Custom, Excise & Service Tax Tribunal
Meghraj Cinema vs Commr Service Tax- Vii Mumbai on 19 August, 2024
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
MUMBAI
REGIONAL BENCH - COURT NO. 2
SERVICE TAX APPEAL NO: 87269 OF 2016
[Arising out of Order-in-Original No: 05 to 07/ST-VII/RK/2016 dated
31st May 2016 passed by Commissioner of Service Tax, Mumbai-VII.]
Meghraj Cinema ... Appellant
Plot No.22, Near Abbot Hotel, Sector 2
Vashi, Navi Mumbai-400703
versus
Commissioner of Service Tax ...Respondent
Mumbai - VII
13th Floor, Satra Plaza, Palm Beach Road,
Sector - 19D, Vashi, Navi Mumbai - 400 705
APPEARANCE:
None for the appellant
Shri S B P Sinha, Superintendent (AR) for the respondent
CORAM:
HON'BLE MR JUSTICE DILIP GUPTA, PRESIDENT
HON'BLE MR C J MATHEW, MEMBER (TECHNICAL)
FINAL ORDER NO: A/85785/2024
DATE OF HEARING: 22/02/2024
DATE OF DECISION: 19/08/2024
PER: C J MATHEW
Back in the days when 'talkies' was the only avenue (other
than an occasional travelling circus) for mass entertainment, a
theatre-owner, or 'exhibitor' as now known, made money from
fans thronging the cinema to find diversion in the latest releases,
whose successes were benchmarked by collections at the 'box
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office' and, most often, from the 'jubilee' runs, for which they
would procure 'copyright', temporarily for the duration of the
screening by paying a pre-arranged share of the weekly takings,
from 'distributors' who had longstanding relationships with
producers or studios for new offerings. Undoubtedly, a service was
rendered to the patrons and the consideration subjected to levy
of indirect impost, as entertainment tax, charged to the exhibitor
on ticket sale to be borne by the patron. This was not a levy of
contemporary times but one that has a hoary past and,
interestingly enough in India, much to do with struggle for
freedom from the colonial yoke. A tax that was permitted, as
resource measure, to the 'subsidiary states' by the 'Paramount
dispensation' under treaty, the Government of India Act, 1919
devolved it initially to the provincial governments of Bengal and
Bombay before extending the privilege to other provinces by the
Government of India Act, 1935. The framers of the Constitution
considered it fit to be excluded from the taxing power of the Union
by emplacing it in List II of the Seventh Schedule and there it
remained with constituent states according exemptions in keeping
their respective policies concerning the product of an industry
which, by the last quarter of the previous century, had grown to
be the biggest in the world.
2. There is a purpose behind this prefacing narrative for it is
moot if a tax, enacted by the Union to subject 'services' to levy
under residuary empowerment during the relevant time, can alter
ST/87269/2016
3
the contours of a transaction already being taxed for over a
century by substituting one of the parties to it for 'tax access' to
the consideration. For that is the core of the dispute in this appeal
against a demand erected on a circular of the Central Board of
Excise & Customs (CBEC) which featured grafting an 'association
of persons (AOP)' as custodian of 'box office', in lieu of the
'exhibitor', to tax share of the theatre takings not retained by the
latter as consideration for rendering 'support service of business
or commerce' in pursuit of common cause with 'distributor' for
screening of films. It is not about a fresh tax under Finance Act,
1994 on the same transaction taxed under the relevant statute of
a state government which has been packaged as constitutionally
justifiable. It is not about taxing a service provided by the
'exhibitor' to the 'distributor' which may well be within ambit of
Finance Act, 1994. Before we find ourselves stepping into that
which it is and that which it is not, we would do well to advert to
the claims and counter-claims. But first to the facts as set out in
order1 of Commissioner of Service Tax, Mumbai-VII which is
impugned before us even as we are cognizant that, non-
representation for the appellant notwithstanding but the
circumstances permitting, the appeal can be disposed off with the
assistance of Learned Authorised Representative.
3. The appellant, M/s Meghraj Cinema, is a theatre owner and,
in keeping with industry practice, screened films for which
order-in-original No. 05 to 07/ST-VII/RK/2016 dated 31st May 2016]
1 [
ST/87269/2016
4
copyright was temporarily transferred by distributors in
accordance with agreements, setting out the period and the
declining share of 'net' from the box office collections for each
week as consideration thereof, for each of such. Sub-distributors,
such as M/s Balaji Motion Pictures Ltd and M/s Yash Raj Film
Distributor who had entered into agreement with the appellant for
screening of 'Shootout at Wadala' and 'Gunday' respectively which
were considered to be representative of similar transactions with
others, not only negotiated the deal involving prior payment
against which the earnings were transferred to the distributor
beyond such advance while the appellant undertook to handle
promotion of the film locally. Based on the weekly box office
collection details, the sub-distributor raised invoices, representing
the cost of assignment of rights, on the exhibitor at the agreed
rate and the amount remaining after all payouts retained with
them and it is this amount that the service tax authorities brought
the levy to bear upon besides some minor amounts which the
exhibitor had segregated in their annual financials towards
advertisement and transport.
