A knotty Service Tax Notification
Here is a very interesting Service Tax notification in Budget 2007. - NOTIFICATION NO. ,Dated: March 1,2007
In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services, provided or to be provided, under an agreement, by any person to other person who has the right to authorise any person to exhibit cinematograph film, from the whole of the service tax leviable thereon under section 66 of the said Finance Act, subject to the following conditions, namely:-
(i) that the service provided or to be provided is in relation to the delivery of the content of the cinematograph film; and
(ii) that the content of such film, being in digitized form, after its encryption, is transmitted directly to a cinema theatre for exhibition through the use of satellite, microwave or terrestrial communication line and not by any physical means including CD and DVD.
Now there are three persons here. Let's meet them. Let's say they are A , B and C
1. A provides service to B
2. B has the right to authorise any person to exhibit a film. So he must be a producer, distributor or one who had purchased the rights of the film from the producers.
3. C is the film exhibitor.
Now the notification exempts any service provided by A to B. Yes it is any taxable service. But is it? No, the notification has two conditions.
1. The service has to be in relation to delivery of the content of the cinematograph film and
2. that the content of the in digitized form, after its encryption, is transmitted directly to a cinema theatre for exhibition through the use of satellite, microwave or terrestrial communication line and not by any physical means including CD and DVD.
So in effect, the notification is for service related to delivery of the content of a film that is to be telecast direct to a cinema theatre. Incidentally a new service "development and supply of content" is a proposed new service. But this exemption does not really apply to that service, which is yet to come, whereas this is an exemption from an existing service.
But do we have the technology of a producer directly telecasting his film to the theatre through the satellite? This may be best way to arrest piracy, but what is the exemption even before the technology is launched in a big way? Has some big corporate giant who is entering this field just walked off with a big exemption?