No Service Tax Payable On Overseas Film Shooting Expenses Under Reverse Charge: CESTAT Kolkata
The Kolkata Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has recently allowed the appeal filed by Shree Venkatesh Films Pvt. Ltd., holding that no service tax is payable under the reverse charge mechanism on expenses incurred in foreign currency for the shooting of films and allied activities carried outside India.
The bench, consisting of Judicial Member Ashok Jindal and Technical Member K. Anpazhakan, observed that the department had raised the demand merely on the basis of figures reflected in the balance sheet under the head "expenditure in foreign currency" without identifying or classifying the specific taxable service.
Shree Venkatesh Films (appellant), a media and entertainment production and distribution company based in Kolkata, operates through film, television and digital cinema divisions, providing services such as programme production, copyright services, video tape production and business auxiliary services.
While service tax was duly discharged on taxable output services, a dispute arose in relation to expenses incurred in foreign currency for shooting films abroad, alleged short reversal of CENVAT credit, denial of credit on input services and capital goods, and imposition of penalties under Section 78 of the Finance Act, 1994.
The Tribunal noted that under the pre-July 2012 positive list regime, the onus was squarely on the revenue to establish that the services fell under a specific taxable category under Section 65(105), which it has failed to do in the present case
For the post-July 2012 period, the bench observed that the department mechanically invoked Rule 3 of the Place of Provision of Services Rules, 2012, without examining the true nature of services.
The tribunal held that shooting of films outside India qualifies under Rule 6 of the Place of Provision of Services Rules, 2012, as services relating to entertainment events. It further noted that many of the services were connected with immovable property or location selection outside India, and accordingly held that the place of provision was outside India.
The bench opined that,
"For the period prior to 1st July, 2012, the demand is not sustainable as there is no specific clause of Section 65(105) of the Finance Act, 1994, under which, the said service is liable to be taxed. Even it is specified the sub-rule of Rule 3 of the Taxation of Services (Provided from outside India and received in India) Rules, 2006, under which the said services can be said to have been received in India. As it is settled law that prior to 1st July, 2012, the onus to determine the taxability and classification, was on the Revenue, which the Revenue has failed to discharge. Therefore, the demand of service tax is not sustainable for the period prior to 1st July, 2012".
Since the shooting activities were admittedly carried out outside India, no service tax liability could arise under reverse charge, opined the bench.
"Therefore, shooting of films outside India do qualify under Rule 6 of Place of Provision of Services Rules, 2012 and the place of service is to be held where the service has been performed. In this case, the shooting of films have performed outside in India. In that circumstances, no service tax is payable by the appellant," held the bench.
The bench also allowed credit on digital cinema mastering services and projectors used for providing taxable output services, holding that denial of credit based on assumptions and presumptions, without evidence of exclusive use for exempt services, was impermissible.
The tribunal also set aside the penalty under Section 78, holding that there was no evidence that the company had suppressed facts or tried to evade tax, especially since the demand was based on figures disclosed in its audited accounts and ST-3 returns (half-yearly service tax returns).
The appeal was accordingly allowed.
For Appellant: Chartered Accountant, Arvind Behati
For Respondent: Authorised Representative, R.K.Agarwal