2023 (1) TMI 108 - AT - Service Tax

Levy of service tax - Renting of immovable property service - revenue sharing arrangement - existence of service provider or service recipient relationship or not - respondent was engaged in lending the theatre to the film distributors/sub-distributors for depicting the films, whose copyrights were retained by the distributors - inter-connected services with predominance of the service of renting of immovable property to the distributor. HELD THAT - According to the respondent, the viewers visit the theatre for entertainment and the consideration is paid to the respondent for the same. The distributor and the theatre owner i.e. respondent have come together on a common platform under revenue sharing arrangement. Therefore, the two have provided the service jointly to each other and are working for the mutual benefit of both the parties. Both the parties are working independently and the share of the Distributor is given by the respondent from the gross receipts from movie tickets - This would be apparent from the agreement executed between the respondent and Mukta Arts which provides that out of the total revenue generated from the screening of films, the respondent would retain a fixed gross revenue and pay balance to the distributor. Further, as per the agreement, the gross revenue is to be distributed in the following ratio on weekly basis. This Division Bench of the Tribunal in INOX LEISURE LTD. VERSUS COMMISSIONER OF SERVICE TAX, HYDERABAD 2021 (10) TMI 893 - CESTAT HYDERABAD , examined the same issue, as has been raised in this appeal, namely whether service tax would be leviable if revenue is shared between the appellant and the producer of films and held that even in such a situation no service tax can be levied - It was held in the case 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. A revenue sharing arrangement would, therefore, not necessarily imply provision of services, unless the service provider and service recipient relationship is established. This is what was observed by the Tribunal in MORMUGAO PORT TRUST VERSUS COMMISSIONER OF CUSTOMS, CENTRAL EXCISE SERVICE TAX, GOA- (VICE-VERSA) 2016 (11) TMI 520 - CESTAT MUMBAI , M/S. OLD WORLD HOSPITALITY LIMITED VERSUS CST, NEW DELHI 2017 (2) TMI 1176 - CESTAT NEW DELHI and DELHI INTERNATIONAL AIRPORT P. LTD. MUMBAI INTERNATIONAL AIRPORT P. LTD. VERSUS UNION OF INDIA ORS. 2017 (2) TMI 775 - DELHI HIGH COURT - In the present case, there is no service provider or service recipient relationship. The contention advanced by the learned authorised representative for the department cannot be accepted. Thus, no illegality was committed by the Principal Commissioner in discharging the show cause notice - The appeal is dismissed.

Summary

Issues Involved:
1. Income from Exhibition of Movies
2. Parking and Miscellaneous Income
3. Income from Advertisement

Detailed Analysis:

1. Income from Exhibition of Movies:
The primary issue was whether the income from the exhibition of movies should be classified under "Renting of Immovable Property Services" as per Section 65(105)(zzzz) of the Finance Act, 1994. The department alleged that the respondent was lending the theatre to film distributors for depicting films and providing interconnected services, predominantly "renting of immovable property." The Principal Commissioner, however, concluded that the arrangement between the respondent and the distributors was a joint venture based on revenue sharing. The agreements showed that the respondent retained a fixed gross revenue from ticket sales and paid the balance to the distributor. The Tribunal supported this view, citing previous judgments, including Moti Talkies and Inox Leisure Ltd., which established that such revenue-sharing agreements do not constitute "renting of immovable property" since there was no consideration flowing from the distributors to the respondent.

2. Parking and Miscellaneous Income:
The show cause notice included demands for service tax on income from parking tickets, transfer charges, and miscellaneous income, classifying them under "Renting of Immovable Property Services." However, the Principal Commissioner noted that these incomes were related to operations in Kaushambi and Lucknow, where the Commissioner of Service Tax, Delhi, had no jurisdiction. Consequently, the service tax liability on these charges was dropped.

3. Income from Advertisement:
The department also demanded service tax on income from advertisements, signages, hoardings, and slide income, categorizing them under "Advertising Agency Services" as per Section 65(105)(e) of the Finance Act. The Principal Commissioner accepted the respondent's contention that they had already discharged the due service tax on these amounts. The Tribunal upheld this finding, noting that the respondent had provided sufficient evidence of tax payment.

Jurisdiction and Time Limitation:
The Principal Commissioner found that the show cause notice issued by the Commissioner of Service Tax, Delhi, was not valid for operations in Kaushambi and Lucknow due to jurisdiction issues. Moreover, the demand for the period from 01.04.2008 to 30.09.2008 was beyond the five-year limitation period and was thus unsustainable.

Security Deposit:
The Principal Commissioner ruled that the security deposit received by the respondent, being refundable, could not be subjected to service tax as it did not relate to the provision of any service.

Circulars and Legal Precedents:
The Tribunal referenced Circulars dated 23.02.2009 and 13.12.2011, which clarified that revenue-sharing arrangements do not attract service tax. The Tribunal also cited several precedents, including Golcha Properties and Moti Talkies, which consistently held that revenue-sharing agreements between exhibitors and distributors do not constitute "renting of immovable property."

Conclusion:
The Tribunal dismissed the department's appeal, affirming the Principal Commissioner's decision to drop the show cause notice. The Tribunal reiterated that revenue-sharing arrangements do not imply a service provider-recipient relationship, and thus, no service tax is leviable in such cases. The Tribunal's decision was in line with previous judgments and upheld the legal position that joint ventures based on revenue sharing do not constitute taxable services under the Finance Act.