Government of India
Ministry of Finance
Department of Revenue
(Central Board of Excise and Customs)
New Delhi, 23rd February, 2009
Circular No. 109/03/2009
Subject: Service tax on movie theatres-reg.
A query had been raised by the field formation as to whether the activity of
screening of film supplied by a film distributor would fall under any of the
taxable services and accordingly, whether the theatre owners are required to pay
service tax on amount received by them from distributors. Divergent views have
been expressed on this issue. One view is that the activity of screening of
films supplied by a film distributor falls under the taxable service category of
“renting of immovable property”; while an alternative view is that such activity
falls under the category of ‘Business Support Service’.
- The matter has been examined. Normally a producer of a movie sells the rights
of showing the movies in a region to a distributor. The distributor in turns
enters into agreement with theater owners. This agreement can be of different
types. Thus it is necessary to examine different types of arrangements under
which a movie is screened, in order to determine whether any tax liability
arises on the activities undertaken by a theater owner and a distributor.
Typical types of arrangements normally entered into between a theater owner and
a distributor are as under:-
2.1. Under one type of arrangement, the distributor leases out the hall for
screening of the movie. Here, the theater owner gets a fixed rent from the
distributor. The profit or loss from exhibiting the film is borne by the
distributor. In such a case, the theatre owner provides the taxable service of
‘Renting of immovable property for furtherance of business or commerce’ and is
accordingly liable to pay service tax.
2.2. Another type of arrangement is where the contract between the theatre owner
and the distributor is on revenue sharing basis i.e. a fixed and pre-determined
portion i.e. percentage of revenue earned from selling the tickets goes to the
theater owner and the balance goes to the distributor. In this case, the two
contracting parties act on principal-to-principal basis and one does not provide
service to another. Hence, in such an arrangement the activities are not covered
under service tax.
2.3. In yet another type of arrangement, the theater owner buys the print/CD of
the film on payment of a fixed price and thereafter screens it in his theater.
This transaction is also not subject to service tax being in the nature of sale
of goods.
2.4. The arrangement most commonly entered into between a theater owner and a
distributor is that the theater owner screens the movie for fixed number of days
under a contract. The proceeds earned through sale of tickets go to the
distributor but the theatre owner receives a fixed sum depending upon the number
of days of screening. In this arrangement, the advertisement and display of
posters etc. is done by the distributor. Under this arrangement, the fixed
amount contracted is given to the theater owner by the distributor irrespective
of the fact whether the movie runs well or not. However, there is no rental
arrangement between the theater owner and the distributor as in the arrangement
at paragraph 2.1 above. A view has been expressed that in this arrangement, the
theater owner provides ‘Business Support Service’ to the distributor and hence
is liable to pay service tax on the fixed amount received by the theater owner.
2.5. The matter has been examined. By definition ‘Business Support Service’ is a
generic service of providing ‘support to the business or commerce of the service
receiver’. In other words the principal activity is to be undertaken by the
client while assistance or support is provided by the taxable service provider.
In the instant case the theatre owner screens/exhibits a movie that has been
provided by the distributor. Such an exhibition is not a support or assistance
activity but is an activity on its own accord. That being the case such an
activity cannot fall under ‘Business Support Service’.
- In the light of above , it is clarified that screening of a movie is not a
taxable service except where the distributor leases out the theater and the
theater owner get a fixed rent. In such case, the service provided by the
theater owner would be categorized as ‘Renting of immovable property for
furtherance of business or commerce’ and the theater owner would be liable to
pay tax on the rent received from the distributor. The facts of each case and
the terms of contract must be examined before a view is taken.
- All pending cases may be disposed of accordingly. In case any difficulty is
faced in implementing these instructions, the same may be brought to the notice
of the undersigned.
- Please acknowledge receipt.
- Hindi version follows
Yours faithfully,
(Gautam Bhattacharya)
Commissioner (Service Tax)
F. No. 137/186/2007 - CX. 4