We conducted a Performance Audit on levy and collection of Service Tax on Entertainment Sector, to seek an assurance regarding adequacy of Service Tax rules and regulations relating to entertainment sector and systems in place to ensure compliance to the same. The audit was conducted in 17 selected Commissionerates, including one division and one range in each Commissionerate and examination of records relating to 307 assessees. The audit covered the three years period from 2013-14 to 2015-16.
The key findings are summarised below:
Only rights on theatrical exhibition of films are exempted from service tax.While drafting agreements other activities were clubbed with theatrical rights, resulting in taxable commercial activities escaping service tax.
Copyrights transferred with limitations were treated as transferred in perpetuity resulting the escapement of revenue.
There were instances of artists/producers entering into agreements with foreign entities for services provided abroad, thereby consideration for the portion of service provided outside India was treated as exports.
Wrong availment of Cenvat credit of Rs.14.71 crore under sponsorship services.
Cross verification of Service Tax Data with other databases revealed cases of non-registration of assessees engaged in taxable services as also cases of under reporting of income under Service Tax.
Deficiencies were noticed in monitoring of filing of returns and scrutiny of returns.
There were 156 cases of non-compliance to prescribed rules/provisions resulting in non/short payment of service tax/interest/Swachh Bharat Cess, incorrect/excess availaing of cenvat credit and incorrect claim of benefits of export of services involving revenue of Rs. 48.13 crore.
One observation pertains to the cost of services used by the actors relating to travel, lodging and boarding, make-up artists, hair stylist etc. which are arranged by the producers as part of the agreement, not being included in the consideration of the artist for service tax purpose.