The Mumbai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has allowed Yash Raj Films’ appeal, setting aside a service tax demand of Rs. 46.40 crores covering 2013-14 to June 2017. The Tribunal held that overseas representatives facilitating third-party services for film shoots were not providing film production services on their own account, and their intermediary services were supplied outside the taxable territory under Rule 9(c), excluding reverse charge liability.
Even though the Department had treated payments to overseas Local Area Representatives (LARs) as consideration for film production services taxable under the reverse charge mechanism, the CESTAT found that the LARs merely arranged services from third-party vendors abroad. Therefore, the Tribunal clarified that Yash Raj Films retained exclusive creative control and final budgetary authority, and the LARs’ fixed facilitation fee was separate from amounts paid for third-party services, satisfying the Education Guide criteria for intermediary classification.
Briefly, Yash Raj Films Private Limited challenged a service tax demand of Rs. 46.40 crores along with interest, an equivalent penalty under Section 78 and a penalty of Rs.10,000 under Section 77(2) of the Finance Act, 1994, for 2013–2014 to June 2017. The Department treated payments to overseas Local Area Representatives (LARs) for film-related activities as consideration for film production services taxable under the reverse charge mechanism (RCM). Yash Raj Films however, maintained that the LARs only facilitated procurement of services from third parties abroad and did not themselves undertake film production.
The Division Bench comprising S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) found that Yash Raj Films retained exclusive control over creative matters and final control over budgetary and business matters. The LARs’ role was limited to arranging services required for overseas shoots. The agreements and supporting records showed that third-party vendors provided the main services, while FIRSTEP, the overseas LAR, acted as an intermediary. Its fixed facilitation fee was separate from the amounts paid for those third-party services, satisfying the criteria for intermediary classification.
The Tribunal also held that receipt and transfer of foreign film incentives did not, by itself, establish that the LARs provided film production services. The separation of the LAR’s fee from the main services further supported this classification.
