In a recent ruling, the Mumbai bench of the Customs Excise and Service Tax Appellate Tribunal (CESTAT) allowed the appeal in favor of the assessee and held that the demand and penalty in the impugned order have no basis in law.
In this case, the appellant, M/s Meghraj Cinema, is a theatre owner who temporarily transferred copyrights from distributors based on agreements outlining the screening period and a declining share of net box office collections as consideration.
The sub-distributor raised invoices based on the weekly box office collection details, which represent the cost of assignment of rights to the exhibitor at the agreed rate and the amount remaining after all payouts are retained with them. This is the amount that the service tax authorities levied, besides some minor amounts that the exhibitor had segregated in their annual financials towards transportation and advertisement.
The demand spans both the ‘negative list’ era and the previous regime. The first notice, dated 29th September 2014, seeks Rs. 70,19,786 for services provided from 2009-10 to 2012-13, including ‘support service of business or commerce’, ‘advertisement service’, and ‘goods transport by road’. Additional demands of Rs. 13,13,554 and Rs. 5,43,896 were issued on 22-04-2015 and 12-02-2016. All demands, along with penalties of Rs. 70,19,786 and Rs. 1,85,745 under the Finance Act, 1994, are disputed in this appeal.
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The issue in this case is whether a demand made by the Central Board of Excise & Customs (CBEC), which treats an “association of persons (AOP)” as the custodian of the “box office” in place of the “exhibitor,” is valid.
The question also arises about the correct interpretation of the tax liability concerning the distribution of revenue between the exhibitor and the distributor for the screening of films and whether this arrangement is subject to service tax.
The appellant contended that agreements were misconstrued to create a new entity and that the 2011 circular was improperly relied upon, ignoring the 2009 circular’s instruction to scrutinize each arrangement for elements of service under the Finance Act 1994, for tax purposes. The appellant stated that there was no intention of collaboration for sharing of risk and return as to insinuate a joint venture.
The bench observed that the box office represents a collaboration between the exhibitor and distributor. While not taxed itself, it incurs costs for services from both parties, including business support services for film screenings. It is also observed that the adjudicating authority overlooked the distributor’s essential role in this collaboration.
The CESTAT bench, comprising Mr. Dilip Gupta and Mr. C J Mathew, held that the demand and penalty in the impugned order have no basis in law. The bench set aside the impugned order.
The bench allowed the appeal in favor of the assessee.
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