No Service Tax on Revenue Sharing by Theatres: Supreme Court upholds CESTAT Decision [Read Order]

In a major relief to Inox Leisure Ltd., a two-judge bench of the Supreme Court has upheld the decision of the CESTAT wherein Hyderabad Bench quashed the Service Tax Demand under Business Support Services for revenue sharing by theatres.

The appellant, Inox Leisure Ltd. is engaged in the business of exhibiting cinematographic films across India in theatres owned by the appellant or taken on rent. The appellant claims that it acquires the rights/license to exhibit the films at the designated theatres from various film distributors by entering into separate license agreements for each film. The consideration towards such license is paid by the appellant as per the agreed percentage of box office collection and such percentage varies from distributor to distributor, movie to movie, and week to week, after the release date.

The ​​appellant has assailed the order passed by the Commissioner confirming the demand of Rs. 32,81,940/- proposed towards service tax under BSS under section 73(1A) of the Finance Act with interest and penalty. The Department has alleged that the appellant is providing infrastructure support services to the producers/distributors of films under BSS. It would be seen from the agreement that the SPE Films is a producer/distributor engaged in the business of production and distribution of films, while the appellant is an exhibitor engaged in the business of exhibition of films and owns/operates a chain of multiplex theatres under the brand name “Inox”.

The coram headed by the CESTAT President, Justice Dilip Gupta, and Technical Member, P.V.Subba Rao observed that 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 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.’

Against the abover order, the department filed an appeal.

While dismissing the appeal, a coram of Justice M R Shah and Justice B V Naga Ratna held that “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.”

COMMISSIONER OF SERVICE TAX vs INOX LEISURE LTD

CITATION: 2022 TAXSCAN (SC) 111

To Read the full text of the Order CLICK HERE

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