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TMI Blog2013 (7) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... effect to Circular No.148/17/2011-ST dated 13.12.2011 issued by the Central Board of Excise and Customs, Tax Research Unit, New Delhi, which was issued for the purpose of collecting service tax from film distributors/sub-distributors/theatre owners and seek for a direction not to give effect to the said circular. 2. When service tax was levied on "intellectual property services" with effect from 10.9.2004, copyright was specifically excluded from the definition of intellectual property rights. Normally, a producer of a movie sells the rights showing the movies in a region to a distributor. The distributor in turn enters into agreement with subscribers/theatre owners and this agreement can be of different types. By Circular No.109/03/2009 of Central Board of Excise and Customs bearing F.No.137/186/2007-CX.4 dated 23.2.2009, it was clarified that the screening of a movie is not a taxable service except that the distributor leases out the theatre and the theatre owner gets a fixed rent. In such case, the service provided by the theatre owner would be categorised as renting of immovable property for furtherance of business or commerce and the theatre owner would be liable to pay serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and the statute contending that the circular amounts to back door legislation and is liable to be struck down. Case of petitioners is that the impugned Circular seeks to overreach the provisions of the Act for the purpose of levy of sales tax on revenue sharing arrangements entered into by the petitioner and is in patent contravention of Article 265 of the Constitution in terms of which no tax ought to be levied or collected without the authority of the law. Under the guise of clarifying the scope of levy of service tax on distributor/ sub-distributor of films and exhibitors of movie, the impugned Circular seeks to introduce the deeming fiction of a new entity, which supposedly emerges in the case of "revenue sharing arrangement" and the concept of such new entry coming into being as a result of revenue sharing arrangement is not provided for in the Act and the impugned Circular is a clear attempt to lay down a new law. According to the petitioners, in the revenue sharing, they are already paying entertainment tax at 30% and if any service tax is levied on the share of profits out of collection from the tickets the same cannot be passed on to the actual user of the theatre since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to tax except those which are specifically mentioned in the Negative List and exemption Notification. In the light of the Negative List, which came in force with effect from 1.7.2012 - Section 66(D)(j) and also the exemption Notification No.25/2012 S.T dated 20.6.2012 and also the Notification No.3/2013- S.T dated 1.3.2013, the impugned Circular is rendered otiose. 9. We have heard learned counsel Mr.Vaitheeswaran appearing for some of the writ petitioners. Reiterating the above submissions, learned counsel Mr.Vaitheeswaran submitted that the 1st respondent travelled beyond the powers of Section 37B and the Circular is more in the nature of amendment, which was never in contemplation of the Parliament. The learned counsel submitted that by the Circular, new field of taxation is sought to be brought in and if the Parliament wanted to expand to scope of the activities, the Parliament could have brought out legislation to that effect and the Circular is a back door entry to levy the tax in the new field. 10. Taking us through the Circulars, Mr.Sundareswaran, learned counsel for respondents submitted that the Circular is not beyond the scope of Section 37B of Central Excise Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business or commerce. [Section 65(104c)] 15. In 2009, a query had been raised by the field formation as to whether the activity of screening of film supplied by a film distributor would fall under any of the taxable services and accordingly, whether the theatre owners are required to pay service tax on amount received by them from distributors. In the light of the queries raised, Circular No.109/03/2009 dated 23.2.2009 was issued clarifying the levy of service tax, where theatre owner provides taxable service of renting of immovable property for furtherance of business of commerce and accordingly liable to pay service tax under Section 65(105)(zzzz). Insofar as revenue sharing arrangement between the distributor and the theatre owner, the Circular stated that in such type of arrangements two contracting parties act on principal to principal basis and one does not provide service to another. Hence, in such arrangement the activities are not covered under service tax. The said Circular No.109/03/2009 dated 23.2.2009 reads as under: 2. The matter has been examined. Normally a producer of a movie sells the rights of showing the movies in a region to a distributor. The distributor in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Support Service to the distributor and hence is liable to pay service tax on the fixed amount received by the theater owner. 2.5. The matter has been examined. By definition Business Support Service is a generic service of providing support to the business or commerce of the service receiver. In other words the principal activity is to be undertaken by the client while assistance or support is provided by the taxable service provider. In the instant case the theatre owner screens/exhibits a movie that has been provided by the distributor. Such an exhibition is not a support or assistance activity but is an activity on its own accord. That being the case such an activity cannot fall under Business Support Service'. 3. In the light of above , it is clarified that screening of a movie is not a taxable service except where the distributor leases out the theater and the theater owner get a fixed rent. In such case, the service provided by the theater owner would be categorized as Renting of immovable property for furtherance of business or commerce and the theater owner would be liable to pay tax on the rent received from the distributor. The facts of each case and the terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... marketing" by the Finance Act, 2011 w.e.f. 1.5.2011) The word includes finds a place not only in the Section, but also in the Explanation, which we would elaborate later. 