The Madras high court has restrained the central authorities from levying and collecting service tax from film distributors and exhibitors under the provisions of the Finance Act of 1994.
Justice M Jaichandren granted the interim injunction, on a writ petition filed by Mediaone Global Entertainment Limited, which has distribution rights for the Vikram-starrer 'Rajapattai', and Vijay's 'Nanban'.
The film distributor contended that already 10.3% of the distributor's share in the total theatre collections of 'Rajapattai' had been set apart and deposited in a separate account.
Noting that the distributor's agreement with Eros International, which produced the film was in the nature of profit-sharing, it said since the arrangement had no element of service the question of payment of service tax under the provisions of the Act did not arise at all.
Deducting 10.3% of the distributor's share of the collections, in addition to the 30% entertainment tax payable to the state government would had adverse impact on the finances of the distributor, it said.
Since film distribution is in a joint control over an economic activity to obtain profit or loss the venture is not a taxable service, petition said, adding that there is no value addition to the product too.