Revenue-sharing film exhibition and account reconciliation determine service tax liability and remand of remaining demand.

Where film exhibition operates on a principal-to-principal revenue-sharing arrangement and the distributor's share is separately reflected in the accounts as film software expense, service tax is not exigible on the theatre owner for screening films. The remaining demand relating to renting/business support service and the differential amount required verification of tenant-wise payments and reconciliation of accrual-based accounts with ST-3 returns filed on receipt basis, so that any surviving liability could be determined. The film-screening demand was rejected, while the balance matter was remanded for fresh examination in accordance with law.

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Issues: (i) Whether service tax was payable on screening of films in the multiplex and the corresponding payments made to film distributors on a revenue-sharing arrangement. (ii) Whether the demand relating to renting/business support service and the differential amount arising from reconciliation of accounts required remand.

Issue (i): Whether service tax was payable on screening of films in the multiplex and the corresponding payments made to film distributors on a revenue-sharing arrangement.

Analysis: The arrangement between the theatre owner and the film distributor was found to be on a revenue-sharing and principal-to-principal basis. The gross ticket receipts were reflected in the accounts and the amounts payable to distributors were separately shown as film software expenses. On that footing, and in the light of the departmental circular dealing with film exhibition arrangements, the tax burden did not fall on the appellant for this head.

Conclusion: The appellant was not liable to pay service tax on screening of films and the related payments to distributors.

Issue (ii): Whether the demand relating to renting/business support service and the differential amount arising from reconciliation of accounts required remand.

Analysis: The balance demand required verification of tenant-wise payments for the period prior to 30/09/2011 and reconciliation of the appellant's accounting treatment on accrual basis with the ST-3 returns on receipt basis. The Tribunal directed reconciliation of the accounts and examination of any tax liability that may survive after such exercise.

Conclusion: The matter on this head was remanded for reconciliation and fresh examination in accordance with law.

Final Conclusion: The appeal succeeded on the film-screening issue and was remanded on the remaining tax demand, resulting in partial relief to the appellant.

Ratio Decidendi: Where film exhibition is undertaken on a principal-to-principal revenue-sharing arrangement and the distributor's share is separately accounted for, service tax is not exigible on the theatre owner for that activity.

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