2020 (6) TMI 87 - AT - Service Tax

Renting of immovable property Service - providing interconnected services to the film distributors - Department believed that for the said renting of immovable property service, the appellant received charges in the garb of sharing cum / theatre hire but did not discharge the service tax liability - HELD THAT - For the appellant to be providing any taxable service to the distributor prior to 1 July 2012 it is necessary that the service provided should be by renting of immovable property or any other service in relation to such renting for use in the course of or for furtherance of, business or commerce. Renting of immovable property has been defined under section 65(90a) of the Finance Act to include renting, letting, leasing, licensing, or other similar arrangements of immovable property for use in the course or furtherance of business or commerce. 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. 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 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 to the distributor and, therefore, no service can be said to have been provided by the appellant. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Classification of agreements as "renting of immovable property."
2. Taxability of services under the Finance Act.
3. Validity of demands and penalties imposed.
4. Examination of agreements between appellant and distributors.

Issue-wise Detailed Analysis:

1. Classification of Agreements as "Renting of Immovable Property":
The primary issue was whether the agreements between the appellant (a cinema hall owner) and film distributors constituted "renting of immovable property" under Section 65 (90a) of the Finance Act, 1994. The Department argued that the appellant provided services like renting the theatre, manpower, and equipment, which predominantly fell under "renting of immovable property." The agreements were scrutinized to determine if they involved renting, letting, leasing, licensing, or similar arrangements for business use.

2. Taxability of Services under the Finance Act:
The Department issued show cause notices demanding service tax for the period up to 30 June 2012 under Section 65 (105) (zzzz) and for the period from 1 July 2012 to 31 March 2014 under Section 66E (a) of the Finance Act. The appellant contended that it did not provide any service to the distributors; instead, it obtained a copyright license for theatrical exhibition rights and paid the distributors from the box office collections. The appellant argued that no consideration flowed from the distributors to the appellant, which is essential for a service to exist.

3. Validity of Demands and Penalties Imposed:
The adjudicating authority confirmed a demand of ?34,03,274 with interest and penalties, while dropping the demand for the period April 2008 to September 2008 as it was beyond five years. The Commissioner (Appeals) upheld this order, leading to the appellant's appeal. The appellant argued that the agreements did not involve service provision to the distributors but were for obtaining exhibition rights, for which the appellant paid the distributors.

4. Examination of Agreements between Appellant and Distributors:
The Tribunal examined several agreements executed between the appellant and distributors. The agreements specified terms for screening films, including payment conditions where the appellant either paid a fixed amount or a share of the box office collections to the distributors. The Commissioner (Appeals) concluded that the appellant provided "renting of immovable property" services, as the agreements allowed the distributors to control the screening. However, the Tribunal found that the agreements granted the appellant the right to screen films, for which the appellant paid the distributors, and no service was provided by the appellant to the distributors.

Conclusion:
The Tribunal concluded that the appellant did not provide "renting of immovable property" services to the distributors, as no consideration flowed from the distributors to the appellant. The agreements were for obtaining exhibition rights, and the appellant paid the distributors for these rights. The demand for service tax was based on a misinterpretation of the agreements, and the impugned order by the Commissioner (Appeals) was set aside. The appeal was allowed, and the demands and penalties were invalidated.

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