4. The demand straddles the 'negative list' era as well as the
preceding regime and, thereby, the first of the notices for ₹
70,19,786, issued on 29th September 2014, for 2009-10 to 2012-
13, charges the levy for having provided 'support service of
business or commerce', 'selling of space or time slots for
advertisement service' and 'goods transport by road service'
ST/87269/2016
5
followed by periodical demands of ₹ 13,13,554 and of ₹ 5,43,896
on 22nd April 2015 and 12th February 2016. The confirmation of all
three, along with imposition of penalty of ₹ 70,19,786 under
section 78 of Finance Act, 1994 and of ₹ 1,85,745 under section
76 of Finance Act, 1994, is cause of cavil in this appeal. The
impugned order placed overwhelming reliance on circular2 of
Central Board of Excise & Customs (CBEC) clarifying that
'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 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.'
and, in a sense, is foundation of the proceedings initiated against
the appellant inasmuch as the provocation appears to have
stemmed from some portion of their 'taxable income' - so
designated in the impugned order instead of 'value of taxable
service' as it should have been - not having been subjected to
circular no. 148/17/2011-ST dated 13th December 2011]
2 [
ST/87269/2016
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'service tax' and, owing to the proposition in the circular, merely
awaiting avulsion of a transactional entity distinct from either, and
both, of the parties to the agreement.
5. The specifics therein, in stark contrast with circular3 issued
two years earlier, were held to authorise charging of tax upon
identification of 'joint venture' entity which, by its very nature,
was premised as the recipient of service provided by the
constituents. Impliedly, in rendering of service - not to each other
or jointly to patrons but independently by the two - conformity
with 'principal-to-principal transaction' stood obliterated. The logic
in the distinguishment is not immediately apparent because every
commercial transaction cannot but be 'principal to principal' if it
not be on agency basis; this offers reason to speculate that
'principal-to-principal', in the context of the clarification in the
impugned circular, was intended to mean direct
procurement/rendering by one person from/to another and liable
to tax even as the circular also suggests, and amply evident in
paragraph 10 therein, that the other transactional engagements
prevalent in the industry were not immune from tax either. The
apparent volte face is attributed in the impugned circular to
misinterpretation of the earlier stance offering sufficient
justification to re-visit the controversy.
6. The principal contention of the appellant is that the
3 [circular no. 109/03/2009 dated 23rd February 2009]
ST/87269/2016
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agreements have been misconstrued for contriving a new entity
birthed therefrom and that the circular of 2011 has been
inappropriately relied upon by disregard of the clear instructions
in that of 2009 inasmuch as the former has not disowned the
exhortation that each arrangement must be scrutinized for
ascertaining the elements of service, as set out in Finance Act,
1994, as prelude to tax. Contending that the earlier circular was
not superseded by the later, it was posited that its binding nature
should not have been lost on the adjudicating authority. Denying
that there was any intent of collaboration for sharing of risk and
return as to insinuate a 'joint venture', it was further contended
that there was no service rendered by the appellant except to
cinema patrons as to warrant conformity with description of
service in section 65(104c), or section 65B (44) in the 'negative
list' regime, of Finance Act, 1944 for which the grounds of appeal
refers to explanatory communication4 issued by Central Board of
Excise & Customs (CBEC) immediately after the impugned service
was incorporated in Finance Act, 1994.
7. Learned Authorised Representative took us through the case
of service tax authorities and, in particular, to the agreement
intended for mitigation of risk, through revenue-sharing
arrangements, as well as the scope for determining it as 'joint
venture' from conformity with the structure explained by the
Hon'ble Supreme Court in Faqir Chand Gulati vs. Uppal
4 [letter no. 334/4/2006-TRU dated 28th February 2006]
ST/87269/2016
8
Agencies P Ltd5. According to him, the costs incurred in
exhibiting any film in the collaboration between owner of the
theatre and owner of the right to screen the film and met from the
'box office collection' represents the consideration for service
rendered to the collaborative venture by each with the 'box office'
as the corporeal manifestation of 'association of persons' birthed
in the arrangement.
