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with various distributors/sub-distributors to exhibit the movies at its multiplexes in Lucknow, Kaushambi and Delhi under a license (exhibition rights) obtained from respective distributors/sub- distributors.

3. The show cause notice dated 17.04.2014 that was issued to the respondent proceeds on the allegation that the respondent was engaged in lending the theatre to the film distributors/sub- distributors for depicting the films, whose copyrights were retained by the distributors. The show cause notice also alleged that the exhibitor was providing various elements of inter-connected services with predominance of the service of „renting of immovable property" to the distributor and such a service of „renting of immovable property"

provided by the appellant would be classifiable under section 65(90a) of the Finance Act 1994²and taxable under section 65(105)(zzzz) of the Finance Act upto 30.06.2012 and as a declared service w.e.f. 01.07.2012. The relevant portion of the show cause notice is reproduced below:

"16. Whereas it appears that the various services namely Renting of Immovable Property Service, Business Support Service, Business Auxiliary service and Man Power Supply Service are naturally bundled in the ordinary course of business, in the case of the party, as for running the show, these services are necessary elements and integral constituents of renting of the theatre. Therefore, it appears that in running the show and to screen the film owned by the Distributor, the 'Renting of Immovable Property Service is the main service among the various elements, which gives essential character to the bundle of the services. In view of the provisions of Sec.66F (3) (b) of the Act 1994, the Renting of Immovable Property Service contributes towards

2. the Finance Act

3

provision of single service and gives essential character to the bundle of the services. It appears that for the entire period from 01.10.2008 to 30.06.2012 as per Sec.65A and from 1.07.2012 onwards as per Sec.66 (3) (b) of the Act ibid, the party provided taxable service viz. Renting of Immovable Property Service to the Distributors but did not pay service tax thereon contravening thereby the provisions of Sec.68, 70 read with rule 6, and 7 of the Service Tax Rules 1994.

17. Whereas from scrutiny of the balance sheets for the financial years 2008-09 to 2012-13, it was noticed that the party received income under the headings 'Parking tickets sale' 'transfer charges' and 'Miscellaneous Income' The party has not made available the nature of services provided in respect of income shown under these headings which appear to be part of renting service and taxable under „Renting of Immovable Property Service".

18. Whereas from scrutiny of the balance sheets for the financial years 2008-09 to 2012-13, it was noticed that the party received income under the headings „Slide Income" and „income from Advertisement, Signages & Hording Display". The income shown under the above heads appears to be taxable under the taxable category of „Advertising Agency"s Services".

xxxxxxxxxxx

19. Whereas the Exhibitor failed to discharge their service tax liability as per the provisions mentioned above; service tax including cess amounting to Rs. 20,90,88,917/- appears recoverable from them under the provisions of Sec. 73(1) of the Finance Act 1994 by invoking the provision of extended period of 5 years as worked out in the table 5 below."

(emphasis supplied)

4. The respondent filed a detailed reply to the show cause notice. The Principal Commissioner, by order dated 27.08.2015, dropped the show cause notice.

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5. The details of the service tax demand and the taxable category are as follows:

6. The Principal Commissioner noticed that the respondent had operations are three different locations namely Raja Garden at Delhi, Kaushambi and Lucknow, but for each of these locations the respondent had separate service tax registrations and had also filed returns separately for each location. The show cause notice had been issued by the Commissioner of Service Tax, Delhi who had no jurisdiction owner Lucknow and Kaushambi. The Principal Commissioner, therefore, found that the demand made in the show cause notice demanding duty relating to the revenue generated at Kaushambi and Lucknow could not be sustained. The parking charges also related to the operation of the respondent at Kaushambi and Lucknow and, therefore, the service tax liability on these charges was also dropped.

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7. The Principal Commissioner also accepted the contention raised on behalf of the respondent that no demand could have been raised for a period beyond five years from the date of issue of the show cause notice. Thus, the demand for the period from 01.04.2008 to 30.09.2008 to the extent of Rs. 50,77,117/- was found to be beyond the period of five years.

