2021 (10) TMI 893 - AT - Service Tax

Levy of service tax - Business Support services - services to distributors/producers in the nature of infrastructure support services - revenue sharing arrangement - Circular dated 13.12.2011 - section 65(104c) of the Finance Act - HELD THAT - It would be seen from the agreement that the SPE Films 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 under the brand name Inox - 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. It was further made clear in the Agreement that either of the party shall not interfere or otherwise influence any decision of the other party in respect of the conduct of its business. Such an arrangement between a distributor/producer and an exhibitor of films was examined by a Division Bench of the Tribunal in Moti Talkies 2020 (6) TMI 87 - CESTAT NEW DELHI . The Department alleged that the agreement was for renting of immovable property as defined under section 65(90a) of the Finance Act. This contention was not accepted by the Tribunal and it was observed that the appellant did not provide any service to the distributors nor the distributors made any payments to the appellant as consideration for the alleged service. In fact, it was the appellant who had paid money to the distributors for the screening the rights conferred upon the appellant and it was finally held that Commissioner (Appeals) completely misread the agreements entered into between the appellant as an exhibitor of the films and the distributors to arrive at a conclusion that the appellant was providing the service of renting of immovable property. 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 clause 5.1 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, clause 3.1 of the Agreement provides that distributor agreed to grant to the Appellant the non exclusive license to exploit the theatrical rights of a motion picture during the term. The impugned order has confirmed the demand on the basis that the appellant provided infrastructure support services to the appellant. However, the show cause notice alleged that the appellant was providing operational and administrative assistance with supplier. The Commissioner could not have gone beyond the scope of the show cause notice to confirm the demand. This apart, in view of the decision of the Supreme Court in Faqir Chand Gulati 2008 (7) TMI 159 - SUPREME COURT and the decision of the Tribunal in Mormugao Port Trust 2016 (11) TMI 520 - CESTAT MUMBAI , no service tax can be levied on the appellant under BSS. Appeal allowed.

Issues Involved:
1. Whether the appellant provided "Business Support Services" (BSS) under section 65(104c) of the Finance Act, 1994.
2. Whether the revenue sharing arrangement between the appellant and film distributors/producers constitutes a taxable service.
3. Applicability of Circulars dated 23.02.2009 and 13.12.2011 issued by the Central Board of Excise and Customs.
4. Whether the Commissioner could confirm the demand beyond the scope of the show cause notice.

Detailed Analysis:

1. Provision of Business Support Services (BSS):
The appellant, engaged in exhibiting cinematographic films, was alleged by the Department to provide infrastructure support services to film distributors/producers, falling under BSS as defined in section 65(104c) of the Finance Act. The Commissioner confirmed the demand based on the interpretation that the appellant provided infrastructure to exhibit films, thus classifying it as BSS.

The Tribunal examined the Agreement between the appellant and SPE Films, noting that the distributor granted a non-exclusive license to the appellant to exploit theatrical rights. The Tribunal emphasized that the ownership rights and intellectual property rights remained with the distributor, and the appellant had the sole prerogative to decide on showcasing strategy, including screen allocation, show timings, and ticket pricing. The Tribunal concluded that this arrangement did not constitute BSS as the appellant was not providing any service to the distributors but was exploiting the theatrical rights for its own business.

2. Revenue Sharing Arrangement:
The appellant argued that revenue sharing does not necessarily imply the provision of services unless a service provider and service recipient relationship is established. The Tribunal supported this view, referencing previous decisions (e.g., Moti Talkies, The Asian Art Printers, Shri Vinay Kumar, M/s. Golcha Properties, and Satyam Cineplexes Ltd.) where similar arrangements were not considered taxable under BSS.

The Tribunal noted that the revenue sharing model indicated that the appellant paid the distributor for the rights to exhibit films, and no consideration flowed from the distributor to the appellant for any service. This arrangement was deemed a principal-to-principal transaction rather than a service provision.

3. Applicability of Circulars:
The Circular dated 23.02.2009 clarified that screening a movie is not a taxable service under BSS unless there is a rental arrangement. The Tribunal found this Circular supported the appellant's case, as the arrangement was not one of renting but of non-exclusive licensing.

The subsequent Circular dated 13.12.2011 suggested that a new entity emerges in revenue-sharing arrangements, which could be taxable. However, the Tribunal noted that this Circular would not apply retroactively to the period in question and did not alter the principal-to-principal nature of the transaction.

4. Scope of Show Cause Notice:
The show cause notice alleged that the appellant provided "operational and administrative assistance" under BSS. However, the Commissioner confirmed the demand based on "infrastructure support services." The Tribunal held that the Commissioner could not go beyond the scope of the show cause notice, referencing the Supreme Court decision in Faqir Chand Gulati and the Tribunal's decision in Mormugao Port Trust, which emphasized that no service tax could be levied under BSS in such circumstances.

Conclusion:
The Tribunal set aside the order dated 30.03.2016 passed by the Commissioner, concluding that the appellant did not provide BSS to the distributors/producers. The revenue-sharing arrangement was a principal-to-principal transaction, and the Circulars supported the appellant's position. The demands confirmed by the Commissioner were beyond the scope of the show cause notice, and thus, the appeals were allowed.

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