TMI Blog2013 (7) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... ates", are exempted from service tax, thus are non-taxable Negative List services. What is not taxable is "tax on admission to entertainment events or access to amusement facilities", the reason, being, "tax on admission or entry of such events is covered in the State List, which is subjected to Entertainment Tax. The Central Government has issued Mega exemption Notification No.25/2012-S.T dated 20.06.2012. As pointed out earlier, from 2012, the basis of levying service tax was changed from "service specific levy" to "levying tax on all services except services specified in Negative List and the Exemption Notification." 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. The impugned Circular No.148/17/2011-ST dated 13.12.2011 cannot be said to be beyo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the theatre owner would be liable to pay service tax on the rent received from the distributor. Insofar as revenue sharing arrangement, the Circular clarified that in such type of arrangement, the two contracting parties act on principal to principal basis and one does not provide service to another and in such arrangements, the activities are not covered under the service tax. 3. With effect from 1.7.2010, business of licensing of copyrights was brought within the service tax net by making amendments to the definition of taxable service under Clause (105) of Section 65 by introducing sub-clause (zzzzt). As per Section 65(105) sub-clause (zzzzt), service tax is leviable on any temporary transfer of copyright or permitting the use or enjoyment of the copyright excepting rights covered under sub-clause (a) of clause (1) of Section 13. 4. In Section 65, Clause (104c) of the Finance Act by the Finance Act, 2011, for the words operational assistance for marketing, the words operational or administrative assistance in any manner were substituted in Clause (104c) of Section 64. 5. Considering the taxing entry for copyright services introduced vide Section 65(105)(zzzzt) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cannot be passed on to the actual user of the theatre since the ticket prices cannot be increased in view of the ceiling fixed by the State Government. The impugned Circular is without authority of law and is liable to be struck down. 7. Resisting the Writ Petitions, respondents filed counter stating that the impugned Circular was issued under Section 83 of the Finance Act, 1994 read with Section 37B of the Central Excise Act. According to the respondents, as per Section 83, certain provisions of the Central Excise Act, 1944 have been made applicable to the Finance Act and Section 37B of the Central Excise Act is one such provision, which has been made applicable to the Finance Act and Section 37B enables the 3rd respondent to issue instructions/clarifications to ensure uniformity in levy of service tax. According to the respondents, owing to the changes in the law and also the representations received seeking clarification on taxability of consideration earned by distributors/sub-distributors/area distributors in the form of revenue sharing , the Circular dated 13.12.2011 came to be issued and it is only a clarification in respect of the transactions for levy of service tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Circular is not beyond the scope of Section 37B of Central Excise Act and owing to the changes in the Law, the circular came to be issued. The learned counsel further submitted that keeping in view three categories of services, which are taxable, the impugned Circular was issued to ensure uniformity in the levy of service tax. The learned counsel also submitted that without challenging the vires of taxable copyright services under Section 65(105)(zzzzt) and also Section 65(104c) the writ petitioners cannot seek for quashing the Circular. 11. We are to consider whether the impugned Circular seeks to bring in a new field of taxation and whether the impugned circular is beyond the powers of the Board under Section 37B of Central Excise Act. 12. In terms of Section 83 of the Finance Act, certain provisions of the Central Excise Act including Section 37B are made applicable to the provisions of the Finance Act. It has not been disputed before us that the impugned circular has been issued in exercise of the powers conferred under Section 37B of the Central Excise Act. Section 37B enables the Board to issue directions for the purpose of uniformity in two matters viz., (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a movie sells the rights of showing the movies in a region to a distributor. The distributor in turns enters into agreement with theater owners. This agreement can be of different types. Thus it is necessary to examine different types of arrangements under which a movie is screened, in order to determine whether any tax liability arises on the activities undertaken by a theater owner and a distributor. Typical types of arrangements normally entered into between a theater owner and a distributor are as under:- 2.1. Under one type of arrangement, the distributor leases out the hall for screening of the movie. Here, the theater owner gets a fixed rent from the distributor. The profit or loss from exhibiting the film is borne by the distributor. In such a case, the theatre owner provides the taxable service of Renting of immovable property for furtherance of business or commerce and is accordingly liable to pay service tax. 2.2. Another type of arrangement is where the contract between the theatre owner and the distributor is on revenue sharing basis i.e. a fixed and pre-determined portion i.e. percentage of revenue earned from selling the tickets goes to the theater owner and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be liable to pay tax on the rent received from the distributor. The facts of each case and the terms of contract must be examined before a view is taken. 16. Circular dated 23.02.2009 stated that service tax is payable on renting of immovable property . In the Circular, it was clarified that definition business support service is generic - providing support to the 'business or commerce' of the service-receiver. It was felt that screening/exhibition of a movie in a theatre is not support or assistance activity, but is an activity on their own accord and such an activity cannot fall under business support service . 17. With effect from 1.7.2010, Business of licensing of copyrights was brought within the service tax net by making amendment to the definition of taxable service under Clause (105) of Section 65 by introduction (zzzzt). Section 65(105) (zzzzt) defines taxable service as under: Taxable service means any service provided or to be provided to any person, by any other person, for - (a) transferring temporarily; or (b) permitting the use or enjoyment of, any copyright defined in the Copyright Act, 1957, except the rights covered under sub-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2010, which stated that both recording of cinematographic film and the accompanied sound track are the property of the producer, who can temporarily transfer it or permit its use by another person for a consideration and this activity is being taxed under the service and it would have an impact on royalty payments when producer/ right-holder allows such use to another person say the distributor. 21. The clarification dated 28.04.2011, stated that what was taxed under the new levy was temporary transfer or permission to use the cinematographic film and the accompanying sound track, since the members of the association of exhibitors are not purchasing the rights from the producer, they will not be covered under the said levy. However for any different arrangement other than those mentioned in the letter of the association, may be covered under any other service classified under Section 65 (105) of the Finance Act as amended. 