In a major relief to Inox Leisure, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad Bench quashed the Service Tax Demand under Business Support Services.
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 exhibitor decides which screens would play the motion picture, the numbers of shows, the
show timings and the ticket pricing including the right to decide on a week to week basis, whether or not to continue to exhibit the motion picture. The distributor/producer had granted the exhibitor the non exclusive license to exploit the theatrical rights of a motion picture and each party was entitled to conduct its business in its absolute and sole discretion. It was further made clear in the Agreement that either of the party shall not interfere or otherwise influence any decision of the other party in respect of the conduct of its business.
The coram headed by the 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’
“The impugned order has confirmed the demand on the basis that the appellant provided ‘infrastructure support services’ to the appellant. However, the show cause notice alleged that the appellant was providing ‘operational and administrative assistance’ with supplier. The Commissioner could not have gone beyond the scope of the show cause notice to confirm the demand. This apart, in view of the decision of the Supreme Court in Faqir Chand Gulati and the decision of the Tribunal in Mormugao Port Trust, no service tax can be levied on the appellant under BSS,” the court said.
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