GST for Multiplexes and Cinema Theatres

GST for Multiplexes and Cinema Theatres

Introduction

Indian Cinema is one of the fastest growing sectors in our country. The film industry in India is growing at a rate of 11.5% year on year. When it comes to film industry, multiplex theatres play an important role. Multiplexes have expanded their footprints across the country. By the end of 2017, PVR Cinemas had 625 screens and Inox Leisure had 476 screens, increased from 150 and 63 in 2011 respectively. The stats prove that that how rapid the industry is growing?

According to the report of PHD Chamber of Commerce and Industry (PHDCCI), “The Indian film industry is one of the fastest growing sectors in the country today and has grown from INR 122 billion in 2016 to INR 156 billion in 2017, representing a growth rate of 28%”. The report further adds that the industry is estimated to reach $3 billion by 2022. Therefore, it is important to know the applicability of GST on such a huge revenue generating sector.

Objective of the Article:

In this article, we will see what and all incomes are earned by the cinema theatres or multiplexes and the GST impact on such incomes. What is the difference between the normal cinema theatre and multiplex? We are aware that electronic ticketing has been mandated to the multiplexes and we’ll see what is the impact of such decision?

GST for Cinema Theatres/Multiplexes:

Before the advent of GST, entertainment tax used to be levied on movie tickets by the respective states. The rates would be differed from state to state as it falls under the purview of state governments. With the introduction of GST, entertainment tax too has been subsumed into GST. Therefore, now, the GST will be charged on the movie tickets sold and the revenue will be shared accordingly the central and state governments.

As per Notification 11/2017 – CTR, the following rates will be applicable for the admission into the Cinema Theatres/Multiplexes:

Sl. No.	Heading	Description of Service	Rate
34 (ii)	9996	Services by way of admission to exhibition of cinematograph films where price of admission ticket is one hundred rupees or less	12%
34 (iia)	9996	Services by way of admission to exhibition of cinematograph films where price of admission ticket is above one hundred rupees	18%

Therefore, on sale of movie tickets where the price is less or equal to Rs. 100, GST will be charged at a rate of 12% and on sale of movie tickets where the price is above Rs. 100, GST will be charged at a rate of 18%.

Multiplex Theatre vs Normal Cinema Theatre:

Multiplex has not been defined anywhere in the CGST Act, 2017. In the case of “Assistant Commissioner of Sales Tax v. M/s Space – 2011” the Rajasthan High Court has held that:

“In the absence of definition of 'multiplex cinema hall', one has to go by the common parlance meaning that is attached to the phraseology 'multiplex cinema houses', which means multiple number of cinema halls situated together in one building, which may or may not have a mall and other shops facilities therein, whereas, normal 'cinema hall' is understood as a unitary cinema hall without there being any mall or shopping facilities attached thereto”

As per the above judgement to consider a theatre as ‘multiplex theatre’ there should be two or more cinema halls in a single building which may or may not have a mall and other shops. But when we look into the definition given by the Income Tax Act, 1961 the definition is slightly different. As per section 80IB (14) (da) of Income Tax Act, 1961 "multiplex theatre" means a building of a prescribed area, comprising of two or more cinema theatres and commercial shops of such size and number and having such other facilities and amenities as may be prescribed.

The word used between the two i.e. cinema theatre and commercial shops is ‘and’. In other words, both the activities have to be carried on by the assessee in order to consider a theatre as multiplex theatre.

But the definition given by Rajasthan High Court is relevant for us as it is related to the Rajasthan Entertainment and Advertisement Tax Act, 1957, an indirect tax. Therefore, we can consider that a multiplex theatre means two or more cinema halls located in one building and a normal cinema hall means a theatre with single screen.

Focusing upon what is multiplex and what is not doesn’t given much impact. Because, the rate of GST will be decided based on the price of tickets and not based whether it is multiplex or single screen.

Other Income for Multiplexes:

Income from sale of tickets is one of the revenues multiplexes would be getting. Apart from that, there are other revenues too which contribute to the total income of theatres like sale of food and beverages, advertisement, parking charges, concession income. In normal parlance, these are the incomes that would be generating by the cinema theatre. Let us see the implications of these incomes in GST.

1. Sale of Food and Beverages

There has been a chaos that whether the supply of food in cinema theatres would be considered as outdoor catering or a restaurant service. First, we’ll see whether it can be considered as outdoor catering. Section 65(76)(a) of Finance Act, 1994 defines “outdoor catering” as outdoor caterer means a caterer engaged in providing service in connection with catering at place other than his own but including a place provided by way of tenancy or otherwise by the person receiving such service. Based on the above definition, it can be opined that supply of food in theatres cannot be said as outdoor catering as the same would be providing in their own premises i.e. by the cinema theatres itself.

Further the definition of outdoor catering in GST is as follows. Notification 11/2017 – CTR, defines ‘outdoor catering’ as outdoor catering means supply, by way of or as part of any service, of goods, being food or any other article for human consumption or any drink, at Exhibition Halls, Events, Conferences, Marriage Halls and other outdoor or indoor functions that are event based and occasional in nature. Even this definition makes it clear that outdoor catering is for those functions which are event based and occasional in nature. As we know that, supply of food and beverages in cinema halls is regular and not occasional. Therefore, it cannot be classified under ‘outdoor catering’.

Now, we’ll look into the second scenario. Can the said service be classified under ‘restaurant service’? Notification 11/2017 – CTR, defines ‘restaurant service’ as restaurant service means supply, by way of or as part of any service, of goods, being food or any other article for human consumption or any drink, provided by a restaurant, eating joint including mess, canteen, whether for consumption on or away from the premises where such food or any other article for human consumption or drink is supplied. Therefore, to classify the supply of food in cinema hall under ‘restaurant service’, we need to check the following criteria:

1. Whether the service is a supply of food or drink for human consumption?
2. It is irrelevant that whether the consumption has happened in the place of where such food is supplied or away from such place.

