The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that revenue-sharing arrangements between an entertainment complex and restaurants operating within its premises cannot be subjected to service tax under the category of Business Support Service (BSS). 

The bench of Ajayan T.V. (Judicial Member) and Vasa Seshagiri Rao (Technical Member) while setting aside the impugned order, the Tribunal ruled that such arrangements are on a principal-to-principal basis and amount to participation in a common business rather than the provision of taxable support services. 

The appellant/assessee is a well-known entertainment centre in Chennai, is engaged in providing various taxable services including business support services, renting of immovable property, sale of advertising space and club membership services.

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Following an investigation, the department alleged that the company had failed to discharge service tax on amounts received from restaurants and retailers operating within its premises under revenue-sharing agreements. A Statement of Demand dated 26 November 2013 sought recovery of ₹10,26,195 towards alleged short payment of service tax for the period October 2011 to March 2012, along with interest and penalty under Section 76 of the Finance Act, 1994. 

The adjudicating authority confirmed the demand, concluding that the company was providing Business Support Services to restaurants and retailers and that the revenue-sharing model merely represented consideration for those services. The Commissioner (Appeals) upheld this finding, prompting the company to approach the Tribunal. 

The company submitted that the present Statement of Demand itself acknowledged that it arose from identical facts and circumstances forming the basis of the earlier show cause notices, which had already been decided in its favour. Therefore, judicial discipline required the Tribunal to follow its earlier decision. 

The Tribunal closely examined the agreements executed between Mayajaal and various restaurant operators.

Under these agreements: Mayajaal provided space within its entertainment complex. It undertook billing and collection activities. It provided uninterrupted power backup. It promoted the restaurant business wherever possible. Instead of charging fixed rent, Mayajaal retained an agreed percentage (generally 20%) of the restaurant’s net revenue, with the remaining amount being paid to the restaurant operator. 

The Tribunal noted that if the restaurant generated no revenue on a particular day, Mayajaal would also receive nothing under the agreement, demonstrating that both parties shared business risks and rewards. 

The Bench referred extensively to CBEC Circular No. 109/3/2009-ST dated 23 February 2009, which distinguishes between fixed-rent arrangements taxable as renting of immovable property; and revenue-sharing arrangements, where both parties act on a principal-to-principal basis and no taxable service is rendered by one to the other. 

The Circular specifically clarifies that in a revenue-sharing model, the activities do not attract service tax because neither party provides services to the other.

Applying this clarification, the Tribunal observed that the present arrangement closely resembled the revenue-sharing model recognised in the Circular rather than a taxable Business Support Service. 

The earlier decision held that where consideration is shared from business revenues rather than paid as fixed consideration for support services, the arrangement cannot be taxed under Business Support Service. 

The Bench observed that the issue had already been conclusively decided in the appellant’s own favour for earlier periods through the Tribunal’s 2024 majority decision.

Since the department had not demonstrated that the earlier order had been reversed or stayed, the Tribunal held that principles of judicial discipline required following the binding precedent.

Accordingly, the Tribunal set aside the impugned appellate order and allowed the appeal with consequential relief. 

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