8. 'Parallel' is an expression deployed in context of the film
industry but here we find two parallel lines - of constitutional
restriction disbarring levy on screening of films and fictional
conception of an entity excoriating the flesh and blood of the
charging provision - sought to be converged for bringing the 'box
office', or part thereof, within the tax net of Finance Act, 1994.
The implication is that the 'box office' manifests the joint venture
between the exhibitor and distributor and, though not liable to tax
of itself, had incurred costs of procuring 'service' from the two
collaborators of which provision of 'support service of business or
commerce', enabling the venture to screen films, was sought to
be fastened on the exhibitor. That such collaboration can exist
only with the distributor too contributing in some way to the
venture and would be still-born in absence thereof is not an aspect
that the adjudicating authority considered necessary to dilate
upon as necessary qualification for such a collaboration. Instead,
the impugned order has read the circular pertaining to taxability
5 [2008 (12) STR 401 (SC)]
ST/87269/2016
9
of service rendered to joint ventures as conclusion that all such
screening arrangements are to deemed as fitting the tax model.
9. An identical dispute had come up before the Tribunal for
decision in Inox Leisure Ltd v. Commissioner of Service Tax,
Hyderabad6 with challenge to finding in adjudication therein that
exhibitor was provider of the same service, and by citing support
of precedent decisions, thus
'3.(i) The issue involved in the appeal has been decided in
favour of the appellant in the following decisions of the
Tribunal:
(a) M/s. PVS Multiplex India Pvt. Ltd. vs. Commissioner
of Central Excise, Meerut-l 2017 (11) TMI-156-
CESTAT Allahabad = 2017-TIOL-4130-CESTAT-
ALL ;
(b) M/s. Moti Talkies vs. Commissioner of Service Tax,
Delhi-l 2020 (6) TMI 87- CESTAT New Delhi = 2020-
TIOL-922-CESTAT-DEL
(c) M/s. The Asian Art Printers (Sheila Theatre) vs.
Principal Commissioner of Service Tax, Delhi-l 2020
(12) TMI 1012- CESTAT New Delhi;'
(d) Shri Vinay Kumar, Proprietor of M/s. Regal Theatre
vs. Principal Commissioner of Service Tax, Delhi-l
2020 (11) TMI 436- CESTAT New Delhi;
(e) M/s. Golcha Properties Pvt. Ltd. vs. Principal
Commissioner of Service Tax, Delhi-l 2020 (11) TMI
137- CESTAT New Delhi = 2020-TIOL-1619-
CESTAT-DEL ; and
(f) Satyam Cineplexes Ltd. vs. Principal Commissioner
6 [2021 (10) TMI-893 CESTAT HYDERABAD]
ST/87269/2016
10
of Service Tax, Delhi-l 2020 (8) TMI 1222- CESTAT
New Delhi;
and that the decisions in
'(a) Mormugao Port Trust vs. Commissioner of Customs,
Central Excise & Service Tax, Goa-(Vice-Versa) 2016
(11) TMI 520- CESTAT Mumbai = 2016-TIOL-2843-
CESTAT-MUM
(b) M/s. Old World Hospitality Limited vs. CST, New
Delhi 2017 (2) TMI 1176- CESTAT New Delhi; and
(c) Delhi International Airport P. Ltd. vs. Union of India
& Ors. WP(C) 2516/2008 & CM No. 15832/2011
dated 14.02.2017 = 2017-TIOL-394-HC-DEL-ST'
precluded construing of service having been rendered merely by
existence of revenue-sharing agreement.
10. The said order drew upon the earlier decisions holding that
'12. Such an arrangement between a distributor/producer
and an exhibitor of films was examined by a Division Bench
of the Tribunal in Moti Talkies. The Department alleged that
the agreement was for 'renting of immovable property' as
defined under section 65(90a) of the Finance Act. This
contention was not accepted by the Tribunal and it was
observed that the appellant did not provide any service to
the distributors nor the distributors made any payments to
the appellant as consideration for the alleged service. In
fact, it was the appellant who had paid money to the
distributors for the screening the rights conferred upon the
appellant. The observations of the Bench are as follows:
"11. It is more than apparent from a bare perusal of the
aforesaid agreements that they have been entered into
between the appellant as an exhibitor and the distributors
for screening of the films on the terms and conditions
mentioned therein. The payments contemplated under the
ST/87269/2016
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terms and conditions either require the exhibitor to pay a
fixed amount or a certain percentage, subject to minimum
exhibitor share or theatre share of effective shows in a
week.
xxxxxxxxxxx
16. It is very difficult to even visualise that the appellant is
providing any service to the distributor by renting of
immovable property or even any other service in relation
to such renting. The agreements that have been executed
between the appellant and the distributors confer rights
upon the appellant to screen the film for which the
appellant is making payment to the distributors. The
distributors are not making any payment to the appellant.
