2026 (2) TMI 288 - AT - Service Tax

Service tax reverse charge for overseas film shooting expenses found not taxable; cenvat reversal and penalties largely set aside

Liability under reverse charge for expenses in foreign currency relating to overseas film shooting depends on place of provision: services performed and ... Liability to pay service tax under reverse charge on expenses in foreign currency for overseas film shooting and allied activitie - short reversal of cenvat credit on common input services - Place of Provision of Services Rules, 2012 - onus on Revenue to identify specific taxable service and classify under charging provision - treatment of advances - penalty u/s 78 of the Finance Act, 1994 - limitation / extended period of limitation - inadmissibility when based solely on balance sheet and ST3 returns - HELD THAT:- It is pertinent to note that for the purposes of computation of reversal under Rule 6(3A) of the CCR, value of the “services provided during the financial year” has to considered. In this regard, the Appellant submits that in terms of Point of Taxation Rules, 2011, the services are deemed to have been provided at the time the point of taxation it may be noted that 2004 Rule 3 of the Point of Taxation Rules, 2011, point of taxation is the point when the invoice for the service has been issued or when the payment has been received, whichever is earlier. Ld. Adjudicating Authority has rejected the inclusion of such advances in the value of output services on the ground that no taxable service has been provided by the Appellant during the FY 2013-14. Whether the appellant is liable to pay service tax under reverse chance mechanism on the expenses incurred in foreign currency towards shooting of films and other related expenses or not ? - It is undisputed facts that the appellant is providing taxable as well as exempted services and on taxable services, the appellant is paying service tax. Some services are exempted services, on which, the appellant is not paying service tax. The appellant is not paying service tax on permanent transfer of copyright of cinematographic films and on that transfer of copyright, the appellant has paid VAT, therefore, no service tax is payable. Whether the appellant is liable to pay service tax under reverse chance mechanism on the expenses incurred in foreign currency towards shooting of films and other related expenses or not ? - The demand has been raised merely on the basis of difference in figures between the Balance Sheet and the ST-3 Returns. We take note of the fact that the services are in the nature of services relating to immovable property location selection, which are outside India. Admittedly, all these expenses have been incurred by the appellant outside India for reference of services relating to immovable property location or shooting services, which are performed based on the services relating to immovable property-location and the same shall be place of providing services. Admittedly, all the services have been performed by the appellant outside India. Therefore, the same will be treated as availed outside India. Therefore, no service tax is payable by the appellant. In view of this, the demand of Rs.1,24,73,378/- is set aside. Whether an amount of Rs.30,58,083/-, is required to be reversed on account of alleged short reversal of cenvat credit on input services used commonly for making both taxable and exempt supply or not ? - We find that the appellant has pro rata reversed the cenvat credit of the input services used in relation to its film division by computing the value of exempted and output services on entity basis as a whole and the Revenue is seeking reversal by considering the revenues of film division, which is not correct proposition. In terms of Rule 6(3A) of the Cenvat Credit Rules, 2004, the value of the services provided during the financial year, is required to be considered and the appellant has reversed the cenvat credit proportionately. If the same is taken up as service during the financial year, then, there is no shortage of reversal of cenvat credit by the appellant. In view of this, the said demand of Rs.30,58,083/- is set aside. Whether an amount of Rs.26,16,650/- is required to be reversed on cenvat credit used on input services received from RIMT Pvt. Ltd. used for providing both taxable and exempt supply or not ? - From the invoices produced before us, we find that the invoice raised by RIMT Pvt. Limited on the appellant, is for content mastering charges and the appellant has raised invoices for D5 processing and digitisation charges. The digital cinema refers to the technical process of converting a film’s digital intermediate outputs into a DCI/SMPTE Complaint Digital Cinema Package by compressing, encrypting and synchronising image, audia and subtitle files for theatrical exhibition. As the appellant is engaged a sub-contractor by providing services i.e. RIMT Pvt. Ltd. and provided the service to the service recipient . As the appellant paid service tax on the said service, in that circumstances, the appellant is entitled to take the cenvat credit in full for the services received from RIMT Pvt. Ltd.. Whether an amount of Rs.15,53,293/- is required to be reversed to cenvat credit availed on projectors and its maintenance related services purported used exclusively for providing exempt services or not ? - The cenvat credit sought to be denied on projector and the related services to the projector for their maintenance etc. on the ground that the said projector has been used for providing exempted services. In fact, the said capital goods have been used by the appellant for providing exempted as well as taxable services. In that circumstances, the cenvat credit on the capital goods cannot be denied to the appellant as in respect of the said capital goods have been used by the appellant for providing taxable as well as exempted services. Therefore, the denial of cenvat credit of Rs.15,53,293/-, is not sustainable. Whether