8. The Principal Commissioner also noticed that the amount received by the respondent as security deposit, which was refundable, could not be subjected to service tax as it did not relate to provision of any service. Regarding the income from advertisement and slide income as well as singnages, the Principal Commissioner accepted the contention of the respondent that it had discharged due service tax on the amount so received.

9. In regard to the levy of service tax on renting of immovable property services, the Principal Commissioner relied upon the Circular dated 13.12.2011 issued by the Board regarding clarification on levy of service tax on distributors/sub-distributors of films and exhibitors of movie and concluded that in view of the factual position that emerged from the agreements, the arrangement of the respondent with the distributors was in the nature of a joint venture based on revenue sharing and, therefore, would not amount to provision of any service. Thus the demand raised under this head of „renting of immovable property" would not sustain.

10. The proceedings, initiated by the show cause notice dated 17.04.2014 were, accordingly, dropped.

11. This appeal has been filed by the department contending that the Circular of the Board has been mis-interpreted by the Principal Commissioner and in this connection Shri Ravi Kapoor, learned

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authorised representative appearing for the department has referred to paragraph 5.3 of the Memo of Appeal. The said paragraph is reproduced below:

"5.3 Though the Adjudicating Authority had discussed the above Circular, yet he had failed to appreciate the taxability on such revenue sharing arrangement and draw his conclusion in harmony with the legal position as above. The findings of the Adjudicating Authority are erroneous inasmuch as that the Board's referred Circular dated 13.12.2011 clearly brought out in no unambiguous terms while inviting attention to the explanation to Section 65 of the Finance, 1994 [wherein it had been mentioned that "the taxable service includes any taxable service provided or to be provided by any unincorporated association or body of persons to a member thereof, for cash, deferred payment or any other valuable consideration"] that

"service provided by each of the person i.e., the 'new entity'/ Theatre Owner or Exhibitor/ Distributor or Sub- Distributor or Area Distributor or Producer etc., as the case may be, is liable to Service Tax under applicable service head in an arrangement under unincorporated partnership/joint/ collaboration basis". Hence, in view of Board's Circular, in the present case, the arrangement between the noticee and their distributors is a 'new entity' or an 'unincorporated association' or a 'body of persons' and the service provided by the noticee to this 'new entity' (i.e., person) is taxable. Accordingly, the receipts by the noticee under revenue sharing arrangement with the film distributors is taxable."

12. The contention that has been advanced is that in view of the Circulars dated 23.02.2009 and 13.12.2011 issued by the Central Board of Excise and Customs in connection with service tax on movie theatres, the appellant is not justified in contending that service tax would not be leviable if revenue is shared between the appellant and the producers of films.

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13. Shri A.K. Batra, learned consultant appearing for the respondent, however, made the following submissions:-

(i) There is a revenue sharing arrangement between Distributor and Exhibitor wherein both the parties agree to pool their resources for conducting business and share the net receipts;

(ii) Amount collected from screening of the film from the public, who watches the movie, is shared among the parties on percentage basis;

(iii) There existed no service provider or recipient relationship between the respondent and the Distributor;

(iv) There is not agreement to provide any service and activities are undertaken by the respondent on principal-to-principal basis;

(v) No consideration is being received from Distributors for any alleged services of renting of theatre;

(vi) Services, if any, are provided to customers i.e. movie viewers, not to the distributors;

(vii) CBEC Circular dated 23.02.2009, has clarified that revenue-sharing arrangements of similar nature is not covered under the provisions of Finance Act for the levy of service tax; and

(viii) For the period 01.07.2012 to 31.03.2013, the above activity falls outside the scope of services as defined under section 65B(44) of the Finance Act even otherwise the amount of film revenue collected is not taxable vide section 66D(j) of the Finance Act.

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14. To support this contention learned consultant for the respondent placed reliance upon Division Bench decisions of the Tribunal in Golcha Properties Pvt. Ltd. versus Principal Commr. of S.T., Delhi-I³, Moti Talkies versus Commissioner of Service Tax, Delhi-I⁴, Inox Leisure Ltd. versus Commissioner of Service Tax, Hyderabad ⁵

and Shri Vinay Kumar, Proprietor of M/s. Regal Theatre vs. Principal Commissioner of Service Tax, Delhi-I⁶.

