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Whether revenue sharing arrangements attract service tax prior and post 1st July, 2012 |
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Whether revenue sharing arrangements attract service tax prior and post 1st July, 2012 |
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Dear Professional Colleague, We are sharing with you a recent judgment of the Honorable CESTAT, New Delhi and would like to discuss implication of same prior and post 1st July, 2012:- Citation : 2012 (7) TMI 504 - CESTAT, NEW DELHI Appellant (s) : KPH Dream Cricket (P) Ltd Respondent (s) : CCE, Chandigarh Issue:- Whether revenue sharing arrangements attract service tax? Facts of the Case:- The appellant was a franchisee of BCCI-IPL and received payment from BCCI-IPL as its share in receipts towards media rights and other income collected centrally by BCCI-IPL. The key issue in the appeal was whether the amount received by the appellant from BCCI-IPL liable to service tax as business support services provided to BCCI-IPL. Held:- The revenue sharing arrangements prima facie do not attract service tax. The Department is of the view that the franchisee is providing business support services to BCCI-IPL which utilises these services for promoting its business interests. Hence, services are being provided to BCCI-IPL and payment is being received in return. Therefore, service tax is required to be paid by the assessee. The appellant in his submission stated that payments are being received from BCCI-IPL as its share of receipts towards media rights and other income collected by BCCI-IPL. There are no services being provided. The appellant has relied on the Circular No. 109/03/2009-ST dated February 23, 2009. The Circular provides that sometimes, there is a contract between the theatre owner and the distributor on a revenue sharing basis i.e. percentage of revenue earned from selling the tickets goes to the theatre owner and balance goes to the distributor. In this case, the two parties act on a principal to principal basis and one does not provide service to another. Therefore, in such an arrangement, the activities are not covered under service tax liability. The Hon’ble CESTAT, New Delhi prima facie applied the above situation in the above case and rejected the contention of the Department that the appellant was providing business support service to the BCCI-IPL. Therefore, no service tax was chargeable. Subsequent Clarification by the Board on Revenue Sharing Arrangement:- The Board has issued a further clarification vide Circular no. 148/17/2011-ST dated 13.12.2011 which provides that every revenue sharing arrangement is not outside the service tax net and following conclusion drawn in said Circular:-
Take of Board on Revenue Sharing Arrangement post 1st July, 2012:- This issue is answered in Para 2.4.3 of the Education guide issued by TRU. Query:- Are services provided by persons who have formed unincorporated joint ventures or profit-sharing arrangements liable to be taxed? Answer:- The services provided, both by the so constituted JV or profit sharing association of persons (AOP), as well as by each of the individual persons constituting the JV/AOP will be liable to be taxed separately, subject of course to the availability of the credit of the tax paid by independent persons to the JV/AOP and as otherwise admissible under Cenvat Rules. ‘Person’ has been defined under Section 65B of the Finance Act & not restricted to natural person. The following shall be considered as persons for the purposes of the Act: • an individual • a Hindu undivided family • a company • a society • a limited liability partnership • a firm • an association or body of individuals, whether incorporated or not • Government • a local authority, or • every artificial juridical person, not falling within any of the preceding sub-clauses. Is there any exception to the General rule that only services provided by a person to another are taxable? General rule that only services provided by a person to another are taxable but there are following exceptions, contained in Explanation of Section 65B(44), are:
Implications of these deeming provisions are that inter-se provision of services between such persons, deemed to be separate persons, would be taxable. For example, services provided by a club to its members and services provided by the branch office of a multinational company to the headquarters of the multi-national company located outside India would be taxable provided other conditions relating to taxability of service are satisfied. Conclusions:- The nature of transaction determines the leviability of service tax. Each case may be looked into on its merits and decision be taken on case to case basis. Hope the information will assist you in your Professional endeavours. In case of any query/ information, please do not hesitate to write back to us. Thanks & Best Regards.
By: Bimal jain - July 21, 2012
Discussions to this article
Dear Bimal, the club and members might have been construed as different persons. But still the condition of consideration exists. If there is no obligation of the club against the members, how can be be consideration. It is merely a contribution. Pl consider
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