Lights, Camera, Service Tax
JUNE 22, 2012
By Vaitheeswaran, Advocate
IT's a story which was never written before with a tight screen play and a focused director. The film industry is getting into service tax in its own style with different twists and turns at every end.
In the earlier dispensation, the levy was imposed on select segments connected with the film industry and confusion prevailed through interpretative circulars on exhibitors. In the new dispensation, a service as defined in terms of Section 65B(44) is taxable excluding items specified in the Negative List through Section 66D and services exempt through Notification No.12/2012.
Admission to entertainment events or access to amusement facilities is specified in the Negative List and entertainment event is defined to mean an event or a performance which is intended to provide recreation, pastime, fun or enjoyment, by way of exhibition of cinematographic film, circus, concerts, sporting event, pageants, award functions, dance, musical or theatrical performances including drama, ballets or any such event or programme.
Entry 15 of Notification No.12/2012 dated 17.03.2012 w.e.f. 01.07.2012 exempts temporary transfer or permitting the use or enjoyment of a copyright covered under Section 13(1)(a) or 13(1)(b) of the Indian Copyright Act, 1957 relating to original literary, dramatic, musical, artistic works or cinematograph films.
Copyright in terms of Section 13 of the Indian Copyright Act, 1957 subsists in the following classes of work:
(a) Original literary, dramatic, musical and artistic works;
(b) Recording of cinematographic films;
(c) Sound recordings.
The CBEC in its Draft Guidance Note issued at the time of Budget 2012 has clarified that a music company would be required to pay service tax as the copyright relating to sound recording falls under clause (c) of sub-section (1) of section 13 of the Indian Copyright Act, 1957 and that the copyright relating to original work of composing song falls under clause (a) of sub-section (1) of section 13 of the Indian Copyright Act, 1957 which is exempt from service tax. A person having the copyright of a cinematographic film would also not be required to pay service tax on the amount received from the film exhibitors for exhibiting the cinematographic film in cinema theatres. Therefore, theatres are clearly out of service tax in respect of revenues arising out of exhibition of a cinematographic film.
Entry 16 of Notification No.12/2012 provides for an exemption in respect of service by a performing artist in folk or classical art form of (i) music; or (ii) dance; or (iii) theatre excluding services provided by such artists as a brand ambassador.
The key question that arises is with reference to movie actors and actresses. Even though they are performing artists, the exemption refers only to theatre and does not cover the film industry. This would mean that without discrimination and irrespective of the role in the movie, the hero, the heroine, the bad guy, the comedy track artist and all other character artists will be liable to service tax. Joining them would be the film director, dialogue writer, cinematographer, choreographer, editor including all other technicians. The irony is that the producer is not liable to service tax whereas the producer will have to bear the cost of all the artists and technicians who may be required to charge service tax. In other words, the cost of production of the movie would go up significantly by virtue of service tax.
Further, thanks to Notification No.15/2012 if junior artists, stuntmen and other workers are made available by partnership firms, individuals, HUF, AOP, etc. (supply of man power) the service tax payable by the service receiver is 75% and the service tax payable by the provider is 25%.
The predictable turn in the story would be the applicability of Point of Taxation Rules, 2011. The contract would provide for payment of an agreed consideration in certain instalments. The actor may have completed 50% of his commitments but the movie could be shelved due to financial constraints. Work done, no money, but service tax is payable unless the transaction is reversed.
The unexpected twist in the story is when the producer engages a foreign artist. The applicability of service tax would depend upon the final version of the Place of Provision of Service Rules, 2012.
Sometimes the movie is completely different from the trailer. The trend continues with service tax. While the trailer in the form of Budget Speech referred to exemption for the industry on copyrights, the main movie continues the exemption but increases the costs for the producers since all other artists and technicians involved in the creation of the movie would be liable to service tax. A true box office hit for the Central Government.