15. The submissions advanced by the learned authorised representative appearing for the appellant and the learned consultant appearing for the respondent have been considered.

16. According to the respondent, the viewers visit the theatre for entertainment and the consideration is paid to the respondent for the same. The distributor and the theatre owner i.e. respondent have come together on a common platform under revenue sharing arrangement. Therefore, the two have provided the service jointly to each other and are working for the mutual benefit of both the parties. Both the parties are working independently and the share of the Distributor is given by the respondent from the gross receipts from movie tickets.

17. This would be apparent from the agreement executed between the respondent and Mukta Arts which provides that out of the total revenue generated from the screening of films, the respondent would retain a fixed gross revenue and pay balance to the distributor. Further, as per the agreement, the gross revenue is to be distributed

3. 2021 (45) G.S.T.L. 141 (Tri.-Del.)

4. 2021 (45) G.S.T.L. 168 (Tri.-Del.)

5. 2022 (60) G.S.T.L. 326 (Tri.-Hyd.)

6. Service Tax Appeal No. 51683 of 2016 decided on 01.10.2020

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in the following ratio on weekly basis. The relevant portion of the said Agreement is reproduced below:

Distributor's Share:

Distributor"s share@ 50% for 1^stweek Distributor"s share@ 42.5% for 2^ndweek Distributor"s share@ 37% for 3^rdweek Distributor"s share@ 30% for 4^th and subsequent week

18. It is seen that the period involved in this appeal is both prior to July 1, 2012 and post July 1, 2012. The issue involved in this appeal was examined at length by a Division Bench of this Tribunal in Moti Talkies. After examining the agreement between the appellant, who was the owner of a cinema hall and the distributor, the Tribunal observed that the right to exhibit a film would not result in „renting of immovable property" service and the observations are as follows:

"2. The appellant is the owner of a cinema hall situated at Chandni Chowk, New Delhi and is engaged in the business of exhibiting films in its theatre. The copy right over the films is owned by the distributors. The appellant enters into agreements with the film distributors to obtain such copy rights under which the right to exhibit the films is transferred to the appellant, either temporarily or in perpetuity, depending upon the nature of the agreements between the parties.

xxxxxxxx

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 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.

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12. It is in the context of the aforesaid agreements that it has to be examined whether the appellant is providing service of "renting of immovable property" to the film distributors by way of renting its theatre for screening of films owned by the distributors.

13. Prior to 1 July 2012, the definition of "renting of immovable property" under Section 65(90a) of the Finance Act is as follows:-

"Section 65 (90a): "renting of immovable property" includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include -

(i) renting of immovable property by a religious body or to a religious body; or

(ii) renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre. Explanation 1 - For the purposes of this clause,

"for use in the course or furtherance of business or commerce" includes use of immovable property as factories, office buildings, warehouses, theatres, exhibition halls and multiple-use buildings.

Explanation 2 - For the removal of doubts, it is hereby declared that for the purposes of this clause "renting of immovable property" includes allowing or permitting the use of space in an immovable property, irrespective of the transfer of possession or control of the said immovable property."

14. "Taxable service", prior to 1 July 2012 under Section 65(105)(zzzz) of the Finance Act means :

65(105)(zzzz) :"any service provided or to be provided to any person, by any other person, by renting of immovable property or any other service in relation to such renting for use in the

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course of or for furtherance of, business or commerce.

Explanation (1) xxxxxxxx

Explanation (2) xxxxxxxx

15. Thus, for the appellant to be providing any taxable service to the distributor prior to 1 July 2012 it is necessary that the service provided should be by renting of immovable property or any other service in relation to such renting for use in the course of or for furtherance of, business or commerce. "Renting of immovable property" has been defined under Section 65(90a) of the Finance Act to include renting, letting, leasing, licensing, or other similar arrangements of immovable property for use in the course or furtherance of business or commerce.

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.

xxxxxxxxxx

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".

