Clarification on levy of service tax on distributors/sub-distributors of films & exhibitors of movie - Board invites comments
IN Circular No. dated 23.02.2009, CBEC clarified as follows:
“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 contract must be examined before a view is taken.”
CBEC directed that pending cases may be disposed of accordingly. In case any difficulty is faced in implementing the said instructions, the same may be brought to the notice of the Board.
Subsequent to Circular No. 109 dated 23.02.2009, 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) b y 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.
In the light of these changes in the law and Circular No 109 dated 23.02.2009, representations were received by the Board requesting for a clarification on taxability of consideration earned by the distributors/sub-distributors/area distributors of Indian & 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 have been received from certain sections of service providers.
After examining the relevant provisions of law, CBEC has come out with the following propositions in the form of a draft Circular seeking comments:
Type of Arrangement | Movie exhibited on whose account | Appropriate Service Tax Classification |
|---|---|---|
Principal –to – Principal Basis | Movie being exhibited by Theatre Owner or Exhibitor on his account – i.e. the copyrights are temporarily transferred | Service Tax under Copyright Service to be provided by Distributor or Sub-Distributor or Area Distributor or Producer etc, as the case may be |
Movie being exhibited on behalf 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 | |
Profit / Revenue Sharing | Service provided by each of the person i.e. the ‘new entity' [if it acquires the character of ‘person'] / Theater Owner or Exhibitor / Distributor or Sub-Distributor or Area Distributor or Producer etc, as the case may be, is liable to Service Tax under respective service head | |
Board understands that the Circular dated 23.02.2009 has been misinterpreted to exclude all ‘revenue sharing' arrangements from the levy of service tax. Even though the arrangement entered into by the two entities is on ‘revenue share' basis, the nature of service provided by the theatre owner to the distributor does not change owing to operation on revenue share basis. The nature of arrangement entered amongst them is not a determining factor for leviability 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.
The arrangements mentioned in this Circular will apply mutatis mutandis to similar situations across all the services taxable under the Finance Act.
The clarification given in the CBEC Circular No 109/03/2009 dated 23.02.2009 stands amended to the extent it is contrary to the present Circular.
Chambers, trade, industry and field formations are requested to go through the Circular and offer their comments, views and suggestions.”
CBEC has requested all the stakeholders to post their comments, views and suggestions on the above propositions on or before 23rd September 2011.
CBEC Draft Circular F.No.354/27/2011-TRU. , Dated: August 19, 2011