Adv. Neerav Mainkar
Bollywood celebrities today are always in the fear of tax raids!. Ninety per cent of celebrities do not pay Service Tax because they don’t know they are liable to pay. There is a lack in educating Bollywood.They are in need of guidance, especially now, when they are the target of frequent raids. A serious education is required on Service Tax, their rights and duties as far as tax liability is concerned, what recourse the agencies have against them and what could be their defence.
It was always known that the Bollywood celebrities were the highest Income Tax payers at all times. However, Bollywood was blissfully unconcerned with one more tax lurking in the woods- Service Tax.
Although Service Tax has been introduced only since 1994, which is very recent past, if history of taxation is considered, the way its scope has expanded within 19 years is mind boggling. Almost every fathomable service is being taxed at present. Bollywood was lucky to yet escape from the clutches of Service Tax almost for a decade after Service Tax was first introduced.
The earliest attempt to tax the Bollywood celebrities was when the Brand Promotion/ endorsements carried out by them were sought to be taxed under the category “Business Auxillary Service” under the sub-categories: “Promotion or marketing or sale of goods produced or provided by or belonging to the Client” and “Promotion or marketing of Services provided by the Clients” w.e.f. 01-07-2003.
However, the above attempt is highly misplaced in as much as the explanation to the said sub-categories clearly specify that what were sought to be taxed under this category were Marketing Agencies which promoted and marketed or sold the goods belonging to their Clients. This is precisely the reason that although the “Business Auxillary Service” as a taxable service was in force from 01-07-2003, it covered only “Commercial Concern” till 30-04-2006 and the words “Commercial Concern” were substituted with the words “any Person” w.e.f. 01-05-2006. This very change in the scope of entity covered makes it amply clear that the target service providers under this service were only ‘commercial concerns’ till 30-04-2006 and thereafter the intent was to include any person other than commercial concern offering such service such as an individual, partnership, society, HUF, etc. However, the scope of coverage of the services has remained unchanged. This would include commission agents, brokers, etc., who market & sell their Clients products.
For celebrities, brand endorsements is a big source of income. This service was brought into the Service Tax net from July 1, 2010 and that is when most of the celebrities were impacted. The agencies targeted under the earlier service were marketing agencies. But with stars, they endorse the brand; they don’t market your goods. So, today if Katrina says she is using Panasonic TV, she cannot say that she is also using Sony TV. The difference is the brand.
Conversely, a celebrity never sells or markets any product in above terms. What the celebrity does is Brand Endorsement of a product or service. Hence, the important factor distinguishing the services of a celebrity is the “Brand”. The celebrity promotes the ‘Brand’ of a goods or service, etc. This is the crucial factor which differentiates between the services provided by a celebrity by Brand Endorsement and those by Marketing Agencies under “Business Auxillary Service”. It has to be observed that the use of the word ‘Brand’ nowhere figures in the “Business Auxillary Service”. Thus, this service would logically cover mere marketing or selling of goods or marketing or promotion of services without any significance to or irrespective of their ‘Brand’.
It has also been held by the Honourable Customs, Excise & Service Tax Appellate Tribunal, New Delhi in the case of M/s Jetlite (India) Limited V/s CCE [(2011) 30 STT 324 (New Delhi –CESTAT) that Promotion of Brands is not Promotion of Goods or Services.
The first correct taxability under Service Tax on Bollywood Celebrities was when the taxable category “Promotion of Brand of Goods, Services, Events, Business Entities, etc.” was brought under Service Tax w.e.f. 01-07-2010.
Under this particular service, all the Brand Endorsements done by Celebrities are taxable under Service Tax @ 12.36% on the gross amount charged. This, apart from Brand of Goods, would also include promotion of ‘Brand’ of any Business Entity such as ‘XYZ Brand Diamonds’ (even without reference to any particular goods) or promotion of ‘Brand’ of any Event such as ‘Filmfare Award’, etc. However, this is not to be confused with performing in such events, as the same became taxable only subsequently w.e.f. 01-07-2012.
The main source of income of Bollywood Celebrities i.e. acting in films, came under the Service Tax net w.e.f. 01-07-2012. This is when the entire concept of service tax applicability underwent a sea change with the introduction of the ‘Negative List’ concept whereby only those services were exempted, which were mentioned in the Negative List and rest all services were deemed to be taxable. Also, the definition of the term ‘Service’ was defined under Section 65B (44) of the Finance Act, 1994 to include ‘any activity done by a person for another for a consideration’. Thus, acting in films has become taxable w.e.f. 01-07-2012.
The only exemption to ‘Performing Artists’ (which includes Actors) is under Notification No. 25/2012-ST dated 20-06-2012, Item No. 16, for performing in any folk, or classical art forms of (i) music (ii) dance, or (iii) theatre, excluding services provided by such artist as a brand ambassador.
Thus, it is evident that the exemption is only limited to performances in any folk or classical art forms of music, dance or theatre. This could become debatable but is it is safer not to attempt to include Bollywood films in this ambit of exemption.
This is the first article at sensitizing Bollywood with the service tax applicability and other various aspects which need discussion would be covered in subsequent articles.
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About the Author
Adv. Neerav Mainkar is a Law Graduate and Founder of law & consultancy firm – Neerav & Associates. He is a visiting Faculty to train Audit Officers of the CERA [Central Excise Revenue Audit].
His specialization lies in handling Customs Litigations, right up to Appellate Tribunal/High Court/Supreme Court, Settlement Commission and effectively defending cases on behalf of clients.
His firm also advises entities for Tax Planning, setting up of industries in Tax holiday zones like Himachal Pradesh (Baddi) and setting up, De-bonding of 100% EOU’s, SEZ and EPCG schemes and other DGFT matters.
Under what category is the registration required to done for Film and television actors, or is the residual category of Other than 119 listed?
Bravo Sir, very informative and Interesting Article. waiting for many more
Dear P. Kishore,
As alredy explained in the article, the promotion of ‘Brand’ is different from promotion of just goods and services as it would cover any brand of goods or services. The difference in the two services is that under the promotion of Brand Services, the service can be said to be provided even when there is no reference to the goods and services per se. Thus, it is more a service of brand building than of direct marketing of any goods and services. The word ‘Brand’ is thus absent in the defnintion of Business Auxillary Service. This is what differentiates the two services. Besides, if the promotion of Brands was deemed to be covered under BAS, then there was no need of a separate service of Promotion of Brands to be added in the list of taxable services.
Hope the issue is more clear now.
Regards,
Adv. Neerav Mainkar
Dear Sir,
Can you please explain what exactly is the meaning of Promotion of Brand different from that of the promotion of goods and services.
Unique article and really good.
Nice article sir.
Thanks for updates