant argued that the agreements with distributors were for mutual benefit and revenue sharing, not for providing any service to the distributors. The Tribunal found that the appellant and the distributors worked together for mutual benefit, with the revenue from ticket sales shared between them. The Tribunal concluded that this arrangement did not constitute a service to another party but was a service to self, thus not classifiable under "Business Support Service."

2. Applicability of Service Tax on Revenue Sharing Agreements:
The appellant argued that the revenue from ticket sales was shared with distributors based on pre-agreed percentages and that this revenue was recorded in their books as "Film Revenue," with the distributor's share recorded as "Film Hire Charges." The Tribunal noted that the revenue was generated from customers purchasing tickets, not from the distributors. The Tribunal referred to Circular No. 109/3/2009, which clarified that in revenue-sharing models, the parties act on a principal-to-principal basis and do not provide services to each other. Therefore, no service tax was applicable on such arrangements.

3. Invocation of Extended Time for Demanding Tax:
The appellant contended that there was no suppression, misrepresentation, or intention to evade duty, thus the extended time for demanding tax should not be invoked. The Tribunal agreed, noting that the appellant had duly recorded all transactions in their books and reflected them in their statutory returns. The Tribunal found no grounds for invoking the extended time for demanding tax.

4. Relevance of Circular No. 148/17/2011-ST and Circular No. 109/3/2009:
The Tribunal considered Circular No. 148/17/2011-ST, which stated that services provided under unincorporated partnerships or joint collaborations were liable to service tax. However, the Tribunal found this circular irrelevant to the present case as the revenue was received from customers, not distributors, and the distributors retained the copyrights. The Tribunal relied on Circular No. 109/3/2009, which clarified that no service tax applied in revenue-sharing agreements where parties act on a principal-to-principal basis.

5. Precedent Judgments and Their Applicability:
The appellant cited previous Tribunal judgments in Wave Infratech Pvt Ltd vs. CCE & ST, Lucknow and PVS Multiplex India Pvt Ltd vs. CCE & ST, Meerut-I. The Tribunal found the facts of the present case identical to those in PVS Multiplex India Pvt Ltd, where it was held that revenue sharing for screening films did not constitute a taxable service. The Tribunal applied this precedent, concluding that the appellant's activities were not taxable under "Business Support Service."

Conclusion:
The Tribunal held that the appellant's activities were not classifiable under "Business Support Service" and thus not taxable. The appeal was allowed, and the impugned order was set aside. The Tribunal emphasized that the arrangement between the appellant and the distributors was for mutual benefit, with no service element from the appellant to the distributors. The Tribunal also highlighted the relevance of Circular No. 109/3/2009 and the precedent set by PVS Multiplex India Pvt Ltd in reaching its decision.