19. In the light of the amendments bringing in temporary transfer of copyright within the service tax net, the National Association of Motion Pictures Exhibitors, New Delhi submitted a letter to the CBEC seeking clarification, stating that the revenue sharing transaction between the distributor and the exhibitor is not transfer or permitting to use copyright in favour of cinema owner, however, many distributors have been writing to cinema theatre owners that they will collect service tax on the share received by the distributors from the ticket sales, which according to them, was wrong. Therefore, the association requested a clarification so that the service tax is collected by the right assesses. 20. In reply to the request made by the association, the Tax Research Unit (TRU) by clarification dated 28.04.2011 informed the association by referring to the circular dated 26.02.2010, which stated that both recording of cinematographic film and the accompanied sound track are the property of the producer, who ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovie from the sale of tickets have been received from certain sections of service providers. 24. The Circular No.148/17/2011-ST dated 13.12.2011 clarifies levy of service tax on distributors/sub- distributors of films and exhibitors of movie. The Circular reads as under: 2. These representations have been examined. Subsequent to issuance of CBEC Circular No. 109/03/2009 dated 23.02.2009 significant changes in the law have taken place. Temporary transfer or permitting the use or enjoyment of, any copyright defined in the Copyright Act, 1957 (14 of 1957), except the rights covered under sub-clause (a) of clause (1) of section 13 of the said Act were made taxable w.e.f. 01.07.2010 under the sub-clause (zzzzt) of Sec 65(105) by the Finance Act of 2010. Also, for the words operational assistance for marketing, the words operational or administrative assistance in any manner were substituted in the clause (104c) of Sec 64 of the Act by the Finance Act, 2011, w.e.f. 01.05.2011. 3. The normal business practice in the industry is that the producer of the film, who owns the intellectual property rights of the film, temporarily transfers the rights to a person [normally distributor or any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Movie exhibitedon whose account Service Tax Implication Principal -to - Principal Basis Movie being exhibited by theatre owner or exhibitor on his account - i.e. The copyrights Are temporarily transferred Service tax undercopyright service to be provided by distributor or sub- distributor or area distributor or producer etc, as the case may be Movie being exhibited on behal of Distributor or Sub- Distributor or Area Distributor or Producer etc - i.e. no copyrights are temporarily transferred Service Tax under Business Support Service / Renting of Immovable Property Service, as the case may be, to be provided by Theatre Owner or Exhibitor Arrangement under unincorpo-rated partnership/ joint/ collaboration basis Service provided by each of the person i.e. the `new entity'/ Theater Owner or Exhibitor /Distributor or Sub-Distributor orArea Distributor or Producer etc, as the case may be, is liable to Service Tax under applicable service head 11. It is understood that the Circular dated 23.02.2009 has been misinterpreted to exclude all revenue sharing arrangements from the levy of service tax. Remuneration or payment arrangements on basis of fixed or reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax on all revenue sharing arrangements. 28. The impugned circular is a clarification on levy of service tax on distributors/sub-distributors of films and exhibitors of movie. This is in contradistinction to the circular dated 23.02.2009, which pertains to service tax on movie theatres alone. When, we examine the circular it comes to light that the need for issuing circular was on account of representations requesting clarification on taxability of consideration earned by distributors/sub-distributors/area-distributors of Indian and Foreign films in the form of revenue share from the exhibitors of the movie and on revenue retained as percentage by the exhibitors of the movie from the sale of tickets in the light of the change in the law and the misinterpretation of earlier circular dated 23.02.2009. 29. It is to be pointed out that the types of arrangements referred to in both the circulars i.e, 23.02.2009 and the impugned circular are only illustrative and not exhaustive. Therefore, the observations contained in the impugned circular for the purpose of issuing a clarification can at best be understood as a sample arrangement, which has come to the knowledge of the CBEC, which for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and share risks. It requires a community of interest in the performance of the subject-matter, a right to direct and govern the policy in connection therewith, and duty, which may be altered by agreement, to share both in profit and losses. The independence of joint venture as a separate legal entity, away from its constituent members, has further been fortified in the case of M/s Gammon India Ltd. Vs Commissioner of Customs, Mumbai, 2011-TMI - 204309 wherein the hon'ble Supreme Court categorically denied the benefit of exemption to the JV as the impugned goods were directly imported by constituent member. 9. Thus, where the distributor or sub-distributor or area distributor enters into an arrangement with the exhibitor or theatre owner, with the understanding to share revenue/profits and not provide the service on principal-to-principal basis, a new entity emerges, distinct from its constituents. As the new entity acquires the character of a person, the transactions between it and the other independent entities namely the distributor / sub-distributor / area distributor and the exhibitor etc will be a taxable service. Whereas, in cases the character of a person is not acquired ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ratio laid down in the case of Faqir Chand Gulati cannot be of any assistance to the petitioners to buttress their contention. 