As there is no specific err to not to classify the supply of food in cinema hall under restaurant service based on above criteria, the same can be classified under the said head. The same judgment has been held in the Advance Ruling of Jabalpur Entertainment Complexes Pvt Ltd 2018 (17) G.S.T.L. 690 (A.A.R. - GST).

As per the Notification 11/2017 – CTR amended by Notification 20/2019 – CTR dated 30.09.2019, the following rate will be applicable for supply of food and beverages in cinema hall:

Sl. No.	Heading	Description of Service	Rate	Condition
7(ii)	9963	Supply of restaurant service other than at specified premises.	5%	Provided that credit of input tax charged on goods and services used in supplying the service has not been taken.

If the cinema hall has outsourced such supply of food to an outsider and charges rent for the use of his premises i.e. cinema hall, the owner of hall has to charge a rent of 18%.

2. Advertisement Income

Normally in case of cinema theatres, the advertising will happen in the form of digital mode. Means, advertisement in hall will take place through cinema screen, billboards and motion screens. The said service will be rightly classified under the following SAC:

“998366 – Sale of other advertising space or time (except on commission). This service code includes:

·         sale of advertising space on billboards, buildings, vehicles, etc.

·         sale of advertising space in electronic media other than on-line

·         sale of advertising space in video and motion pictures (product placement)

·         sale of naming rights for tournaments, stadiums, etc.”

As per the Notification 11/2017, the following rate will be applicable for selling of space for advertisement in cinema hall

Sl. No.	Heading	Description of Service	Rate
21 (ii)	9983	Other professional, technical and business services other than (i) and (ia) above	18%

Serial No. 21(i) talks about selling of space in the print media. In our case, we are selling the space in digital media, therefore the rate of 18% will be applicable for selling of advertising space in cinema halls.

3. Parking Lot Services

There are cases where the cinema halls provide space for parking the vehicles and charge some fee for such service. The said service will fall under the SAC 996743. The explanation to the said service is as follows:

“This service code includes provision of parking spaces for motor vehicles, motorcycles and bicycles provided in roofed or unroofed car parks, parking lots and parking garages, whether or not roofed; collection of fees for parking on streets, roads and public places”

The GST on the parking charges will be charged at a rate of 18%. In normal parlance, the parking fee will be collected inclusive of GST.

Tax implication on Pouring Fee

Pouring fee could be uncommon to the normal cinema theatres. But when it comes to Multiplexes, it is a common parlance. So, what exactly does this pouring fee means? In case of multiplexes, the beverage companies will make an agreement of selling their own products in the outlets of multiplex and not of others. For example, PVR Cinemas makes an agreement with Coca-Cola for selling only coke products in PVR Cinemas. So, PVR will sell only the products of Coca-Cola in their multiplexes for which they would be getting a remuneration i.e. Pouring Fee, periodically from Coca-Cola Pvt Ltd. We can say that, indirectly PVR Cinemas is increasing the sale of Coca-Cola products.

Now the question that arises is, whether this pouring fee could be classified as non-competent fee or fee for advertising services? There is an interesting Supreme Court case regarding this issue, Inox Leisure Limited v. Commissioner - 2016 (44) S.T.R. J276 (S.C.). In the said case, it has been held that such poring fee has to be considered as remuneration for business auxiliary service and should not be considered as non-competent fee or fee for advertising. The extract of the said judgement is as follows

“It was also held that the pouring fees received on lump sum basis towards enhancing sale of other’s products through outlets in multiplexes, were to be considered as fees received for providing Business Auxiliary Service”.

The same judgement has been held in the case of PVR Ltd vs Commissioner of Service Tax, Delhi 2017 (4) G.S.T.L. 363 (Tri. - Del.).

Invoicing for Cinema Theatres and Multiplexes:

Notification 33/2019 – CT has been issued on 18.07.2019 mandating the multiplexes to issue electronic ticket. As per the said Notification:

In the said rules, in rule 54, after sub-rule (4), with effect from the 1st day of September 2019, the following sub-rule shall be inserted, namely:

“(4A) A registered person supplying services by way of admission to exhibition of cinematograph films in multiplex screens shall be required to issue an electronic ticket and the said electronic ticket shall be deemed to be a tax invoice for all purposes of the Act, even if such ticket does not contain the details of the recipient of service but contains the other information as mentioned under rule 46

Provided that the supplier of such service in a screen other than multiplex screens may, at his option, follow the above procedure.”

It is made clear that the above rule will be applicable only for the multiplex screens and the normal cinema theatres can issue electronic tickets on their option. Multiplexes like PVR and Inox has their own platform for issuing online tickets. The applications like Book-My-Show and Paytm are also providing a platform to the normal theatres to issue electronic tickets. It can be suggested to issue electronic tickets by the cinema theatres which has more than one screen as the same could be considered as multiplex as per definition discussed above.

Conclusion

GST subsuming the entertainment tax was good thing for the states like Maharashtra, UP etc., where the entertainment tax was used to be very high and sad part to the states like Rajasthan, Punjab etc., where the entertainment tax was nil. Further State Governments are also providing benefits to some movies by cutting the States GST. Unifying the taxes for all the states could be welcomed which has reduced the complexity among taxpayer.

Earlier the theatre owner has to get registered under various laws like entertainment tax, VAT and service tax etc., as their sales get covered under all these laws. But the advent of GST has reduced such complexities.