CESTAT Mumbai Sets Aside ₹46.41 Crore Service Tax Demand Against Yash Raj Films Over Overseas Film Shoots

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai, has ruled that overseas Local Area Representatives (LARs) who arrange third-party services for film shoots abroad act as intermediaries.

Since the place of provision of these intermediary services was outside India, Yash Raj Films Private Limited was not liable to pay service tax under the reverse charge mechanism. The tribunal set aside a demand of ₹46.41 crore, along with interest and penalties.

A bench of Judicial Member S.K. Mohanty and Technical Member M.M. Parthiban held that the LARs facilitated the procurement of services from third parties. Yash Raj Films retained control over the creative, budgetary and business aspects of film production.

The tribunal observed, “Therefore, from the various clauses of the Agreement it is conclusively evident that the LARs have acted purely as intermediaries, merely facilitating procurement of services from third parties on behalf of the appellants, without providing any independent service by themselves.”

The dispute arose after the tax department audited Yash Raj Films' records for 2013-14 to June 2017. It found that the company had incurred foreign-currency expenditure on film production, distribution and marketing. This included expenditure on films shot partly or wholly abroad, such as Dhoom 3, Gunday and Befikre.

The department alleged that overseas line producers or LARs were providing film-production services on a principal-to-principal basis. It treated these as taxable services and sought to recover service tax from Yash Raj Films under the reverse charge mechanism.

A show-cause notice issued on April 17, 2019, sought service tax, interest and penalties. The adjudicating authority confirmed a demand of ₹46,40,92,070 for the period from 2013-14 to June 2017. It also imposed a penalty equal to the tax demand under Section 78 of the Finance Act, 1994, and an additional penalty of ₹10,000 under Section 77(2).

Yash Raj Films challenged the order, arguing that its overseas LARs only arranged services needed for filming. Their work included hiring junior artists and camera crew, arranging transport, obtaining local permissions, and sourcing lighting, equipment, generators and studios from third parties.

The company maintained that the LARs did not independently produce films. It argued that all creative, budgetary and business decisions remained under its control.

Examining the Production Assistance Agreement between Yash Raj Films and Firstep, Paris, for Befikre, the tribunal found that Firstep helped arrange locations, personnel and other filming requirements. Yash Raj Films retained exclusive control over creative matters and final authority over budgetary and other business decisions.

The agreement also made clear that engaging Firstep did not oblige Yash Raj Films to produce the film or use the assistance arranged by it. Firstep's fixed fee of €1 lakh was separately identifiable from the amounts spent on services procured from third-party vendors.

The tribunal examined agreements and invoices for services provided in Paris. These included premises used for filming and facilities such as electrical power.

It found that third-party providers had entered into specific arrangements to supply these services to Yash Raj Films. Firstep acted as an intermediary between the company and the service providers.

Under Rule 9(c) of the Place of Provision of Services Rules, 2012, the place of provision of intermediary services is the location of the service provider. The tribunal held that this rule applied because Firstep arranged the services from Paris.

It also considered Rule 14, which governs cases where more than one rule could apply. Even if Rule 3 and Rule 9 were treated as competing provisions, the tribunal held that Rule 14 required the later rule to prevail where both merited equal consideration.

The tribunal observed, “Accordingly, the place of provision of service in the present case would be the location of the service provider i.e., Paris, France.”

It further held that Firstep's intermediary services were not liable to service tax under Section 66B of the Finance Act, 1994. Consequently, the reverse charge mechanism under Section 68 read with Notification No. 30/2012-Service Tax did not apply.

The department had also relied on tax incentives received by overseas entities to argue that they were providing film-production services. The tribunal rejected the inference that Firstep's receipt of the French tax incentive established that it was itself a film-production service provider.

It examined France's Tax Rebate for International Production scheme and noted that eligible production-service companies could receive incentives for managing local operations for foreign film producers. The incentive did not establish that Firstep was itself providing film-production services as a producer.

Having decided the dispute on merits, the tribunal found it unnecessary to examine Yash Raj Films' arguments on limitation. It allowed the appeal and set aside the demand, interest and penalties.

For Appellant: Gopal Mundra, Gourav Sogani and Yash Prakash, Advocates

For Respondent: S.K. Yadav, Authorised Representative