By Puloma Dalal, Jayesh Gogri, Mandar Telang, Chartered AccountantsPuloma Dalal, Jayesh Gogri, Mandar Telang, Chartered Accountants
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Validity of Circular No.148/17/2011 vis-à-vis concept of new entity in revenue sharing arrangement, violation of section 37B of Central Excise Act, – Scope of section 66D(j) and Exemption Notification.
Facts:
The petitioner challenged the validity of Circular No.148/17/2011–ST dated 13-12-2011 on the following issues:
• It seeks to create a new entity and has made the transaction between the new entity, theatre owner, distributor or producer liable to service tax. 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 wherein revenue sharing arrangement exists.
• The circular directs and binds the assessing authority in effect to hold all transactions in which there is revenue sharing to be a joint venture liable to service tax.
• In the light of section 66D(j) and Notification No.25.2012-ST dated 20-06-2012, Circular No.148/17/2011-ST alone becomes otiose and liable to be quashed.
Held:
• The Circular contemplated a situation where an exhibitor not only provided theatre to distributor (in his capacity as owner), but also provided other services for the purpose of exhibiting film by entering into revenue sharing agreements. In such arrangements, there was a possibility of the existence of new entity. Once the conclusion was arrived that there was a new entity, it was to be seen independently as to whether such services rendered by the new entity would fall within any of the entries for levy of service tax.
• Considering the second contention as baseless, the High Court observed that the arrangements referred to in the impugned circular can at best be taken as an illustration and cannot be termed as an exhaustive or a comprehensive list of arrangements. Further, the circular itself clearly spells out that the nature of transaction is a question of fact, which the exhibitor/ distributor/producer has to place before the department and such arrangement was to be examined on its merits. 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.
• As regards the third contention, the High Court held that, by a combined reading of section 66D(j), Notification Nos.25/2012-ST dated 20- 06-2012 and 03/2013-ST dated 01-03-2013, it was 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.