35. The circular relies upon the judgment in New Horizons Ltd. to explain the expression joint venture. In fact the decision in New Horizons Ltd., has been relied on in the case of Faqir Chand Gulati. Therefore, we are not inclined to accept the contention that the decision in New Horizons Ltd., has been set at naught to hold that joint venture partners do not provide service to each other. As noted above, in the case of Faqir Chand Gulati , the Hon'ble Supreme Court found that though the nomenclature of the agreement was a joint venture, it was not a joint venture in the true sense. Thus, it boils down to the proposition that each case has to be examined individually on its facts to ascertain the true intent and conduct of the parties. 36. The circular at best could be taken to have examined one type of arrangement, where the exhibitors apart from letting out its premises is also giving support services for the business of the distributors. In such an event, the arrangement between the parties acquires a distinctive character. To explain it furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord "includes" occurring in Section 65(104c) is very significant that the Section does not restrict to "business or commerce", but also includes "evaluation of prospective customers, telemarketing, processing of purchase orders and fulfillment services, information and tracking of delivery schedules, managing distribution and logistics, ...... operational or administrative assistance in any manner." 40. The word "includes" has been judicially interpreted in number of judgments. Interpreting the word "includes" and observing that generally word "includes" should be given wide interpretation and by employing such , legislature intends to bring in, by legal fiction, something within accepted connotation of substantive part, in RAMALA SAHKARI CHINI MILLS LTD. VS. COMMISSIONER OF C.EX., MEERUT-I, ((2010) 14 SCC 744 = (2010) (260) E.L.T. 321 (S.C)), it was held as under: "14. Similarly, in ESI Corpn. v. High Land Coffee Works, (1991) 3 SCC 617, another three-Judge Bench of this Court had observed that: (SCC pp.619-20, para 7) 7. ... The amendment is in the nature of expansion of the original definition as it is clear from the use of the words include a factory. The amendment does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt services as contained in clause (104c) of Section 65 has expanded the definition of support services and this has given rise to certain doubts in the minds of the assesses as well as the field officer which has been eventually clarified in the impugned circular. 42. Mr.K.Vaitheeswaran learned counsel places reliance on the decision of the Hon'ble Supreme Court in P.KASILINGAM VS. P.S.G.COLLEGE OF TECHNOLOGY, (1995) SUPP (2) SCC 348 = AIR 1995 SC 1395 to contend that the use of the word means the definition is a hard and fast definition and no other meaning can be assigned to the expression than it is put down in the definition. The word includes when used, enlarges the meaning of the expression defined so as to comprehend not only such things as they signify according to their natural import, but also those things which the clause declares that they shall include. The words means and includes on the other hand indicates an exhaustive explanation of the meaning which for the purpose of the Act must invariably be attached to these words or expression. 43. These observations were made by the Hon'ble Supreme Court while considering the expression college as defined under R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are pre-mature. 45. Petitioners then contended that in the light of the sweeping changes brought in service tax regime, and in view of operation of Negative List and Section 66D(j) exempting "admission to entertainment events or access to amusement facilitates" and also the mega notification No.25/2012 dated 20.06.2012, exhibition of film in cinema theatre is exempted from levy of service tax and therefore the impugned Circular No.148/17/2011-ST alone becomes otiose and in this context the impugned circular is liable to be quashed. 46. The Finance Act, 2012 has completely revamped the service tax regime. Under the new service tax regime, as per Section 66D, all services will be liable to tax except those which are specifically mentioned in the exemption notification and the Negative List. Section 66B of the Act levies tax on all services other than those services specified in the Negative List. Section 66D of the Finance Act 1994 sets out the various services that are not liable to be taxed in the sense that they do not fall under the charging Section 66B. As per Section 66D(j), "admission to entreatment events or access to amusement facilitates", are exempted from service tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Act, 1957 (14 of 1957), relating to original literary, dramatic, musical or artistic works; or (b) of cinematograph films for exhibition in a cinema hall or cinema theatre." 50. By a combined reading of Section 66D(j), Notification Nos.25/2012-S.T dated 20.06.2012 and 3/2013-S.T. Dated 1.3.2013, it is clear that what is exempted is only an admission to entertainment events or access to amusement facilities or exhibition of cinema in a theatre. The variant modes of transaction between the distributor/sub-distributors of films and exhibitors of movie and the revenue sharing arrangement between them are neither in the "Negative List Services" nor exempted. 51. As we pointed out in W.P.No.29398 of 2010 etc., batch, with more multiplexes and single theaters on rise right from cities to moffusil, there is a huge rise in business over all. The source of concept of service tax lies in economics. Huge money is involved in film industry, coupled with host of commercial activities right from the Box Office to theatrical exhibition. Having regard to the variant modes of arrangements between the distributors/sub-distributors of films and exhibitors of movie, CBEC was justifie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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