2019 (3) TMI 704 - AAR - GST

Levy of IGST - process of appointing CDI Virtual Films Inc.(CDIVF) as a Line Producer in Brazil - Reverse charge mechanism - rate of tax depending upon the classification of the service of a Line Producer - place of supply of services - Held that - A Line Producer s job is not limited to arranging hotel accommodation, catering for the filming crew, local transportation and procuring location permits on behalf of the principal. Although he may facilitate the provisioning of a few services where the Applicant reimburses him on an actual cost basis, the Line Producer, being a key member of the production team, supplies the main service on his own account. It involves arranging all logistics for actual shooting, estimating and budgeting the cost of shooting and other residual activities relating to shooting on location. He assists and collaborates with the filming crew of the Applicant in deciding on various issues relating to the physical production of the motion picture in the offshore locations, including insurance coverage of the local actors and crew. He also takes the risk of an accident occurring during the shooting. His service is, therefore, an integral part of the activity for the production of the feature film. The service being supplied is not, therefore, classifiable as the one specified in subsections (3) to (13) of section 13 of the IGST Act, 2017. The transaction between CDIVF and the Applicant is, therefore, import of service and constitutes an inter-State supply within the meaning of section 7(4) of the IGST Act, 2017, and the Applicant is liable to pay IGST on the payments to be made to CDIVF in terms of Sl No. 1 of Notification No. 10/2017 IGST (Rate) dated 28/06/2017at 18% rate specified under Sl No. 34(vi) of Notification No. 08/2017 IT(Rate) dated 28/06/2017, as amended from time to time. Applicability of IGST - Held that - If the Applicant modifies the contract so that CDIVF acts as pure agent for certain services in addition to the main supply of motion picture production service, the related transactions will be import of services from the actual suppliers, and the amount paid on actual cost basis for procuring those services will be subjected to IGST at the applicable IGST rate on such services.

Summary

Issues Involved:
1. Admissibility of the Application.
2. Classification of the service provided by the Line Producer.
3. Liability to pay IGST on the payments to be made to the Line Producer.
4. Applicability of IGST on reimbursements made on an actual cost basis.

Detailed Analysis:

1. Admissibility of the Application:
The Applicant intends to produce a feature film with a portion shot outside India and seeks a ruling on the liability to pay IGST on payments to CDI Virtual Films Inc. (CDIVF) as a Line Producer in Brazil. The questions raised are admissible under section 97(2)(a), (b) & (e) of the GST Act and the application is admitted since the issues are not pending nor decided in any proceedings under the GST Act.

2. Classification of the Service Provided by the Line Producer:
The Applicant submits that CDIVF will facilitate production services, including hiring local actors and providing insurance coverage. CDIVF will be paid USD 95,000 for these services. The Applicant argues that CDIVF is supplying intermediary services or event management services and should be classified under SAC 999900. However, the Authority finds that CDIVF's role as a Line Producer involves managing the budget, arranging logistics, and overseeing the production, which is classifiable under SAC 999612 as motion picture production service. The service is integral to the production of the feature film and not merely intermediary or event management services.

3. Liability to Pay IGST on the Payments to be Made to the Line Producer:
The Authority observes that the location of the recipient of the service is crucial. Since the Applicant is a resident of India, the location of the recipient is in the taxable territory. The service provided by CDIVF does not fall under sub-sections (3) to (13) of section 13 of the IGST Act, 2017. Therefore, the transaction constitutes an inter-State supply, and the Applicant is liable to pay IGST at 18% on the payments to CDIVF under Notification No. 10/2017 – IGST (Rate) dated 28/06/2017 and Notification No. 08/2017 – IT (Rate) dated 28/06/2017.

4. Applicability of IGST on Reimbursements Made on an Actual Cost Basis:
The Applicant argues that reimbursements made on an actual cost basis should not be subject to IGST. However, the Authority finds that the contract does not specify CDIVF as a pure agent. The services procured by CDIVF are a charge on him, and no deduction is available from the value of the supply of motion picture production service even if payment is made on an actual cost basis. If the contract is modified to specify CDIVF as a pure agent, the related transactions will be import of services, and the amount paid on an actual cost basis will be subjected to IGST at the applicable rate.

Ruling:
The Line Producer engaged for shooting a feature film in Brazil is supplying motion picture production service, classifiable under SAC 999612. The Applicant is liable to pay IGST on the payments made to the Line Producer at an 18% rate. No deduction is available from the value of the supply of motion picture production service even if payment is made on an actual cost basis unless the contract is modified to specify the Line Producer as a pure agent for certain services.