an amount of Rs.21,76,552/- is required to be reversed for excess availment of cenvat credit in ST-3 Returns Vis-à-vis the cenvat credit register or not ? - The cenvat credit of Rs.21,76,552/- sought to be denied to the appellant on account of the appellants have availed excess cenvat credit in their ST-3 Returns as compared to cenvat credit register. Whether penalty can be imposed under Section 78 of the Finance Act, 1994 on the appellant, or not ? - The penalties have been imposed on the appellant for availment of cenvat credit paid under reverse charge mechanism without any duty paying documents in terms of Rule 8 & 9 of the Cenvat Credit Rules, 2004. As there is no evidence brought on record that the appellant has availed cenvat credit by way of fraud, collusion or willful mis-statement or suppression of facts or contravention of any provisions of law with intent to evade payment of service tax, therefore, no penalties can be imposed on the appellant under Section 78 of the Finance Act, 1994 on account of availment of cenvat credit paid under reverse charge mechanism without any valid documents and excess availment of cenvat credit on the capital goods. Therefore, the penalties imposed on the appellant under Section 78 of the Finance Act, 1994, are set aside. Issues: (i) Whether service tax under Reverse Charge Mechanism is payable on foreign currency expenses for overseas film shooting and allied activities; (ii) Whether Rs.30,58,083/- requires reversal for short reversal of cenvat credit on common input services; (iii) Whether Rs.26,16,650/- requires reversal for cenvat credit on input services from RIMT Pvt. Ltd.; (iv) Whether Rs.15,53,293/- requires reversal for cenvat credit on projectors and related maintenance claimed to be used exclusively for exempt services; (v) Whether Rs.21,76,552/- requires reversal for excess availment of cenvat credit in ST-3 returns vis-a-vis cenvat register; (vi) Whether penalty under Section 78 of the Finance Act, 1994 can be imposed.Issue (i): Whether service tax under Reverse Charge Mechanism is payable on foreign currency expenses for overseas film shooting and allied activities.Analysis: The Show Cause Notice and adjudication relied solely on balance-sheet figures labelled 'expenditure in foreign currency' without identifying the specific taxable service or sub-clause under Section 65(105) for pre-01.07.2012 periods; for post-01.07.2012 periods, Place of Provision of Services Rules apply and Rule 6 (services relating to events and ancillary services) makes the place of provision the location where the event is held. The facts show shooting and related services were performed outside India and many payments related to immovable-property/location services abroad. Precedent and statutory rules require identification of the service and place of provision analysis before invoking RCM.Conclusion: The demand under RCM on foreign currency expenses is not sustainable and is set aside in favour of the assessee.Issue (ii): Whether Rs.30,58,083/- requires reversal for short reversal of cenvat credit on common input services.Analysis: Rule 6(3A) CCR requires computation based on value of services provided during the financial year; advances and point-of-taxation rules affect inclusion. The appellant applied entity-level proportionate reversal; Revenue computed division-wise excluding advances and included permanent copyright sales wrongly as exempt services.Conclusion: The alleged short reversal of Rs.30,58,083/- is not sustained and is set aside in favour of the assessee.Issue (iii): Whether Rs.26,16,650/- requires reversal for cenvat credit on input services from RIMT Pvt. Ltd.Analysis: Invoices and corresponding output invoices demonstrate that services from RIMT were content/digital mastering used for taxable output (video tape production); Revenue produced no evidence of use for exempt services; tax was discharged on such services.Conclusion: The reversal demand of Rs.26,16,650/- is not sustainable and is set aside in favour of the assessee.Issue (iv): Whether Rs.15,53,293/- requires reversal for cenvat credit on projectors and related maintenance.Analysis: Capital goods (projectors) and maintenance were used for both taxable and exempt supplies; Rule 6(4) restricts denial only when used exclusively for exempt supplies. Evidence shows mixed use and taxable receipts (distributor per-show fees) on which tax was paid.Conclusion: Denial of cenvat credit of Rs.15,53,293/- is not sustainable and is set aside in favour of the assessee.Issue (v): Whether Rs.21,76,552/- requires reversal for excess availment of cenvat credit in ST-3 Returns vis-a-vis cenvat register.Analysis: Records show the appellant reversed the amount in ST-3 returns for Oct 2013-Mar 2014; Revenue's demand duplicates amounts already reversed in statutory returns.Conclusion: The demand of Rs.21,76,552/- is not sustainable and is set aside in favour of the assessee.Issue (vi): Whether penalty under Section 78 of the Finance Act, 1994 can be imposed.Analysis: Section 78 penalties require fraud, collusion, willful misstatement, suppression or intent to evade tax. There is no evidence of suppression or fraudulent intent; taxes were paid in several instances and demands were based on accounting differences and unidentifed service classification.Conclusion: Penalties under Section 78 are not imposable and are set aside in favour of the assessee.Final Conclusion: The Tribunal allows the appeal, sets aside the impugned demands and penalties addressed in the issues above, and directs consequential reliefs as applicable.Ratio Decidendi: A demand of service tax founded solely on differences between balance-sheet figures and ST-3 returns, without identification and classification of the specific taxable service or proper place-of-provision analysis, is unsustainable; services performed wholly outside India fall outside Indian RCM liability, and Rule 6 CCR and Point of Taxation Rules govern correct cenvat reversal computation.