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2022 (3) TMI 1166 - AT - Service TaxClassification of services - Business Auxiliary services - business of exhibiting cinematographic films across India in theatres owned by it or taken on rent - revenue sharing agreement - It was alleged that the agreement between the appellant and the distributors created an Association of Persons so as to undertake jointly the activities of screening of the films - HELD THAT - It would be seen from the agreement that PVR Pictures Limited is a producer/distributor engaged in the business of production and distribution of films while the appellant is an exhibitor engaged in the business of exhibition of films and owns/operates a chain of multiplex theatres. The exhibitor decides which screens would play the motion picture the numbers of shows the show timings and the ticket pricing including the right to decide on a week to week basis whether or not to continue to exhibit the motion picture. The distributor/producer had granted the exhibitor the non exclusive license to exploit the theatrical rights of a motion picture and each party was entitled to conduct its business in its absolute and sole discretion. What also needs to be noticed is that if the appellant was providing such a service it would be the producers/ distributors who would be making payments to the appellant but what comes out from a perusal of the Agreement is that in consideration for the distributor agreeing to grant to the appellant the license to exploit the theatrical rights of a motion picture the appellant would have to pay such revenue share to the distributor as provided for in the said clause. In fact the distributor agreed to grant to the Appellant the non exclusive license to exploit the theatrical rights of a motion picture during the term. This issue had come up for consideration before a Division Bench of the Tribunal in M/S PVS MULTIPLEX INDIA PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE MEERUT-I 2017 (11) TMI 156 - CESTAT ALLAHABAD . The Bench observed that as the appellant was screening films on revenue sharing basis the appellant was not liable to pay service tax on the payments made to the distributors for screening the films - This apart a revenue sharing arrangement does not necessarily imply provision of services unless the service provider and service recipient relationship is established. It is not possible to sustain the confirmation of the demand by the order dated February 06 2015 passed by the Commissioner - Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Classification of the arrangement between the appellant and film distributors as an Association of Persons (AOP). 2. Applicability of service tax under Business Support Services (BSS). 3. Interpretation of revenue-sharing agreements in the context of service provision. 4. Reliance on previous judicial decisions and circulars for determining tax liability. Detailed Analysis: Issue 1: Classification of the Arrangement as an Association of Persons (AOP) The Commissioner concluded that the agreement between the appellant and the distributors constituted an AOP, relying on the Supreme Court judgment in *Faqir Chand Gulati vs. Uppal Agencies Pvt Ltd* and a Circular dated 13.12.2011 from the Central Board of Excise and Customs. The Commissioner observed that the arrangement created a joint venture, as both parties contributed assets and expertise, and shared revenue, leading to the formation of a distinct entity, the AOP. Issue 2: Applicability of Service Tax under Business Support Services (BSS) The Commissioner held that the services provided by the appellant to the AOP fell under BSS, both before and after the amendment in the definition. The definition of BSS includes services that assist in the running of a business or commercial enterprise. The Commissioner asserted that the appellant's activities supported the business of the AOP by operationalizing the successful run of the exhibited film. Issue 3: Interpretation of Revenue-Sharing Agreements The appellant contended that revenue-sharing agreements do not necessarily imply a service provider-service recipient relationship. They argued that the arrangement was on a principal-to-principal basis, and no service was provided to the distributor or the AOP. They cited several Tribunal decisions, including *Inox Leisure Ltd. vs. Commissioner of Service Tax, Hyderabad* and *Moti Talkies vs. Commissioner of Service Tax, Delhi-I*, to support their claim that similar arrangements had been ruled in favor of the appellant. Issue 4: Reliance on Previous Judicial Decisions and Circulars The appellant relied on various judicial decisions and circulars to argue against the imposition of service tax. The Tribunal in *Moti Talkies* and other cases had ruled that no service tax was payable as the agreements were on a principal-to-principal basis. The Circular dated 23.02.2009 clarified that screening a movie is not a taxable service unless the theatre is leased out for a fixed rent. The subsequent Circular dated 13.12.2011, which suggested that revenue-sharing arrangements could create a taxable service, was not applicable for periods before its issuance. Tribunal's Findings: 1. AOP Classification: The Tribunal found that the arrangement did not create an AOP. The agreements were on a principal-to-principal basis, with each party conducting its business independently. 2. BSS Applicability: The Tribunal concluded that the appellant did not provide BSS to the distributors. The revenue-sharing model did not establish a service provider-service recipient relationship. The appellant paid the distributors for screening rights, indicating no service was provided by the appellant to the distributors. 3. Revenue-Sharing Agreements: The Tribunal agreed with the appellant's contention that revenue-sharing agreements do not imply a service relationship. The appellant's activities were part of a joint venture, where both parties shared risks and rewards, negating the existence of a taxable service. 4. Judicial Precedents and Circulars: The Tribunal relied on previous decisions and the Circular dated 23.02.2009, which supported the appellant's position. The Tribunal noted that the Circular dated 13.12.2011 was not applicable for the period in question and did not alter the nature of the transactions. Conclusion: The Tribunal set aside the order dated 06.02.2015 passed by the Commissioner, confirming that no service tax was payable by the appellant under BSS. The appeal was allowed, and the cross-objections filed by the Department were disposed of.
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