Service tax on revenue sharing agreements The CBEC has issued circular no. 148/17/2011-ST dated 13 December 2011, on the subject of service tax liability of distributors / subdistributors and exhibitors of films. The circular in effect reverses the position taken in an earlier circular 109/2009 dated 23 February 2009 (which it claims was “misinterpreted”) as regards revenue-sharing arrangements.

1. UDYOG TAX NEWS FLASH
23 DECEMBER 2011
Update Dec 23
Customs: tariff value of brass scrap and poppy seeds lowered
The government has notified revised tariff values for brass scrap (all grades) to USD 4030 per MT,
and poppy seeds to USD 2044 per MT. The earlier values were USD 4125 per MT for brass scrap
and USD 2117 per MT for poppy seeds. Tariff values are notified under subsection (2) of section 14
of the Customs Act 1962. This provision is a departure from the norm of accepting transaction value
for assessment: it empowers the government, if necessary and expedient, to fix values for any class
of goods with regard to the trend of their values. Generally this provision is used in cases where the
international price of a class of goods is subject to frequent fluctuation. Fluctuating market prices
make it difficult for the appraising officer in customs to form an idea as to whether the declared
value is correct. To avoid disputes, the government finds it necessary and expedient to fix the
assessable value. The latest notification can be seen at http://cbec.gov.in/customs/cs-
act/notifications/notfns-2k11/cs-nt2k11/csnt87-2k11.htm.
Excise exemption for syrup & cream captively used in biscuit
manufacture
There is a general exemption for items that are captively used in the
manufacture of dutiable goods. Other than that, there is an
exemption under notification 10/1996-CE dated 23.7.1996 for items
that are captively used in manufacture of certain other goods that
may be exempted. Biscuits have been added to this list of goods, and
sugar syrup and cream manufactured in the factory and used for the
manufacture of biscuits have been exempted. See notification
39/2011-CE dated 12 September 2011 at
http://cbec.gov.in/excise/cx-act/notfns-2k11/cx-tarr2k11/ce39-
2k11.htm.
Service tax on revenue sharing agreements
The CBEC has issued circular no. 148/17/2011-ST dated 13 December
2011, on the subject of service tax liability of distributors / sub-
distributors and exhibitors of films. The circular in effect reverses the
position taken in an earlier circular 109/2009 dated 23 February 2009
www.udyogsoftware.com (which it claims was “misinterpreted”) as regards revenue-sharing
arrangements. The earlier circular said as follows (emphasis has been
Udyog Software (India) Ltd (www.udyogsoftware.com)
Phone: 022-67993535, Email: sales@udyogsoftware.com
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual
or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is
accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such infor mation
without appropriate professional advice after a thorough examination of the particular situation. Page 1

2. added):
2.2. Another type of arrangement is where the contract between the theatre owner and the distributor is on
revenue sharing basis i.e. a fixed and pre-determined portion i.e. percentage of revenue earned from selling
the tickets goes to the theater owner and the balance goes to the distributor. In this case, the two contracting
parties act on principal-to-principal basis and one does not provide service to another. Hence, in such an
arrangement the activities are not covered under service tax.
Now the CBEC has clarified that the contract to exhibit a film is non-taxable only if the arrangement
between the two persons results in the formation of a new legal ‘person’, even if in the form of an
unincorporated association. Whether the arrangement results in the formation of a legal ‘person’ is
to be determined as per the principles laid down in case law, cited in the circular. In other cases the
activity of providing a theatre or exhibiting a film is taxable either as ‘renting of immovable
property’ or as ‘business support service’, depending upon the nature of the activity. Further the
circular clarifies that the agreement to distribute a film is taxable as copyright service. The circular
can be seen at http://www.servicetax.gov.in/st-circulars-home.htm.
Service tax on issue of country of origin certificate
The CBEC has clarified that chambers of commerce must pay
service tax on the fee collected for issue of ‘country of
origin’ certificates. Under the Foreign Trade Policy, the
chambers of commerce are empowered to issue non-
preferential origin certificates. The CBEC’s understanding of
this activity is that –
“General practice followed is that the exporter makes an
application to the Chamber or any authorised agency for
issuance of COOC, in the prescribed form, along with a copy of
The
commercial invoice and other documents and pays the
prescribed fees. On the basis and verification of the information Only
provided in the application for COOC and the supporting
documents with reference to the goods sought to be exported, Indian
the Chamber or the authorised agency issues a COOC.”
In fact, the chambers are not authorized to make any ERP
verification with reference to the goods. On the basis of its
understanding of the process of issue of the certificate, the
CBEC circular says that –
Integration
“The above activity carried out by the Chambers, involving
certification of the national character of the export goods,
Taxation
squarely falls under ‘technical inspection or certification’, as
defined in section 65(108) of Finance Act, 1994.” Software
Actually, “technical inspection or certification” requires
examination of the goods in order to certify it. This is clearly
not done by the chambers of commerce. But maybe this
classification of the service is to the liking of exporters, as it makes the tax refundable under
notification 17/2009-ST. The circular mentions this specifically. See it at
http://www.servicetax.gov.in/st-circulars-home.htm.
Udyog Software (India) Ltd (www.udyogsoftware.com)
Phone: 022-67993535, Email: sales@udyogsoftware.com
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual
or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is
accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such infor mation
without appropriate professional advice after a thorough examination of the particular situation. Page 2

3. Ten-year exemption rescinded in less than five years
The government has, by notification 40/2011-CE, available at http://cbec.gov.in/excise/cx-
act/notfns-2k11/cx-tarr2k11/ce40-2k11.htm, rescinded notification 14/2007-CE dated 1 March
2007, which exempted goods manufactured by Brahmaputra Cracker and Polymer Limited, Assam.
The rescinded notification had exempted the goods for a period ‘not exceeding ten years from the
date of commencement of commercial production’.
Withdrawal of exemption at an earlier date than expected has been contested in the past on the
principle of promissory estoppel. However the courts have held that public interest, if
demonstrated, justifies such withdrawal. For example, in the case of Ispat Alloys Limited v Union of
India, 2010 (249) ELT 504 (Bom), the Bombay High Court upheld the unscheduled withdrawal of
exemptions for imported DG sets, on the ground of protection of domestic industry.
New CBEC Member for Service Tax
Sheila Sangwan has been allotted the service tax portfolio in the CBEC. At this time, when service
tax is in flux with the impending onset of GST and the negative list of services is under process of
finalization, the service tax portfolio is a crucial one. We are sure that Ms Sangwan, who has
distinguished herself in the service, will do justice to it.
Transfer of Commissioners
A small transfer order, covering five officers in the grade of Commissioner in Mumbai, Chennai and
Kanpur, has been issued under office order 251/2011 dated 15.12.2011. It can be seen at
http://cbec.gov.in/transfer_ord/trans-or-2k11/off-odr-251-2011.pdf.
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www.udyogsoftware.com
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022-67993535
Update Written
By Radha Arun,
Consultant To
Udyog Software ( India) Ltd
Udyog Software (India) Ltd (www.udyogsoftware.com)
Phone: 022-67993535, Email: sales@udyogsoftware.com
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual
or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is
accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such infor mation
without appropriate professional advice after a thorough examination of the particular situation. Page 3