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20. In regard to the period from 1 July, 2012 to

31 March, 2014, it would be pertinent to refer to Section 65B(41) of the Finance Act which defines

"renting" as follows :-

65B(41)"renting" means allowing, permitting or granting access, entry, occupation, use or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property;

21. The relevant portion of Section 65B(44) of the Finance Act, which defines "service", is as follows :-

"65(44)"service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include -

(a) an activity which constitutes merely, -

(i) A transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or

(ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of Clause (29A) of Article 366 of the Constitution; or

(iii) A transaction in money or actionable claim;

(b) A provision of service by an employee to the employer in the course of or in relation to his employment;

(c) Fees taken in any Court or Tribunal established under any law for the time being in force.

Explanation (1) - xxxxxxxxxx

Explanation (2) - xxxxxxxxxx

Explanation (3) - xxxxxxxxxx

22. The relevant portion of Section 66E of the Finance Act which deals with "declared services" is as follows:-

"Declared Services.

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66E. The following shall constitute declared services, namely:-

(a) Renting of immovable property; xxxxxxxxx

23. The position in law does not change with effect from 1 July, 2012 because even under Section 66B of the Finance Act, service tax is levied on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another. Though,

"renting of immovable property" is a declared service under Section 66E of the Finance Act, then too under Section 67(1) of the Finance Act, the value shall, in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him. The appellant is not receiving any payment to the distributor and, therefore, no service can be said to have been provided by the appellant." (emphasis supplied)

19. In Golcha Properties, this Division Bench of the Tribunal reiterated what was observed by the Tribunal in Moti Talkies and the observation are as follows:

"13. The agreement entered into between the Appellant and M/s. A.A. Film clearly indicates that the film Distributor had granted theatrical exhibition rights to the Appellant and in return of transfer of such rights, the Appellant had agreed to pay share 50%/40% share of Net Box Office Collection with M/s. A.A. Films, subject to a maximum theatre share of Rs. 2,80,000/.

14. The Principal Commissioner found that the Appellant had provided „renting of immovable property"

services. For an activity to fall under „renting of immovable property" services, the nature of the activity should be that of renting or letting or leasing or licensing or other similar arrangements of immovable

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property, for use in the course or furtherance of business or commerce. In other words, where an immovable property is given for use by the service recipient or where there is a transfer of the right to enjoy property for a certain time for a consideration paid or promised or where there is granting of the right to use and occupy the immovable property by way of tenancy, lease, license, the transaction would be covered under the category of „renting of immovable property" services. In the instant case, the immovable property i.e. the theatre is used and occupied by the Appellant in its own right to screen the films and at no point of time, the theatre is used by the Distributor."

(emphasis supplied)

20. The said decisions of the Tribunal were followed by this Division Bench of the Tribunal in Inox Leisure Ltd. The Division Bench examined the same issue, as has been raised in this appeal, namely whether service tax would be leviable if revenue is shared between the appellant and the producer of films and held that even in such a situation no service tax can be levied. The relevant observations of the Division Bench are as follows:

"11. 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

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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.

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.

xxxxxxxxx

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.

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

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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)

21. The department filed an appeal before the Supreme Court against the aforesaid decision of the Tribunal in Inox Leisure, which appeal was dismissed by the Supreme Court and the decision is reported in Commissioner of Service Tax versus Inox Leisure Ltd⁷. The order of 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."

22. A revenue sharing arrangement would, therefore, 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 vs. Commissioner of Customs, Central Excise & Service Tax, Goa- (Vice-Versa)⁸, M/s. Old World Hospitality Limited vs. CST, New Delhi⁹ and Delhi International Airport P. Ltd. vs. Union of India & Ors¹⁰. In the present case, there is no service provider or service recipient relationship. The contention advanced by the learned authorised representative for the department cannot be accepted.

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23. In view of the aforesaid discussion, it has to be held that no illegality was committed by the Principal Commissioner in discharging the show cause notice. The appeal is, accordingly, dismissed. (Order pronounced in open court)

(JUSTICE DILIP GUPTA)

PRESIDENT

(P.V. SUBBA RAO)

MEMBER (TECHNICAL)

JB