Service tax on movie theatrical rights

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Ravi (Querist)
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28 February 2016 We are IPC pvt ltd an Indian Pvt ltd company. We propose to undertake this transaction and would want to know the service tax liabilty.
1) IPC pvt ltd., Indian Pvt ltd company will purchase theatrical rights from Indian movie company, MCI pvt ltd for Indian movie for exhibiting in theatres in USA for a period of 6 months only.
2) Indian company IPC pvt ltd, in turn will sell the theatrial rights so acquired to a US based comapny AC Inc for theatrical exhibition of the movie in USA for 6 months. IPC pvt ltd will receive consideration in US dollars.
What will be the service tax laibility or any other lliability for IPC pvt ltd and MCI pvt ltd Can any one kindly throw light on the query.

Guest

Guest (Expert)

29 February 2016 Services by way of right to admission to exhibition of cinematographic film is covered under sl.47 of Mega Exemption Notification 25/2012 - ST . Hence your transaction is exempted from Service Tax

Ravi

Ravi (Querist)
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29 February 2016 Thanks for the reply Karthikeyan Garu.

However the exemption is for "Right to admission for exhibition of film" as per the Mega Exemption notification. In transaction 1) , we are referring to "Right to exhibit the film" in USA and in 2) we are referring to transfer of "Right to exhibit the film" in USA to a US Company.

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Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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29 February 2016 While I agree with CA Karthikeyan about the exemption, as you have rightly pointed out, here we are discussing the liability for transfer of Theatrical Exhibition Rights. The nature of contract would determine the taxability as to whether it is a temporary transfer of copyright or not. As far as MCI Pvt Ltd is concerned, the transfer of theatrical exhibition rights to IPC Pvt Ltd is transfer of copyrights. Unless this transfer is made in perpetuity, the transaction attracts service tax which IPC Pvt Ltd. would have to pay to MCI Pvt Ltd.

For the transaction with AC Inc to be treated as Export of Service, three conditions are required - all three have to be met.
(a) The non-resident, AC Inc. should not have any branch, representative office or liasion person in the taxable territories;
(b) The service is rendered outside the taxable territories: and
(c) The consideration is received in convertible foreign exchange through proper banking channels.

Your query makes it abundantly clear that conditions (b) and (c) are fulfilled. If condition (a) is also fulfilled then the transaction with AC Inc. is Export of Services and hence exempt from service tax. Else, IPC Pvt Ltd. is liable to pay service tax on the transaction under RCM.

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Ravi

Ravi (Querist)
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01 March 2016 Suresh Sir, Thanks for bringing clarity on the issue. in this case

The majority shareholder of both the comapanies IPC pvt ltd. and AC Inc is Mr.X , who is an NRI holding Green card and he is the Director of both the companies. Will that attract point (a) in your answer and will the transaction between IPC pvt. ltd and AC Inc , be subject to service tax. Kindly clarify.

The service will be rendered in US and US$ will be received from ACinc to IPC pvt.ltd.

Thanking you in anticiption.

Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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01 March 2016 This is a transaction between closely related parties. As per the valuation section in Central Excise Act, 1944 and valuation rules made there under, if the transaction is entered into in the normal course of business and the value of consideration is what is charged to arms length parties (i.e. general public) the transaction will be treated as normal commercial transaction.

The service would be "Export of Services" provided Mr. X has no residential house in the taxable territories - i.e he may own residential property in Jammu & Kashmir, but not elsewhere in India. If he has a residential house in India, it would be treated as a representative place of business.

Guest

Guest (Expert)

02 March 2016 Sir,

The service here is still covered under Sl 15. of Mega Exemption Notification which reads as under
"Services provided by way of temporary transfer or permitting the use or enjoyment of a copy right -

(a) ........

(b) of cinematographic films for exhibition in a cinema hall or cinema theatre

Hence u need not look for conditions of Export of services

Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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02 March 2016 The transfer here CA Karthikeyan as far as the transfer between MCI Pvt Ltd and IPC Pvt Ltd. is not transfer of theatrical rights for exhibition of cinematographic films in a cinema hall or theatre. It is clear from the query that IPC Pvt. Ltd acquired the right - not to exhibit the cinema in cinema halls but to send it abroad to another company AC Inc who is the exhibitor of the cinema in cinema halls. While admitted I take your line of thought for the transaction between IPC Pvt Ltd and AC Inc, there is no way service tax can be avoided i the transaction between MCI Pvt Ltd and IPC Pvt Ltd, unless in your proffesional capacity you are privy to some information not apparent in the face of the question.

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Guest

Guest (Expert)

03 March 2016 Dear Mr.Suresh,

U must appreciate a fact that, the rights that is initially purchased by MCI Pvt Ltd from IPC Pvt ltd is nothing but a "Theatrical rights to exhibit a film". Request you to kindly read the transaction 1) stated by Mr.Ravi. this transaction is squarely falling under sl no.47 of Meg Exemption Notification.

However in the transaction no. 2) MCI Pvt Ltd in turn transferred the said theatrical rights to exhibit the film to a US based company AC Inc. This transaction gets covered under Sl.15 of Mega Exemption Notification.

The basic right which the IPC ltd company gets is right to admission to exhibit a film (nothing but a theatrical rights) in the transaction 1) and in the transaction 2) this theatrical rights is transferred. This is what my understanding on the query is about. I hope this clarifies for Mr.Ravi also.

Guest

Guest (Expert)

03 March 2016 Sorry IPC purchases from MCI and it transfers it to AC Inc. Please read my reply with this corrections

Thank You

Ravi

Ravi (Querist)
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03 March 2016 http://www.thehindu.com/news/national/tamil-nadu/service-tax-on-film-distribution-sale-of-rights-to-tv-upheld/article4860939.ece

The above link throws some light on the subject case.

Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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03 March 2016 Thanks for the link.

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