Thus, no consideration flows from the distributors to the
appellant for the alleged service.
xxxxxxxxxxxx
18. It is not possible to accept the reasonings given
by the Commissioner (Appeals) for confirming the
demand of service tax under "renting of immovable
property" for the simple reason that the appellant
has not provided any service to the distributors nor
the distributors have made any payment to the
appellant as consideration for the alleged service. In
fact, the appellant who has paid money to the
distributors for the screening rights conferred upon
the appellant. The Commissioner (Appeals) completely
misread the agreements entered into between the
appellant as an exhibitor of the films and the distributors
to arrive at a conclusion that the appellant was providing
the service of "renting of immovable property."
(emphasis supplied)
13. Similar views were expressed by Division Benches of
the Tribunal in The Asian Art Printers, Shri Vinay Kumar,
M/s. Golcha Properties and Satyam Cineplexes Ltd.
14. What also needs to be noticed is that if the appellant
was providing such a service, it would be the producers/
distributors who would be making payments to the
appellant, but what comes out from a perusal of clause 5.1
of the Agreement is that in consideration for the distributor
agreeing to grant to the appellant the license to exploit the
theatrical rights of a motion picture, the appellant would
have to pay such revenue share to the distributor as
provided for in the said clause. In fact, clause 3.1 of the
Agreement provides that distributor agreed to grant to the
Appellant the non exclusive license to exploit the theatrical
rights of a motion picture during the term.
ST/87269/2016
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15. This issue had come up for consideration before a
Division Bench of the Tribunal in PVS Multiplex India. The
Bench observed that as the appellant was screening films
on revenue sharing basis, the appellant was not liable to
pay service tax on the payments made to the distributors
for screening the films.
"7. Having considered contentions and on perusal of
the facts on record, we are satisfied that there is no
dispute of fact that the appellant have been
screening films in their multiplex on Revenue
Sharing basis, which is undisputed finding recorded
by the ld. Commissioner in the impugned
order. Accordingly, we hold that the appellant is not liable
to pay Service Tax for Screening of Films and payments to
distributors in their theatre."
(emphasis supplied)'
11. On the issue of tax leviability on revenue-sharing
arrangements, it was held that
'16. This apart, a revenue sharing arrangement does not
necessarily imply provision of services, unless the service
provider and service recipient relationship is established.
This is what was observed by the Tribunal in Mormugao
Port Trust, Old World Hospitality and Delhi International
Airport.
17. In Mormugao Port Trust, the Tribunal explained that
public private partnerships between the Government/
Public Enterprises and Private parties are in the nature of
joint venture, where two or more parties come together to
carry out a specific economic venture, and share the profits
arising from such venture. Such public private partnerships
are at times described as collaboration, joint venture,
consortium or joint undertaking. Regardless of the name
or the legal form in which the same are conducted, they
are essentially in the nature of partnership with each co-
venturer contributing some of the resources for the
furtherance of the joint business activity. The Tribunal held
that such public private partnerships meet the test laid
down by the Supreme Court in Faqir Chand Gulati vs. Uppal
ST/87269/2016
13
Agencies Pvt Ltd 2008 (12) STR 401 = 2008-TIOL-147-SC-
MISC , for ascertaining whether or not the arrangement is
one of joint venture. The relevant observations of the
Tribunal in Mormugao Port Trust are reproduced below:
"12 .......................... In our view this arrangement in the
nature of the joint venture where two parties have got
together to carry out a specific economic venture on a
revenue sharing model. Such PPP arrangement are
common nowadays not only in the port sector but also in
various other sectors such as road construction, airport
construction, oil and gas exploration where the
Government has exclusive privilege of conducting
businesses. In all such models, the public entity brings in
the resource over which it has the exclusive right, whether
land, water front or the right to exploit the said land and
water front, and the private entities brings in the required
resources either capital, or technical expertise necessary
for commercial exploitation of the resource belonging to
the Government. These PPP arrangements are described
sometimes as collaboration, joint venture, consortium,
joint undertaking, but regardless of their name or the legal
form in which these are conducted. These are
arrangements in the nature of partnership with each co-
venturer contributing in some resource for the furtherance
of the joint business activity.
...................
