The Customs, Excises, Service Tax Appellate Tribunal (CESTAT) held 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 so no service tax can be levied.

The tribunal noted that 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.

The appellant, M/s. Moti Talkies is the owner of a cinema hall and is engaged in the business of exhibiting films in its theatre. The copyright over the films is owned by the distributors. The appellant enters into agreements with the film distributors to obtain such copyrights 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.

An investigation was carried out by the Department and a view was entertained that the appellant was providing various elements of interconnected services to the film distributors like lending of theatre for the exhibition of films, manpower to manage, control and make arrangements, projector and other related equipment to screen the films, arranging power supply and providing arrangements to collect the box office collections, with a predominance of renting of immovable property services. This service of renting of immovable property provided by the appellant to the film distributor would be taxable under section 65 (105) (zzzz) of the Finance Act and under section 66E (a) of the Finance Act read with section 66F (3) (b) of the Finance Act. The Department believed that for the said renting of immovable property service, the appellant received charges in the garb of sharing cum theatre hire but did not discharge the service tax liability.

The appellant contended that he is not providing any service to the distributors and in fact, in terms of the agreement with the film distributors, it has only been granted a copyright license in the form of theatrical exhibition rights, for which the appellant is making payment to the distributors as a share of the net box office collection.

The tribunal headed by the President Justice Dilip Gupta, while adhering to the arguments made by the appellant quashed the impugned order of Commissioner (Appeals) and held 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 so no service tax can be levied.

“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,” the tribunal observed.