22. Therefore, the clarification dated 28.04.2011, made it clear that the exhibitors who do not purchase rights from the producer will not be subjected to service tax under the head 'copyright service'. Any other different arrangement was not kept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oducer of the film, who owns the intellectual property rights of the film, temporarily transfers the rights to a person [normally distributor or any other person] who directly or indirectly enters into an agreement with the exhibitor [normally theater owner] for screening of the film. There are also other variant modes of transaction in the industry. 4. In cases where distributor transfers the rights to sub-distributor, area distributor, exhibitor or theatre owner, the distributor is liable to collect the service tax under copyright service deposit it with the government exchequer. Similarly when the sub-distributor or area distributor etc further transfers the rights to any person, he is also liable to collect the service tax under copyright service deposit it with the government exchequer. 5. In cases where no such copyrights are transferred by the distributor or sub-distributor or area distributor to the exhibitor or theatre owner, the same is not chargeable to service tax under Copyright Services. However the business transaction needs to be examined for leviability of service tax under other heads. Depending upon the arrangement whether the theatre owner has merely l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 revenue sharing or profit sharing or hybrid versions of these may exist. However, 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.... 25. In terms of Section 83 of the Finance Act certain provisions of the Central Excise Act including Section 37B are made applicable to the provisions of the Finance Act. It has not been disputed before us that the impugned circular has been issued in exercise of the power conferred under Section 37B of the Central Excise Act. The petitioners contend that the impugned circular is violative of the proviso to Section 37B of the Central Excise Act, which provides that no orders, instructions, and directions shall be issued so as to require any Central Excise Officer to make a particular assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 formed the basis for issuance of the clarification. 30. It should be noted that the clarification was not suo-moto, but on account of request made by the association of exhibitors. The circular makes this aspect abundantly clear, since it states that there are also other varied modes of transaction in the industry. Furthermore, it is explicitly mentioned that business transactions need to be examined for leviability of service tax under other heads, which depends upon the arrangement whether the theatre owner has merely given his premises to the distributor or is also involved in giving support services for the business of the distributor. In which case, it is stated that the arrangement is leviable to service tax under business support service or renting of immovable property. 31. The Circular No.148/17/2011-ST d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 in the business transaction and the transaction is as on principal-to-principal basis, the tax is leviable on either of the constituent members based on the nature of the transaction and as per rules of classification of service as embodied under Sec 65A of Finance Act, 1994. 32. The petitioners would vehemently contend that the Finance Act does not contemplate any such joint venture and the circular attempts to create an artificial person, when the nature of arrangement between a distributor and an exhibitor is on a principal to principal basis. They would further contend that the reliance placed on, Section 65(104c) defining support services of business or commerce is thoroughly misconceived, as the said provision deals with services, which are outsourced and this is explicit from the budget speech of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 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 further, the exhibitor provides the theatre to the distributor for exhibiting the film, the distributor by taking the premises exhibits the film. In addition to this transaction, if the exhibitor provides other services for the distributor for the purpose of exhibiting the film for which there is revenue sharing or some arrangement is made, then such service rendered by the exhibitor cannot be stated to be an arrangement simpliciter, as owner of a theatre. By virtue of the exhibitor being owner of the theatre, he offers the premises in which he is licenced by the State Government and other authorities to screen films. Any other service rendered by the exhibitor beyond the scope of his rights as owner of the theatre should definitely be distinguishable from his right as an exhibitor. This nature of tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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 restrict the original definition of seasonal factory but makes addition thereto by inclusion. The word include in the statutory definition is generally used to enlarge the meaning of the preceding words and it is by way of extension, and not with restriction. The word include is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used, these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import but also those things which the interpretation clause declares that they shall include. 15. Therefore, it is trite that generally the word include should be given a wide interpretation as by employing the said word, the leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 Rule 2(b) of the Tamil Nadu Private Colleges (Regulation) Rules, 1976 which defines college to mean and include Arts and Science college, Teachers training college, Physical education college etc. In contradistinction to the said definition clause college which was considered in the decision of the Hon'ble Supreme Court, clause (104c) of Section 64 uses the expression support services of business or commerce means services provider in relation to business or commerce and includes evaluation of prospective customers etc. Therefore, the expression means and includes are not used in conjunction and there is a clear distinction as support services of business or commerce means services provided in relation to business or commerce and includes other categories some of which app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Section 65B(24) defines entertainment event as under:- entertainment event means an event or a performance which is intended to provide recreation, pastime, fun or enjoyment, by way of exhibition of cinematographic film, circus, concerts, sporting event, pageants, award functions, dance, musical or theatrical performances including drama, ballets or any such event or progamme. Section 65B(9) defines amusement facility as under: amusement facility means a facility where fun or recreation is provided by means of rides, gaming devices or bowling alleys in amusement parks, amusement arcades, water parks, theme parks or such other places but does not include a place within such facility where other services are provided. 47. As pointed out earlier, acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 justified in issuing the Circular clarifying the transactions between the distributor/sub-distributor and owners of the theatres and levy of service tax and that the nature of transaction determines the leviability of service tax and decision to be taken on case to case basis. The impugned Circular No.148/17/2011-ST dated 13.12.2011 cannot be said to be beyond the powers of Central Board of Excise and Customs. The Circular does not restrict the powers of the officials to decide a particular dispute in a particular manner and the impugned circular is not violative of Section 37B. All the writ petitions are liable to be dismissed. 52. In the result, all the writ petitions are dismissed. Consequently, the connected miscellaneous petitions are closed. Interim stay granted in the var ..... X X X X Extracts X X X X X X X X Extracts X X X X
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