15. An analysis of this judgment shows that in order to constitute a joint venture, the arrangement amongst the parties should be a contractual one, the objective should be to undertake a common enterprise for profit. Joint control over strategic financial and operative decisions was held to be the key feature of a joint venture. The other obvious feature of a joint venture would be that the parties participate in such a venture not as independent contractors but as entrepreneurs desirous to earn profits, the extent whereof may be contingent upon the success of the venture, rather than any fixed fees or consideration for any specific services.
17 The question that arises for consideration is whether the activity undertaken by a co- venture (partner) for the furtherance of the joint venture (partnership) can be said to be a service rendered by such co-venturer (partner) to the Joint Venture (Partnership). In our view, the answer to this question has to be in the negative inasmuch as whatever the partner does for the furtherance of the business of the partnership, he does so only for advancing his own interest as he has a stake in the success of the venture. There is neither an intention to render a service to the other partners nor is there any consideration fixed as a quid pro quo for any particular service of a partner. All the resources and contribution of a partner enter into a common pool of resource required for running the joint enterprise and if such an enterprise is successful the partners become entitled to profits as a reward for the risks taken by them for investing their resources in the venture.
ST/87269/2016 14 A contractor-contractee or the principal-client relationship which is an essential element of any taxable service is absent in the relationship amongst the partners/co- venturers or between the co-venturers and joint venture. In such an arrangement of joint venture/partnership, the element of consideration i.e. the quid pro quo for services, which is a necessary ingredient of any taxable service is absent.
18. The Civil Appeal filed by the Department (Commissioner vs. Mormugao Port Trust) against the aforesaid decision of the Tribunal was dismissed by the Supreme Court both on the ground of delay as well as on merits and the judgment is reported in 2018 (19) GSTL J 118 (SC).'
12. Perusal of the circular led the Tribunal to conclude therein that '19. The Circular dated 23.02.2009 issued by the Central Board of Excise and Customs, infact supports the case of the appellant. The relevant portion of the Circular, which is in connection with service tax on movie theatres, is reproduced below:
2.4. The arrangement most commonly entered into between a theater owner and a distributor is that the theater owner screens the movie for fixed number of days under a contract. The proceeds earned through sale of tickets go to the distributor but the theatre owner receives a fixed sum depending upon the number of days of screening. In this arrangement, the advertisement and display of posters etc. is done by the distributor. Under this arrangement, the fixed amount contracted is given to the theater owner by the distributor irrespective of the fact whether the movie runs well or not. However, there is no rental arrangement between the theater owner and the distributor as in the arrangement at paragraph 2.1 above. A view has been expressed that in this arrangement, the theater owner provides 'Business 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 ST/87269/2016 15 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 contract must be examined before a view is taken.
4. All pending cases may be disposed of accordingly. In case any difficulty is faced in implementing these instructions, the same may be brought to the notice of the undersigned."
(emphasis supplied)
20. The subsequent Circular dated 13.12.2011 issued by the Central Board of Excise and Customs, apart from the fact that it would not be applicable for confirming a demand for any period prior to 13.12.2011, would also not come to the aid of the Department. The relevant portion of the Circular is reproduced below:
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 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.
(emphasis supplied)'
13. Once again, and with the additional benefit of subsequent developments in the above dispute, the Tribunal had cause to look at another controversy, and with substitution of the distributor by 'association of persons' as recipient, identical to the one now ST/87269/2016 16 before us in Inox Leisure Ltd v. Commissioner of Service Tax, Mumbai-V7. It was noted therein that the earlier decision was applicable even in the changed circumstances of 'negative list' and that with '23. The Department filed Civil Appeal No. 1335 of 2020 (The Commissioner of Service Tax vs. Inox Leisure Ltd) before the Supreme Court and by order dated 28.02.2022, the Supreme Court dismissed the Civil Appeal holding that the Tribunal had taken an absolutely correct view, to which the Supreme Court agreed. The order passed by the Supreme Court is reproduced below:
"No case is made out to interfere with the impugned order passed by the Customs, Excise and Service Tax Appellate Tribunal (for short, 'CESTAT'). The CESTAT has taken an absolutely correct view, to which we agree. Hence, the Civil Appeal stands dismissed."' any contrary stand on taxability was doubtlessly unacceptable.
14. In the light of the facts and circumstances of dispute and the judicial pronouncements supra, the demand and penalty in the impugned order have no basis in law and must be set aside. We do so to allow the appeal.
(Order pronounced in the open court on 19/08/2024) (JUSTICE DILIP GUPTA) President (C J MATHEW) Member (Technical) */as 7 [final order no. A/85216/2022 dated 14th March 2022 in service tax appeal no. 87533 of 2016]