In the AAAR case of United Breweries Limited, Bengaluru (2018) 30 J.K.Jain’s GST & VR 554, it was held that, “as per the agreement between the appellant and the CBUs, the appellant gets a brand fee in lieu of the permission granted to the CBU to utilize their brand. The consideration in the Form of Brand Fee and the surplus amount over and above the brand fee received from the CBUs as Reimbursement Expenses, satisfy all the parameters of ‘supply of services’ and are classified under SAC Code 999799-‘other services nowhere else classified’, chargeable to 18% GST.”
The AAAR also has observed as under:–
In terms of Section 7(1) of the CGST Act, ‘supply’ also includes within its scope, the activities referred to in Schedule II of the Act which has been categorized as either a supply of goods or a supply of service. Clause 5(c) of the said Schedule II, refers to “temporary transfer or permitting the use or enjoyment of any intellectual property right” as a supply of service.
Our discussion in this article is limited to taxability in regard to Services rendered for displaying Films.
There are two entries in GST Schedule of Service in regard to services rendered for displaying Films, as under;
1) HSN code 997332 : Licensing services for the right to broadcast and show original films, sound recordings, radio and television programme etc. :
GST Rate laid down is 12% to 18% under entry No. 17 of Notfn No. 11/2017-CT(R) dated 28.6.2017, wherein,
a) The Heading of the entry is, “Heading 9973─Leasing or rental services” &
b) Description of Service under this entry, in regard to IPR is,
“(i) Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property right (IPR) in respect of goods other than Information Technology software”
IPR provide certain exclusive rights to the inventors or creators of Intangible Property, in order to enable them to reap commercial benefits from their creative efforts or reputation. In the case of SPS Jayam and Co. v. Registrar, Tamil Nadu Taxation Spl. Tribunal (2004) 137 STC 117(Mad), the High Court held that the Royalty received as consideration of use of trade mark is consideration.
Under this HSN Code, the taxable event is the Transfer of IPR to enable the transferee the use or enjoyment of IPR. Here, the GST burden falls on the transferee.
In the context of Film, the IPR is nothing but a license for the right to broadcast and show original Films. License, under common law, is a permission given to a person to do or enjoy something that he otherwise does not have the legal right to do or enjoy. Under an agreement with the producer of the Films/parent company, this exclusive rights to broadcast and show original films, is transferred. Here the recipient of services has a right to display these films since the exclusive rights to broadcast and show original Films is also transferred, in terms of agreement.
After this transfer, the transferee can broadcast and show original Films, to exhibitors, who are liable to pay GST under HSN cod 9996 on Admission Tickets.
2) HSN code 999612 : Motion picture, videotape, television and radio programme production services :
GST Rate 12% to 28% under entry No.34 of Notfn No. 11/2017-CT(R) dated 28.6.2017, wherein,
a) The Heading of the entry is, “Heading 9996─“Recreational, cultural and sporting services” &
b) Description of Service under this entry, in regard to admission ticket for exhibition of cinematograph films is,
ii) Services by way of admission to exhibition of cinematograph films where price of admission ticket is one hundred rupees or less─Here the rate of GST is 12% (6% CGST & 6% SGST), w.e.f. 1.1.2019.
iia) Services by way of admission to exhibition of cinematograph films where price of admission ticket is above one hundred rupees─Here the rate of GST is 18% (9% CGST & 9% SGST).
From the entry described above, it explicitly clear that it is in regard to admission to a place where Film will be exhibited and here the incidence of Tax is on admission for exhibition of Films & its burden falls on the ultimate consumers. And Films can not be exhibited without transfer of right to broadcast and show original Films under HSN code 9973.
Conclusion.─1.When Services are Supplied with Right to Broadcast & Show Films, the GST payable by the recipient is 12% (6% CGST + 6% SGST) under HSN Code 9973.
After obtaining the Right to Broadcast & Show Films, when the Film is exhibited to the viewers, they are liable to pay GST @12%/18% depending upon the admission ticket under HSN code 9996.