The indirect tax appellate tribunal has ruled that there is no service tax liability on payments based on revenue sharing arrangements.

In a recent order, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that service tax can not be imposed on the amount paid by theatre owner PVS Multiplex India to film distributor Mukta Movie.

The judgment, issued by an Allahabad HC Bench, will have ramifications on all revenue sharing arrangements, say experts. Though the case relates to the period between 2009-10 and 2012-13, it will have a bearing on similar arrangements in the GST regime, they say.

The case involved payments of Rs 72,44,110 by PVS Multiplex to Mukta Movie during 2009-10 to 2012-13. The income tax officer in Meerut allowed Rs 4,72,646 as deduction towards repair and maintenance of air conditioners and asked PVS Multiplex to pay tax on the remaining Rs 65,26,216.

The company filed an appeal in the CESTAT against this. It contended that no service tax could be charged on the payment to the distributor as the screening of films had been undertaken by the appellant on a revenue sharing basis.

In terms of the arrangement between the film distributor and the theatre owner, after temporary transfer of copyrights, the movies were exhibited by the appellant, it argued. PVS Multiplex also argued that service tax, if any, was payable by the distributor of the film.

CESTAT said since there was no dispute over the fact that the appellant had been screening films in its multiplex on a revenue sharing basis, it was not liable to pay service tax for payments to distributors.

The issue does not relate to entertainment tax on tickets but payments made to distributors by the theatre owner.

Abhishek A Rastogi of law firm Khaitan & Co says the issue is important for many other fields and not just the screening of films. The judgment will provide clarity on any venture where two players come together to provide services, contributing different aspects of the services, and sharing revenue in a pre-determined ratio.

He says, for instance, taxi services where one player provides the car and the other his driving services and fuel cost, will also get relief from this judgment. While tax will be paid on the fare charged from the customer, it will not be charged on payments by the driver to the owner of the taxi after deducting his dues.

As such, the matter is relevant to the GST regime as well, even though the issue is not addressed in the GST laws or rules, he says.