Revenue-sharing agreement not classified as Business Support Services, appellant not liable for service tax

The Tribunal held that the arrangement between the parties did not form an Association of Persons (AOP) but was on a principal-to-principal basis. The services provided were not classified as Business Support Services (BSS), and thus, the appellant was not liable to pay service tax on the revenue-sharing agreement with the distributors. The Tribunal set aside the Commissioner's order and ruled in favor of the appellant.

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Issues Involved:
1. Whether the arrangement between the appellant and the distributors constitutes an Association of Persons (AOP) or is on a principal-to-principal basis.
2. Whether the services provided by the appellant fall under the category of Business Support Services (BSS).
3. Whether the appellant is liable to pay service tax on the revenue-sharing arrangement with the distributors.

Detailed Analysis:

1. Association of Persons (AOP) vs. Principal-to-Principal Basis:
The Commissioner’s order dated 30.11.2015 alleged that the agreement between the appellant and the distributors created an AOP, leading to the appellant providing services to this AOP, classifiable under “support services of business or commerce” (BSS). The Commissioner relied on the Supreme Court judgment in Faqir Chand Gulati vs. Uppal Agencies Pvt Ltd and a Circular dated 13.12.2011 issued by the Central Board of Excise and Customs. The Commissioner concluded that the enterprise created by the agreement was a joint venture, constituting an AOP. However, the appellant contended that the arrangement was on a principal-to-principal basis, and no AOP was formed. The Tribunal agreed with the appellant, noting that the agreements were similar to those in previously decided cases, where it was held that such agreements did not create an AOP but were principal-to-principal transactions.

2. Classification under Business Support Services (BSS):
The Commissioner classified the services provided by the appellant under BSS, both before and after the amendment in the definition of BSS. The appellant argued that no service was provided to the distributors or any AOP, and thus, no service tax was payable. The Tribunal examined the agreements and found that the appellant was engaged in the business of exhibiting films and paid the distributors for the screening rights. The Tribunal noted that the appellant did not provide any service to the distributors, and the distributors did not make any payments to the appellant as consideration for any service. The Tribunal referred to previous decisions, including Moti Talkies and PVS Multiplex India, where it was held that the appellant was not liable to pay service tax on the payments made to the distributors for screening the films.

3. Liability to Pay Service Tax:
The Tribunal considered the definition of BSS under section 65(104)(c) of the Finance Act and the taxable service under section 65(105)(zzzq). The Tribunal observed that the appellant was not providing any service to the distributors but was paying them for the screening rights. The Tribunal also referred to the Circular dated 23.02.2009, which clarified that screening a movie is not a taxable service except where the distributor leases out the theater and the theater owner gets a fixed rent. The Tribunal found that the revenue-sharing arrangement did not imply the provision of services unless a service provider and service recipient relationship was established. The Tribunal cited the decision in Mormugao Port Trust, where it was held that public-private partnerships are in the nature of joint ventures and do not constitute a service provider-service recipient relationship.

Conclusion:
The Tribunal concluded that the arrangement between the appellant and the distributors did not create an AOP but was on a principal-to-principal basis. The services provided by the appellant did not fall under the category of BSS, and the appellant was not liable to pay service tax on the revenue-sharing arrangement. The Tribunal set aside the Commissioner’s order dated 30.11.2015 and allowed the appeal.

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