The activities undertaken by the appellant under the agreements with the FPCs did not qualify as taxable services under BAS

In a significant ruling, the Mumbai bench of the Customs Excise and Service Tax Appellate Tribunal ( CESTAT ) has ruled that marketing and promotion activities conducted by Film Production Companies ( FPCs ) are not subject to service tax under the category of Business Auxiliary Service ( BAS ). The appellant, Sony Music Entertainment India Pvt. Ltd., is engaged in providing various taxable services, including Clearing and Forwarding services, Broadcasting services, Maintenance or repair services, Business Auxiliary Services (BAS), and Sponsorship services. The company is registered with the jurisdictional departmental authorities for these services. Ready to Grow? Choose a Course That Fits Your Goals! The Directorate General of Central Excise Intelligence (DGCEI), now known as the Directorate General of GST Intelligence (DGGI), Zonal Unit, Mumbai, initiated an investigation into commercial agreements between various Film Production Companies (FPCs) and Music Production Companies (MPCs), including Sony Music. These agreements involved FPCs granting rights to MPCs for commercially exploiting the music of movies, for which the MPCs agreed to pay specified amounts. The DGGI discovered that these agreements also required MPCs to spend a specified amount on marketing, publicity, and promotion of the film and its music. The DGGI interpreted this arrangement as a taxable service under the category of Business Auxiliary Service (BAS), with the MPC being the service provider and the FPC the service receiver. Since the appellant was not paying service tax on these activities, the DGGI initiated an investigation in September 2014. During the investigation, the appellant submitted various documents and replies, including a statement from their Senior Manager Accounts, a Chartered Accountant, on 13.04.2015. The DGGI concluded that while the services provided by FPCs to the appellant related to copyrights were not taxable, the marketing and promotional services provided by the appellant to the FPCs were taxable under BAS up to 30.06.2012. After the introduction of the negative list regime on 01.07.2012, these services were still considered taxable by the DGGI. The DGGI issued a show cause cum demand notice on 20.04.2015, demanding service tax for the period from October 2009 to 2013-2014, along with interest and proposing penalties. Further demand notices were issued for subsequent periods covering financial years 2014-2015 to 2016-2017. The Commissioner of CGST, Mumbai West, confirmed these demands. Ready to Grow? Choose a Course That Fits Your Goals! Mr. D.B. Shroff, representing appellant, argued that the company is involved in acquiring and exploiting copyrights in sound recordings, audio visuals, and related works. He explained that the marketing efforts undertaken by the appellant were for its own benefit to increase the popularity and revenue from the songs and audiovisuals. He emphasized that these marketing efforts did not constitute a service to the FPCs and that no consideration flowed from the FPCs to Sony Music, negating the applicability of service tax under the BAS category. Mr. Mahesh Patil, representing the respondent, supported the findings of the Commissioner. He argued that the marketing and promotional activities conducted by the appellant for the FPCs were indeed services under BAS and were rightly taxable. The Tribunal, comprising S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) found that the activities undertaken by the appellant under the agreements with the FPCs did not qualify as taxable services under BAS. The Tribunal noted that the agreements allowed for certain expenses to be adjusted from the revenues and did not constitute a provision of service. Consequently, the Tribunal set aside the impugned order dated 27.02.2021, and the appeal filed by the appellant was allowed.