The nature of the transaction determines the leviability of service tax and decisions should be made on a case-by-case basis.

R. Banumathi, J.

1. In these writ petitions, the petitioners, who are all producers or Distributors/sub-distributors/ exhibitors of movie, challenge the Circular No.148/17/2011-ST dated 13.12.2011 bearing F.No.354/27/2011-TRU as illegal and unconstitutional and seek for issuance of directions to respondents 1 to 3 not to give effect to Circular No.148/17/2011-ST dated 13.12.2011 issued by the Central Board of Excise and Customs, Tax Research Unit, New Delhi, which was issued for the purpose of collecting service tax from film distributors/sub-distributors/theatre owners and seek for a direction not to give effect to the said circular.

2. When service tax was levied on "intellectual property services" with effect from 10.9.2004, copyright was specifically excluded from the definition of “intellectual property rights”. Normally, a producer of a movie sells the rights showing the movies in a region to a distributor. The distributor in turn enters into agreement with subscribers/theatre owners and this agreement can be of different types. By Circular No.109/03/2009 of Central Board of Excise and Customs bearing F.No.137/186/2007-CX.4 dated 23.2.2009, it was clarified that the “screening of a movie” is not a taxable service except that the distributor leases out the theatre and the theatre owner gets a fixed rent. In such case, the service provided by the theatre owner would be categorised as “renting of immovable property for furtherance of business or commerce” and the theatre owner would be liable to pay service tax on the rent received from the distributor. Insofar as “revenue sharing arrangement”, the Circular clarified that in such type of arrangement, the two contracting parties act on principal to principal basis and one does not provide service to another and in such arrangements, the activities are not covered under the service tax.

3. With effect from 1.7.2010, business of "licensing of copyrights" was brought within the service tax net by making amendments to the definition of “taxable service” under Clause (105) of Section 65 by introducing sub-clause (zzzzt). As per Section 65(105) sub-clause (zzzzt), service tax is leviable on any “temporary transfer of copyright or permitting the use or enjoyment of the copyright” excepting rights covered under sub-clause (a) of clause (1) of Section 13.

4. In Section 65, Clause (104c) of the Finance Act by the Finance Act, 2011, for the words “operational assistance for marketing”, the words “operational or administrative assistance in any manner” were substituted in Clause (104c) of Section 64.

5. Considering the taxing entry for "copyright services" introduced vide Section 65(105) (zzzzt) and also the amendment in Section 65(104c), Circular No.148/17/2011-ST dated 13.12.2011 was issued under Section 83 of the Finance Act read with Section 37B of the Central Excise Act issuing clarification regarding the levy of service tax on distributors/sub-distributors of films and exhibitors of movie. In the said Circular, it was pointed out that the earlier Circular No.109/03/2009 dated 23.2.2009 has been misinterpreted to exclude all revenue sharing arrangements from the levy of service tax. The Circular clarified:

(i) ‘service tax’ is payable on ‘copyright services’ when the ‘copyrights’ are temporarily transferred.

(ii) When movie is being exhibited on behalf of distributor or sub-distributor or area distributor and no copyrights are temporarily transferred, ‘service tax’ is payable under ‘Business Support Service/Renting of immovable property’, as the case may be.

Arrangement under incorporated partnership/joint/colloboration basis, service provided by each of the person i.e., a new entity/ Theatre owner or exhibitor/distributor or sub-distributor or area distributor, as the case may be, is liable to ‘service tax’ under applicable service head.

6. In these writ petitions, the impugned circular is challenged as ultra vires the Constitution and the statute contending that the circu