2013 (7) TMI 22 - HC - Service Tax

Service tax from film distributors/sub-distributors/theatre owners - challenge the Circular No.148/17/2011-ST dated 13.12.2011 bearing F.No.354/27/2011-TRU - service tax on Copyright Services - Held that - The impugned Circular above has examined different types of arrangements between distributor/sub-distributor or exhibitor of the movie. It is a clarification on levy of service tax on distributors/sub-distributors of films and exhibitors of movie. 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 entreatment events or access to amusement facilitates , are exempted from service tax, thus 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. 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. 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.

Issues Involved:

1. Legality and constitutionality of Circular No.148/17/2011-ST dated 13.12.2011.
2. Whether the Circular amounts to backdoor legislation.
3. Clarification on the levy of service tax on distributors/sub-distributors of films and exhibitors of movies.
4. Whether the Circular is beyond the powers of the Board under Section 37B of the Central Excise Act.
5. Impact of amendments to the Finance Act on the interpretation of service tax applicability.
6. Applicability of the Negative List and exemption notifications post-2012 service tax regime changes.

Detailed Analysis:

1. Legality and Constitutionality of Circular No.148/17/2011-ST dated 13.12.2011:

The petitioners, comprising producers, distributors, sub-distributors, and exhibitors of movies, challenged the Circular No.148/17/2011-ST dated 13.12.2011 issued by the Central Board of Excise and Customs. They contended that the Circular was illegal and unconstitutional, seeking directions to prevent its enforcement. The Circular aimed to clarify the levy of service tax on distributors/sub-distributors/theatre owners.

2. Whether the Circular Amounts to Backdoor Legislation:

The petitioners argued that the Circular sought to introduce a new entity through a deeming fiction, not provided for in the Act, thereby amounting to backdoor legislation. They claimed that the Circular attempted to overreach the provisions of the Act for levying service tax on revenue-sharing arrangements, contravening Article 265 of the Constitution, which mandates that no tax should be levied or collected without the authority of law.

3. Clarification on the Levy of Service Tax on Distributors/Sub-Distributors of Films and Exhibitors of Movies:

The Circular clarified that service tax is payable on copyright services when copyrights are temporarily transferred. It also stated that if no copyrights are transferred, service tax would be payable under Business Support Service/Renting of immovable property. The Circular aimed to ensure uniformity in the levy of service tax across different types of arrangements in the film industry, including revenue-sharing arrangements.

4. Whether the Circular is Beyond the Powers of the Board under Section 37B of the Central Excise Act:

Section 83 of the Finance Act makes certain provisions of the Central Excise Act, including Section 37B, applicable to the Finance Act. Section 37B empowers the Board to issue directions for uniformity in the classification of excisable goods and levy of excise duty. The Supreme Court has held that a Circular issued by the Board must give effect to the provisions of the Act and not derogate from them. The Court examined whether the impugned Circular was in derogation of the Finance Act and whether it required officers to make particular assessments or dispose of cases in a specific manner.

5. Impact of Amendments to the Finance Act on the Interpretation of Service Tax Applicability:

The amendments to the Finance Act, including the introduction of Section 65(105)(zzzzt) and changes to Section 65(104c), expanded the scope of service tax to include temporary transfer of copyrights and operational or administrative assistance in any manner. The Circular aimed to clarify the applicability of service tax in light of these amendments. The Court noted that the Circular was issued in response to representations seeking clarification on the taxability of consideration earned by distributors/sub-distributors/area distributors in revenue-sharing arrangements.

6. Applicability of the Negative List and Exemption Notifications Post-2012 Service Tax Regime Changes:

The Finance Act, 2012, revamped the service tax regime, introducing a Negative List and exemption notifications. The petitioners argued that the Circular became otiose in light of the Negative List and exemption notifications, which exempted certain services from service tax. The Court examined the applicability of these changes and concluded that the Circular's clarifications were necessary to address the varied modes of transactions in the film industry and ensure uniformity in the levy of service tax.

Conclusion:

The Court held that the impugned Circular was not beyond the powers of the Central Board of Excise and Customs and did not restrict the powers of officials to decide disputes in a particular manner. The Circular was found to be a valid clarification on the levy of service tax on distributors/sub-distributors of films and exhibitors of movies. Consequently, all the writ petitions were dismissed, and the interim stay granted in various writ petitions was vacated.

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