The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chandigarh Bench, has held that the revenue-sharing arrangement between cinema exhibitors and film distributors cannot be treated as a taxable Business Support Service under the Finance Act, 1994.
The bench of Justice S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) set aside service tax demands exceeding ₹74.65 lakh, along with interest and penalties, raised while reiterating that such arrangements operate on a principal-to-principal basis rather than as an unincorporated joint venture.
The appellant/assessee operates multiplex cinemas under the ‘Wave Cinemas’ brand in Ludhiana. The company enters into agreements with film distributors and sub-distributors for exhibition rights, sells movie tickets to customers, records the entire ticket revenue as its income, and pays distributors an agreed percentage of the revenue as “Film Hire Charges.”
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The Service Tax Department issued two show cause notices covering the periods October 1, 2013 to March 31, 2014, and April 1, 2014 to March 31, 2015, alleging that the company was providing Business Support Services to distributors by exhibiting films in its multiplexes.
The Department claimed that the exhibitor and distributors had formed an unincorporated joint venture, making the exhibitor liable to pay service tax on the revenue earned from screening films. Based on this interpretation, demands of ₹20.51 lakh and ₹54.14 lakh, together with interest and penalties under Sections 75, 76 and 78 of the Finance Act, 1994, were confirmed by the adjudicating authority and later upheld by the Commissioner (Appeals).
The appellant argued that the Department had completely misunderstood the commercial arrangement between exhibitors and distributors.
The company submitted that the exhibitor obtains only exhibition rights from distributors. Tickets are sold directly by the exhibitor to cinema-goers. The exhibitor bears all operational expenses, profits, and losses. Distributors do not pay any consideration to the exhibitor. The arrangement is purely on a principal-to-principal basis and not a joint venture.
The appellant further relied upon CBEC Circular No. 109/3/2009, which clarified that under the revenue-sharing model between exhibitors and distributors, the parties do not provide services to one another but merely share revenue generated from ticket sales.
The company also pointed out that CESTAT had already decided the identical issue in its own favour for an earlier period, and that decision had subsequently been affirmed by the Supreme Court.
The Tribunal observed that the controversy was no longer res integra, as the issue had already been conclusively settled by earlier judicial precedents, particularly the Hyderabad Bench decision in Inox Leisure Ltd., which was later affirmed by the Supreme Court.
After examining the agreements between the exhibitor and distributors, the Bench noted that the exhibitor independently determines the number of shows, screen allocation, ticket prices and exhibition schedules. The distributor merely grants a non-exclusive licence to exhibit films. Each party independently conducts its own business without interference from the other. There is no flow of consideration from distributors to exhibitors for any alleged service.
Instead, the Tribunal observed that it is the exhibitor who pays the distributor for acquiring theatrical exhibition rights.
Consequently, the essential requirement of a taxable service—where consideration flows from the recipient of service to the service provider—was absent.
The Tribunal noted that in the appellant’s own earlier case, CESTAT had already held that revenue-sharing arrangements for film exhibition were not classifiable as Business Support Services, and that ruling had subsequently been upheld by the Supreme Court.
Since the present dispute involved identical facts and legal issues, the Bench found no reason to take a different view.
Following the binding precedents, the Tribunal set aside both impugned appellate orders and allowed the appeals filed by A B Motions Private Limited with consequential relief in accordance with law.
The Bench concluded that the activity of screening films under a revenue-sharing model between exhibitors and distributors does not constitute Business Support Service, and therefore no service tax is leviable on such transactions.
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