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2022 (5) TMI 1397 - AT - Service TaxClassification of services - Business Support Service or not - business of exhibiting cinematographic films across India in theatres owned by it or taken on rent - revenue sharing arrangement - whether the arrangement between the appellant and the distributors would lead to constitution of an Association of Persons or whether the same has to be treated on principal to principal basis? - HELD THAT - 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 rights conferred upon the appellant. 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 PVS Multiplex India 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. 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 - decided in favor of appellant.
Issues Involved:
1. Whether the arrangement between the appellant and the distributors constituted an Association of Persons or was on a principal-to-principal basis. 2. Whether the appellant provided Business Support Services (BSS) to the distributors. 3. Applicability of service tax on revenue sharing arrangements. 4. Interpretation of relevant Circulars issued by the Central Board of Excise and Customs. Issue-wise Detailed Analysis: 1. Association of Persons vs. Principal-to-Principal Basis: The Commissioner argued that the agreement between the appellant and distributors constituted a joint venture, forming an Association of Persons, based on the Supreme Court's judgment in Faqir Chand Gulati vs. Uppal Agencies Pvt. Ltd. The Commissioner relied on a Circular dated 13.12.2011, which suggested that such arrangements lead to the emergence of a new entity. However, the appellant contended that the arrangement was purely on a principal-to-principal basis, as supported by various Tribunal decisions, including Inox Leisure Ltd. vs. Commissioner of Service Tax, Hyderabad and others. The Tribunal agreed with the appellant, emphasizing that the agreements did not indicate joint ownership, control, or shared profits and losses, which are essential parameters for a joint venture. 2. Provision of Business Support Services (BSS): The Commissioner held that the appellant provided BSS to the Association of Persons, falling under the definition of BSS before and after the amendment. The appellant argued that no service was provided to the distributors, as the relationship was based on revenue sharing, not service provision. The Tribunal noted that the appellant paid the distributors for screening rights, and no consideration flowed from the distributors to the appellant for any alleged service. The Tribunal cited several decisions, including Moti Talkies vs. Commissioner of Service Tax, Delhi-I, where it was held that no service was provided to the distributors, and the agreements were for screening rights, not renting of immovable property or BSS. 3. Revenue Sharing Arrangements: The appellant argued that revenue sharing does not imply a service provider-recipient relationship. The Tribunal supported this view, citing decisions like Mormugao Port Trust vs. Commissioner of Customs, Central Excise & Service Tax, Goa, which explained that public-private partnerships and joint ventures do not constitute a service relationship. The Tribunal emphasized that in such arrangements, partners contribute resources for a common business activity, and there is no consideration for specific services, thus no taxable service is present. 4. Interpretation of Circulars: The Tribunal examined Circulars dated 23.02.2009 and 13.12.2011. The 2009 Circular clarified that screening movies is not a taxable service unless the theatre owner leases out the theatre. The 2011 Circular suggested that revenue-sharing arrangements could lead to a new entity subject to service tax. However, the Tribunal noted that this Circular would not apply retroactively and did not support the Department's case. The Tribunal relied on the Supreme Court's decision in Faqir Chand Gulati and the Tribunal's decision in Mormugao Port Trust, concluding that no service tax could be levied under BSS. Conclusion: The Tribunal set aside the order dated 30.10.2018 passed by the Commissioner, confirming the demand of service tax, interest, and penalty. The appeal was allowed, emphasizing that the appellant's arrangement with distributors did not constitute an Association of Persons or involve the provision of BSS, and revenue-sharing arrangements do not necessarily imply a service relationship. The relevant Circulars and judicial precedents supported the appellant's case.
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