Yash Raj Films wins appeal as CESTAT sets aside ₹46.4 crore service-tax demand on overseas film-shooting assistance

Yash Raj Films Private Limited engaged overseas Local Area Representatives (LARs) to assist with film production activities abroad, including arranging locations, personnel and other production requirements.

The department treated the LARs as providing film-production services and demanded service tax under the reverse-charge mechanism for the period 2013–14 to June 2017.

The Commissioner confirmed a demand of ₹46,40,92,070, with interest and penalties.

The company appealed, contending that the LARs acted only as intermediaries and that the services of overseas third-party providers were separately procured.

1. Whether the services received from overseas entities, including the LARs, constituted taxable services in India and attracted service tax under the reverse-charge mechanism

2. Whether the demand could be sustained by invoking the extended limitation period

3. Whether penalties under Sections 77 and 78 of the Finance Act, 1994, were imposable

Section 65B(44) of the Finance Act, 1994 defines “service” as an activity carried out by one person for another for consideration; Sections 65B(51) and 66B make service tax leviable on a taxable service provided or agreed to be provided in the taxable territory.

Under Section 68(2), read with Notification No. 30/2012-Service Tax, a recipient in India is liable under reverse charge for specified taxable services provided by a person located in a non-taxable territory.

Rule 2(f) of the Place of Provision of Services Rules, 2012 defines an “intermediary” as a person who arranges or facilitates a service between two or more persons but does not provide the main service on its own account.

Under Rule 9(c), the place of provision of intermediary services is the location of the service provider; Rule 14 directs that, where rules merit equal consideration, the later rule applies.

The Tribunal also considered the Education Guide’s criteria for identifying intermediary services: the intermediary does not alter the nature or value of the main service, the intermediary’s remuneration is separately identifiable, and the main service is distinct from the intermediary’s service.

The Tribunal examined the production-assistance agreement and found that Yash Raj Films retained creative, budgetary and business control, while the LAR’s role was to facilitate the procurement of services from overseas third parties.

The agreement separately fixed the LAR’s fee, distinct from the amounts advanced for production costs; the LAR did not control the nature or value of the third-party services.

The Tribunal therefore treated the LAR as an intermediary rather than as the film producer or provider of the main production services.

Applying Rule 9(c), it held that the place of provision of the LAR’s intermediary service was outside the taxable territory, so that service was not taxable under Section 66B or subject to reverse charge.

It also found that foreign-government incentives passed through the LAR did not establish that the LAR was the film-service provider.

Having decided the matter on merits, the Tribunal did not determine limitation.

It set aside the impugned order, including the service-tax demand, interest and penalties, and allowed the appeal in favour of Yash Raj Films.