Examine service tax liability in Ae Dil Hai Mushkil: CAG

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Ranbir Kapoor starrer Ae Dil Hai Mushkil figured in the CAG report with the government auditor asking tax authorities to examine “complete loop” of transactions between different entities related to the movie to verify if due service tax has been levied.

Ranbir Kapoor

The CAG in a report tabled in Parliament today observed that in two instances films were shot in India and abroad, the payment to artists for the portion shot abroad was arranged from foreign companies and the service was made to look as export of services with no tax liability.

The other was Telugu movie titled Nannaku Prematho. Ranbir Kapoor acted in Ae Dil Hai Mushkil, produced by Dharma Productions and shot in India and New York.

The CAG said Kapoor received a consideration of Rs 6.75 crore from a foreign company, ADHM Films (UK) based in London for film shot in UK and did not pay service tax of Rs 83.43 lakh treating the same as export of services.

“…there is a need to examine the complete loop of transactions between all the parties (Dharma Productions, ADHM Films (UK) and Ranbir Kapoor) to verify if due service tax has been levied in this case or not,” the report said.

Among others, the report also talks about Arbaaz Khan Production, Red Chillies Entertainment and Eros International Media.

The CAG said it noticed that the distributors realised distribution income relating to publicity and expenses of Rs 50.56 crore during 2012-13 to 2014-15.

“But service tax amounting to Rs 6.21 crore on the distribution income was not paid as the parties claimed exemption of the consideration or revenue treating the same as assignment of theatrical rights,” the report on levy and collection of service tax on entertainment sector.

In this case, the finance ministry had stated that distribution expenses/publicity expenses are integral part of the theatrical rights.

“The reply of the ministry is not acceptable since these services are independent services and cannot be considered as theatrical rights,” the report said.

The CAG has recommended that place of provision of services rules need to be directly linked to service specific issues to avoid undue benefit of the interpretations and to safeguard the intent of legislation in giving export benefits.

It also suggested that “since the assessees are exploiting the ambiguity” in the terms theatrical and non- theatrical while drafting of agreements for transfer of rights, “there is a need to bring legislative clarity for these terms”.

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