Removing the ambiguity over the levy of service tax on film distributors and exhibitors, the government now plans to separately tax film distribution and screening operations even if the distinct businesses are run by a single entity.
Earlier, the distribution rights licensed from the producer to the distributor and the distributor to the exhibitor were not liable to indirect tax.
The revenue department has said that the nature of arrangement among distributors and exhibitors would not be a determining factor for the levy of service tax and such transactions would be looked on a case by case basis.
According to the latest revenue department circular, service tax under the copyright service will be provided by the distributor or sub-distributor or producer, as the case may be, if the movie is exhibited by theatre owner/exhibitor because the copyrights are temporarily transferred.
In case the movie is exhibited on behalf of distributors or producers, then the service tax will be levied under the business support service/renting of immovable property service, as the case may be, and the service tax liability will be provided by the theatre owner/exhibitor, the circular said.
In case both producer/distributor and exhibitor or theatre owner enter into revenue-sharing, then both the entities will be subjected to service tax, the revenue department clarified.
?It is understood that the 2009 circular has been misinterpreted to exclude all ?revenue sharing? arrangements from the levy of service tax.
Even though the arrangement entered into by the two entities is on ?revenue share? basis, the nature of service provided by the theatre owner to the distributor does not change owing to operation on revenue share basis,?said a senior official in the revenue department.
The move will come as a setback to the R10,800-crore Indian film industry and its various associations who have been lobbying for the removal of service tax, citing multiple taxation levied on the industry, including entertainment tax, value-added tax, customs duty and service tax.
In the Finance Bill of 2010, the government had proposed a levy of 10.3% service tax on licensing arrangements for distribution of film in theatres. However, due to ambiguity in the interpretation, several representations were sent by the film distributors, individuals and exhibitors.
